High speed rail (HSR) is seen as permitting European railways to provide attractive, high quality passenger transport services into the 21st century. Rail can potentially compete with air for traffic on routes of 300 - 900 km. Because HSR can compete with air on end to end journey time and comfort, it can set its target yields with reference to airline yields for those passengers transferring from air. National High Speed (HS) lines are now being linked to develop embryonic international networks, such as the PBKAL linking Paris, Brussels, Cologne, Amsterdam and London, and the Paris-Turin services. This paper summarises one potential approach to assessing the scope for price competition between air and HSR. It argues that today's airline prices may be a poor guide to prices in the future, as they do not necessarily represent the costs of efficient European operators. Examination of efficient European airlines suggests costs well below current yield levels, implying that prices could fall if competition from HSR or other airlines increased. European operators could further reduce costs in the future, by adopting `best practice' already followed elsewhere. The paper sets out an approach to estimating the scope for efficiency gains, and their potential effect on price. The approach estimates the gap between today's yield, today's costs of an efficient airline, and possible future costs. The potential gap between today's yield and costs and possible future costs provides a range for future competition. Commercial and competitive factors will affect where the final outcome falls within that range.
Abstract