Is it that politicians think they can somehow defy the basic principles of business just by speaking or am I missing something? Then again maybe once they enter the rarefied atmosphere of government they somehow stop having rational thoughts. Well it certainly seems so with what is going on with the Borders rail project. According to reports in the media this week, Stewart Stevenson, the transport minister, is “heartened by the response from firms who saw the project as an excellent investment opportunity”. The proposal for a private/public partnership that would plough profits into community projects ranks up there with the Darien scheme of the 17th century as a triumph of hope over reality.
The cost of the line is estimated at somewhere between £235 and £295 million – an awful lot of investment. To get any kind of return on this investment the line has to carry enough passengers to cover the train operator’s costs and other costs which is where there appears to be a fatal flaw in the scheme. The last figures I’ve seen indicate operating revenues of close to £7 million per annum. What will the profit be on this level of revenue? The answer is very little. Let’s look at the potential for upsides.
If £7 million is the annual revenue that would probably be somewhere in the region of 560,000 passengers at an annual one way fare of £12.50. That’s a little over 1500 passengers a day – there will be a lot less at weekends. It certainly puts into perspective the scale of the business opportunity. Let’s assume they do 50% better than they predict in passenger numbers. Let’s also assume that the £7 million in revenue covers their operating costs – total pie in the sky but stick with this. As in any transport business extra passengers do not come at the average yield they are generally produced by competitive pricing. Therefore an additional 280,000 passengers per annum might produce additional revenue of £2.8 million. Given the construction costs then it would take a month or two under 85 years just to pay back the construction costs without any consideration being given to interest charges….and the small point of the private investors wanting to make some money.
No doubt there have been enquiries to the Scottish government from the private sector about this ‘opportunity’ but quite how anyone could see a sensible business case eludes me. Or am I missing something?
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4 comments:
Saturdays & many Sundays will not in practice be less busy than M-F.
Infact Sats particularly could be busier...take a look around the country at other lines with similar characteristics..people will be flocking into Edin for shoppingt & leisure etc as well as to catch other trains. Likewiswe peiople in Edin & even Glasgow would love a day out to sleepy old Gala & perhaps get a bus onto Melrose etc.
Further housebuilding in the Borders to serve Edin. & Borderers is going to happen with or without the re-opened railway..just wait and see..it will provide spin offs for shops & business etc in Gala etc.
J Hall
Few railway lines actually make money except possibly some busy inter city routes and some Heritage Rlys such as the Paignton & Kingsear linwe which has few volunteers but mny full time paid staff.
Good points about the potential for being busier but the pattern of sopping is of course changing. With so many out of town shops around Edinburgh people often go to a number of different locations, many of which are not best served by public transport.
I'm not sure about the day out in sleepy ol' Gala though. What would they do specifically?
I agree house building in inevitable but the spread is what is more important rather than the concentration on a very small area of the central Borders.
But my main point was on the finance front. How do the investors get their money back?
Have you heard of the Kilbride Community Org. ..they supposedly have a scheme whereby Housing Developers levy a cetain figure per
new house that goes towards/even pays for new railways ...Bere Alston to Tavistock (part of the former SR Wloo/Ply main line that was closed in 1968 between Okehampton,Tavistock & Bere Alston) has been mooted as a rail reopening possibly financed this way.
How exactly have the numerous very succesful Scottish,Welsh & English rail station & line reopenings in past few years been financed I wonder?.
I've no idea how they've been financed other than I doubt they've been financed in the way that the Borders line funding is being mooted.
How many lines in England, Scotland and Wales have been built from scratch in the last ten years? They are not numerous that's for sure.
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