SOUTHERN RAIL TOURISM PASSENGER SERVICES
PHASE 2 SUMMARY BUSINESS MODEL ANALYSIS FINDINGS
CONFIDENTIAL
southern rail tourism
passenger services
phase two: summary business
model analysis findings
confidential
june 2019
prepared for the canterbury mayoral forum
visitor solutions ltd and traction room ltd
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SOUTHERN RAIL TOURISM PASSENGER SERVICES
PHASE 2 SUMMARY BUSINESS MODEL ANALYSIS FINDINGS
CONFIDENTIAL
CONTENTS.
Executive Summary
4
1.0
Introduction
7
Project Brief and Methodology
2.0
Analysis
8
2.1
Model Assumptions
2.1a Operational Assumptions
2.1b Market Assumptions
2.2
Financial Model
2.2.1 Revenue
2.2.2 Costs - OPEX
2.2.3 Costs - CAPEX
2.2.4 Outputs
3.0
Risks and Mitigation
15
4.0
Opportunities
17
5.0
Conclusion and Recommendations
18
6.0
Appendix
19
Disclaimer:
Information, data and general assumptions used in the compilation of this report have been obtained from
sources believed to be reliable. Visitor Solutions Ltd and Traction Room Ltd have used this information in good
faith and makes no warranties or representations, express or implied, concerning the accuracy or completeness
of this information. Visitor Solutions Ltd and Traction Room Ltd are acting as independent consultants. In doing
so, the recommendations provided do not necessarily reflect the intentions of the Client. Interested parties
should perform their own investigations, analysis and projections on all issues prior to acting in any way with
regard to this project.
© Visitor Solutions 2018.
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EXECUTIVE
SUMMARY.
As part of the Canterbury Economic Development Strategy (CREDS) programme, the Canterbury
Mayoral Forum has requested a review of the potential for periodic rail passenger charter services,
or a regular service offering on the Main South Line [MSL] between Christchurch and Invercargill.
KiwiRail has indicated that they have no intention of running this service unless there is evidence
to support a commercial proposition. The purpose of this project is to complete an indicative
business justification case to determine whether there is potential and what the opportunity could
be. The project was staged in two phases, the first of which is now complete. The methodology
used to undertake the first phase of the project included a review of all available secondary data,
site visits, interviews and analysis.
Initial research led to the project brief being refined to focus on catering for tourism services
between Christchurch and Dunedin. Regular public passenger services were excluded on the
grounds of competitiveness against other transport modes, while the Dunedin to Invercargill
route was less desirable for operational and consumer demand reasons1. The first phase of the
study concluded:
1. The concept of a South Canterbury tourist rail experience looked promising from a technical,
operational and market demand perspective,
2. Dunedin Rail is a natural partner that brings significant benefits to the testing and potential
implementation of the concept. Dunedin Rail is likely to be central to the concept’s feasibility.
3. Timaru and Oamaru would potentially be the two main rail stops on route between
Christchurch and Dunedin (with Timaru being the simplest option),
4. The ‘loop’ approach to the concept potentially brings many other industry players into
consideration (which could assist higher visitation on the Christchurch to Dunedin rail leg).
5. Implementation is likely to be dependent on the use of a Silver Fern Railcar, either RM30 or
RM18 (both owned by KiwiRail). RM18 would need to be made operational.
6. Critically KiwiRail could facilitate or terminate the concept given its central role in any
development.
The second phase of the study, the preliminary financial analysis tested the proposition of using
the Silver Fern Rail car for the service. The modelling concluded that the operation of a Silver Fern
railcar service between Christchurch and Dunedin (with a stop in Timaru) was not operationally
viable. The financial model indicates that the rail car does not have enough capacity (at the
required ticket price) to be a viable proposition. In the unlikely scenario that 100% seat utilisation
is achieved, the cumulative capital return over a 10 year period is calculated to be $110k, however
based on the level of assumptions required for the development of the model it cannot be
considered to report to this level of accuracy. The cumulative capital return can therefore be
treated as zero. A more realistic 70% seat utilisation presents a cumulative capital return loss of
circa $7m over the same 10 year period. In summary, a nearly 100% seat utilisation is required for
the service offering to break even using the Silver Fern Rail Car.
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1. A Dunedin to Invercargill route could be explored at a later stage if required.
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During the study it also became apparent that Kiwirail had alternative plans (potentially in the
short term) for the railcar that it was leasing to Dunedin Railways. This highlights the difficulty of
establishing a service without Kiwirail being a core partner.
Should the potential service be able to utilise engines (and carriages) other than the Silver
fern rail car the financial model is likely to change for the better. Costs would be unlikely to
increase significantly while capacity could be improved substantially, thus improving profitability.
Achieving this would be dependant entirely on Kiwirail, given its control over so much of the
required infrastructure.
The potential benefit of such a route for Kiwirail would be in facilitating the tourist loops outlined
in the first phase of this study. These loops could assist patronage on Kiwirail’s existing services,
while also unlocking potential new revenue streams from partner organisations.
Dunedin Railways also has the potential to be a partner in some form in the future (even without
utilisation of the Silver Fern railcar).
Based on the findings of the financial analysis it is recommended that:
1. Advancing any further investigation into a Christchurch to Dunedin rail service using a Silver
Fern railcar should be ceased.
2. Dunedin Railways should be thanked for their assistance in the study and be informed of its
findings. An indication of Dunedin Railways future interest in any new partnering opportunities
should be tested.
3. Kiwirail should be approached and the information from this study shared to determine if
they are interested in exploring potential partnering opportunities for the rail route.
4. If Kiwirail is interested, focus should be placed on:
•
Options that increase service capacity above that of a Silver Fern rail car,
•
Options that enable the development of the South Island tourist loops outlined in Phase
One of the study.
5. Should the concept be advanced to the next stage with Kiwirail, a full market analysis and
business case should be completed.
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CONFIDENTIAL
1. INTRODUCTION.
PROJECT BRIEF AND METHODOLOGY
As part of the Canterbury Economic Development Strategy (CREDS) programme, the Canterbury
Mayoral Forum has requested a review of the potential for periodic rail passenger charter services,
or a regular service offering on the Main South Line [MSL] between Christchurch and Invercargill.
KiwiRail has indicated that they have no intention of running this service unless there is evidence
to support a commercial proposition. The purpose of this project is to complete an indicative
business justification case to determine whether there is potential and what that opportunity
could be. The project was staged in two phases, the first of which is now complete. The
methodology used to undertake the first phase of the project included a review of all available
secondary data, site visits, interviews and analysis.
Initial research led to the project brief being refined to focus on catering for tourism services
between Christchurch and Dunedin. Regular public passenger services were excluded on the
grounds of competitiveness against other transport modes, while the Dunedin to Invercargill
route was less desirable for operational and consumer demand reasons2. The first phase of the
study concluded:
1. The concept of a South Canterbury tourist rail experience looked promising from a technical,
operational and market demand perspective,
2. Dunedin Rail is a natural partner that brings significant benefits to the testing and potential
implementation of the concept. Dunedin Rail is likely to be central to the concept’s feasibility.
3. Timaru and Oamaru would potentially be the two main rail stops on route between
Christchurch and Dunedin (with Timaru being the simplest option),
4. The ‘loop’ approach to the concept potentially brings many other industry players into
consideration (which could assist higher visitation on the Christchurch to Dunedin rail leg).
5. Implementation is likely to be dependent on the use of a Silver Fern Railcar, either RM30 or
RM18 (both owned by KiwiRail). RM18 would need to be made operational.
6. Critically KiwiRail could facilitate or terminate the concept given its central role in any
development.
The second phase of the study, the preliminary financial analysis is outlined in this section and
tests the proposition of using the Silver Fern Rail car for the service. The key findings from the
analysis are set out in summary form together with an Appendix containing additional detail.
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2. A Dunedin to Invercargill route could be explored at a later stage if required.
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2. ANALYSIS.
2.1 MODEL ASSUMPTIONS
a. Operational Assumptions
The cost model for the proposed service offering has been developed based on several high-level
assumptions regarding the operation of the service:
•
Dunedin Railways will operate the service using the Silver Fern rail car, currently on lease from
Kiwirail.
•
It is noted that Kiwirail have given notice to Dunedin Railways of their intention to take back
the rail car for purposes unknown. It is assumed that the rail car will again be made available
by Kiwirail to Dunedin Railways, either for purchase or for long term lease. The assumed costs
for lease of the rail car are $50,000 per year, whereas it is assumed that it would cost circa
$500,000 to purchase outright.
•
The service can be operated under Dunedin Railway’s existing Rail Safety Case.
•
Owing to constraints around journey times and availability of platform space at Christchurch
Station, the service would not be able to operate a same day return service. Therefore, the
return journey between Christchurch and Dunedin would have to incorporate an overnight
stop.
•
Any refurbishments to Timaru Station required to bring it up to a standard that is appropriate
will be borne by a combination of the local authority and the stations private owner, not
Dunedin Railways. These costs have therefore been excluded.
•
Where possible all other operational assumptions outlined in the model have been tested
using multiple data sources. However, these figures remain estimates.
b. Market Assumptions
For the purpose of developing the cost model for the proposed service, a range of assumptions
have been made regarding market conditions and levels of patronage for the service:
•
The service will operate three return journeys per week between Dunedin and Christchurch
and will operate for 52 weeks per year.
•
The maximum number of passengers that can be accommodated on the Silver Fern rail car
is 96.
•
The average one-way ticket price upon commencement of the service will be $100. This is
comparable with similar scenic services (Coastal Pacific and Tranz- Alpine), making allowance
for different fare types (starter, flexi etc).
•
Passengers’ on board spending in Year 1 is assumed to be an average of $10.
•
Activities would be offered to passengers when stopped in Timaru (estimated stop over is
between 1 – 2 hours). Concessions paid to Dunedin Rail from these activities have been
excluded from modelling at this preliminary stage.
•
Ticket prices and the value of on-board purchases will be subject to annual price inflation of
1.9% in line with recent market observations.
•
Annual demand growth of 3% will be observed.
2.2 FINANCIAL MODEL
The financial model for the proposed service offering has been developed based on a number
of revenue scenarios, dependent on seat utilisation, and estimated operational and capital
expenditure involved in delivering the service. The outputs of the model are, for each revenue
scenario:
•
Annual operating profit or loss for the first ten years of operation.
•
Annual “Farebox” for the first ten years of operation. The farebox model is used for transit
systems worldwide to measure the proportion of operating and capital expenditure that is
covered by revenue from ticket sales. A farebox of 100% is where the operation is cash neutral,
less than this would be an operating loss, greater than this would be an operating profit.
•
Overall capital return over a 10-year period i.e. the value of establishment costs recovered
from fare revenue.
The model has been developed for scenarios where Dunedin Railways would both lease and
purchase the rolling stock from Kiwirail. In interpreting the results, it became apparent that the
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lease model was more financially sustainable, both in terms of delivering improved returns to
Dunedin Railways, but also in terms of mitigating the risk of a large capital outlay on an ageing
asset (the railcars are approximately 50 years old). Furthermore, during informal discussions with
Dunedin Railways during the preparation of the model, they suggested that they did not have
much appetite for purchasing the rail car outright. For this reason, only the results for the option
of leasing the rail car are presented in the body of this report. The full analysis for both options is
however included in Appendix A.
2.2.1 Revenue
As discussed above, the revenue has been calculated based upon an average one-way ticket price
of $100 in the first year of operations, with an average on board spend of $10 per passenger. Ticket
prices and on-board revenue are assumed to be subject to market inflation of 1.9% per year. It is
assumed that patronage will grow by 3% per year, up to the maximum capacity of the rail car.
The revenue has been assessed for seat utilisation values of 50%, 70%, 80%, 97% and 100%. The
97% was analysed as it was found that that was the minimum level of patronage required to
break even after 10 years.
The revenue calculations for different seat utilisation values can be seen in Table 2.1 below:
Table 2.1: Estimated revenue for 10 years of operations.
Y 1
Y 2
Y 3
Y 4
Y 5
Y 6
Y 7
Y 8
Y 9
Y 10
Ticket price +
$100
$102
$104
$106
$108
$110
$113
$115
$117
$120
2% inflation
On board
$10
$10
$10
$11
$11
$11
$11
$11
$12
$12
spending per
person plus
2% inflation
Revenue with $1.65m $1.74m $1.83m $1.93m $2.02m $2.13m $2.23m $2.34m $2.46m $2.59m
50% seat
utilisation in
Year 1
Revenue with $2.31m $2.42m $2.54m $2.67m $2.81m $2.95m $3.10m $3.26m $3.43m $3.60m
70% seat
utilisation in
Year 1
Revenue with $2.64m $2.77m $2.91m $3.06m $3.21m $3.38m $3.54m $3.73m $3.86m $3.94m
80% seat
utilisation in
Year 1
Revenue with $3.20m $3.36m $3.43m $3.50m $3.57m $3.64m $3.71m $3.78m $3.86m $3.94m
97% seat
utilisation in
Year 1
Revenue with $3.29m $3.36m $3.43m $3.50m $3.57m $3.64m $3.71m $3.78m $3.86m $3.94m
100% seat
utilisation in
Year 1
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2.2.2 Costs - OPEX
The operating costs of the proposed service offering have been derived based upon ‘cost per trip’
figures obtained through informal liaisons with Dunedin Railways, regarding their existing charter
services between Dunedin and Rolleston. These figures have been increased on a pro rata basis
to allow for the final 20km (circa) leg between Rolleston and Christchurch. The figure used for the
model was $17,920 per return journey. This includes:
•
running rights,
•
on board staffing,
•
routine maintenance and refuelling, and
•
An additional $200 and $650 have been allowed for staffing of Christchurch Station and
overnight accommodation for train crews in Christchurch.
An annual cost of $50,000 has been allowed for lease of the rolling stock required to operate the
service. This value would have to be verified by further negotiations with Kiwirail for continued use
of the Silver Fern Rail Car, if these vehicles were offered back to Dunedin Railways in the future
and if the proposal was to be advanced.
Further operational expenditure allowed for includes:
•
travel agents’ commission,
•
marketing,
•
ticketing,
•
insurance,
•
industry memberships,
•
re-training of train drivers, and
•
loss of revenue due to service disruptions.
The operational expenditure allowed for is summarised in Table 2.2 below. It should be noted that
these are Year 1 figures and with the exception of the lease of rolling stock, are subject to 1.9%
annual inflation.
Table 2.2: Estimated Annual OPEX in Year 1
Lease of rolling stock
$50k
Running costs - based on Dunedin Charter Rates (per return
$18k ($2.8m per year)
journey)
Christchurch Station staffing costs (per return journey)
$200 ($31k per year)
Dunedin Railways overnight staff costs (per return journey)
$650 ($100k per year)
Travel agents commission (Assume 25/75 split between agents
$115k
and booking direct. Agent commission is 20%. Assume 5% of
ticket revenue)
Marketing Budget
$100k
Ticketing (use existing Dunedin Railways forum)
$20k
Insurance
$20k
Industry memberships
$10k
Loss of revenue due to service unavailability due to unplanned/
$45k
planned outage - allow 2 weeks per year
Re-training/replacement of train drivers
$7k every three years
total opeX in year 1
$3.29m
Note: * Assumes that the operation is leveraging off Dunedin Rails existing advertising / marketing
operations.
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2.2.3 Costs - CAPEX
The capital cost associated with establishment of the proposed service have been estimated
based on industry experience.
The largest capital outlay required, if the decision was taken to purchase rather than lease the
rail car(s), would be procurement of rolling stock. A value of circa $500,000 has been assumed for
this cost (which is only used in the models in the Appendix A). This would have to be verified by
further discussion and negotiation with Kiwirail, should the option be pursued further.
The remaining capital expenditure is summarised in Table 3 below:
Table 3: Estimated CAPEX to establish the service
Refurbishment of Timaru Station - to be funded by local
$0
council/private owner
Agreement of interface with other network operations
$50,000
Set up of access rights (from Kiwirail)
$10,000
Modifications to Dunedin Railways ticketing forums
$20,000
Advertising, PR campaigns, travel expos
$50,000
Training of existing train drivers to operate Rolleston to
$4,800
Christchurch
Training of additional train drivers, $6,900 each driver. Assume
$13,800
two additional drivers required.
Total Establishment Cost
$148,600
Note: * Assumes that the operation is leveraging off Dunedin Rails existing advertising / marketing
operations.
The model has been developed on the assumption that Dunedin Railways (and / or partners)
hold sufficient cash to fund the establishment costs detailed above without requiring financing
(Note: This is an area for further discussion regarding investment from other parties such as the
Southern Regional Mayoral forum and the Regional Growth Fund).
The option of purchasing rolling stock has been analysed on the assumption that it would be
financed at an interest rate of 10% over a 10-year term. This would equate to repayments of
$80,000 per year over the life of the term (this option is only shown in Appendix A).
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Table 3: Estimated CAPEX to establish the service
Due to restricted capacity with the Silver Fern rail car, high seat utilisation is required almost
immediately for the service to be profitable in the long term.
Even with relatively high seat utilisation, the service will still operate at a loss every year. Over time,
the cumulative loss will increase, meaning that without significant financial subsidy, the service
will not be financially sustainable.
The full financial model is attached to this report as Appendix A.
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2.2.4 Outputs
Figure 2.1, below, shows the annual operating profit and farebox for the revenue scenarios
analysed (the lease option):
Figure 2.1: Annual farebox and operating profit over 10 years
For the service to operate at a profit, seat utilisation needs to be almost 100% (the seat utilisation
at which break even occurs, considering the assumptions that have been made is 97%). The
profitability of the proposed service is constrained by the seat capacity of the Silver Fern rail car,
as can be seen by the fact that at 100% utilisation, the farebox is only just over 100%. (Note: this
would be an area for discussion with KiwiRail, as the provision of higher capacity carriages could
be considered at relatively little increase in assumed operating costs).
It is considered unlikely that 100% seat utilisation would be achievable, particularly at the
commencement of operations. Low seat utilisation would result in considerable operating losses
being incurred. For 50% seat utilisation, these losses would amount to approximately $1.2m per
year. This is a significant risk to the proposed operation.
Figure 2.2, below, shows the cumulative capital returns over 10 years of operations for the revenue
scenarios analysed:
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3. RISKS AND
MITIGATION.
Given that there are a number of key assumptions behind the development of the cost model,
there are a series of risks that also apply, as outlined in Table 3.1 below:
Table 3.1: Risks associated with the proposed service offering
RISK
DESCRIPTION
MITIGATION OPTIONS
LIKELIHOOD & SEVERITY
Fare pricing
The one-way ticket
Benchmark against other
The proposed fare has been
price of $100 is not
tourist services operated in reviewed against similar tourist
compatible with market
New Zealand. Undertake
services and it is therefore
expectation and will result further market research
considered a low risk that it is
in significantly reduced
to determine predicted
over-priced. The consequences
patronage and therefore,
demand at that price.
of low patronage will be that
reduced revenue.
the operation would run at a
significant loss i.e. greater than
$1m per year.
Price inflation
Market inflation may
Secure long-term
The New Zealand economy has
exceed the assumed rate
contracts with suppliers
not experienced high levels of
of 1.9% which could make that limit levels of price
inflation in recent times and
it difficult to maintain
inflation per annum.
there is no reason to expect this
competitive ticket prices
to change. If the risk was to be
and recover operating
realised, either by keeping fares
costs.
low, or increasing fares and risking
low patronage, the service would
operate at a significant loss.
Over-estimated
Risk of patronage levels
Undertake further market The feasibility of the service
patronage levels
being over estimated.
research to determine
offering is dependent on
To break-even over a 10
predicted demand at that patronage levels – if only 50% seat
year period would require price.
utilisation was achieved in Year 1
29,100 one-way journeys
(15,000 one-way journeys), then
in Year 1, equating to a
after 10 years there would be a
high seat utilisation of
cash shortfall of $15m.
97% for the Silver Fern rail
car.
Seasonal variation It is expected that
Consider operating a
The analysis undertaken is based
in patronage levels patronage levels would be reduced timetable during on a year round service and
reduced during the low
the off season. Undertake
showed near full seat utilisation
season, however the cost
further market research
would be required for the service
of operation the service
to determine predicted
to be profitable. If the low season
would remain the same.
demand.
was to equate to 4 months, and
Hold sufficient levels of
patronage levels were to drop to
cash in reserve to operate 50%, this would equate to a drop
during the off season.
in revenue of circa $500k.
Directional
It is expected that
Offer reduced pricing for
If seat utilisation is dramatically
variation in
demand will be
the Dunedin commencing reduced for northbound services,
patronage levels
considerably greater
service to encourage
there would be a significant
for the Christchurch
return trips. Pump the
loss of revenue. If average seat
commencing service and northern leg (e.g. Offer
utilisation northbound was only
lower for the Dunedin
trips from Christchurch
50%, instead of 100%, this would
commencing service.
to fly to Dunedin and
equate to 25% shortfall (circa
Therefore, whilst it could
make the return journey
$800k per annum) from the
be forecast that demand
by train. Or promote a
revenue required for the service to
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will grow to achieve
Queenstown to Dunedin
be profitable.
seat utilisation for the
leg that returns to
southbound journey, this
Christchurch via rail).
may be more difficult to
achieve for both service
offerings.
On board
Levels of on-board
Benchmark against prices The level of on board spending
spending
spending per person is
offered on competing
of $10 per person is relatively
over estimated resulting in services. Consider
modest in light of the length of
reduced revenue.
including on board
the journey.
spending in ticket price.
At full capacity, the assumed
on board spending equates to
revenue of circa $300k per year.
This is approximately 10% of total
revenue, therefore would leave a
significant shortfall.
Maintenance
The Silver Fern rail car is
Lease more than one unit, The high levels of maintenance
requirements for
48 years old and is likely
providing redundancy in
could result in increased
rolling stock
to require a high level of
the service offering for
operational expenditure. It
ongoing maintenance.
maintenance activities.
should be noted that during
informal consultation with
Try to negotiate with
Dunedin Railways as part of
Kiwirail that leasing
this exercise, reservations were
charges are only paid for
expressed regarding the feasibility
day when the rail car is
of operating the service at the
operating.
proposed frequency using the
Silver Fern rail car (due to age of
the rail car).
Unforeseen service In the event of unforeseen Negotiate running rights
It is highly likely that at some
disruption
events that result in the
with Kiwirail that entitle
stage, there will be service
service not being able to
Dunedin Railways to
disruption.
operate, there would be
compensation should
lost revenue due to the
the rail network not be
The rail network is subject to
service not operating,
available.
operating restrictions in the event
in addition to the cost
Financial projections to
of extreme weather, which is
of providing alternative
allow for some loss of
inevitable in the region.
transport. This could be
revenue.
the result of unavailability Maintain the fleet of
For each trip that would be unable
of rolling stock or
rolling stock to a high
to operate, it would cost $9,600 in
unplanned maintenance
level.
lost fare revenue, based on Year
of the railway line. Such
1 ticket prices and 100% seat
an event could also be
utilization.
the result of events such
as extreme weather or
seismic activity.
Loss of the Silver
Kiwirail makes the Silver
Seek and alternative
The services would cease until an
fern rail car
fern rail car unavailable.
engine and carriages. This alternative engine and carriages
would require significant
were available. However, an
support from Kiwirail.
alternative configuration to the
Silver fern rail car is likely to be
more financially viable.
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4. OPPORTUNITIES.
The cost model only accounts for direct revenue from the sale of tickets and on-board purchases,
set against the operational and capital expenditure involved in establishing and operating the
service. It indicates that a high level of seat utilisation is required for the proposed service to be
financially sustainable as a standalone operation. However, the proposed service provides the
opportunity to open additional revenue streams that cannot be quantified by the cost model
alone. These opportunities include:
•
General increase in tourist numbers being delivered to destinations and stops in question.
•
Selling tickets as part of a wider rail package including Kiwirail tourist services, the Interislander
Ferry or Dunedin Railways other tourist services. There is the opportunity to partner with
Kiwirail in offering the route as part of the nationwide tourist services. This would offer
greater opportunities to cross sell the service with the other experiences operated by Kiwirail.
Furthermore, Kiwirail would be able to operate using modern rolling stock used elsewhere
on their tourist routes, specifically designed for tourist services. This would provide greater
capacity than the Silver Fern and potentially offer greater profitability.
•
Selling tickets as part of a rail/air combination in partnership with an airline, including airport
transfers. This may be of value as it would facilitate offering the service as a same day return.
Currently, only Air New Zealand operates flights between Christchurch and Dunedin, which
includes evening flights. This same approach could be expanded to bus, rental car, plane and
rail options that facilitate the South Island route loops outlined in phase one of this report.
•
Sell as part of a tourist loop, or selection of tourist loops, with set itineraries including car/
camper van hire and accommodation.
•
Selling tour packages including side trips destinations. Side trips offered may include:
•
Christchurch:
•
Banks Peninsula
•
Kaikoura
•
Hanmer Springs
•
Mt Hutt – during ski season
•
Timaru
•
Tekapo
•
Aoraki/Mt Cook
•
Pleasant Point Museum and Railway
•
Dunedin
•
Road transfer to Queenstown/Wanaka
•
Otago Peninsula
•
Catlins Coast
•
Moeraki Boulders
•
Offer trip packages including accommodation, meals etc in Christchurch or Dunedin (and
other destinations along the route loops outlined in phase one of the study).
The wider regional benefits that are likely to be realised as a result seeking to unlock some or all
of these opportunities have the potential to be considerable.
visitor solutions ltd and traction room ltd
17
SOUTHERN RAIL TOURISM PASSENGER SERVICES
PHASE 2 SUMMARY BUSINESS MODEL ANALYSIS FINDINGS
CONFIDENTIAL
CONCLUSION +
5. RECOMMENDATIONS.
5.1 Conclusion
The financial modelling undertaken in this second phase of the project has concluded that
the operation of a Silver Fern railcar service between Christchurch and Dunedin (with a stop in
Timaru) is not operationally viable. The financial model indicates that the rail car does not have
enough capacity (at the required ticket price) to be a viable proposition.
During the study it also became apparent that Kiwirail had alternative plans (potentially in the
short term) for the railcar that it was leasing to Dunedin Railways. This highlights the difficulty of
establishing a service without Kiwirail being a core partner.
Should the potential service be able to utilise engines (and carriages) other than the Silver
Fern rail car the financial model is likely to change for the better. Costs would be unlikely to
increase significantly, while capacity could be improved substantially, thus improving profitability.
Achieving this would be dependant entirely on Kiwirail, given its control over so much of the
required infrastructure.
The potential benefit of such a route for Kiwirail would be in facilitating the tourist loops outlined
in the first phase of this study. These loops could assist patronage on Kiwirail’s existing services
while also unlocking potential new revenue streams from partner organisations.
Dunedin Railways also has the potential to be a partner in some form in the future (even without
utilisation of the Silver Fern railcar).
5.2 Recommendations
Based on the findings of the financial analysis it is recommended that:
1. Advancing any further investigation into a Christchurch to Dunedin rail service using a Silver
Fern railcar should be ceased.
2. Dunedin Railways should be thanked for their assistance in the study and be informed
of its findings. An indication of Dunedin Railway’s future interest in any new partnering
opportunities should be tested.
3. Kiwirail should be approached and the information from this study shared to determine if
they are interested in exploring potential partnering opportunities for the rail route.
4. If Kiwirail is interested, focus should be placed on:
•
Options that increase service capacity above that of a Silver fern rail car,
•
Options that enable the development of the South Island tourist loops outlined in Phase
One of the study.
5. Should the concept be advanced to the next stage with Kiwirail, a full market analysis and
business case should be completed.
visitor solutions ltd and traction room ltd
18
SOUTHERN RAIL TOURISM PASSENGER SERVICES
PHASE 2 SUMMARY BUSINESS MODEL ANALYSIS FINDINGS
CONFIDENTIAL
6. APPENDIX.
visitor solutions ltd and traction room ltd
19
INCOME
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
Year 10
Ticket price + 2% inflation
$100
$102
$104
$106
$108
$110
$113
$115
$117
$120
On board spending per person plus 2% inflation
$10
$10
$10
$11
$11
$11
$11
$11
$12
$12
Patronage with 50% seat utilisation in Year 1
15,000
15,500
16,000
16,500
17,000
17,500
18,000
18,500
19,100
19,700
Patronage with 70% seat utilisation in Year 1
21,000
21,600
22,200
22,900
23,600
24,300
25,000
25,800
26,600
27,400
Patronage with 80% seat utilisation in Year 1
24,000
24,700
25,400
26,200
27,000
27,800
28,600
29,500
29,952
29,952
Patronage with 97% seat utilisation in Year 1
29,100
29,952
29,952
29,952
29,952
29,952
29,952
29,952
29,952
29,952
Patronage with 100% seat utilisation in Year 1
29,952
29,952
29,952
29,952
29,952
29,952
29,952
29,952
29,952
29,952
Revenue*** with 50% seat utilisation in Year 1
$1,650,000
$1,740,000
$1,830,000
$1,930,000
$2,020,000
$2,130,000
$2,230,000
$2,340,000
$2,460,000
$2,590,000
Revenue*** with 70% seat utilisation in Year 1
$2,310,000
$2,420,000
$2,540,000
$2,670,000
$2,810,000
$2,950,000
$3,100,000
$3,260,000
$3,430,000
$3,600,000
Revenue*** with 80% seat utilisation in Year 1
$2,640,000
$2,770,000
$2,910,000
$3,060,000
$3,210,000
$3,380,000
$3,540,000
$3,730,000
$3,860,000
$3,940,000
Revenue*** with 97% seat utilisation in Year 1
$3,200,000
$3,360,000
$3,430,000
$3,500,000
$3,570,000
$3,640,000
$3,710,000
$3,780,000
$3,860,000
$3,940,000
Revenue*** with 100% seat utilisation in Year 1
$3,290,000
$3,360,000
$3,430,000
$3,500,000
$3,570,000
$3,640,000
$3,710,000
$3,780,000
$3,860,000
$3,940,000
Seats per train*
96
Maximum passengers per year**
2
9,952
Assumed demand growth
3%
Assumed price inflation
2%
* Capacity based on use of Silver Fern rol ing stock unit
** Maximum passengers based on 3 x return trips per week, 52 weeks per year
TOTAL EXPENDITURE
Upfront Cost Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
Year 10
Total OPEX (Option 1 - Lease Rol ing Stock)
$3,288,620
$3,350,154
$3,419,757
$3,476,751
$3,541,859
$3,615,105
$3,675,810
$3,744,701
$3,821,800
$3,886,433
Total CAPEX (Option 1 - Lease Rol ing Stock)
$148,600
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Total OPEX (Option 2 - Buy Rol ing Stock)
$3,238,620
$3,300,154
$3,362,857
$3,426,751
$3,491,859
$3,558,205
$3,625,810
$3,694,701
$3,764,900
$3,836,433
Total CAPEX (Option 2 - Buy Rol ing Stock)
$148,600
$80,000
$80,000
$80,000
$80,000
$80,000
$80,000
$80,000
$80,000
$80,000
$80,000
OPEX
Year 1 Cost
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
Year 10
Running costs - based on Dunedin Charter Rates (per return journey)
$17,920
$2,795,520
$2,848,635
$2,902,759
$2,957,911
$3,014,112
$3,071,380
$3,129,736
$3,189,201
$3,249,796
$3,311,542
Christchurch Station staffing costs (per return journey)
$200
$31,200
$31,793
$32,397
$33,012
$33,640
$34,279
$34,930
$35,594
$36,270
$36,959
Dunedin Railways overnight staff costs (per return journey)
$650
$101,400
$103,327
$105,290
$107,290
$109,329
$111,406
$113,523
$115,680
$117,878
$120,117
Travel agents commission (Assume 50/50 split between agents and booking direct. Agent commission is 10%. Assume 5%
of ticket revenue)
$115,500
$115,500
$117,695
$119,931
$122,209
$124,531
$126,897
$129,309
$131,765
$134,269
$136,820
Marketing Budget
$100,000
$100,000
$101,900
$103,836
$105,809
$107,819
$109,868
$111,955
$114,083
$116,250
$118,459
Ticketing (use existing Dunedin Railways Platform)
$20,000
$20,000
$20,380
$20,767
$21,162
$21,564
$21,974
$22,391
$22,817
$23,250
$23,692
Insurance
$20,000
$20,000
$20,380
$20,767
$21,162
$21,564
$21,974
$22,391
$22,817
$23,250
$23,692
Industry memberships
$10,000
$10,000
$10,190
$10,384
$10,581
$10,782
$10,987
$11,196
$11,408
$11,625
$11,846
Loss of revenue due to service unavailability due to unplanned/planned outage - al ow 2 weeks per year
$45,000
$45,000
$45,855
$46,726
$47,614
$48,519
$49,441
$50,380
$51,337
$52,313
$53,307
Re-training/replacement of Locomotive Engineers
$6,900
$6,900
$6,900
$6,900
CAPEX
Upfront cost Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
Year 10
Refurbishment of Timaru Station - to be funded by local council
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Agreement of interface with other network operations
$50,000
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Set up of access rights (from Kiwirail)
$10,000
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Modifications to Dunedin Railways ticketing forums
$20,000
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Advertising, PR campaigns, travel expos
$50,000
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Training of existing Locomotive Engineers, Rol eston to Christchurch
$4,800
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Training of additional Locomotive Engineers, $6,900 each LE. Assume two.
$13,800
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Rol ing Stock Costs
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
Year 10
Lease of rol ing stock (OPEX) - $50,000 per year
$50,000
$50,000
$50,000
$50,000
$50,000
$50,000
$50,000
$50,000
$50,000
$50,000
Purchase of rol ing stock (CAPEX)
$80,000
$80,000
$80,000
$80,000
$80,000
$80,000
$80,000
$80,000
$80,000
$80,000
Option 1: Dunedin Railways Lease Rolling Stock
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
Year 10
Farebox with 50% seat utilisation in Year 1
50%
52%
54%
56%
57%
59%
61%
62%
64%
67%
Farebox with 70% seat utilisation in Year 1
70%
72%
74%
77%
79%
82%
84%
87%
90%
93%
Farebox with 80% seat utilisation in Year 1
80%
83%
85%
88%
91%
93%
96%
100%
101%
101%
Farebox with 97% seat utilisation in Year 1
97%
100%
100%
101%
101%
101%
101%
101%
101%
101%
Farebox with 100% seat utilisation in Year 1
100%
100%
100%
101%
101%
101%
101%
101%
101%
101%
Operating profit with 50% seat utilisation in Year 1
-$1,638,620 -$1,610,154 -$1,589,757 -$1,546,751 -$1,521,859 -$1,485,105 -$1,445,810 -$1,404,701 -$1,361,800 -$1,296,433
Operating profit with 70% seat utilisation in Year 1
-$978,620
-$930,154
-$879,757
-$806,751
-$731,859
-$665,105
-$575,810
-$484,701
-$391,800
-$286,433
Operating profit with 80% seat utilisation in Year 1
-$648,620
-$580,154
-$509,757
-$416,751
-$331,859
-$235,105
-$135,810
-$14,701
$38,200
$53,567
Operating profit with 97% seat utilisation in Year 1
-$88,620
$9,846
$10,243
$23,249
$28,141
$24,895
$34,190
$35,299
$38,200
$53,567
Operating profit with 100% seat utilisation in Year 1
$1,380
$9,846
$10,243
$23,249
$28,141
$24,895
$34,190
$35,299
$38,200
$53,567
Capital return with 50% seat utilisation in Year 1
-$1,787,220 -$3,397,374 -$4,987,130 -$6,533,881 -$8,055,741 -$9,540,845 -$10,986,656 -$12,391,357 -$13,753,157 -$15,049,590
Capital return with 70% seat utilisation in Year 1
-$1,127,220 -$2,057,374 -$2,937,130 -$3,743,881 -$4,475,741 -$5,140,845 -$5,716,656 -$6,201,357 -$6,593,157 -$6,879,590
Capital return with 80% seat utilisation in Year 1
-$797,220 -$1,377,374 -$1,887,130 -$2,303,881 -$2,635,741 -$2,870,845 -$3,006,656 -$3,021,357 -$2,983,157 -$2,929,590
Capital return with 97% seat utilisation in Year 1
-$237,220
-$227,374
-$217,130
-$193,881
-$165,741
-$140,845
-$106,656
-$71,357
-$33,157
$20,410
Capital return with 100% seat utilisation in Year 1
-$147,220
-$137,374
-$127,130
-$103,881
-$75,741
-$50,845
-$16,656
$18,643
$56,843
$110,410
Option 2: Dunedin Railways Purchase Rolling Stock
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
Year 10
Farebox with 50% seat utilisation in Year 1
50%
51%
53%
55%
57%
59%
60%
62%
64%
66%
Farebox with 70% seat utilisation in Year 1
70%
72%
74%
76%
79%
81%
84%
86%
89%
92%
Farebox with 80% seat utilisation in Year 1
80%
82%
85%
87%
90%
93%
96%
99%
100%
101%
Farebox with 97% seat utilisation in Year 1
96%
99%
100%
100%
100%
100%
100%
100%
100%
101%
Farebox with 100% seat utilisation in Year 1
99%
99%
100%
100%
100%
100%
100%
100%
100%
101%
Operating profit with 50% seat utilisation in Year 1
-$1,668,620 -$1,640,154 -$1,612,857 -$1,576,751 -$1,551,859 -$1,508,205 -$1,475,810 -$1,434,701 -$1,384,900 -$1,326,433
Operating profit with 70% seat utilisation in Year 1
-$1,008,620
-$960,154
-$902,857
-$836,751
-$761,859
-$688,205
-$605,810
-$514,701
-$414,900
-$316,433
Operating profit with 80% seat utilisation in Year 1
-$678,620
-$610,154
-$532,857
-$446,751
-$361,859
-$258,205
-$165,810
-$44,701
$15,100
$23,567
Operating profit with 97% seat utilisation in Year 1
-$118,620
-$20,154
-$12,857
-$6,751
-$1,859
$1,795
$4,190
$5,299
$15,100
$23,567
Operating profit with 100% seat utilisation in Year 1
-$28,620
-$20,154
-$12,857
-$6,751
-$1,859
$1,795
$4,190
$5,299
$15,100
$23,567
Capital return with 50% seat utilisation in Year 1
-$1,817,220 -$3,457,374 -$5,070,230 -$6,646,981 -$8,198,841 -$9,707,045 -$11,182,856 -$12,617,557 -$14,002,457 -$15,328,890
Capital return with 70% seat utilisation in Year 1
-$1,157,220 -$2,117,374 -$3,020,230 -$3,856,981 -$4,618,841 -$5,307,045 -$5,912,856 -$6,427,557 -$6,842,457 -$7,158,890
Capital return with 80% seat utilisation in Year 1
-$827,220 -$1,437,374 -$1,970,230 -$2,416,981 -$2,778,841 -$3,037,045 -$3,202,856 -$3,247,557 -$3,232,457 -$3,208,890
Capital return with 97% seat utilisation in Year 1
-$267,220
-$287,374
-$300,230
-$306,981
-$308,841
-$307,045
-$302,856
-$297,557
-$282,457
-$258,890
Capital return with 100% seat utilisation in Year 1
-$177,220
-$197,374
-$210,230
-$216,981
-$218,841
-$217,045
-$212,856
-$207,557
-$192,457
-$168,890
Option 1: Dunedin Railways to lease rol ing stock (Farebox and P&L)
150%
$2,500,000
$2,000,000
125%
$1,500,000
$1,000,000
100%
$500,000
75%
$0
-$500,000
Profit/Loss
Farebox
50%
-$1,000,000
-$1,500,000
25%
-$2,000,000
0%
-$2,500,000
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
Year 10
Year since commencement of operations
P&L (50%)
P&L (70%)
P&L (80%)
P&L (97%)
P&L (100%)
Farebox (50%)
Farebox (70%)
Farebox (80%)
Farebox (97%)
Farebox (100%)
Option 2: Dunedin Railways to purchase rol ing stock (Farebox and P&L)
150%
$2,500,000
$2,000,000
125%
$1,500,000
$1,000,000
100%
$500,000
75%
$0
Profit/Loss
Farebox
-$500,000
50%
-$1,000,000
-$1,500,000
25%
-$2,000,000
0%
-$2,500,000
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
Year 10
Year since commencement of operations
P&L (50%)
P&L (70%)
P&L (80%)
P&L (97%)
P&L (100%)
Farebox (50%)
Farebox (70%)
Farebox (80%)
Farebox (97%)
Farebox (100%)
Option 1: Dunedin Railways to lease rol ing stock (Cumulative Capital return over 10 years)
$5,000,000
$0
-$5,000,000
-$10,000,000
Capital positon ($)
-$15,000,000
-$20,000,000
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
Year 10
Year since commencement of operations
Capital return with 50% seat utilisation in Year 1
Capital return with 70% seat utilisation in Year 1
Capital return with 80% seat utilisation in Year 1
Capital return with 97% seat utilisation in Year 1
Capital return with 100% seat utilisation in Year 1
Option 2: Dunedin Railways to purchase rol ing stock (Cumulative Capital return over 10 years)
$5,000,000
$0
-$5,000,000
Capital positon ($) -$10,000,000
-$15,000,000
-$20,000,000
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
Year 10
Year since commencement of operations
Capital return with 50% seat utilisation in Year 1
Capital return with 70% seat utilisation in Year 1
Capital return with 80% seat utilisation in Year 1
Capital return with 100% seat utilisation in Year 1
Capital return with 97% seat utilisation in Year 1
