A Market Model for Intercity Rail

The North Island Main Trunk rail line between Auckland and Wellington is 680km long, mostly electrified, and low speed for intercity rail (80-100kph). It’s a major public asset, but woefully underutilised.

How can we work this asset harder, to deliver way more benefits for our country and our people? This post explores the case for seeking interest in a private-sector financed and operated passenger service on this line, by asking:

1. Is an Auckland-Wellington passenger service technically and financially viable?
2. If so, what are the regulatory or organisational barriers to making it happen?

The Line, the Market, a Model

For this exercise, I am assuming there’s no additional investment in the line beyond that already underway.

The line currently allows trains to run at around 80-100kmh – low-speed by international standards, but comparable to local highway driving. Upgrading the line to allow speeds that would be anywhere near competitive with flying (ie true High Speed Rail) would be wildly expensive, so let’s assume that’s off the table.

The train trip between the North Island’s two biggest cities takes around ten hours. This is only competitive for non-time-sensitive markets, i.e. for trips where journey time is not the critical benefit. The top end of this market, scenic day jaunts for tourists rich in time and cash, is relatively small. This market is already being served here by a Kiwi Rail subsidiary, which also runs two South Island services on the same model.

Happily, the ten-hour journey time is pretty much perfect for sleeper-trains. These need to take a whole night to get there: any faster, and they’d have to park up in order to not arrive too early.

It’s this sleeper-train market which is currently not being met, which is much broader than just tourists. Time spent asleep is not considered “lost” time, for time-sensitive business folk and other travellers alike.

Additionally, the cost of a sleeper-train ticket can replace a hotel stay, as well as covering the travel itself. So the potential market covers a wider price spectrum, including students and budget travellers.

I know (from personal experience) many business/government travellers prefer to fly the night before a morning meeting and stay in a hotel at their employer’s expense, rather than take the early morning ‘red-eye’, risking delays that may mean you miss important appointments, or affect your performance at them. Traffic congestion on the way to the airport is another growing stress point for peak time flyers.

Plenty of less pressed travellers will also prefer the economy (in both time and money) of combining sleep and travel. This is something I have enjoyed overseas, where these services exist.

In other words, unlike Kiwi Rail’s narrowly targeted scenic journeys, sleeper trains achieve the critical feature of all successful transit services: simultaneously addressing multiple markets.

Meeting all these combined markets depends on offering different price points and service levels in one train, which is standard on night train services around the world. Options range from reclining seats in open carriages (airline business-class style) through to private cabins with ensuite bathrooms.

There’s also a whole new market, given the demand for low-to-zero-carbon alternatives to flying – especially for companies and the government sector needing to meet their operational carbon budgets. Both generate a lot of travel between our country’s primary city and its capital, even in the Zoom age.

This push for more sustainable travel is behind the recent resurgent boom in Europe’s night-trains (a market that was previously declining), even between cities served by new high-speed services, led by Austrian State Railways OBB Nightjet .

Carbon Economy

Hiding in plain sight is the opportunity to run an Auckland-Wellington sleeper train as a fully electric service from the start, as there are overhead wires already in place for all but two sections.

The missing sections are approximately 80km, south of Palmerston North to Waikanae, and around 70km between Hamilton and the soon-to-be-complete extension to Pukekohe. Ideally these should be wired as soon as possible. But until then, these distances are well within the range of battery bi-mode trains currently used around the world (see for example the Stadler Akku BEMU, which has a battery range of 150km, around twice the length of each gap here).

Battery bi-mode trains recharge under the overhead, as well as taking advantage of regenerative braking. The batteries also provide cover for any unexpected outages in the overhead power supply, reducing the risk of disruptive strandings. The two different overhead electrical power systems are a relatively common issue, and are managed by dual voltage systems on each trainset.

What this means is that fully electric services could be delivered in New Zealand through investment in rolling stock alone, increasing both the low-carbon value and the performance and appeal of night travel.

This is also important because only electric trains can use Waitematā Station (formerly Britomart). This is the ideal Auckland terminus for optimised city-centre-to-city-centre service, a key appeal of intercity rail. It’s a short walk to so many hotels, to the country’s densest employment market and largest university – and to every transit mode for further connection, including cross-platform transfers to AT’s Metro network, soon to become super powerful once the CRL opens.

The only network capacity constraints are within the two urban networks, in Auckland and Wellington, where competition for train slots is fierce because of the shared track with metro and freight services (and a failure to expand capacity as these grow).

However, a proposal suggested by Nicolas Reid (discussed below) only requires finding two additional train paths in each city per day, of which the outbound one is after the evening peak (after 7pm), when competing demand is lower. In other words, you could run six nightly services to each city per week, with the only scheduling issue being a single morning train path into each city.

Happily, some key work to upgrade the network will soon complete in Auckland, the more crowded of the two local networks. Extending electrification, adding the 3rd main on the NIMT, and rebuilding the track formation will all help with improving line speed, reliability, and – critically – capacity for the network.

Moreover, the networks in both cities already have a well-understood need for investment in more capacity. Adding sleeper services would only increase the value of the capacity upgrades that are already proposed in each city’s Rail Programme Business Case.

Opex not Capex

The key takeaway here is that sleeper trains do not require any investment in the network to speed up the route, nor added capacity. The only investment needed is in rolling stock and operations.

So this is not an infrastructure funding and delivery issue, but an operational one.

The plan here is that new rolling stock would be owned and financed by an operator, and capitalised into the operational cost over a sufficiently long concession period.

What might such a service look like? Here’s an outline of a proposed night train service and market model by transport planner Nicolas Reid. An operator may prefer a different balance of service offerings, depending on their view of the potential market.

This proposal assumes 220 passenger capacity on each train, with one service each way, six nights a week (skipping Saturday). This adds up to 624 services per year, for a maximum of 137,000 annual happy snoring riders.

Annually, there are roughly 5 million airline journeys between Akl and Wgtn. In order to fill two trains, six nights a week, you’d only need about 2.7% of current flyers to switch to the train. And that’s not counting current drivers, or bus users, let alone any further expansion of the market – for example, how many would-be trips are currently not taken by reluctant flyers?

However you look at it, this is a sizeable addressable market. A well designed, well priced, and well operated sleeper service on this model could likely, if anything, encounter too much demand. That can be met, too – in fact, it’s even easier to schedule additional later departing services, as they’d arrive at their destination mid-to-late morning when the local urban network is off-peak.

How about income? As per Nicolas Reid’s proposal, at 100% capacity you would be able to offer:

• 1x first class cabin carriage (16 passengers)
• 3x standard class cabin carriages (96 passengers)
• 2x economy seated carriages (108 passengers)

The new Austrian OBB Nightjet sleeping car layout has 20 beds with ensuites:

For fares, using some pretty competitive ticket prices compared with flying, let’s say:

• 16 @     $400 =    6 400
• 96 @     $200 =  19 200
• 108 @   $100 =  10 800

$36,400 per train x 624 pa = max annual pax income of $22.71m, or an uninflated $681m over 30 years.

At a conservative 2/3 utilisation rate, that’s $450m. Whether this sort of potential is sufficient to attract credible operators is a question we should be interested in discovering.

Governance

The key issue for an operator keen on this opportunity would be balancing price and service levels, and, most importantly, gaining regulatory approval and a long enough concession to justify the up-front investment.

A private operator would need to make a considerable investment in the two train sets, plus spares, as well as training and staffing, track access charges and other operating overheads, plus admin and marketing. There would also be food and beverage trade.

Testing the market for interest in, say, a ~30 year concession to run a sleeper-train service could be extremely interesting.

A request for proposal (RFP) would best be international, to attract experienced operators with strong balance sheets; this would require some upfront organisational investment, but that would be minor. The best way to stimulate competitive market interest may be some form of de-risking, e.g. guarantees of network access (subject to all safety controls, of course).

Another thing to test is whether further government support would be needed. This is, after all, public transport, and intercity travel is just as valuable an investment for citizens as intra-city travel is. However, based on my high level look at the numbers, my sense is that fare support would not be necessary.

So why hasn’t this already happened?

Currently, there is no obvious ‘owner’ of this possibility. This isn’t, for example, core business for Kiwi Rail, which is primarily a freight logistics SOE (although they could certainly bid). They already have enough on their plate, and I see their role as network operator, collecting line access fees and maintaining a safe and efficient network.

There’s no clear home from which to explore this market idea, even though a sleeper-train is public transport, because it is inter-regional – and our system is only set up to conceive and operate services within a single region.

Thankfully, the legislative context for this has improved somewhat recently. It’s clear that Auckland-Wellington is a critical route of national significance, and a night train would add low volume but highly useful resilience. For example, given a sleeper service, Ambassador Wang might not have been able to get to Auckland as fast as his cancelled flight, or as on Chinese HSR – but he could have got there, arriving refreshed for the following day’s commitments, after a great night’s sleep on the way.

In my view the natural place to launch an RFP for sleeper trains is the national land transport agency, NZTA Waka Kotahi. It’s an ideal fit for leading on this, as the planner and funder of the Land Transport system, with a clear interest in increasing the efficiency, effectiveness, choice and environmental performance of our land transport networks. Rail is Land Transport, after all, and exploring this is exactly consistent with the agency’s own Investment Hierarchy:

It would also be a way for NZTA Waka Kotahi to deliver benefits at low or zero public cost, reducing congestion pressure on urban state highways and local roads, especially for journeys to airports in the morning and evening peaks, and on urban sections of State Highway 1.

And it would certainly be a useful case study for exploring a more commercial side to the NZTA Waka Kotahi model.

There is a clear market opportunity here, and a promising economic opportunity, with considerable external benefits for the nation. Given appropriate regulatory settings and ambition, a private-sector model could very well succeed in delivering the goods (or rather, passengers).

This is a vision we should all want to explore, if for no other reason than to make more and better of an existing public asset, and to spread the cost of its maintenance and renewal.

This is a moment for innovative, proactive leadership from our institutions; a legacy in the making.

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