Besides determining the ridership and revenue from a high speed rail corridor, North Carolina studied the probable costs of operating and maintaining such a system. North Carolina worked with both Amtrak and William Gallagher (rail consultant) to determine the operating costs on the SEHSR. These costs were then compared with the ridership and revenue projections developed by KPMG Peat Marwick to determine which operating scenarios were most commercially feasible.

10.1 SEHSR OPERATING ASSUMPTIONS

The study compared various Amtrak operations, including the North Carolina funded Carolinian and Piedmont trains, as well as Amtrak's Northeast Direct system and Washington State's Talgo operations. Because the increased frequencies and speeds would be classified as a new service, current Amtrak system requirements and negotiated costs (especially regarding labor) may not apply. In determining the cost of the SEHSR, four critical changes to the current Amtrak system were assumed:

• maintenance would be contracted with a vendor,
• food service would be contracted with a vendor,
• reservation and information functions would be contracted, and
• system related costs would be negotiated with Amtrak.

Table 10-1 illustrates train and route related costs that would likely apply to a new HSR service along the SEHSR. The "existing service" scenario shows the current train and system costs as funded by the North Carolina Department of Transportation and Amtrak. The "scenario 6" column gives the costs of running Talgo train sets with the four assumed changes to the train and system costs listed above.

One must note, however, that this study does not consider the longer term capital costs of building and maintaining the rail, structures, etc. Like any part of the transportation system, such as airports, highways, local transit, etc. a successful high speed rail corridor will require investments above the annual operating budget.

10.2 HIGH SPEED SCENARIOS TESTS

Using two train schedule scenarios developed by Amtrak and KPMG Peat Marwick for the SEHSR, the commercial feasibility study then determined the likely costs to run each scenario and compared it with the ridership and revenue projections from the demand modeling study.

In determining the most commercially feasible scenarios, the study used five methods to compare the costs, revenues and performance listed on the following page.

Table 10-1: Example SEHSR Train Operation Costs

1. System related profit or loss is the service's revenue less all related train, route and system operating costs.
2. Operating ratio measures performance by dividing the total cost by total revenue. An operating ratio of 1 means a make even operation; less than 1 means a profit while greater than 1 shows an operating loss.
3. Profit (Loss) per Passenger Mile (PM) is figured by dividing the total profit (or loss) by the passenger miles generated by the operation. (Passenger miles are the total number of passengers times their trip lengths. Generally, higher passenger miles mean that many passengers are taking long, interstate trips, which produce more revenue). The lower the loss per passenger mile, the more efficient the operation is. Obviously, any operation that posts a profit per PM is more efficient (and viable) than one that posts a loss.
4. Passenger Miles per Train Miles measures how many passengers are on board for every mile the train travels.
5. Load Factor illustrates the percentage of seats that would be filled on an average day. As a general rule, the higher the load factor, the more efficient the operation.

10.3 STUDY RESULTS

In this study the scenarios were ranked based upon their operating ratio, which shows the profitability of the rail operations. Table 10-2 shows the results of the comparisons.

As seen in Table 10-2, scenario 4 ranks highest in operating ratio, even though it has a lower number of passengers and fewer frequencies than scenario 6. As expected, the existing service scored the lowest due the higher system costs, slow speeds and low frequencies.

The study suggests that the commercially viability of the SEHSR greatly increases if 100-110 mph speeds and construction of the S line are implemented north of Raleigh to Richmond and Washington, DC. Figure 10-1 shows that extending the SEHSR to Washington, DC will greatly increase the SEHSR's profitability. This indicates that the success of the corridor is dependent upon building the high speed line from Raleigh to Washington, DC at the same time or sooner than the Raleigh to Charlotte segment.

Table 10-2: Performance Measurements of SEHSR Scenarios, Year 2015

Figure 10-1: Profitability of Southeast High Speed Rail corridor

10.4 CONCURRANCE FROM NATIONAL STUDY

In addition to the study conducted by North Carolina and Amtrak, the U.S. Congress required the Federal Railroad Administration (FRA) to submit a commercial feasibility study on high speed ground transportation. The report High Speed Ground Transportation for America employs standard terminology for comparing potential high speed markets and systems to examine all five Congressionally designated HSR corridors in the nation. This included an analysis of potential revenues and operational alternatives. The executive summary was presented to Congress in August 1996, and the final report was released in September 1997.

The report concluded that the Charlotte-Raleigh-Richmond HSR corridor will have a high level of commercial feasibility if Richmond is connected to Washington, DC and the Northeast HSR Corridor. As stated in the report, the "average trip on the Southeast Corridor would be longer and generate more revenue than any other illustrative route" in the FRA study. The analysis of the SEHSR in that report is summarized in Chapter 12, "Federal Assessment of Corridor Feasibility."

10.5 FINDINGS AND CONCLUSIONS

Based upon the study completed, the following conclusions have been reached.

The Southeast High Speed Rail corridor is commercially feasible. Analysis shows that, assuming changes in the current interstate passenger rail costing system, the high speed (100 mph) scenarios would not require an annual operating subsidy. This study concurs with the FRA study of the initial five Federally designated high speed rail corridors, which states that the SEHSR has the potential of being the most commercially feasible corridor in the US.

Commercial feasibility depends on a mix of frequency, speed and fare structure. A system that turns an annual profit does not require maximizing annual passengers or even revenue. Careful deliberation must be given to determining the proper mix of high speed local frequencies (Raleigh - Charlotte) and long distance frequencies (Charlotte - Raleigh - Richmond - New York), given the great variance in their ability to generate revenues.

Ensuring commercial feasibility requires extension of the SEHSR to Washington, DC. The system's profit margins are projected to be 90 to 300 percent higher when the SEHSR is connected to Washington, DC and the Northeast Corridor.