Can High-Speed Train Firms Soar Amid Boeing's Woes?
WHY YOU SHOULD CARE
The aviation sector has lost $4.1 billion since the grounding of the Boeing 737 MAX. But high-speed rail firms in the U.S. see a chance for growth.
By Andrew Hirschfeld
Rolando Balboa is a fencing coach from Brooklyn who travels frequently for his students’ competitions. But after booking an American Airlines flight earlier this year, he returned to his computer to make sure he wasn’t flying a 737 MAX. Balboa is among a growing number of travelers trying to avoid the Boeing aircraft surrounded by controversy after recent crashes. But Boeing’s crisis is emerging as an opportunity for another part of the transportation industry — America’s nascent high-speed rail sector.
Airlines around the world have grounded their fleet of Boeing 737 MAX planes after investigators found that faulty software might have brought down a Lion Air flight last October and an Ethiopian Airlines flight this past March. A total of 346 people lost their lives. American Airlines has reported a $400 million loss because of the grounding. Globally, the aviation industry has lost $4.1 billion. Southwest Airlines has announced it will pull out of Newark Liberty International Airport, cutting down flights to and from the New York area to cover for the grounding of 34 MAX planes. Over the summer, the grounding resulted in a loss of 35,000 seats daily for United, American and Southwest Airlines.
Now, the high-speed train industry in the U.S. is racing to grab some of that market, hoping to gain a foothold in a nation where it has struggled for decades. Officials from both Amtrak and Virgin Trains tell OZY they are tying expansion plans to this increased volume of passengers. Amtrak has announced a new route along the nation’s densest and most highly traveled corridor, connecting New York to Washington, D.C., bypassing Philadelphia. Amtrak has also announced a new line between Chicago and St. Louis.
With demand for intercity rail travel never higher, we have been working to rethink the future of intercity passenger rail.
Jason Abrams, Amtrak
Meanwhile, Virgin is exploring a high-speed line along one of Southwest’s major routes — Los Angeles to Las Vegas. Virgin has also received approval from the Florida Development Finance Corporation to raise $950 million to fund a line connecting West Palm Beach and Orlando. Other states are turning to high-speed trains too. In July, Gov. Jay Inslee of Washington released a report declaring plans for an “ultra-high-speed rail” line for the Pacific Northwest, potentially connecting Portland, Oregon, with Vancouver, British Columbia. It’s an opportunity unlike any that rail companies have seen.
“With demand for intercity rail travel never higher, we have been working to rethink the future of intercity passenger rail,” says Jason Abrams, chief spokesperson for Amtrak.
For sure, the opportunity for these rail companies to steal a part of the airline industry might not last long. Boeing CEO Dennis Muilenburg has said he’s confident the 737 MAX will be back in the sky in the fourth quarter, though the timing will be driven by the Federal Aviation Administration and global regulators, Boeing said in a statement to OZY. And formally, Southwest insists its decision to pull out of Newark is not linked to Boeing’s crisis. The decision “was a result of our performance not being as successful as we had hoped,” says Southwest Airlines spokesperson Chris Mainz. Southwest Airlines says it hopes to return to business as usual by mid-2020 at the latest.
But Southwest and Boeing are currently facing a lawsuit that alleges the airline and the aircraft manufacturer colluded to mislead the public about the faults of the Boeing 737 MAX. The complaint, filed in July, alleges that “Southwest worked with Boeing to protect that relationship — and its streak of profits — when faced with a fatal design defect in Boeing’s 737 MAX aircraft, by lying to and defrauding, customers, regulators, and its own pilots and employees, risking thousands of lives in the process.” Both companies have denied the allegation.
And even after the 737 MAX returns to the skies, there’s no guarantee travelers will readily accept these planes. In a May survey by Barclays Investment Bank, 44 percent of respondents said they would want to wait a year or more after the 737 MAX is cleared before flying on it.
A growing movement against the aviation sector — in part because of its carbon footprint — presents another challenge the industry will need to overcome to get back on its feet, says John Grant, an analyst with British aviation intelligence firm OAG. “We’ve seen the start of some anti-flying campaigns that have grown and had some momentum,” says Grant. “I think what describes it best is the flight-shaming lobby.”
America’s high-speed train firms won’t mind any help they get. As is, they are eyeing a rare moment where privately funded high-speed train projects are receiving support from both fiscal conservatives and left-leaning liberals, who see these trains as a green initiative.
There’s growing evidence globally that high-speed trains can compete with — and eat into the market of — airlines. China, for instance, was expected to be the world’s largest aviation market by 2023, says Grant. But the success of high-speed trains there means that’s no longer a certainty, he says. In Europe, the Austrian rail service ÖBB has seen a 10 percent growth in passengers since the Boeing crisis started in 2018.
Back in the U.S., Amtrak is hard-selling its Acela line as an alternative to flights between New York and the country’s capital. “The new Acela Nonstop service will have you halfway to your New York City or D.C. destination in the time it would take you to board a flight,” said Amtrak President Richard Anderson in a public statement. “This new service will offer an ideal solution for travelers who want to save time and travel between city center D.C. and New York.”
And for Virgin, the high-speed trains offer a way to make up for challenges its airline business faces. Virgin Australia, for instance, has deferred its purchase of 40 737 MAX planes. In the U.S., it has plans to launch more than a dozen high-speed routes and is working on a hyperloop — a pod free from air resistance that in theory can run as fast as 760 mph. “In the United States, we see great opportunities for growing rail lines and the hyperloop technology,” says Nick Fox, chief communications officer for the Virgin Group. Thanks to Boeing’s predicament, that opportunity is bigger than ever.
- Andrew Hirschfeld, OZY AuthorContact Andrew Hirschfeld