Chapter 4 - Revenue structure

Question 1

When can we classify a railway as financially sustainable?

Answer 1

When it has sufficient longer-term financial resources to cover operational costs, to invest, and to meet debt service and other financing requirements

Question 2

What are the four main elements of railway financial sustainability?

Answer 2

1. Revenue structure
2. Cost structure
3. Investment requirements
4. Capital structure

Question 3

The important components of revenue structure are:

Answer 3

(a) Traffic
(b) Pricing
(c) Revenue collection
(d) Subsidies
(e) Service payments

Question 4

(a) Traffic - how do railways increase demand?

Answer 4

By increasing market share with timely, reliable, high value services

Question 5

(a) Traffic - What are the steps to analysing railway traffic?

Answer 5

1. Identify the main customer and product segments:
   *Freight - coal, steel, containers
   *Passenger - commuter, urban
2. Identify the rail market share of the main traffic segments and assess the competition
3. Examine market for other transport modes to find out if rail can compete

Question 6

(b) Pricing - Pricing is governed by what three main factors?

Answer 6

1. Costs
2. Competition
3. Regulation

Question 7

(b) Pricing - railways need to

Answer 7

1. Understand how to price competitively
2. Understand elasticity of demand
3. Accurately calculate variable costs

Question 8

What is a PSC?

Answer 8

Public service contract - governments compensate railways for providing socially important but unprofitable services. E.G., passenger operations to remote areas; discounts for demographic groups
Compensation levels rise with frequency and extent of network covered by PSC

Question 9

Learn ratios for revenue structure

Answer 9

revenue/traffic unit
collection ratio
subsidy/traffic unit
subsidy as % of GDP