Image: Getty / Tina Tiller
Image: Getty / Tina Tiller

OPINIONBusinessNovember 28, 2022

The moral problem with turning passenger rail into an exclusive luxury

Image: Getty / Tina Tiller
Image: Getty / Tina Tiller

In New Zealand, long-distance passenger rail is geared almost exclusively to well-off tourists. But in a country with such a high road toll, how do we defend denying motorists access to safer transport?

Imagine your friend has exclusive right to distribute a product that could save dozens of lives each year. The product also significantly reduces carbon emissions. But rather than making this product widely available at a modest price, your friend has chosen a price few people can afford. To make it even more exclusive, they only let people use it three days a week.

KiwiRail’s decisions around passenger rail are essentially like this. The role of the state owned enterprise is simply to make as much money as possible from rail – its potential to save lives apparently doesn’t count. That means most of its rail routes are branded as ‘Great Journeys New Zealand’ and marketed towards tourists. But why do we accept treating critical national infrastructure like a long, posh roller coaster?

Cars cars cars cars cars cars. (Photo: RNZ)

Reducing driving saves lives

We know that passenger rail is a powerful tool for reducing emissions – even a diesel train, when one-third full, is a lower emissions option than driving. But we don’t often consider how many lives it can save. In 2019 there were 350 road deaths and 14,700 injuries – about the population of Queenstown. Road accidents cost some $4.6 billion annually in, for example, healthcare, emergency services and lost productivity.

Few, if any, road safety improvements can compete with the 20 times risk reduction when travelling by rail instead of by car.

Rail’s other benefits include bringing money into regional economies and reducing particulate matter pollution from tyres, to name just two. You’d think we’d be trying to make it as widely available as possible, but instead we deliberately make it expensive and exclusive.

The Northern Explorer in the Hapuawhenua Viaduct heading south (image: Kiwirail).

Costly, infrequent journeys of New Zealand

Since the 1980s, KiwiRail has set high ticket prices for its long-distance passenger trains like the Northern Explorer (Auckland-Wellington), Coastal Pacific (Picton-Christchurch) and TranzAlpine (Christchurch-Greymouth). Today, Auckland-Wellington will set you back $219 each way – much more than driving and often, flying.

Meanwhile, the timetable has been reduced substantially. There are now just three Auckland-Wellington trains a week, and fewer for South Island services. The chances that the day you need to travel on falls on a day with a train is about 18% (3/7 x 3/7).

KiwiRail’s model forces people to pay a high price by artificially creating scarcity. We know the network has far more capacity because in rail’s heyday, up to 16 passenger trains travelled Auckland to Wellington each day.

I asked KiwiRail about their passenger loadings. Its figures showed every train is 80 to 100% full. That’s good, but as transport has high “demand elasticity” (motorways, buses, airports and so on are either crammed or less than half full) it also shows gargantuan unmet demand. In other words, it’s clear that far, far more people want to use passenger rail than the timetable and ticket price allows.

The Capital Connection is one of KiwiRail’s two commuter services; the other is Te Huia. (Photo: J Chaung/KiwiRail)

Why not more trains at an affordable ticket price?

With an improved timetable and charging roughly half for tickets, passenger rail could compete well with driving and flying. But could we do that?

According to typical corporate mark-ups, half-price is cost-price, so $219 for the Northern Explorer likely reflects cost price around $109 – cheaper than driving and most flights.

An improved timetable is also needed – minimum one daytime stopping train and an overnight express Sleeper, seven days a week. But would people use such a service, rather than driving or flying?

Domestic flights can be faster, but it depends where you’re starting and going. Then there’s the 40% of people who fear flying. And anyone who’s used a Sleeper train will tell you arriving in the centre of town, first thing in the morning, refreshed and having saved on accommodation, has many advantages over flying.

Rail speeds are close to driving speed, but you can do other things while travelling by train, like work or binge-watch an excellent series. The fastest Wellington-Auckland railcar completed the journey in 8 hours 42 minutes – close to driving speed with the necessary stops. Track and train improvements also reduce journey times.

If providing more affordable, available passenger rail could cost roughly the same, why does KiwiRail go for the “high price, nearly invisible timetable” model? The answer is simply that if your balance sheet doesn’t cover moral issues like saving lives or reducing emissions, the exclusive, high-end service model looks much more attractive.

Despite this chilling reality, the government recently reviewed KiwiRail’s corporate set-up and decided to keep it that way. One can only hope the ongoing Inquiry into the Future of Passenger Rail means there’s still a chance they’ll throw the nasty 1980s hangover of corporatised rail wherever blue mascara and string vests went.

The wider costs of corporatised rail

KiwiRail’s profit-at-all-costs model also impacts the country’s wider ability to provide high-quality public transport.

As pressure for more affordable, accessible rail ramped up from organisations like Save our Trains and Restore Passenger Rail, KiwiRail published a web page arguing that if we want affordable passenger rail, we must subsidise it. Some might call that truth-twisting that makes the Raurimu Spiral look straight-up.

It neglects to mention that another way to make passenger rail affordable is to stop KiwiRail squeezing profits out of its every corner. Rail subsidies from councils become KiwiRail profit. They also charge hefty track-access fees to local rail-based public transport providers like Wellington’s Metlink and Auckland Transport.

I say profit, but this part of KiwiRail’s profit isn’t real profit – it’s just money moved from local to central government. Track-access and service prices also mean most regional councils just can’t afford to consider rail-based public transport despite its importance in getting people out of cars, because people prefer it over buses.

This year KiwiRail posted an operating surplus of $134 million, but the government invests similar amounts (and more) back into rail infrastructure through the Land Transport Management Programme. It’s interesting to compare this model with other critical national infrastructure like roads and water and see there’s an assumption that those are provided at cost price – but rail is forced to generate a false profit, often by charging other parts of the government.

The Northern Explorer and Ruapehu
The Northern Explorer and Ruapehu (image: Kiwirail).

But doesn’t corporatisation mean better, cheaper services?

Sometimes yes. Sometimes no.

Attracting more customers by being consistently awesome is perhaps the hardest way to make more money. Markets, without regulation, tend to drift towards players competing by keeping out competition, confusing consumers and other behaviour that reduces choice and increases prices.

We also see similar behaviours in privatised and corporatised transport.

Inter-regional coach providers artificially reduce passenger numbers to make more money. Their cheapest tickets are usually non-refundable. Passengers notice services said to be fully booked often have many vacant seats on board. That’s because few people cancel a non-refundable ticket. In fact, there’s a reason to put paid-but-no-show passengers over real passengers – the former are more profitable as they require no service.

Markets for essential services seem to work best when they have a government-run non-profit offer alongside the private sector offer – like in education and healthcare. The government “no frills” offer forces the private sector to compete on quality rather than by keeping out competitors or artificially creating scarcity to drive up price, and the private sector helps the government manage demand.

With passenger rail and other inter-regional transport, there’s no government-run not-for-profit no frills offer. So what benefit is KiwiRail being corporatised actually providing?

Maximising passengers can be more profitable long-term

Aiming for maximum passengers rather than maximum profit can make for a better balance sheet overall.

The low-cost airline model – where passengers pay little for tickets but can buy extras – may be even more effective with rail as there’s more room for extras like First Class, buffets and bars, viewing platforms, “more leg room” seats, meeting rooms, sleeping pods and showers.

New Zealanders have a question to ask ourselves. Is passenger rail critical national infrastructure capable of delivering valuable human outcomes like reduced road deaths and reduced emissions? Or is it a trivial, pointless fun fair we can afford to devote exclusively to squeezing the most money out of well-off tourists?

After many years of corporatisation, KiwiRail seems only to have gone deeper into the “fun-fair” model. It’s time to stop chasing imaginary profits and give affordable, widely available passenger rail back to those who built it: ordinary New Zealanders.

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