oliver wyman high speed rail capabilities final blog

C O N F I D E N T I A L | www.oliverwyman.com

Oliver Wyman Transportation GroupHigh Speed Rail Services and Capabilities

January 2010

1 Oliver Wyman www.oliverwyman.com

Oliver WymanOliver Wyman is a global consultancy headquartered in the United States, serving a wide range of industries.

AtlantaBarcelonaBeijingBostonBuenos AiresCalgaryChicagoClevelandDallasDubaiDusseldorfFrankfurtHamburg

Clients can leverage capabilities from around the world

Exceptional expertise, with more than 30 years of experience serving major companies in 40 sectors: Automotive Aviation, Aerospace, and Defense Communications, Media and

Technology

Energy and Utilities Financial Services Health and Life Sciences Manufacturing/Industrial Products Retail and Consumer Products Surface Transportation

Marsh & McLennan Companies

Oliver Wyman Group

Marsh Inc.Risk and Insurance

Guy CarpenterRe-insurance Advisors

MercerHuman Capital

KrollBusiness Intelligence

NERA Economic Consulting

LippincottBrand and Identity

ConsultingOliver Wyman

A broad set of functional capabilities to complement our industry focus

Corporate Finance & Restructuring Strategy Finance & Risk Sales & Pricing Operations & Technology Organization & Leadership

580+ partners and 2,260+ industry and functional experts across Oliver Wyman Group

Global ReachDeep Industry Experience Broad Capabilities

AtlantaBarcelonaBostonBuenos AiresCalgaryChicagoClevelandDallasDetroitDubaiDusseldorfFrankfurtHamburg

ParisPhiladelphiaPittsburghSan FranciscoSao PauloSeoulSingaporeStockholmSydneyTorontoWashington DCZurich

Hong KongHoustonIstanbulLisbonLondonLos Angeles MadridMexico CityMilanMontrealMoscowMunich New York


Oliver Wymans rail practice Our rail practice employs the largest and most experienced staff in the world dedicated to the rail industry and is widely recognized as the premier management consultancy to state-owned and private freight and passenger railroads.

Major international railroads Regional railroads Intercity passenger railways Urban transit authorities

Rail customers Equipment suppliers Financial institutional investors Government agencies

Surface Transportation Group

RailMotor CarrierMaritime UrbanTransportation

Freight Mgmt./Logistics

Travel & Leisure

Rail System Restructuring and Privatization

Railway Mgmt. Information and Accounting Systems

Market and Revenue Analysis

Transportation Cost and Financial Analysis

Legal and RegulatoryAnalysis andExpert Testimony

Organizational Assessment

Operations Strategy

Financial and Operational Modeling

$ i


Oliver Wymans high-speed rail teamWe support high-speed rail feasibility, strategic, infrastructure, and equipment projects worldwide.

Oliver Wyman maintains a dedicated group to serve the high-speed rail market. This group offers: In-depth knowledge and a track record of success working with leading high-speed rail operators Strong relationships with every major railroad in North America and Europe A global team of rail experts that are highly regarded by governments and industry stakeholders

We support our clients on a variety of strategic and operational issues: We employ a fact-based analytical approach that produces impacts through insights Our capabilities range from financial modeling and ridership/revenue forecasts to operations

improvement and network scheduling

Oliver Wyman has advised investors, operators, and rail authorities on many topics, including: Ridership and revenue forecasts Development of large rail infrastructure projects Development of concession terms and structures Development of public-private partnerships and risk modeling Passenger over freight rail operations and planning Business model development and assessment Rightsizing of assets

Oliver Wyman has generated significant value for its rail clients. Examples include: Advanced customer insights that drove a 20 percent increase in ridership and 40 percent increase in

revenues Strategic assessments of benefits supporting various high-speed rail projects Complex risk analysis supporting renegotiations and saving hundreds of millions of dollars


We are a trusted and reliable partner for the worlds leading high-speed rail operators, having completed numerous engagements for the major European rail operators

Our value proposition Oliver Wyman possesses the knowledge, expertise, and experience to advise on a wide range of high-speed rail issues.

We have a rich fact base of intellectual capital on rail trends and economics, which includes methodologies, analytical models, and databases.

We possess proven strategic analysis capabilities on rail issues. We recently completed strategic assessments of high-speed rail projects in western Canada and the northern United States.

We are considered a global leader in rail strategy and operations, having worked with all of the major North American and European railroads.

We have developed strong credibility within the industry and are regularly called on to provide expert testimony on rail matters for public authorities, including before the US Congress.

1Content

2

Strategic expertise

4

Railexpertise

3

5Credibility

High-speed rail experience

Dedicated team that combines deep industry expertise and state-of-the-art methodologies Decades of experience helping leading

rail and transportation clients globally Track record in successfully resolving

strategic and operational issues

Independent, data-driven analyses Market-driven analyses and insights to

evaluate investment decisions and define sound strategies

Extensive financial modeling capabilities that enable a detailed understanding of the key drivers of performance

A track record of providing valued, objective advice

Collaborative work style

The Oliver Wyman Proposition The Oliver Wyman Difference


Our knowledgeOliver Wyman combines the use of proven methodologies and analytical tools with industry leading thought leadership.

Intellectual capital

Organizationalarchitecture

Strategic control

Value capture/ profit model

Scope

Customer selectionand value proposition

ModeAir

Business Coach

Eurostar

1st 2nd

I Dont Travel

Price 1780F 990F 1320F 790F

Schedule frequency

Food service

Free gourmet

meal

Free snack

Free gourmet

meal

Cafservice

(not free)

What option do you

choose?Business Coach 1st 2nd

1 departure every 40 minutes

6 a.m. 11 p.m.


5 a.m. 10 p.m.

Methodologies and analytical tools

Value driven business design Oliver Wymans proprietary growth

strategy framework Used by a number of Fortune 500

companies in their strategic planning process

Strategic choice analysis Model for customer behavior Financial implications of customer

decisions can be evaluated

MultiRail software Network design and planning system Used by all major railways in North

America and Europe

ISMStrategy

Businessdrivers

Market

Interactive strategy models Business simulation model Driver-based financial analysis and

strategy development

Illustrative not exhaustive


Overall Demand

Factors Within Operator Control

Factors Beyond Operator Control Other

Customer Preference

Our expertiseWe apply our strategic capabilities to tackle complex questions within the high-speed rail industry.

Economic growth/change

Distribution of economic change

Induced demand from new mode choices/new capacity

Delay in consumer response

Value of time

Walk Wait In

vehicle Vehicle

ownership Price

sensitivities Intermodal

transfer

Operating speed/headway

Size/carrying capacity of cars

Scheduling/ arrival time

Price Level Structure

Car comfort Implementation

Improvements in other infrastructure

Congestion Transfer time/

other mode accessibility

Feeder systems/fare cooperation

Price caps Competitive

response/ constraints

Population growth

Tourism Annualized

rate of typical daily demand

Opportunity resulting from new transportation mode

2021 2031 2051

125-mph

150-mph

200-mph

300-mph

Ridership forecast by year by HSR option

PHASE 4Financial and economic analysis

PHASE 3Forecasting

PHASE 2Market analysis

PHASE 1Travel demand analysis

We use a phased approach in our analysis

which examines drivers of volume and demand

1

2

3 allowing us to develop reliable forecasts of revenue and ridership

Example of previous high-speed rail work: Ridership forecast Illustrative


Our experienceWe have supported large-scale high-speed rail feasibility, infrastructure, and equipment projects around the world.

Developed an overview of the market, competition, and regulatory environment for public transport in China (including high-speed rail and maglev)

Assessed the regulatory framework of the European passenger rail network for several rail equipment financing companies

Developed a fleet strategy for long-haul, including procurement concept for high-speed trains

Selected prior Oliver Wyman high-speed rail engagementsCompleted a project turnaround audit to ensure successful implementation of a high-speed rail coalition

Illustrative not exhaustive

Reviewed ridership and revenue forecasts for a proposed high-speed rail link in Illinois and Michigan

Assessed and highlighted critical issues for a high-speed rail link on the Quebec-Windsor Corridor

Developed ridership forecast for a high-speed rail link between Calgary and Edmonton

Presented a perspective on the role of high-speed rail to the US House of Representatives

Worked as part of a consortium in a major high-speed rail transaction, modeling the financials and aligning the views of the consortium

Reviewed projected operating and maintenance costs for a high-speed rail link between Las Vegas and southern California

Conducted a positioning and market assessment study to determine the maximum traffic/revenue level attainable for a high-speed rail line

To support the sale of a U.K. high speed line, Oliver Wyman provided a railway, and several government entities with a robust understanding of future demand and economic performance on European high-speed routes as well as for domestic high speed services.


Business

First Class

Not Decision Makers

Leisure

Short Stay Vacation

Travel Experience

Price-Sensitive

Case study #1: Strategy and business model developmentWe used customer purchase decision simulations to strategically reposition a high-speed railways market offer.

ModeAir

Business Coach

Eurostar

1st 2ndI Dont Travel

Price 1780F 990F 1320F 790F

Schedule frequency

Food service

Free gourmet

meal

Free snack

Free gourmet

meal

Cafservice

(not free)

What option do

you choose?

Business Coach 1st 2nd


6 a.m. 11 p.m.


5 a.m. 10 p.m.

Strategic Choice Analysis (SCA) Concept of Repositioning

Customer Segmentation

Strategic Choice Analysis (SCA) is based on the discrete choice approach

Customers select specific product offers

Result for each customer segment:

Market share Revenue Profit margin

Link to business plan model

Four classes of service: Premium First First (Business, Leisure) Second Plus Second Standard

Customer service/sales: Multi-channel sales Frequent Traveler Program Eurostar Lounges Code share with airlines

Differentiated price strategy

Key Results Passengers increased by 20% Yield raised by >15% Revenue increased by 40% Market share gain against aviation Selective price markups

Differentiation in service Frequent Traveler Program Major customer strategy

Limited price campaign Bundled offers (hotel) Bus/Metro Ticket Multi-channel strategy

Measures of repositioning

Inter- capital

Beyond Capitals

Rest of Europe

Overseas


Case study #2: Ridership forecastingWe developed a complex demand model to forecast ridership for a high-speed rail project in a inter-city Canadian corridor.

Situation Approach

OutcomeResults

ResultsForecasting trafficvolumes

Model estimation andcalibration

Data validation andassembly

Inputs**

BY 2006 LOS data forauto, air, Grey-hound,Red Arrow

BY 2006 trip tablesfor 158x158 zones forexisting modes

BY 2006 socio-economic data for158 zone system

SP survey data forauto, air, Greyhound,Red Arrow

Future year LOSskims for existingmodes

Future yearsocioeconomicprojections

Future year LOSskims for 4 HSRscenarios

Deleted OD pairs withonly 1 modeavailable*

Deleted OD pairs withzero trips on anymode

Calculated populationand employmentdensities

Calculated VOT andVOF from SP surveydata

Tested severalalternative modelspecs on RP data

Used VOT to convertLOS into a compositetime

Obtained coefficientsfor separate modechoice models forbusiness and non-business

Calibrated the MCmodels to BY shares

Estimated induceddemand models fromcomposite utilitiesderived from modechoice

Future year forecastvolumes for auto, air,Grey-hound, RedArrow

Forecast HSRvolumes divertedfrom each mode

Forecast inducedHSR ridership

Total HSR intercityridership and revenuefor various future yearscenarios

Final report andpresentation

Faced with an expanding economy and growing intercity traffic in a dense corridor, our client wanted to explore the viability of a high-speed rail service that would increase intercity travel and reduce highway congestion.

Oliver Wyman was asked to provide an independent ridership forecast that could be contrasted with another vendors projection:

Improve overall ridership forecast certainty Identify base case revenue expectations Assess sensitivity to economic growth, oil and

gas prices, competitive reactions, etc.

Model elements

Value of time model

Mode choice model

Induced demand model

2021 2031 2051

125-mph

150-mph

200-mph

300-mph

Statistically significant forecasts of ridership and modal share as well as revenues

Ridership estimates based on varied service levels Departure frequencies Four high-speed rail service levels (speed) Pricing (along with pricing elasticity and

optimization) Induced demand estimates based on mode addition and

service improvement Sensitivity analyses: economic scenarios, competitor

moves, oil and gas prices

Ridership forecast by year by HSR option


Case study #3: Fleet strategy We developed a strategy to assist a major European railway in replacing its high-speed rail fleet.

Situation

Approach

Our client will need to replace major parts of its high-speed rail fleet in the coming decade. Oliver Wyman was tasked with:

Evaluating the economic implications of a revised fleet strategy, and Defining the migration path from todays fleet to the target structure.

Lifecycle costs Market to be operated

A B C Other cost categories

DCosts

/train km

Profitability

requirement Costs are direct (e.g., depreciation,

interest) or indirect (maintenance costs), which will be determined by the type of fleet procured

In case of a given profitability requirement, the size of the network must be reduced as lifecycle costs rise

A fleet strategy centered around a common platform for a portion of the fleet was developed. Core vehicle characteristics were defined.

Results

The tradeoff between lifecycle costs and operated network was explicitly examined, taking profitability requirements into consideration.

Divide train kilometers by the number of trains


Our capabilities (1/2)Oliver Wyman can deploy a sophisticated set of tools and approaches to help its clients minimize risks and increase returns.

Sample

Network and planning

MultiRail proprietary network design and planning system Used by major railways in

North America and Europe

State-of-the-art system using innovative algorithms and user interfaces

Tool of choice for special studies such as mergers, privatization, operating plan redesign, and routing investment analysis

Operational risks

Stochastic, probabilistic modeling

-$ 2 0 , 0 0 0 , 0 0 0

-$ 1 5 , 0 0 0 , 0 0 0

-$ 1 0 , 0 0 0 , 0 0 0

-$ 5 , 0 0 0 , 0 0 0

$ 0

$ 5 , 0 0 0 , 0 0 0

$ 1 0 , 0 0 0 , 0 0 0

$ 1 5 , 0 0 0 , 0 0 0

2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2

M a x i m u m

B a s e c a s e E x p e c t e d

M i n i m u m

Stochastic probabilistic models such as Monte Carlo simulations (versus deterministic single-answer models): Model the range of

outcomes and the probability of certain outcomes

Provide the probability of an unacceptable outcome as well as the likelihood of generating above average returns

Revenue and cost risks

Ridership/revenue forecasts

Market ScenarioIllustrative

Competitor 1 Competitor 2 Competitor 2

Proprietary choice-driven statistical approach for forecasting and maximizing ridership/revenue Choice set approach

mirrors real-life tradeoffs and increases forecasting accuracy

Provides customer price elasticities relative to competitive options, service levels, time of day, etc.

Demand risks

Strategy and business modeling

Costing Trends and predictions for all

cost levers

Costing Trends and predictions for all

cost levers

TrendsTrendsCost Trends and forecasts for raw materials (steel,

wood, concrete, etc.)

Cost Trends and forecasts for raw m aterials (steel,

wood, concrete, etc.)

Cost Trends for construction laborCost Trends for

construction labor

Multiple indexesMultiple indexes








Key Variable Costs by Main Material

Key Variable Costs by Main Material

Costs over timeCosts over time

E

X

T

E

R

N

A

L

P

R

O

J

E

C

T

I

O

N

E

X

T

E

R

N

A

L

P

R

O

J

E

C

T

I

O

N

I

N

T

E

R

N

A

L

P

R

O

J

E

C

T

I

O

N

I

N

T

E

R

N

A

L

P

R

O

J

E

C

T

I

O

N

C

o

n

s

e

n

s

u

s

Interviews

Research

Implications

Interviews

Research

Implications

Historical Cost Trends

Historical Cost Trends

SCM Activities (Future & Historic)

SCM Activities (Future & Historic)

Other Fixed CostsOther Fixed Costs

Labor CostsLabor Costs

Future Capital Investments

Future Capital Investments

Current cost structure by raw

m aterial base

Current cost structure by raw

material base

Current Labor Structure

Current Labor Structure

Current Fixed Costs and Future

Investments

Current Fixed Costs and Future

Investments

Cost Base Evolution over time by ke y

component

Cost Base Evolution over time by key

component

Tim ing & Procurement

Timing & Procurement

Income StatementIncome Statement

Cash Flow StatementCash Flow Statement

Opportunities for SCM and Cost

Structure Activities

Opportunities for SCM and Cost

Structure Activities

Com pany Perspectives

Company Perspectives

External Costs Structures

External Costs Structures

Strong track record in developing successful HSR business models

Detailed driver-based operational and financial models

Statistically driven assumptions and expert opinions Tied to operational

measures for performance management

Can be used to review and revise or validate existing plans or run scenarios

Strategic risks

PPP structuring and contract evaluation

Analysis of risk-sharing arrangements and dispute resolution mechanisms, and the quantification of contract risks Assessment of

governance arrangements

Database of previously used risk-sharing arrangements

Technical term evaluation based on industry experience (e.g., trackage rights agreements)

Negotiation support

Deal structure risks


Our capabilities (2/2)Our broad range of strategic and operational capabilities are relevant to all stakeholders.

Business case development

Operations improvement

Infrastructure and capital management

Strategic assessment

Operators

Due diligence

Strategic and operational planning

Deal structuring

Revenue development

Investors


Risk allocation

Deal structuring

Infrastructure development and management

Governments


Consortium facilitation

RFP support

Strategic assessment

Other Stakeholders


Our team (1/2)We have an experienced and dedicated senior team of professionals with deep rail expertise.

Gilles Roucolle Head of the firms global surface transportation practice Has conducted numerous global assignments in all

transport sectors, including for transit and North American/European freight and passenger railroads

Regular speaker at logistics and transportation conferences

Allan E. Kaulbach Leads the Global Corporate Finance Practice in the

firms Manufacturing, Transport and Energy Unit Large-scale restructuring, M&A, project finance and

regulatory assignments for governments and private sector companies in North and South America, South Africa, the Pacific Rim, and Europe

Joris DInca Specializes in strategy, M&A and restructuring, mainly

for the transportation, machinery and engineering industries

Restructured and introduced new business designs for European operators, developed alliance strategies for leading freight rail operators, performed due diligence on rail fleets

Georges Vialle Specializes in competitive and strategic analysis,

organizational design, and information systems Conducted strategy assignments for high-speed rail

operators in Europe Held senior management position in the TGV division

of SNCF prior to joining Oliver Wyman

William J. Rennicke Specializes in surface transportation transactions,

strategic planning, management, marketing, economics, and operations

Provides restructuring and organizational redesign to improve financial and operating performance of transportation entities

Dr. Dirk Rompf Specializes in rail strategy, organization, change

management, restructuring, and network management Held senior management positions at a leading railway Has worked for international railways on strategic

reorientation, network optimization, strategic planning, investment strategy and fleet management

Paul Stephens Specializes in the design, development, and use of

surface transportation software Held executive positions in various transportation

companies and software development firms Broad experience in demand forecasting, capacity

management, and network design

Carl Van Dyke Has over 25 years of consulting and software

development experience in the transportation industry Specializes in the application of computers to

transportation engineering and operations issues, with particular emphasis on railroad network modeling, service design, train scheduling, and equipment management


Our team (2/2)We have an experienced and dedicated senior team of professionals with deep rail expertise.

Patrick Lortie Extensive experience in strategic business design,

organizational design, risk modeling, and operations improvement issues for transportation clients

Led global passenger rail operational performance benchmarking effort

Coordinated a major rail infrastructure project for a Latin American government

Rodney Case International expert in transportation operations

planning, strategy development, and performance management, notably for the rail freight industry

Held senior positions with Canadian Pacific and SNCF Founder and co-chair of the International Rail Planning

Conference

Eric Vratimos Over 15 years of consulting experience, leader of

North American surface transportation practice Broad experience in transportation and supply chain,

including strategy and operations in various sectors (freight and passenger rail, aviation and aerospace, trucking, parcel and transit)

Jason Kuehn Has over 20 years of railway experience, with

particular expertise in evaluating and designing rail networks and operating plans

Specializes in rail service design and the application of software to unique railway environments

Has provided his expertise to railways in North America, South America, Africa and Europe

Jeffrey P. Elliott Specializes in corporate planning and strategy,

business design, transactions support, marketing and sales strategy, and operations and maintenance performance improvement

Over 25 years of experience in the transportation industry; held executive positions at Conrail

Alejandro Gaffner Over 25 years of consulting experience with a focus in

the transportation and infrastructure sectors Expert in business strategy, marketing and sales,

organizational and operational improvement Has worked with major rail and commuter operators in

Spain and Portugal

Kevin Foy Has over 25 years of experience in the application of

information technology to transportation companies. Held senior management positions at several transportation software providers

Has worked with passenger and freight railways in the Americas, Europe, South Africa and Asia

Olivier Fainsilber Over 25 years of consulting for OW transportation

clients in 40 countries Deep knowledge of high speed rail markets,

economics, and operations in Europe Advisor to high speed operators, government,

infrastructure, and financial institutions


Do notrecommend

Average recommendation by firm1

7.6

7.6

7.2

7.2

7.1

7.1

7.0

6.9

6.8

6.4

6.4

6.0

5.3

1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0

BCG

Mercer/Oliver Wyman

E&Y

KPMG

PwC

AT Kearney

IBM

Bain

Deloitte

Accenture

Booz

McKinsey

Bearing Point

1 Based on 517 responds with feedback on 140 consulting firms. Only firms with more than 10 responses are displayed in the graph. 2008 Corporate Executive Board. Used with permission.

Customer satisfaction of international consulting firms

Stronglyrecommend

Results of independent research conducted by Corporate Executive Board

oliver wyman high speed rail capabilities final blog

Documents