Wednesday, July 13, 2011

Brief Notes #14 and #15: Looking at ticket costs and operating expenses for HSR

We have combined Brief notes #14 and #15 in this blog entry.  These Brief Notes, as you will recall, are by William Grindley and his team. In #15, special credit is offered for Alan Bushell's contribution.  

The over-arching point of all these brief notes has been to demonstrate that the CHSRA has persistently presented implausible numbers, including construction costs, operating costs, realistic ticket costs, ridership numbers, subsidies required, and so-called surplus revenues produced.  Using the rail authority's own numbers for all these variables, the arithmetic fails as does any comparison with existing operational high-speed rail systems anywhere else.

One might wonder why this is.  The CHSRA has been promoting high-speed rail for a decade. And like any marketing organization, they have exaggerated and distorted the truth in order to create the appearance of a desirable future train for which there will be huge demand at very low construction and operating costs, and therefore will produce very high revenue returns.  That kind of language in the bond issue ballot convinced more voters to support the train than not.  They were badly fooled.

None of what was said, and still is said, is true.  The costs are not $43 billion, as they continue to insist, it's well above $65 billion and rising.  The number of annual riders is not 39 million, it's far less.  That issue has yet to be settled.  Ditto for "profits" or subsidies. And so on.

The CHSRA has become an organization that merits contempt for its liberties with the facts and the truth. What has been concealed behind this tissue of lies is a project that will be stunningly expensive to build and operate, and for which there will be very few riders, and those need to be affluent or have corporate expense accounts to pay for costly tickets. And, most important, taxpayers will be on the hook for this monstrosity forever.

It can be demonstrated that for California, this is a train we do not want, now that we do know the realities behind this scam, and we certainly can't afford; not now, not ever.

Meanwhile, the times, they are a-changing, and the high-speed train that supporters believed we needed, becomes ever less relevant and consequential in the totality of inter-city transit in California and the United States.  While this may not be true for other nations, in the US, inter-city travel will become ever less a rail-based modality.  Amtrak's recent ridership number increases are primarily regional and commuter transit, not so much long inter-city travel. And these are attributable to the Recession and high fuel costs for other transit modes.

In the first nine months of FY2011, ridership rose 6.4 percent compared with the same period in FY2010. All three major business lines posted gains: the Northeast Corridor at 5.6 percent; state-supported and other short distance corridors at 7.8 percent; and long-distance trains at 3.9 percent.

Which suggests that there is a need for Amtrak improvement and higher speed travel on the Northeast Corridor and for commuter/regional travel elsewhere. 

However, longer inter-city HSR corridors such as those in California will have far lower demand than regional transit in both population centers, and those are not being addressed by either state or federal agencies charged with public transit management.  We've been backing the wrong horse!
See all William Grindley's Brief Notes at

Brief Note #14 – July 5th 2011

From the authors of The Financial Risks Of California’s Proposed High-Speed Rail Project and six Briefing Papers. Available at

Finding: CHSRA’s projected fares not only don’t mirror existing systems’ but are also below the costs of running Europe and Japan’s subsidized systems
Background: In 2008 California’s voters were promised they could travel from LA to SF “. . . for about $50 a person.”1 By 2009 the one-way fare had doubled to $105.2 The driving distance between LA and SF is roughly 430 miles. The 2008 ticket price per mile was therefore $0.12 per passenger mile; the 2009 ticket price $0.24 per passenger mile.

What do subsidized European, Japanese systems, and their US high-speed rail’s cousin (Acela), charge travelers for the one –way, least expensive class of travel on major segments? And what would the LA to SF least expensive class, high-speed rail ticket price be if those segments’ rates were applied?3

Using the average of those existing systems’ rates ($0.43/mile), the least expensive, one- way, LA to SF ticket would cost about $184. This is more than three times the price promised to voters in 2008, and almost twice (175%) the price in the CHSRA’s 2009 Plan. If CHSRA is to it meet the Legislature’s statutory requirement and keep its promises to 2008’s voters about no operating subsidies, no new taxes and only “users of the system pay for the system”, then the CHSRA fares must be higher – probably much higher.5

Conclusions: Since the average passenger per mile price of the six established system segments is $0.43/mile (the five that are truly high-speed rail systems plus Acela), and all these systems are subsidized; their operating costs must be at least $0.44/mile. How can the CHSRA price their tickets at just slightly more than half ($0.24/mile) the actual average of $0.43/mile rate and still claim to produce an operating margin (surplus)?6

The CHSRA’s estimated fares do not stand up to scrutiny; or even comparisons to Acela and the subsidized high-speed rail fares in Europe and Japan.


1. See: The Official Voter Information Guide at rebutt1a.htm (pg. 1) 
2. California High-Speed Rail Authority “Report to the Legislature; December 2009; pg. 65 and Table B, pg. 70. 
3.On the issue of high-speed rails’ subsidies, see Note #6 and Note #10. Found at
4. Distances between European and US city pairs are from Google Maps, taking their city center to city center driving distances as representative of track miles. Ticket prices for European systems are from Rail Europe; Distance and price (using $US = 80.9 Yen) for Shinkansen are from East Japan Railway Company; at
5. Section 2704.08(J) says the high-speed train cannot have an operating subsidy. Also see: Op. Cit Official Voter Information Guide says (pg 1) that the system will relieve congestion “without raising taxes” and Op. Cit Official Voter Information Guide (pg.2) that the “users of the system pay for the system” 
6. Op. Cit Report to the Legislature; December 2009; page 82, Table J.

Brief Note #15 – July 14th 2011

From the authors of The Financial Risks Of California’s Proposed High-Speed Rail Project and six Briefing Papers. Available at

Finding: CHSRA’s estimated operating costs don’t reflect real world experience

Background: The CHSRA 2009 Business Plan’s one-way single fare of $105 equates to $0.24
per mile for the roughly 430 land miles between Los Angeles and San Francisco.1 That Plan
also estimates operating costs at about 45% of the CHSRA’s projected revenues from 2020 to
2035; making their average passenger mile operating cost about $0.11.2 Some observations
on the CHSRA’s 2009 expense and revenue claims:

When calculating costs, the CHSRA used 3% as the “same average rate of inflation” for their
operating costs, such as labor, electrical power, health care, fuel and security costs. 3 Many of these
variable costs grow faster than 3%, understating realistic future costs.

CHSRA assumed some entity other than the train’s operator pays the property, casualty and liability
insurance, putting those burdens on the State and its taxpayers.4

To accept the CHSRA’s operating cost projections would be in spite of a prior Federal Railroad
Administration’s observation: “The operating cost per seat mile from the FRA study for the California
corridor (2006$) is approximately 40 % higher than the CHSRA’s projections.”5

Europe and Japan’s high-speed rail systems price their tickets at about $0.43 per passenger mile.6
They do so only by virtue of receiving capital subsidies, operating subsidies or both from their
governments.7 Therefore, those systems’ operating costs must be at least $0.44 per passenger mile.

At the CHSRA’s 2009 Plan’s ticket price (one-way LA-SF at $105), a high-speed rail ticket costing
$0.24 per passenger mile is less than half the allowable $0.51 per mile the Internal Revenue Service’s
allows for deducting business auto mileage.8 That makes the CHSRA’s cost per passenger mile at $0.11
about one-fifth of the authorized per mile costs of operating an automobile, an unreasonably low
comparative rate of operating costs that raises more questions about the CHSRA’s estimates.

How can California’s train, where “the users of the system will pay for the system” produce a
positive cash flow when its projected passenger per mile costs are about a fifth of those of
operating an automobile; or a quarter of the estimated costs to operate Europe and Japan’s
subsidized high-speed rail systems?9 Wouldn’t private investors or operators already have
entered the US market if the CHSRA’s $0.11 per passenger mile operating costs were valid?

Conclusions: More realistic cost projections in CHSRA’s next Plan will likely raise the
operating cost per passenger mile. To keep a positive operating margin and to avoid an
operating subsidy, these cost increases will lead to upward pressures on the estimated price
per mile.10 However, previous work by these authors has shown that CHSRA’s 2009 pricing
plans also were not competitive with the airline and automobile segments, which will create
downward price pressures, by as much as 25%.11 It’s unclear how these conflicting price
requirements and financial sustainability versus fare competitiveness, can be resolved.


1. California High-Speed Rail Authority “Report to the Legislature; December 2009; pg. 65 and Table B, pg.70. For computations on
this as well as six high-speed rail systems, see Brief Note #14 at
2. Ibid. Page 82, Table J for Revenues and Operating Costs, plus page 83, Table K for Capital Replacement Costs. Forty five percent
of $0.24per passenger mile is $0.11 per passenger mile.
3. See Brief Note #3, found at
4. These and other observations on the poor quality of CHSRA’s operating cost calculations are found both in Appendix C to ‘The
Financial Risks Of California’s Proposed HSR Project’ and Notes #3 and # 12 by the same authors. See:
5. Cox, Wendell; Vranich, Joseph and; Moore, Adrian: The California High-Speed Rail Proposal: A Due Diligence Report: Reason
Foundation; Policy Study 370; September 2008; pg. 49.
6. Brief Note #14, On Evidence Based High-Speed Rail Fares, and Brief Note #10, On Financial Shell Games, at
7. Op cit. CHSRA 2009. See ‘The Financial Risks Of California’s Proposed High-Speed Rail Project’, pg. 59, at
8. See: 2009 IRS guidelines. See:
9 Op. Cit The Official Voter Information Guide pg. 2. Section 2704.08(J) of AB3034 prohibits an operating subsidy.
10. For details, see Brief Notes #3 and #12 and App. C of The Financial Risks of California’s HSR Project; found at
11. For details, see Brief Notes #8, #9, & #13, and App. A of The Financial Risks of California’s HSR Project; at

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