Is a train between Keflavik Airport and the centre of Reykjavik a feasible option?

Reykjavík Express

Ráðgjöf og verkefnastjórnunRunólfur Ágústsson

Project objectives• To carry out a preliminary feasibility study on constructing

and operating a private enterprise high-speed rail between Keflavik Airport and the centre of Reykjavik.

• To evaluate and outline the benefits of such a project for society.

• Reports to be published within 10 days.

• Findings presented today not final and confidential until published.

• The City of Reykjavík• Municipalities in the Sudurnes area• Efla (Consulting engineers) • Kadeco - The Keflavik Airport Development Corporation• Landsbankinn (largest commercial bank in Iceland)• Isavia (national airport and navigation service provider )• Istak (prime contracting firm)• Reitir (real estate company)

Project participants

October 2013: Preliminary study, gathering information, analysis and first assessment. Possible business partners view study.

November 2013 - June 2014: Proposals and analysis on possible routes and technologies. Initial engineering analysis and financial evaluation. A business plan.

November 2013: A work group is established.

Results are presented to possible investors. I feedback is positive an SPV would be established to further development the project.

2015-2018: Preparations. Environmental impact assessment. Work on design and organization.

2018-2024: Construction.

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Project stages

Reykjavík Express

• Two parallel tracks from Keflavik to Hafnarfjordur.

• Single track through a tunnel from Straumsvik to the centre of Reykjavik.

• The route is 47 km, thereof 12 km inside the tunnel.

• Average speed around 180 km/h, maximum speed 250 km/h

• Four trains that can initially carry up to 1.000 passengers an hour in each direction with an option to double the capacity in future years.

Reykjavík Express- route

Train stations•Surface terminal at the airport connected to the airport terminal

•Underground station in southern part of Reykjavik

•Underground terminal at the end of the tunnel in the center of Reykjavík.

Estimated construction cost

Expense EUR (million)Tunnel 9,82Constructions above ground 219,71Railway stations (KEF+ middle station +REK) 22,62Storage and maintenance facility 29,08Rails 116,32Signalling and control system 27,79Railway electrification system 42,00Rolling stock 103,39 Total construction cost (excluding VAT) 659,13

• +/- 20% • Estimated construction cost 14 million EUR per km

Construction plan 1 2 3 4 5 6 7 8

1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4

Design and planning phase

Preliminary cost and risk assessment

Design

Research & Development

Environmental impact assessment

Project planning

Construction phase

Construction of tunnel

Constructions above ground

Railway stations and platforms

Railway electrification system

Storage and maintenance facility

Construction of rails

Signalling and control system

Investment in rolling stock

Test and trial

Construction plan - cost

1 2 3 4 5 6 7 80

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180

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

4.613.4

50.7

98.8

156.9150.0

125.1

59.6

Construction cost per year Cumulative

EUR

- Mill

ion

Estimated number of passengers

Four different groups:• Foreign tourists travelling to and from the country• Domestic tourists travelling to and from the country• Transit passengers• Regular domestic passengers e.g. commuting passengers and

students

Estimated number of passengerstravelling through KEF Airport

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

16.5%

15.0%14.8%

17.2%

8.4% 8.2%7.5%

6.4% 6.0% 5.9% 5.7% 5.4%4.2% 4.2% 4.2% 4.2% 4.2% 4.2% 4.2% 4.2% 4.2%

9.30%

Number of arrival and departure passengers (left axis) Percentage change versus previous year (right axis)Foreign visitors in Iceland - Average change between years for the last 60 years

Estimated percentage of air passengers travelling through KEF Airport using train as transport modeComparison with Oslo Airport

Oslo Estimated in report

All passengers 49% 50%

All foreign passengers 54% 55%

Foreign passengers traveling to and from Oslo / Reykjavik 59% 55%

Icelandic / Norwegian passengers 46% 35%

Revenue generationEstimated number of sold tickets 2023

Passenger groupEstimated

total in 2023Percentage

using Air RailNumber of tickets sold

Foreign passengers KEF airport 3.540.000 55% 1.945.000Transit passengers KEF airport 1.350.000 5% 68.000Domestic passengers - KEF airport 1.140.000 35% 397.000Total number of tickets sold to passengers from KEF airport 2.415.000 Live in Keflavik, work in Reykjavík 517.000Live in Reykjavik, work in Keflavík 520.000Students 103.000Leisure passengers 438.000Total number of tickets sold to domestic passengers: 1.578.000

Total tickets sold in 2023 3.993.000

Revenue generation Estimated average price of tickets

Rail operator Price of ticket Currency rate ISK

Flytoget 170 NOK 18,8 3.196

Stansted 23,4 GBP 187,0 4.376

Arlanda 260 SEK 17,2 4.477

Heathrow 21 GBP 187,0 3.927

Average ticket price 3.994

• Price range from 800 to 3.800 ISK• Average price 2.600 ISK / 17,4 EUR

Estimated operational cost

• Estimated operational cost is based on information from North Star Consultancy and Flytoget AS.

• Operational cost includes:• Infrastructure cost EUR 11 million• Operating cost of rolling stock EUR 26,5 million

• Total operational cost is estimated EUR 37,5 million

Operation first 10 yearsEUR - THOUSANDS 1 2 3 4 5 6 7 8 9 10Number of sold tickets (m) 4 4,1 4,3 4,4 4,6 4,8 5 5,2 5,3 5,5Average price per ticket 17,1 17,1 17,2 17,3 17,4 17,5 17,5 17,6 17,7 17,8Revenue 68.013 70.869 73.855 76.963 80.207 83.593 87.128 90.811 94.656 98.669

Variable cost 5.441 5.667 5.906 6.158 6.417 6.688 6.973 7.263 7.574 7.897Fixed cost 31.864 31.864 31.864 31.864 31.864 31.864 31.864 31.864 31.864 31.864EBITDA 30.708 33.338 36.078 38.940 41.926 45.040 48.291 51.683 55.218 58.908

Depreciation 15.968 15.968 15.968 15.968 15.968 15.968 15.968 15.968 16.653 16.653EBIT 14.740 17.370 20.116 22.973 25.958 29.079 32.323 35.716 38.565 42.255

Cost of interest 21.525 21.525 21.525 21.124 20.330 19.528 18.733 17.932 17.137 16.336Earnings before taxes -6.785 -4.155 -1.409 1.848 5.635 9.544 13.596 17.784 21.428 25.919

Transferred loss -94.766 -98.921 -100.330 -98.481 -92.847 -83.302 -69.706 -51.922 -30.494 -4.575Taxable income 0 0 0 0 0 0 0 0 0 0Tax 0 0 0 0 0 0 0 0 0 0Retained earnings/loss -6.785 -4.155 -1.409 1.848 5.635 9.544 13.596 17.784 21.428 25.919

Cash flow first 10 yearsEUR - THOUSANDS 1 2 3 4 5 6 7 8 9 10EBITDA 30.705 33.335 36.078 38.940 41.926 45.041 48.291 51.682 55.219 58.911Changes in working capital -102,0 -4,3 -4,5 -4,7 -4,9 -5,1 -5,3 -5,5 -5,8 -6,0

Cash flow before taxes 30.603 33.331 36.074 38.935 41.921 45.036 48.285 51.676 55.214 58.905

Taxes paid 0 0 0 0 0 0 0 0 0 0

After tax cash flow 30.603 33.331 36.074 38.935 41.921 45.036 48.285 51.676 55.214 58.905

Capital expenditures 0 0 0 0 0 0 0 0 20.679 0

Financing activities

Interests paid 21.524 21.524 21.524 21.125 20.327 19.529 18.732 17.934 17.136 16.338

Loan payments 0 0 11.398 22.796 22.796 22.796 22.796 22.796 22.796 22.796

Net increase in cash 9.079 11.806 3.151 -4.986 -1.203 2.710 6.757 10.946 -5.397 19.770End of year cash 9.079 20.886 24.037 19.051 17.848 20.557 27.315 38.261 32.864 52.634

Funding and profitability• Private funding with no direct public funding• Equity ratio 20%• 30 year IRR 9,9%• Real interest rates

• 4,7% during construction • 3,5% long term

Sensitivity analysisInvestment cost and number of passengers – effects on IRR

Number of tickets sold (millions)

Investment

cost (millions)

EUR 3,0 3,5 4,0 4,5 5,0

530 6,7% 10,1% 13,1% 16,2% 19,1%

595 5,3% 8,5% 11,4% 14,3% 17,0%

659 4,1% 7,1% 9,9% 12,6% 15,2%

724 3,0% 5,9% 8,5% 11,2% 13,6%

788 1,9% 4,8% 7,3% 9,9% 12,2%

Sensitivity analysisLong term growth of passengers through KEF airport - effects on IRR

1.20% 2.20% 3.20% 4.20% 5.20% 6.20% 7.20% 8.20% 9.20%0%

2%

4%

6%

8%

10%

12%

14%

16%

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20%

1.2%

4.9%

7.6%

9.9%

11.8%13.5%

15.0%16.5%

17.8%

Long term annual growth of passengers travelling through KEF Airport

Inte

rnal

rate

of r

etur

n (IR

R)

Sensitivity analysisInterest rates - effects on IRR

Real interests rate long term

Real

interest rate

during constructio

n

1,5% 2,5% 3,5% 4,5% 5,5%

2,7% 12,7% 11,5% 10,3% 9,2% 8,1%

3,7% 12,6% 11,3% 10,1% 8,9% 7,8%

4,7% 12,5% 11,1% 9,9% 8,7% 7,6%

5,7% 12,3% 10,9% 9,6% 8,4% 7,2%

6,7% 12,1% 10,7% 9,3% 8,1% 6,9%

The economic case

The economic case• The standard approach to economic appraisal of new transport

projects: Cost benefit analysis

• Is society benefiting from the efficiency provided by train transport between Reykjavík and Keflavík airport?

• Should be read in conjunction with the strategic case for a private investment, which summarizes the full rationale for the scheme

• The analysis is carried out in line with standard cost-benefit analysis of road infrastructure according to framework set out by the Danish Ministry of Transport

The economic case• Monetized impacts:

i. User benefits – the value of time and net expenditures - Valuation of time savings; business or leisure

- Net costs: train ticket vs prior outlaysii. Societal benefits – the value of safety and environmental impacts - Pollution: noise and air - Accidents: Decrease in accident rate.

◦ Geographically limited: The user benefits are comprised of Icelanders only.◦ Differs from traditional cost-benefit analysis: Not funded by taxpayers! Therefore

we seek to assess user- and societal benefits only, i.e. benefits are not weighed against the net costs.

◦ We assume that there is not an excess return on a similarly risky investment in the private sector.

Results• Horizon: 30 years

• Required rate of return: 5%

• Benefits in the order of €250 – €375 million over 30 years

User benefits

Environmental b

enefits

Safety

benefits

Other benefits/

costs

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-50

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User benefitsEnvironmental benefitsSafety benefitsOther benefits/costs

Wider economic impacts• However, the economic case of cost benefit analyses can

only ever provide part of the overall picture, and there are many other factors that can and should be taken into account.

• We try to assess the additional factors – the wider economic impacts:

i. Local economic growth in the communities affected

ii. Impact on real estate prices and investment

iii. Impact on general wage level and productivity

Wider economic impacts• The scope of the analysis at this point does not allow for a

intricate assessment of wider economic impacts. We therefore only mention likely impacts.

• Avoid double counting!

• Not likely to influence local economic growth significantly. Only applicable if the community is heavily constrained by existing transport infrastructure.

• Likely to have a positive effect on local employment – the joining of two areas, Keflavík and Reykjavík. Mobility of the workforce

• Likely to influence real estate prices and wage level.

Green express: What are the benefits for society?