Revenues are not the only ‘profit’ to consider when investing in rail travel

Slovakian RailThe UK government has just launched its consultation on the proposed high-speed rail line between London and Birmingham, which will cut the journey time by around 50 minutes if it goes ahead.  Opponents of the scheme believe the £17 billion it is forecast to cost would be better spent updating the West Coast mainline, while supporters say it will be a major boost for the UK economy.

Faced with its own investment dilemma, the Slovak Rail Company (SRC) used @RISK to model potential train travel over the next 30 years. The organisation knew that if it was to continue to provide a viable rail transport system, its rolling stock required modernisation, with end-of-life vehicles being replaced by double-deck electric or diesel units.  However, a key risk in undertaking this task was that the dwindling passenger numbers opting for rail travel would result in revenues not being high enough to warrant the investment in new carriages.

@RISK was first used to ascertain whether buying new rolling stock would have a positive or negative outcome on SRC’s revenues.  But SRC also believed its revised strategy of new carriages and upgraded timetables would make train travel more attractive (compared to travel by car which was seeing a seven to eight percent increase per year).  Therefore it also used @RISK to investigate the socio-economic impact of people taking more journeys by train.

Despite some uptake in passenger journeys as a result of new rail carriages, the revenue modelling showed that the rail company would not be profitable and the system would therefore need subsidies.  However, using risk analysis to investigate the socio-economic impact of the investment showed that the rail upgrade was worthwhile because it resulted in advantages in terms of better quality journeys, fewer car accidents and less pollution.

As a result of SRC using @RISK to inform its decision-making process, the European Union and Slovakian Ministry of Transport (who are co-funding the project with SRC) approved the investment in new rolling stock.  Some carriages are now in operation, and all 32 new units will be in use by 2013.

Craig Ferri
EMEA Managing Director of Risk & Decision Analysis

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