The price adjustment is about to be implemented, and the ceiling of China's high-speed rail is open again!

Author: Taylor, Editor: Xiaoichi Mei

On May 2, the official website of Railway 12306 issued four price adjustment announcements, announcing the optimization and adjustment of the fares of EMU trains with a speed of 300 kilometers per hour and above running on the Wuhan-Guangzhou section of the Beijing-Guangzhou high-speed railway, the Shanghai-Kunming high-speed railway, the Shanghai-Kunming high-speed railway, and the Hangzhou-Ningbo section of the Hangzhou-Shenzhen railway, and will be officially implemented from June 15, 2024.

According to the newly released fare schedule, the second-class ticket price increase for all four routes is close to 20%. In terms of actual fares, the fare for the high-speed rail from Guangzhou south to Wuhan has risen from 463.5 yuan to 553 yuan, while the second-class ticket price for the high-speed rail between Shanghai Hongqiao and Hangzhou East Railway Station has risen from 73 yuan to a maximum of 87 yuan.

In the impression of many people, the expensive high-speed rail has strong public welfare attributes and is destined to be a difficult industry to make a profit. In 2022, the loss of the Beijing-Shanghai high-speed railway, the golden line, will be 576 million, which makes people question the profitability of the high-speed railway.

But stereotypes will always have cognitive biases.

Recently, the Beijing-Shanghai high-speed railway released its 2023 performance announcement, achieving revenue of 40.683 billion yuan, a year-on-year increase of 110.40%; The net profit attributable to the parent company was 11.546 billion yuan. From a loss to an annual profit of 10 billion, the Beijing-Shanghai high-speed railway took only one year.

The Beijing-Shanghai high-speed railway, which seems to be a counterattack in performance, is actually the return of the king.

The Beijing-Shanghai high-speed railway, which opened to traffic in 2011, has epoch-making significance in China's high-speed rail map: it is the largest investment project since the founding of the People's Republic of China, with a total investment of 220.9 billion yuan and a total length of 1,318 kilometers, connecting the two super metropolises of Beijing and Shanghai, running through the two core urban agglomerations of "Beijing-Tianjin-Hebei" and "Yangtze River Delta", and is the world's longest high-speed railway with the longest line and the highest standard.

In the fourth year after its official opening, the Beijing-Shanghai high-speed railway achieved profitability, with a profit of 6.581 billion yuan that year. From 2016 to 2019, the net profit of the Beijing-Shanghai high-speed railway continued to grow year by year, exceeding 10 billion yuan in 2018 and increasing to 11 billion yuan in 2019, with an annualized growth rate of more than 14%. Even in 2020 and 2021, the Beijing-Shanghai high-speed railway is still profitable, earning 8 billion in two years.

In 2022, the Beijing-Shanghai high-speed railway will have a rare loss, on the one hand, it is naturally an extremely sluggish industry prosperity.

Due to the impact of the epidemic, 2022 has become the year when the transportation industry has bottomed out, with the passenger volume of the whole industry falling by 32.7% year-on-year. In the same year, the Beijing-Shanghai high-speed railway only carried 17.226 million passengers, a decrease of more than 50% compared with 2021, and only about one-third of that in 2019.

The more important reason is the drag of new business. Jingfu Anhui Company, the largest high-speed rail company in Anhui Province acquired by the Beijing-Shanghai high-speed railway in 2019, has continued to lose money in recent years, and the actual loss in 2022 is as high as 2.795 billion yuan, which has become an important factor leading to the overall loss of the Beijing-Shanghai high-speed railway.

In other words, in addition to the performance impact of Jingfu Anhui Company, the Beijing-Shanghai high-speed railway will actually remain profitable in 2022.

Compared with the global status of China's high-speed railway, the sustained profitability of the Beijing-Shanghai high-speed railway is indeed not universal in the industry.

In recent years, China's high-speed rail mileage has continued to grow and has become a national business card of China. From 2012 to 2022, the mainland's high-speed rail mileage increased from 9,000 kilometers to 42,000 kilometers, with an annualized growth rate of more than 15%, ranking first in the world, higher than the sum of the other nine countries in the TOP10, and Germany, which ranked second, has a high-speed rail mileage of only 6,226 kilometers, less than one-sixth of China.

But high-speed rail operations are not an easy industry to make money. China Railway Group, which operates high-speed rail, has been suffering huge losses for many years. High investment and operating costs, as well as the intensity of passenger flow on different lines, make it unrealistic for China's high-speed rail to achieve full profitability in the short term.

At present, there are only 6 high-speed rail lines that have achieved profitability, namely: Beijing-Shanghai, Beijing-Tianjin, Shanghai-Hangzhou, Shanghai-Nanjing, Nanjing-Hangzhou, and Guangzhou-Shenzhen-Hong Kong high-speed rail lines. Without exception, these lines are located in economically developed regions.

As the core high-speed rail trunk channel of the mainland, the Beijing-Shanghai high-speed railway includes Beijing, Tianjin, Nanjing, Suzhou, Shanghai and other important economic towns along the way, accounting for 11.7% of the country's population and contributing 18.5% of the country's GDP.

In 2019, before the epidemic, the Beijing-Shanghai high-speed railway carried a total of 215 million passengers on the main line and across the line, contributing 6% of the country's passenger dispatch with less than 1% of the country's railway mileage, making it the busiest and most efficient high-speed rail station in the country.

The unique business model of the Beijing-Shanghai high-speed railway is also a magic weapon for sustainable profitability.

The main business of the Beijing-Shanghai high-speed railway includes two parts: one is the railway transportation of this line, which collects fares from passengers, which is equivalent to the company's self-operated business; The second is the cross-line road network service, when the trains of other railway transport companies run on the Beijing-Shanghai high-speed railway, they will be charged road network service fees, which is equivalent to rent collection business.

In 2009, Warren Buffett invested $44 billion in the Norte Santa Fe Railroad in Burlington, the second-largest rail operator in the United States.

In the view of the stock god, the railroad has huge cost and environmental advantages, is an important promoter and beneficiary of the country's development, and investing in the railroad is to invest in the future of the American economy.

The investment logic of the stock god, coupled with foreign development experience, may allow us to see the future development prospects of China's high-speed rail more clearly.

Taking the Beijing-Shanghai high-speed railway as an example, in the eight years from the opening of the whole line to the pre-epidemic, the compound annualized growth rate of passenger flow on the Beijing-Shanghai high-speed railway was close to 20%, which is comparable to the growth rate of Japan's Shinkansen in the 1970s.

In fact, the potential for passenger growth has already been preliminarily verified during the 2024 Spring Festival.

According to data from China Railways, railways across the country are expected to send 480 million passengers during the Spring Festival in 2024, an increase of 37.9% over the 2023 Spring Festival and 16.2% over the 2019 Spring Festival.

In terms of price, after 2016, domestic high-speed EMUs with a design speed of more than 200 km/h have achieved market-oriented pricing, and railway operating companies can set their own prices according to market competition and supply and demand.

After the price liberalization, some high-speed rail lines have achieved price increases. EMUs with a speed of 200-250km/h in the southeast coastal area will be accelerated and the price will be increased in 2017, with a price increase of 10%-50%.

In addition to the growth of the passenger transport and cross-line leasing business brought about by the rise in volume and price on the transportation side, the commercial potential of high-speed rail stations provides new incremental space for diversified operations outside of transportation.

In terms of diversified business, more than one-third of Japan's Shinkansen lines and the operation of domestic airports also provide a good example for China's railways, and non-aeronautical revenue has always been the main source of airports in first-tier cities such as Beijing, Shanghai and Guangzhou. If successful breakthroughs are made in diversified business such as commerce and advertising, there is still a lot of room for imagination in the future expansion of various railway lines.

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