Finally, after years of deliberation, the State Railway of Thailand (SRT) has finally approved plans for two new high speed train services in Thailand. These plans will considered by the cabinet of Thailand’s Government in June 2016.
The two proposed high speed lines are:
- Bangkok to Rayong
- Bangkok to Hua Hin
Part of a Larger Project
Both new high speed lines will form part of the Pan Asia Railway Network, which is an ambitious plan to use high speed trains to link China with 7 ASEAN countries facilitating trade and tourism.
Under SRT proposals the new high speed train services will be funded by a Public Private Partnership (PPP). The SRT will contribute the land and a 25 year concession to run the services, in return the private investor will build the new railway track, design and construct the trains, and run the high-speed services for 25 years.
Too Good To Be True?
Sounds simple enough. No major expenditure on the part of the SRT and big private companies get 25 years to re-coup their investment in building the trains and the track. Everyone’s a winner. However, here is the big snag: at the moment train travel in Thailand is really cheap. Even with track in already in place, lots of land owned freehold and let out privately, state subsidies, cheap to maintain trains, unfortunately the SRT still makes huge losses year-on-year from running Thailand’s existing train services simply because they do not charge enough money for tickets. Expenses exceed income. Not a successful business formula.
Can Thailand Train Prices Increase Enough?
This is the first thing any private investor into these two high-speed lines is going to consider. Will the consumer, and public opinion, bear the increase in train ticket cost required to provide a commercial profit to any prospective private investors? Our thinking is probably not.
Lets consider the Bangkok to Hua Hin route. Currently a train ticket booked online costs around 550 THB for an air-conditioned 2nd class seat on the 4 hour journey by train from Bangkok to Hua Hin. If you go by minibus from Bangkok to the centre of Hun Hin it will cost you 180 THB and involve a shorter journey of 3 hours.
Now assuming that the train service is three times faster than the existing one, then the journey is cut down to 1 hour 20 minutes. This is a 2 hours 40 minutes improvement on the existing train service and 1 hour 40 minutes quicker than the journey by minibus.
No doubt the journey would be significantly quicker than it is now, however, from a business perspective the question is what value do train users place on that time saving? What is the additional 2 hours 40 minutes worth to them?
Wage Levels in Thailand
If the price went up by 200 THB then the majority of train users would be likely to be happy pay the increase for the short journey. For most Thai people 200 THB is an amount they would be willing to spend on an occasional treat.
The problem is that if the price goes up a 1,000 THB, remember there is a lot of advanced train technology to buy and maintain so actually 1,000 THB may not be enough, it is unlikely that many of the current users would be willing to pay such a large additional amount. Tourists visiting Thailand for a couple of week would probably be willing to pay the extra because it is still cheap compared to the price in their home country, but not the majority of the train users who are locals to South East Asia.
At the time of writing the minimum wage in Thailand is 300 THB a day. Someone with a middle class job like a civil servant or a teacher is likely to be earning double that amount. This means poorer people in Thailand would have to work an additional 2 or 3 days to pay for a 1,000 THB hike in ticket prices, which makes no sense if all you saving is 2 hours 40 minutes sat resting on a train. At the moment anyone in a real hurry to arrive early in Hua Hin simply takes an early minivan.
Thai Railways and Economics of Public Private Partnerships
Unfortunately, the underlying economics of train ticket pricing in Thailand will make it very difficult for the SRT to attract investors for its PPP’s proposal. The reality is likely to be that private investors will be not be interested in getting involved unless either the PPP deal includes a significant sweetener from the Thai state in form of a financial grant, easy loans, and support for allowing train operators to charge higher fare, or the project waits until the neighbouring countries get further along with constructing the remaining sections of the Pan Asia Railway Network and a new type of train user (willing to pay higher prices) starts arriving in large numbers from China and beyond.