The Myth of Profitable Rail

By Nicholas Ward

Canada’s rail system is not only bad, it is one of the worst in the world. With average network delays of five hours Canada has one of the least reliable and most dangerous rail systems in the developed world.

Credit: https://www.visitwindsoressex.com/places/via-rail/

But the Canadian government has a plan to drastically overhaul the Canadian rail network. Building a high-speed rail line between Windsor and Quebec City.

Unfortunately, the Canadian plan is going to fail for one simple reason profitability.

Profitability has been the buzz word around Viarail for the last three decades with governments slashing Viarail funding and forcing the closure of lines in a desperate attempt to make the system profitable.

This new high speed rail plan is simple. A high-speed train between Windsor and Quebec City through the cities of Toronto, Ottawa, and Montreal. It will be a line whose profits can be used to subsidise the national services and totally revitalise the viarail system.

The plan is doomed to fail. How do I know?

Because it hasn’t worked for the British or the Americans who have both canabilised their systems in desperate attempts to be profitable.

Viarail has struggled for decades to be profitable. And after shuttering the vast majority of the network, surrendering all rights of way to freight companies, and the shift of popular rail lines like the Montreal to Fredericton train to less popular routes Viarail has become even less profitable over the last two decades.

The problem of profitability that Canada is falling into is the same that the United States and the United Kingdom has been dealing with for years.

Passenger rail has never been profitable.

Take the French. France has one of the most extensive high-speed rail systems in the world. It has some of the most profitable rail lines in the world. Virtually every city in France can be reached by train forming one of the most extensive rail systems on the planet.

But.

The French railway system makes no money.

If you buy a train ticket in France your fare is subsidised by half. Subsidies keep tickets affordable in Germany, China, Italy, and Japan. Successful passenger rail has to be heavily subsidised.

Despite a few profitable high speed lines the majority of French rail lines loses money. The same is true of every country with high-speed rail systems. Most lines lose money. But the high speed lines are considered inviolable parts of larger systems.

Now this is where fiscal conservatives cry foul. If these companies cannot stand on their own the government has no business propping them up.

Yet from Germany to Japan liberal and conservative governments expand their rail system and continue their system of generous subsidies.

Why?

These countries are not held hostage by ‘big rail’ rather they are engaging in an investment strategy that involves indirect profits and benefits to society.

Let us compare rail to roads. When a government builds a road, it takes on the responsibility of building and maintaining the road. Taxes on for instance gasoline defray the costs of maintaining the road however direct profits from the road do not exist, unless it is a toll road. Rather the entire highway system is a vast money pit.

So why do government’s build roads? Because a governments profit making abilities are not limited to the direct money it profits from the road. The building of roads makes transport easier, which benefits the economy. By encouraging the movement of labour, goods, and trade. Decreases time wasted in traffic or transit saves governments billions. So, though the road is a money losing adventure for the government the net gain across society more than pays for it.

Imagine a road system where people argued all non-profitable roads should be scrapped. Leaving just a few hundred kilometres of toll roads. Just like profitable toll roads need the unprofitable roads to function. Profitable high speed rail needs an extensive regular rail system to fill in the gaps.

Here is why profitable rail is impossible. Rail is incredibly expensive to build and to run. But the profits gained by an efficient subsidised rail system are huge. Fast rail reduces congestion, rail is cheaper, cleaner and more energy efficient than roads. Similarly, an extensive rail system has provided a massive boom for the European countryside. Generous rail passes and affordable rural tickets bring millions of tourists from the cities to the countryside’s to spread their dollars around rather than only being focused on the city.

This has been part of the problem in the UK. Though the UK operates an extensive rail system privatisation efforts hit a wall. For profit operators like Virgin were required to maintain certain lines. But inevitably the handful of profitable lines have failed to properly subsidise the unprofitable. Forcing the government to channel money into the pockets of private companies to keep the lines open.

Following the birth of the car many nations decided rail was well worth the short-term costs for the long term benefits these investments produce.

Even during the height of rail in the earlier 20th century. Private passenger rail lines were rarely profitable. The freight companies who ran these systems relied on the indirect benefits of maintaining passenger services. However, with the rise of cars it completely stopped being profitable for private companies.

And passenger rail was either taken over by the government or abandoned. Governments which took over passenger rail did so under the same rational as building a road. And the last 80 years have proved that this is an economically sound investment. With investment in rail bringing in substantially more money than is spent. Even in the US Amtrak brings in $3 for every $1 invested.

If one demands direct profitability from rail systems then we must also demand direct profitability from roads, hospitals, schools. All things which bring money into society indirectly and have never and will never be directly profitable.

Confusingly Canadian rail is heavily subsidised. Buy a ticket from Vancouver to Toronto and the government is subsidising your fare by one third.

But unlike other rail systems Viarail is an unusable system for most Canadians. An average delay of 5 hours makes it unusable for most everyone. Removing all of the indirect benefits that rail systems normally deliver.

This makes Viarail a huge money pit. Because of decades of neglect reviving passenger rail in Canada is a multi-generational project that would involve a total overhaul not just of Viarail but Canada’s dangerous and powerful freight companies as well.

Unfortunately, as it stands no one is making common sense arguments about rail in Canada and it is likely the government will go ahead with its self-defeating plan to make profitable rail.

So in a decade or so whomever is in opposition will decry the plan as unsustainable and rather than passing laws to prioritise passenger rail or increasing subsidised fares or requiring freight companies to expand their lines they will cut rail funding and Viarail will continue to slide into unusable obscurity for nothing but tourists and the desperate.