Published on March 13, 2009
Agenda About the report Pest Analysis Politics – major events Politics – power of players Economics Sociology Technology Industry Analysis NAICS Transportation Groups Comparisons Herfindahl-Hirschmann Index Transportation Lifecycle Value Chain & Activities Value Chain Value adding activities Key Value Drivers Perceptual Mapping Future Thoughts
About the report
Politics – major events
Politics – power of players
Transportation Groups Comparisons
Value Chain & Activities
Value adding activities
Key Value Drivers
About report This report focuses on the potential of high speed rail in California. It is the first part in a two part series examining the strategic environment and options competing in the transportation industry. While high speed rail can and will participate in the freight cargo space, this report focuses on the competitiveness of high speed rail in terms of passenger transportation. High speed rail exists minimally in the United States, with Amtrak operating a few trains in the Northeast Corridor. There is currently only one Intercity train system in the United States run by Amtrak – a heavily government subsidized corporation. To find a benchmark for comparison for high speed rail in the United States, I will attempt to incorporate the competitiveness of high speed rail in Europe and Asia in my second report.
TYPE STENGTH OF IMPACT MAIN IMPACT POINTS POLITICAL EXTREMELY HIGH States and Federal government control transportation safety and environmental laws. Federal government controls interstate transportation. Local governments control zoning and eminent domain issues. ECONOMIC HIGH Costs of energy, land and raw materials heavily impact transportation costs. High labor costs due to unionization. SOCIAL MEDIUM Consumers choice of transportation is based on costs, convenience, safety and time. This can vary depending on the reason for travel. TECHNOLOGY HIGH New technologies in transportation impact the costs, safety and speed of the delivery of transportation services.
Government begins building commercial airports for passengers Major Changes in Federal Regulation critically impacts the transportation industry. Regulation as well as subsidization are key factors in increasing or decreasing competition and efficiency Amtrak permitted to hire private contractors for projects Railroad Revitalization Act Rail Passenger Service Act First Amtrak Authorization Airline Deregulation Action National Interstate and Defense Highways Act Event Impact Subsidizes and air passenger transport for the masses Subsidizes building of roads and spurs demand and use of motor vehicles Subsidizes Passenger Rail to prevent its demise Creation of Amtrak By government Congress hands over lucrative Northeast corridor to Amtrak Deregulates Airlines, spurring price wars in transportation industry Allows Amtrak to hire non-union companies to be cost competitive
There are four key economic drivers in the transportation industry: Energy, Raw Materials, Labor, and Economic cycles Air, Autos, Buses and some Rail use Oil or Natural gas as energy sources. Increases and decreases in the price of energy sources heavily impacts costs, demand and usage of transportation services Costs of raw materials impacts operating costs in terms of maintenance and replacement. In general this equates to a lower impact on transportation industries Labor equates highest costs for the transportation industry due to a highly unionized work force. Aside from the high costs, labor poses a major disruption in the form of strikes Recessionary periods have a direct impact on passenger travel. During recessions, consumers cut back significantly on travel expenses, including daily commuting expenses by opting for public transportation.
American Passenger Transportation Habits since 1990 Kilometers traveled in billions Americans have preferred to use cars and air for the majority of their transportation needs since 1990. Usage of air grew 60%, personal vehicles grew by 38%, and buses by 22% from 1990-2006. By contrast, the usage of railroads declined by 13%.
Transportation is reliant and shaped by the changes in technology. Technology has retired several modes of transportation (e.g. horse and buggy). The four factors that form the core of technology’s relationship with transportation are, in order: safety, capacity, energy usage, Distance and speed
336211 481 482 48-49 31-33 Transportation and Warehousing Air Transportation Rail Transportation 485 Other Trans. 481111 Scheduled Passenger 481211 482112 Short Line Pass. Rail 485113 Suburban/local Bus 485112 Commuter Rail 482111 Line Haul Pass. Rail Non Chartered Passenger 485210 Interurban Bus 336 Trans. Equip. Mfg Manufacturing* 3362 33621 Motor Vehicle Body and Trailer Mfg. Motor Vehicle Body Mfg. Motor Vehicle Body and Trailer Mfg. What business are you in? A seemingly obvious questions---but…the railroads failed to ask this same question– and stopped growing. Why? Not Because people no longer needed transportation. And not because other innovations (cars, airplanes) filled transportation needs. Rather, railroads stopped growing because railroads didn’t move to fill those needs. Their executives thought they were in the railroad business, not the transportation business. *While auto’s are classified as a manufactured good, they are a direct substitute to high speed rail for mid to long haul routes
Growth Profit Airlines $124 Billion revenue 7.6% Revenue Growth $6 Billion profit 17.9% Profit Growth Automobile Sales $913 Billion revenue 4% Revenue decline -22 billion profit -360% profit decline Amtrak $1.5 billion 9% Revenue Growth $1.121 Billion Loss 5% profit loss Interurban/Rural Bus $1.78 billion revenue 1.2% Revenue Growth Profit (N/A)
What seems concentrated Really isn’t Air - HHI Total HHI = 1436.68 Total HHI = 1251.17 Type Sales %Share %(share)^2 Auto 913 87.76 7703 Air 124 11.91 142 Bus 1.78 .17 .029 Train 1.5 .14 .020 Total 7845
Growth Time interurban bus Slow to adopt to changing environmental pressures from competition, customer demand, and market trends for fuel efficiency Airlines thrived until the early ‘90s and heavy competition driven by deregulation Stable yet stagnant growth, buses have reached their apex in terms of speed and capacity rail Passenger Rail continues to lose money and is limited in reach. However, massive push by state and federal governments to revive high rail in the US automobile
Government Web retailer Rail Service Supplier/mfg Consumer Average price of ticket $59
Ensure trains run on time Clients arrive safely at destination Train and station security Service high population areas with limited transportation services Clean trains and stations Waste disposal Ensure customer baggage is unloaded Unload and ship freight Orderly and speeding disembarking of passengers
Ensure trains run on time
Clients arrive safely at destination
Train and station security
Service high population areas with limited transportation services
Clean trains and stations
Ensure customer baggage is unloaded
Unload and ship freight
Orderly and speeding disembarking of passengers
Trains are the most comfortable way to travel. Plenty of legroom, no restrictions on the use of electronic devices, free baggage allowances, dinning car, sleepers. Rail is the second safest mode of passenger transportation Primary costs drivers are labor and Energy. Labor equates to over 50% of Amtraks costs. In terms of energy, Rail is more efficient than any other means of transportation. Faster turn-around times mean increased efficiency, increased capacity per hour. Both speed and punctuality appeals to business travelers Passenger Rail transportation is a service. With so many substitutes available, making the passenger experience enjoyable is paramount to success. Opportunity: airlines customer service is in decline. Bus customer service is minimal. Mode of transport Deaths per 100 million passenger miles Domestic airlines .02 deaths Intercity buses 0.05 deaths Amtrak 0.03 deaths Autos 0.08 deaths Mode of transport Energy consumption per passenger mile Domestic airlines 3,182 BTU’s Intercity buses 3,393 BTU’s Amtrak 2,100 BTU’s Autos 3,458 BTU’s Comfort by mode Rail (most) Car Bus Airline (least)
Speed over distance Price Comfort Safe High speed rail
Speed over distance Environmentally Sound Price Convenience
Should high speed rail in California focus on long haul? Or should it focus on joining midsized cities (500,000+) to large cities (3 million +). (e.g. follow Southwest’s model) Ally to airlines rather than competitor Meet demand in areas with few substitutes Cargo freight reduction/relief on airports? Should high speed rail in California be subsidized by the government? How would that affect freedom to reduce costs on labor and set prices? Should high speed rail in California be free? If so, what is the revenue model? Would it be from real estate and concessions (i.e. food, baggage, rent, parking, etc…)? (e.g. Ryan Air)
Should high speed rail in California focus on long haul? Or should it focus on joining midsized cities (500,000+) to large cities (3 million +). (e.g. follow Southwest’s model)
Ally to airlines rather than competitor
Meet demand in areas with few substitutes
Cargo freight reduction/relief on airports?
Should high speed rail in California be subsidized by the government? How would that affect freedom to reduce costs on labor and set prices?
Should high speed rail in California be free? If so, what is the revenue model? Would it be from real estate and concessions (i.e. food, baggage, rent, parking, etc…)? (e.g. Ryan Air)
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