Chris Judge, Integrated transport project principal
The future of long-distance travel is all about the fastest method of getting passengers safely and economically from A to B. For many years air transport has been the quickest way to travel long distances, with high-speed rail increasingly offering comparable journey times when access and egress is included. Engineers have been challenged to come up with better alternatives to these existing modes.
One idea is hyperloop – a transport system intended to propel passenger capsules through a near frictionless tube at potential speeds of 1200km/h.
The technological challenges of making this system work are substantial, but assuming they can be overcome, are there circumstances which would make hyperloop a good investment for a government or private enterprise?
At the heart of any successful high-speed mass rapid transport system is the ability to capture or unlock a large market for travel. The promoters of hyperloop promise aircraft journey speeds with the convenience of rail terminal locations and short security clearance times. The markets that have traditionally been served by short-hop/domestic aircraft travel and latterly high-speed rail seem a ripe hunting ground for hyperloop.
Air market capture may be the best commercial opportunity for hyperloop and, when building an investment case, the revenue potential is straightforward to size without requiring commercially sensitive data. Airline schedules and sensible occupancy assumptions and the cost of fares are a good starting point. Then, estimate the percentage transfer from air, add some induced demand and test a range of assumptions to establish the key sensitivities.
To test this, we looked briefly at flights between Los Angeles and San Francisco, around 600km apart.
- 12.8M passenger journeys per year (1) and US$135 per one-way trip (2) equals a total passenger market value of US$1700M in 2017 prices.
- 1,100km/h average speed (3) and convenient terminal stations (albeit one per city versus three-five airports per city) = 70% air market capture and 17% increase in the potential hyperloop/air market (generation).
- A slower average speed, say 500km/h (1,100km/h is not yet proven), and this drops to 61% capture and 9% generation.
- Move stations to less convenient locations, (hyperloop terminals will require a sizeable footprint, as a high service frequency needs a lot of space for capsules in each terminal), and the figures drop to 55% capture and 5% generation.
In the above scenarios, fares revenue (2017 prices) ranges from US$1000M to US$1400M in 2023, when we, perhaps optimistically (4), assumed hyperloop is operational. Add growth (such as economic growth and a growing population) over time, plus revenue from other sources – retail, land value and parking, for example – and assuming capacity is adequate to meet demand (a detailed question, but an initial check seemed okay), we have a revenue projection. The main question though – and we’re assuming engineers have overcome the technical challenges (such as comfort and security) and hyperloop works – is whether this range can cover the cost of construction and operation, inclusive of any government contribution.
Of course, our assessment could be improved with more data. For example, to assess capture from surface transport, we need to look further into generation and consider competition from digital connectivity.
Ultimately, for hyperloop to be a commercial rival to air travel and high-speed rail, cost is likely to be the key determining factor.
Footnotes:
1 - 2017, https://www.transtats.bts.gov, LAX, SNA, ONT, BUR, LGB – SFO, OAK, SJC, assumed to exclude onward transfers
2 - https://www.faredetective.com/farehistory/, average fare across all flights, also assumed as Hyperloop fares
3 - https://www.tesla.com/sites/default/files/blog_images/hyperloop-alpha.pdf, page 4
4 - 2023 is a simplifying assumption for our indicative assessment. We note that high-speed rail is already under development on this route.