Air France Looks to HSR for its Future

I've been meaning to get to this article for a few days now, and though our friends at Trains for America and The Overhead Wire have mentioned it, I hope you won't mind if I bring up the rear, so to speak. Air France is looking into entering the HSR business when the EU deregulates it in 2010:

With the high price of fuel raising the cost of flying, Air France is looking into replacing some of its short-haul European flights with high-speed rail service in partnership with a French train operator, a move that analysts said could lead to significant savings.

HSR would provide Air France with better service by bringing passengers to Charles de Gaulle from around the region for their long-haul flights; and would help their profit margin by lowering costs:

The main advantage for the airlines would be improved profitability, Van den Brul said....

Shifting passengers onto trains from planes would result in "significant" cost savings, a particular concern for airlines struggling to cope with record high oil prices.

Energy accounts for about 40 percent of an airline's total costs, against only around 10-15 percent for rail.

So it makes perfect sense for Air France to look into this model. SNCF has found a cash cow in their TGV system, which has generated so much operating surplus that the French national rail operator can use that to subsidize other services and even give some money to the French treasury. Air France recognizes that HSR is vital to a strong, reliable, and affordable transportation system - that it helps the airlines do their jobs better and more profitably.

Trains for America notes that this model would work well here in the US:

New York-Los Angeles, Miami-Seattle, any overseas travel for obvious reasons… some routes are too far for even fast trains to really compete with air travel. But Minneapolis-Chicago, Boston-Washington, Los Angeles-San Francisco, these are the lengths where high-speed trains are eminently more practical than planes.

And they're absolutely right on that point. Mineta-SJC's woes might be eased by HSR, allowing passengers easier access to it and allowing airlines to focus on the long-haul routes that trains aren't going to be able to displace. HSR can connect cities like LA to SF in roughly the same amount of time as it takes to fly, considering door-to-door time and time at the airport terminal. HSR also has a significant cost advantage as it isn't dependent on the constantly rising price of oil.

American carriers would find this especially valuable. Our dollars bring less purchasing power on the global market and already airlines like United and Delta are cutting service. Southwest hasn't yet been impacted, but that's not because they are magically immune. Instead Southwest, which dominates the intrastate air market in California, benefits from massive use of fuel hedges. They locked in much of their fuel costs at around $51/bbl - but those hedges expire between 2010 and 2013. By that time Southwest will no longer be able to offer cheap fares and will have to cut flights just as everyone else is doing.

HSR would be a boon to these airlines. And that explains why, in contrast to the shenanigans we saw in Texas in the early 1990s, the airlines haven't opposed HSR here. They recognize its value because it helps them make a profit. In turn HSR will help Californians afford to continue traveling within the state as well as connecting to airport hubs to take them around the continent and the globe.

The Airline Crisis Comes to San José

Today's Mercury News provides an in-depth look at Mineta San José Airport expansion and asks whether it will be a "waste" as the price of oil leads to dramatic cuts in flights and services:

With the airline industry in disarray amid the startling rise in oil prices, new questions are emerging about the impact on San Jose's lofty $1.3 billion airport expansion.

Even as airport officials promise a state-of-art new terminal will open by 2010, they are also grappling with some disturbing trends that might eventually lead to fewer flights here. Increased traffic is key to paying off the expansion - and while airport officials are reluctant to speculate about long-term trends, nobody can say whether the short-term belt-tightening now under way will be enough to weather a protracted downturn.

SJC officials are in a tight spot - to keep airlines there, they have to have low fees. But to repay the $1.3 billion in bonds that were sold to finance the project, they need income. If flights are cut and the number of passengers drops SJC would have to get more money in fees from the airlines - which would cause the airlines to cut back service further.

THAT is what true financial risk looks like. SJC gambled that air travel would remain a viable form of transportation well into the future - and that oil prices would remain low. They may lose that bet.

The fear that fuel prices may rise even higher looms over San Jose's Aviation Director Bill Sherry. He recently showed the city council data from industry analysts who estimate that if oil goes to $150 a barrel, national passenger levels could fall by 23 percent. At $200 a barrel, they could plunge by 35 percent.

The airport's original $100 million budget for the fiscal year that began this month projected a passenger growth rate of 1 percent. If traffic instead decreases by 10 percent, officials say revenues for the airport - which is self-supporting and receives no money from the city's general fund - would fall as much as $9 million.

The price of a barrel of oil is going to fluctuate for some time. $150 is certainly possible within the next few weeks, just as $99 is possible within the next few months. But the long-term trend is upward, there can be no mistaking it. The result, as I have consistently argued on the blog, is reduced service:

Delta Airlines spokesman Anthony Black said the rising cost of oil means one simple solution: "Fewer flights and fewer markets." The company has already cut back flights nationwide by 13 percent since December and now operates nine daily flights into San Jose.

I don't welcome this - SJC is my primary airport, given how expensive it is to fly out of Monterey. This means my own travel options are going to be reduced and made more expensive.

What is to be done?

"The airport is the dance hall, and the airlines are the pretty girls," quips Forrester Research travel-industry analyst Henry Harteveldt. "You have to have the pretty girls to get the guys to show up - and the guys are the passengers."

Of course, SJC isn't the only dance hall in town. The other SJC - Diridon Station - is poised to become one of the Bay Area's key transportation nodes. HSR would complement Caltrain, the Capitol Corridor, and VTA light rail, all of which currently serve San José Diridon. Theoretically BART will be added into the mix, and even though I do not expect that to actually happen, Diridon Station will still be well positioned to use its "girls" - modern, high speed trains - to attract the "guys" - passengers - for travel purposes. HSR can move travelers quickly to SFO, and the Capitol Corridor can take passengers to OAK (where the Amtrak California line already has a station). Of course, HSR will also connect passengers to other points in California, notably in Southern California.

Whether we want to continue the tortured dance hall metaphor or not, it is clear that passenger rail is showing rates of growth that the airline industry cannot match. HSR won't replace the mid or long-range flights, but it would help passengers in the Santa Clara Valley have affordable and sustainable travel options, which they clearly are going to need in the future.

The real "financial risk" in this case is that the Silicon Valley places all its eggs in Mineta-SJC's basket, relying solely on airlines and an airport that both might face serious financial problems in the near future. Wouldn't it make sense to hedge against the risk by building a transportation system that has proved to be a global success, and that maximizes the ongoing passenger rail trend?