The passenger volume of HK high-speed rail is much lower than the government forecast

On December 23, 2015, the Public Works Panel of the Legislative Council discussed the follow-up matters for the construction of the Hong Kong section of the Guangzhou-Shenzhen-Hong Kong high-speed rail (HSR). [1] The government reduced the daily passenger volume forecast of the high-speed rail in 2021 from 119,700 by 500 to 119,200 people (Figure 1). Although the internal rate of return has dropped from 6% to 4%, the forecast is still profitable (profit refers to social benefits, not financial profits, as explained at the end of this article). Democrats have questioned that the government is too optimistic about the passenger volume forecast for the high-speed rail. I have also requested for the detailed data of the forecasting models, but unfortunately, none of them received a positive response.

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Figure 1 The government’s forecast of daily passenger volume in 2018, 2021, and 2031 after the opening of the high-speed rail in 2015. Source: Legislative Council (2015) [1]

The high-speed rail commenced its operations in September 2018, and it has been about two years now. Let’s take a look at the actual passenger volume and see whether it is higher or lower than the forecast. Figure 2 is a graph of the average daily passenger volume since the opening of the high-speed rail. In fact, so far no one month has reached the forecasted quantity, but it is far below the forecast. In the first few months of the operations, the average number of passengers reached about 50,000 to 60,000 per day, which was just about one half of the forecast, but they were the peaks. The number of passengers has begun to decline since July 2019, and it has dropped to ZERO since February 2020 because of the pandemic. The overall average daily passenger volume for the past two years is only 34,700, which is about one-third of the forecast. The operating income and expenditure of the high-speed rail in the first two years have just been reported to be a loss, but the Transportation and Housing Bureau did not tell how much the loss involved [3].

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Figure 2 The average daily passenger volume of Hong Kong’s high-speed rail since its opening. Source: MTR (2020) [2]

As the pandemic continues, the passenger volume of all types of cross-border transportation has dropped sharply, the citizens have suffered heavy losses. In addition to the high-speed rail, the airport express line (AEL) also experienced a sharp plummet in passenger volume. I have warned that “Once the number of tourists drops and the number of passengers on the Airport Express Line decreases, the railway operation will incur a loss.”[4] Now that my forecast comes true again. Figure 3 shows that the number of passengers of the AEL has dropped from about 1.5 million passengers per month to less than 200,000 passengers, a drop of more than 86%!

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Figure 3 The monthly passenger volume of the Hong Kong Airport Express Railway. Source: MTR (2020) [2]

Both the high-speed rail and the airport express line are expensive railway projects, their operating costs are very high and are continuously increasing (see [4] for details). The AEL has long been in a situation where operating expenses cannot be balanced. Now the HSR follows the same deficit pathway. It is hopeless to expect these projects to earn back the construction costs in the short to medium term. Originally, the so-called viable internal rate of return was estimated by the government by measuring the social value of these infrastructures based on the time value of passengers’ reduced traveling time. In other words, the original idea was, even if the earnings of these railways can never cover the costs, they can still be regarded as socially beneficial projects. But now the high-speed rail has been suspended for many months. The number of passengers on the airport express line is also few, the time-saving value of passengers of these railways has little benefit. Thus, even if these infrastructure projects do not count financial gains but social values, they suffer serious losses during this period. It is plausible to believe that the government’s forecasting method of the number of passengers of railways has systematic errors. Bent Flyvbjerg’s (2008) [5] theory may explain why.

References

[1] Legco (2015) Follow-up action arising from the discussion of the Hong Kong Section of the Guangzhou-Shenzhen-Hong Kong Express Rail Link at the Special Meeting on 23 December 2015, Legislative Council Public Works Subcommittee, LC Paper No. PWSC82/15–16(01). https://www.legco.gov.hk/yr15-16/english/fc/pwsc/papers/pwsc20151223pwsc-82-1-e.pdf

[2] MTRC (2020) PATRONAGE UPDATES,MTRC。https://www.mtr.com.hk/en/corporate/investor/patronage.php#search

[3] NOW (2020) 高鐵停駛 料政府持有的九鐵要承擔虧損,NOW,9月10日 (Chinese)。https://news.now.com/home/local/player?newsId=405115

[4] Yiu, C.Y. 姚松炎 (2018) 一直營運虧蝕的香港機場快線,方格子,11月10日(Chinese)。https://vocus.cc/@ecyY/5be552effd89780001d93ebc

[5] Flyvbjerg, B. (2008) Public Planning of Mega-Projects: Overestimation of Demand and Underestimation of Costs, in Ch. 7, Priemus, H., Flyvbjerg, B. & van Wee, B. (Eds) Decision-Making on Mega-Projects: Cost-benefit Analysis, Planning and Innovation — Transport Economics, Management and Policy series. DOI: 10.4337/9781848440173.00014

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ecyY is the Founder of Real Estate Development and Building Research & Information Centre REDBRIC

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