Air and Rail Competition?

by Robert Poole
Issue 204 – May 23, 2012

International research has generally found that high-speed rail obtains the largest share of its net new (i.e., not previously slower-speed rail) passengers from airlines, not automobiles. And the corridors where HSR competes best are from 200 to 500 miles in length. My colleagues at Reason Foundation have been critical of most U.S. HSR proposals, and one of those that was vetoed by a state governor was the $2.5 billion project for the 80-mile route between Orlando and Tampa, a route so short there is no scheduled air service on it.

With these points in mind, I was intrigued by the list of the top 100 U.S. airline City-Pairs, compiled by Oliver Wyman PlaneStats.com and published in Aviation Daily’s Jan. 5, 2012 issue. The figures are for the first half of 2011. I have extracted the figures for all routes shorter than 500 miles (except for inter-island routes in Hawaii).

Several things jumped out at me from these figures. First, you will note that the Washington, DC to New York route, where Amtrak operates its most successful service by far, ranks only 65^th in air passenger volume, thanks to the competition from rail. At the other end of the scale, the number one short-haul airline market is Los Angeles-San Francisco, with more than seven times the airline passengers as DC-NY. That route is the big enchilada in the very troubled California HSR plan, whose completely unrealistic business plan calls for it to get the lion’s share of its passengers from people who now make that trip by car! Then again, with airfares averaging only $98 in that market, and frequent non-stop service from four greater-LA airports to three Bay Area airports, it’s hard to imagine trains departing from downtown LA (only) going single file to downtown SF (most of them making a number of stops) being at all door-to-door time-competitive with convenient air service. Moreover, all the air routes are pretty much straight lines, whereas the HSR (if it’s ever built) is planned for a dog-leg route, and even so will require tens of billions of dollars in bridges and tunnels to get across the mountains separating the Central Valley from the LA Basin.

Looking at the highest yields in the table suggests that Amtrak is missing out on larger market share in the Boston-NY market, whose airline yield is even higher than that of NY-DC. Dallas-Houston and LA-Las Vegas are also higher-yield routes where HSR might have a chance competing on price with airline service.

But let me point out two other issues the airline/airport world ought to keep in mind if faced with competitive threats from HSR. First, if an airline route between City A and City B turns out to be a dud, the airline and airport capital can pretty readily be converted to alternative, potentially more viable uses. By contrast, if an HSR route is developed between those same two points and turns out to have far less ridership than needed to cover its cost, the large majority of the capital costs are “sunk”—and hence wasted.

Second, every HSR project being proposed or built today anywhere in the world has all or nearly all of its capital costs being paid for by general taxpayers. At best, the operating and maintenance costs are hoped to be recoverable from passenger fares. This is in stark contrast with air service, for which 100% of the infrastructure costs (airports and air traffic control) are paid for by fees and charges paid by passengers and airlines. (That is not strictly true for the routes to Podunk being subsidized via the Essential Air Services [EAS] program—but even that is being paid for largely by overflight fees paid by international airlines, not by general U.S. taxpayers.) Consequently, the aviation industry would be completely justified in lobbying hard against any and all attempts by federal and state governments to use large sums of general tax money to create competition with self-supporting air service.

Robert Poole is editor of Reason Foundation’s Airport Policy News, where this first appeared.

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