The Coastal Pacific is KiwiRail’s scenic rail service that operates both ways between Picton and Christchurch on a daily basis.
In 2011 it had a major revamp, with new carriages featuring panoramic windows like the one below as well as a new café car.
However, last week KiwiRail announced that the Coastal Pacific scenic rail service between Picton and Christchurch was moving to a seasonal timetable, and would not be operating from 6th May to 26th September:
“The Coastal Pacific is losing almost $3 million annually, due in most part to a significant drop in the tourism and domestic travel market to and from Christchurch after the earthquake. These losses are highest through winter,” says KiwiRail’s General Manager, Passenger, Deborah Hume.
“Winter demand for KiwiRail Scenic’s long distance passenger services (May through September) is much slower than the summer tourist season. For the Coastal Pacific service, the drop in demand in these winter months is even more pronounced than the TranzAlpine, as this train serves a less well known and travelled route. Added to this, since the February 2011 Christchurch Earthquake, travel to and from the city has dropped significantly due to the loss of tourist related facilities and accommodation.
“Very low numbers of people used the train during last winter, although there was an increase during the school holidays. However, KiwiRail needs to sell 130 seats on each service to break even, and on some days only 30 people were on board.
To be losing three million dollars a year seems like a staggering amount, but it isn’t clear from the press release which costs are direct costs and which costs are contributions to KiwiRail’s fixed costs such as track access fees.
The management and cost accountants among you will know that as long as revenue from the service is covering the direct costs of operation and is therefore making a contribution to overheads, then in the short term it is viable for the service to continue.
Suspecting a significant amount of the claimed “loss” was in fact fixed cost charging, I asked KiwiRail if they could provide a bit more detail, which they have done:
TOTAL REVENUE 3,404,925
- People Related Expenses 403,429
- External Services 302,441
- Lease and Rentals 42,715
- Materials & Supplies 248,754
- Incidents, Casualties & Insurance 6,051
- Other Expenses 86,225
- Track Access 790,144
- Hook & Tow 2,349,051
- Mechanical 798,662
- Corporate Overheads 216,481
- Allocated Costs (Including insurance, marketing, finance and administration, HR, management, website, general operational expenditure etc) 1,183,908
TOTAL EXPENDITURE 6,427,860
There still isn’t absolute clarity about which of these expenses are fixed cost charges imposed by Kiwirail, but the internal charges that really stand out though are the “Hook & Tow” of $2.3m, the “Allocated Costs” of $1.2m and the “Track Access” fee of $790K. Combined, these transfer charges add up to $4.3 million and so are the major reason why the Coastal Pacific is “losing” $3m. (That figure of $3.4m in revenue from the service must be very pleasing for KiwiRail, by the way.)
From what I understand Hook and Tow is a cost recovery for the use of the locomotives that haul the scenic carriages. This seems excessive when the cost of a brand new diesel locomotive is just $4m. Presumably there is a distance based charging formula involved here, and also possibly a salary component for the engineer.
Track access fees seem high, but then it is a relatively long stretch between Picton and Christchurch, and there are fewer services to spread the cost over. As for “Allocated Costs” it isn’t clear if these are direct costs that relate to the operation of the service or if they are simply a contribution to head office expenses.
For comparison, someone has helpfully pointed out the projected costs of the Capital Connection for 2013/14 on the Better Transport forum:
- Hook and Tow – $843,028
- Track Access – $219,924
- Mechanical Costs – $368,640 (I presume this is for the carriages and genset van)
- Allocated Costs – $357,502
- Labour – $305,903
These figures were sourced from page 33 of this Greater Wellington Regional Council document.
Obviously the Capital Connection and the Coastal Pacific services are very different, but you do have to wonder about KiwiRail’s internal charging formulae. Presumably the Coastal Pacific won’t be required to make a fixed cost contribution during the period that the service isn’t running. It would be interesting to know if the freight services have to pick up the track access fee to compensate over winter.
This isn’t to say that the decision to cut the Coastal Pacific during the winter months was the wrong one (and obviously Kiwirail have access to the needed marginal direct cost data to make the call), but to blame a drop in tourism for a loss of $3m seems the wrong thing to be putting in a press release, as it feeds the public perception that regional rail can never be “profitable” in New Zealand.