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The Business of Operating a HSR System

May 3rd 2011

Denis DOUTÉ

CEO,

SNCF America, Inc.

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Why do public subsidies to HSR make sense ?

0

40

80

100

Total created value

Private financing

Public funding

Revenues

Net Present Value

15%

85%

€ 3.8bn

€ 0.6bn

Infrastructure

Rolling

stock

Public funding

€ 3.2 bn� 50% State

� 50% local auth.

« Private »

funding

€ 1.2 bn

Example : TGV East (investment costs)

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Ex post evaluation of Paris to Marseille HSL

8%4,1%11%17,52001Valence -MarseilleLN5

11%6,1%7%11,91994Lyon -ValenceLN4

28%15,2%0%4,81983Paris -LyonLN1

(% of investt)(€03/km)

economical IRR

financial IRR

subsidycostyear

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SNCF TGV business revenue split in 2010 (%)

Energy; 4,3

Maintenance; 12,0

Infrastructure; 23,4Ticketing & stations; 17,3

Rolling stock amortization; 18,0

Operations; 11,7Taxes; 2,1Profit; 5,5

Structure; 5,6

* Maintenance of rolling stock** Infrastructure = maintenance + amortization

*

**

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Early operator involvement (EOI) enables advice regarding planning, design and

construction of the system.

The objective is to create “benefit sustainability” by eliminating avoidable costs that

arise during operations, as project designers often overlook issues of importance

to operations such as life-cycle costs, standardization, and ease of maintenance.

Mechanism : involve the operator in all phases of the project development.

Experienced operators have a wealth of knowledge in areas that are critical to the

success and long-term sustainability of the system.

Early operator involvement

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Early involvement, right from the design phase, ensures that the line configuration will

include parameters that will guarantee optimum operation (passenger service performance,

operating costs and, thereby, economic results)

These operating parameters relate to :

� infrastructure

� rolling stock

� safety standards laid down by the safety regulator

Design & Build

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Optimization of :

� trip time - speed limits at the switches giving access to the stations served,

passenger boarding/alighting times in stations, duration of the door closing

sequence;

� train-set maintenance costs - choice of materials for the inside fittings and inside

layout in relation to cleaning operations, restroom design, etc.;

� cost of train-sets.

The operator has to prepare for operations long before the actual commissioning of

the line: specifications for the train movement and information systems, design and

acceptance reviews, operator training, dry runs, etc.

���� The operator represents the interests of the passengers and the long-term economics of the system.

Operations & Maintenance

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Infrastructure

Successful HSR operation requires infrastructure that is:� Optimally designed to provide the required level and quality of services both now

and in the future� Available for trains to run every day, on schedule, comfortably and profitably� Maintainable without excessive costs� Built safely – enabling trains to run at the required speed while meeting federal

safety requirement.

���� The Operator is in the best position to make certain these criteria are met

Infrastructure

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Safety

The Operator is in the best position to achieve:

� Train traffic safety

� Train environment safety (e.g., platforms, grade separations, etc.)

� Staff and passenger safety

Safety

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Maximizing Ridership

Only an experienced Operator can maximize Revenues.

� Intercity trips

– Capture commuter market with intermodal connection decisions at the early stages

� Airport access trips

– Capture air travelers by securing code shares with airlines as early as possible

– Capture air travelers by providing airport connections and associated services

� Yield-Management Revenue System (i.e., pricing system)

� Other

– Early agreements with sponsoring entities such as Disney, Convention Centers and other

significant commercial and educational venues

Revenues

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Appropriate top speed

26%

6%

68%

OPEX increasing with speed

OPEXdecreasing with speed

Paris -Bordeaux

OPEX independent of speed

5%

30%

65%

104100

224 mph186 mph

+4%

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Location of the maintenance of way yards� Optimization given planned and future line setup

� Response time on incidents

Human resources� Planning the appropriate staff number and qualifications

Environmental Aspects� To be taken into account

� To be mitigated.

Maintenance of Way facilities

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55 miles circle

Sacramento

Stockton

Modesto

San Jose

Fremont

OaklandSan Francisco

Maintenance of Way facilities

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Station location are based on a fourfold strategic approach :

HSR stations : Location

• Accessibility

• Intermodality and connectivity issues

• Urban development opportunities

• Existence of historical station building

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HSR Stations : Accessibility

Convenient connection with existing rail networks

• adapting street layout in station neighborhood

• facilitating taxi access and properly designing taxi waiting area

• well dimensioned parking facilities (with extension capabilities)

Bring the cities public transports as far as possible into the station

complex (Buses, Light Rail Systems, Subways)

Nevertheless car traffic flows have to be correctly managed

Feeders for non-motorized modes and new mobility concepts

• bicycles

• car sharing and electrical cars

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HSR Stations

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Mutual benefit

Coordination of :

• Ticketing services

• Information services

• Schedules

• Perturbations and crisis

Importance of regional connections for HSR

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What coordination with the airlines ?

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What can the Operator do for the CHSRA ?

� The operator can help CHSRA face the challenges in developing and implementing a HSR system that must

– Be on time and on budget

– Meet high standards of quality & performance

– Be safe

– Be reliable

– Be maintainable

– Be economically sustainable

� The challenges are amplified by intense federal scrutiny and oversight and the national demand to achieve success

� “Failure is not an option”

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Why choose the Operator as early as possible?

The Operator can invest in the project early and take ridership risk

� No one’s interests are more aligned with CHSRA

� No one (other than CHSRA) has a greater stake in the system being designed and built

properly and quickly

� No one has a better view of how to design and integrate the various elements of the

system

� No one is in a better position to identify and address technical and commercial risks and

opportunities regarding:

• Infrastructure

• Safety

• Ridership (forecasting and capturing)

• Connectivity

• Maintainability

• Financial participation

• Expedited project completion

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Our experience suggests that a multi-step process for selection :

� Preserves and enhances competition, ensuring the competitive pressures will

keep cost to a minimum;

� Facilitates information exchange between companies and the Authority , without

creating a conflict of interest issue;

� And enables the Authority to select the best possible consortium for the project.

Early Operator selection

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Thank you for your attention