January 2010

Oliver Wyman Transportation Group

High Speed Rail Services and Capabilities

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

Oliver Wyman
Oliver Wyman is a global consultancy headquartered in the United States, serving a
wide range of industries.
Marsh & McLennan Companies
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Group

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Marsh Inc.

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NERA
Economic Consulting

Deep Industry Experience

Broad Capabilities

Global Reach

Exceptional expertise, with more than

30 years of experience serving major
companies in 40 sectors:
Automotive

A broad set of functional capabilities

to complement our industry focus

Clients can leverage capabilities

from around the world

Aviation, Aerospace, and Defense

Strategy

Communications, Media and

Technology

Finance & Risk

Energy and Utilities

Operations & Technology

Financial Services

Organization & Leadership

Health and Life Sciences

Manufacturing/Industrial Products
Retail and Consumer Products
Surface Transportation

Corporate Finance & Restructuring

Sales & Pricing

Atlanta
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Boston
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Hamburg

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Zurich

580+ partners and 2,260+ industry and functional experts across Oliver Wyman Group
Oliver Wyman www.oliverwyman.com

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.
Surface Transportation Group
Maritime

Motor Carrier

Operations
Strategy

Rail

Rail System
Restructuring
and Privatization

Urban
Transportation

Freight Mgmt./
Logistics

Organizational
Assessment

Travel &
Leisure

Financial and
Operational
Modeling

Major international railroads

Rail customers

Regional railroads

Equipment suppliers

Intercity passenger railways

Financial institutional investors

Urban transit authorities

Government agencies

Market and
Revenue Analysis

Oliver Wyman www.oliverwyman.com

Transportation
Cost and
Financial
Analysis

Legal and
Regulatory
Analysis and
Expert Testimony

Railway Mgmt.
Information and
Accounting
Systems

Oliver Wymans high-speed rail team

We 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
Oliver Wyman www.oliverwyman.com

Our value proposition

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

The Oliver Wyman Proposition

Content

Rail
expertise

High-speed rail
experience

Strategic
expertise

Credibility

We have a rich fact base of intellectual capital on

rail trends and economics, which includes
methodologies, analytical models, and databases.
We are considered a global leader in rail strategy
and operations, having worked with all of the major
North American and European railroads.
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
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 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.

Oliver Wyman www.oliverwyman.com

The Oliver Wyman Difference

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

Our knowledge
Oliver Wyman combines the use of proven methodologies and analytical tools with
industry leading thought leadership.
Illustrative not exhaustive

Methodologies and analytical tools

Value driven business design

MultiRail software

Oliver Wymans proprietary growth

strategy framework
Used by a number of Fortune 500
companies in their strategic planning
process
Customer selection
and value
proposition

Intellectual capital
Network design and planning system
Used by all major railways in North
America and Europe

Value capture/
profit model

Organizational
architecture

Strategic control

Scope

Strategic choice analysis

Interactive strategy models

Model for customer behavior

Financial implications of customer
decisions can be evaluated
Air

Eurostar

Mode

Price
Schedule
frequency

Food
service

What option
do you
choose?

Business

Coach

1st

2nd

1780F

990F

1320F

790F

1 departure every
40 minutes
6 a.m. 11 p.m.

1 departure every
60 minutes
5 a.m. 10 p.m.

Free
gourmet
meal

Free
snack

Free
gourmet
meal

Caf
service
(not free)

Business

Coach

1st

2nd

Oliver Wyman www.oliverwyman.com

Business simulation model

Driver-based financial analysis and
strategy development

I Dont
Travel

Strategy
Market

ISM
Business
drivers

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

Example of previous high-speed rail work: Ridership forecast

1 We use a phased approach in our analysis
PHASE 1
Travel demand
analysis

PHASE 2
Market
analysis

PHASE 3
Forecasting

PHASE 4
Financial and
economic
analysis

allowing us to develop reliable

forecasts of revenue and ridership
Ridership forecast by year by HSR option

125-mph

2 which examines drivers of volume and demand

150-mph

Overall
Demand

Customer
Preference

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

Factors Within
Factors Beyond
Operator Control Operator Control
Operating
speed/headway
Size/carrying
capacity of cars
Scheduling/ arrival
time
Price
Level
Structure
Car comfort
Implementation

Oliver Wyman www.oliverwyman.com

Improvements in
other
infrastructure
Congestion
Transfer time/
other mode
accessibility
Feeder
systems/fare
cooperation
Price caps
Competitive
response/
constraints

200-mph

Other

300-mph

Population
growth
Tourism
Annualized
rate of typical
daily demand
Opportunity
resulting from
new
transportation
mode
2021

2031

2051

Our experience
We have supported large-scale high-speed rail feasibility, infrastructure, and equipment
projects around the world.
Illustrative not exhaustive

Selected prior Oliver Wyman high-speed rail engagements

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

Assessed and
highlighted critical
issues for a highspeed rail link on
the QuebecWindsor Corridor

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

Completed a
project turnaround
audit to ensure
successful
implementation of
a high-speed rail
coalition

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

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

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

Oliver Wyman www.oliverwyman.com

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

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

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 highspeed routes as well as for domestic
high speed services.

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

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

Case study #1: Strategy and business model development

We used customer purchase decision simulations to strategically reposition a highspeed railways market offer.
Strategic Choice Analysis
(SCA)
Air

Concept of Repositioning

Eurostar

Mode
Business

Coach

1st

2nd

1780F

990F

1320F

790F

Price

1 departure every
40 minutes
6 a.m. 11 p.m.

Schedule
frequency

Food
service

What
option do
you
choose?

I Dont
Travel

Customers select specific

product offers

1 departure every
60 minutes
5 a.m. 10 p.m.

Free
gourmet
meal

Free
snack

Business

Coach

Free
gourmet
meal

Caf
service
(not free)

1st

2nd

Customer Segmentation
Business
First
Class

PriceSensitive

Strategic Choice Analysis

(SCA) is based on the
discrete choice approach

Four classes of service:

Premium First
First (Business, Leisure)
Second Plus
Second Standard

Result for each customer

segment:
Market share
Revenue
Profit margin

Customer service/sales:

Link to business plan model

Differentiated price strategy

Multi-channel sales
Frequent Traveler Program
Eurostar Lounges
Code share with airlines

Leisure
Not
Decision
Makers

Short
Stay

Vacation

Travel
Experience

Inter- capital

Key Results

Beyond Capitals

Passengers increased by 20%

Rest of Europe

Yield raised by >15%

Overseas

Measures of
repositioning

Revenue increased by 40%

Selective price markups

Differentiation in service
Frequent Traveler Program
Major customer strategy

Oliver Wyman www.oliverwyman.com

Limited price campaign

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

Market share gain against aviation

Case study #2: Ridership forecasting

We developed a complex demand model to forecast ridership for a high-speed rail
project in a inter-city Canadian corridor.
Situation

Approach

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.

Inputs**

BY 2006 LOS data for

auto, air, Grey-hound,
Red Arrow

BY 2006 trip tables

for 158x158 zones for
existing modes

BY 2006 socioeconomic data for

158 zone system
SP survey data for
auto, air, Greyhound,
Red Arrow

Data validation and

assembly

Model estimation and

calibration

Forecasting traffic
volumes

Results

Deleted OD pairs with

only 1 mode
available*
Deleted OD pairs with
zero trips on any
mode
Calculated population
and employment
densities
Calculated VOT and
VOF from SP survey
data

Future year LOS

skims for existing
modes
Future year
socioeconomic
projections
Future year LOS
skims for 4 HSR
scenarios

Tested several
alternative model
specs on RP data

Used VOT to convert

LOS into a composite
time

Future year forecast

volumes for auto, air,
Grey-hound, Red
Arrow

Final report and

presentation

Obtained coefficients
for separate mode
choice models for
business and nonbusiness

Calibrated the MC
models to BY shares

Estimated induced
demand models from
composite utilities
derived from mode
choice

Total HSR intercity

ridership and revenue
for various future year
scenarios

Model
elements
Value of time
model
Mode choice
model
Induced
demand
model

Forecast HSR
volumes diverted
from each mode
Forecast induced
HSR ridership

Outcome

Results

Statistically significant forecasts of ridership and modal

share as well as revenues

Ridership forecast by year by HSR option

125-mph

Ridership estimates based on varied service levels

Departure frequencies
Four high-speed rail service levels (speed)
Pricing (along with pricing elasticity and
optimization)

150-mph
200-mph
300-mph

Induced demand estimates based on mode addition and

service improvement
2021

2031

Oliver Wyman www.oliverwyman.com

2051

Sensitivity analyses: economic scenarios, competitor

moves, oil and gas prices
9

Case study #3: Fleet strategy

We developed a strategy to assist a major European railway in replacing its high-speed rail fleet.

Situation

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.

Approach

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

Lifecycle costs

Market to be operated

Divide train kilometers by the number

of trains

/train km

Profitability

Costs

Other cost
categories

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

Results

Costs are direct (e.g., depreciation,

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

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

Oliver Wyman www.oliverwyman.com

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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

Demand
risks

Revenue and cost

risks

Ridership/revenue
forecasts

Strategic
risks

Stochastic,
Strategy and business
probabilistic modeling
modeling

Deal structure
risks

Operational
risks

PPP structuring and

contract evaluation

Network and planning

Illustrative

Market Scenario

Competitor 1

Competitor 2

Competitor 2
$ 1 5 ,0 0 0 ,0 0 0
M a xim u m

$ 5 ,0 0 0 ,0 0 0

$ 0

-$ 5 , 0 0 0 , 0 0 0

Multiple
Multiple
indexes
indexes
Multiple
Multiple
indexes
indexes

Consensus

EXTERNAL PROJECTION
EXTERNAL PROJECTION

E x p e c te d

B ase c ase

Cost
Cost Trends
Trends and
and
forecasts
forecasts for
forraw
raw
m
aterials (steel,
materials
(steel,
wood,
wood,concrete,
concrete, etc.)
etc.)
Cost
CostTrends
Trendsfor
for
construction
construction labor
labor

Multiple
Multiple
indexes
indexes

Trends
Trends

Research
Implicati ons

Costing
CostingTrends
Trends and
and
predictions
predictionsfor
for all
all
cost
cost levers
levers

External
ExternalCosts
Costs
Structures
Structur es

Timing
Tim ing&&
Procurement
Procurement

Cost
CostBase
BaseEvolution
Evolution
over
over time
time by
by key
ke y
component
component

Costs
Costs over
over time
time

INTERNAL PROJECTION
INTERNAL PROJECTION

Key
Key Variable
Variable Costs
Costs
by
aterial
byMain
Main M
Material

-$ 1 0 , 0 0 0 , 0 0 0
M in im u m
-$ 1 5 , 0 0 0 , 0 0 0

Historical
HistoricalCost
C ost
Trends
Trends

20 02

2 003

2 004

2005

2006

2 007

2008

2009

2010

201 1

Proprietary choice Stochastic

driven statistical
probabilistic models
approach for forecasting
such as Monte Carlo
and maximizing
simulations (versus
ridership/revenue
deterministic singleanswer models):
Choice set approach
mirrors real-life
Model the range of
tradeoffs and
outcomes and the
increases forecasting
probability of
accuracy
certain outcomes
Provides customer
Provide the
price elasticities
probability of an
relative to competitive
unacceptable
options, service
outcome as well as
levels, time of day,
the likelihood of
etc.
generating above
average returns

Current
Current cost
cost
structure
structure by
by raw
r aw
material
m aterialbase
base

SCM
SCM Activities
Activities
(Future
(Future &&Historic)
Historic)
Labor
LaborCosts
Costs
Other
Other Fixed
Fixed Costs
Costs
Future
Future Capital
Capital
Investments
Investments

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

Oliver Wyman www.oliverwyman.com

Intervi ews

Multiple
Multiple
indexes
indexes

$ 1 0 ,0 0 0 ,0 0 0

Income
IncomeStatement
Statement
Current
CurrentLabor
Labor
Structure
Structure

Current
CurrentFixed
FixedCosts
Costs
and
andFuture
Future
Investments
Investments

Opportunities
Opportunities for
for
SCM
SCM and
and Cost
Cost
Structure
Structure Activities
Activities

Cash
Cash Flow
Flow
Statement
Statement

Company
Com pany
Perspectives
Perspectives

20 12

Strong track record in

Analysis of risk-sharing

developing successful
arrangements and dispute
HSR business models
resolution mechanisms, and
the quantification of contract
Detailed driver-based
risks
operational and financial
models
Assessment of
Statistically driven
governance
assumptions and expert
arrangements
opinions
Database of previously
Tied to operational
used risk-sharing
measures for
arrangements
performance
Technical term evaluation
management
based on industry
Can be used to review
experience (e.g., trackage
and revise or validate
rights agreements)
existing plans or run
Negotiation support
scenarios

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

11

Our capabilities (2/2)

Our broad range of strategic and operational capabilities are relevant to all stakeholders.

Strategic assessment

Due diligence

Business case development

Deal structuring

Operations improvement

Strategic and operational planning

Infrastructure and capital management

Revenue development

Operators

Investors

Governments

Other Stakeholders

Business case development

Strategic assessment

Deal structuring

Business case development

Risk allocation

Consortium facilitation

Infrastructure development and management

RFP support

Oliver Wyman www.oliverwyman.com

12

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

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

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

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

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

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

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

Oliver Wyman www.oliverwyman.com

13

Our team (2/2)

We have an experienced and dedicated senior team of professionals with deep rail
expertise.
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

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

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

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

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)

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

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

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

Oliver Wyman www.oliverwyman.com

14

Customer satisfaction of international consulting firms

Results of independent research conducted by Corporate Executive Board

Average recommendation by firm1

BCG

7.6

Mercer/Oliver Wyman

7.6

E&Y

7.2

KPMG

7.2

PwC

7.1

AT Kearney

7.1
7.0

IBM

6.9

Bain

6.8

Deloitte
Accenture

6.4

Booz

6.4
6.0

McKinsey
5.3

Bearing Point
1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

Do not
recommend

9.0

10.0

Strongly
recommend

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.

Oliver Wyman www.oliverwyman.com

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 Oliver Wyman www.oliverwyman.com

16