New Channel Tunnel entrant? You need a plan for what happens if you fail, so you can actually succeed

No company wants to enter a market thinking they are going to fail. But what happens were they to fail might have a bearing on whether they succeed in the first place.

It was with this in mind that I read this morning that Virgin Trains is looking for money partners.

Virgin needs the cash to fund the acquisition of a fleet of trains for their future Channel Tunnel services, and 300km/h trains do not come cheap. To give an idea of the scale of investment we are talking, Deutsche Bahn’s 73 ICE3neo trains, each 200m and 8 carriages long, cost €2.5 billion. That’s €34 million per train.

And Virgin wants at least 16 trains. You end up with a total in the high hundreds of millions of Euro.

So how risky is that?

The answer, I think, is it depends what you buy.

Imagine for a moment Virgin’s Channel Tunnel plans do not work out, and the company folds. What then?

Someone else buys the trains.

What is the likelihood someone else buys the trains?

Well it depends what trains you have.

A fleet of 200m long Siemens Velaro or Hitachi ETR 1000 trains would be snapped up by someone instantly, and deployed elsewhere in the EU – on a route like Amsterdam-Paris. Even more likely if they were quadruple voltage trains (inc. 15kV for Germany and 1.5kV for France beyond tunnel routes, beyond the 25kV and 3kV you need for core Channel Tunnel routes anyway). Single deck (so fast to board) and fast accelerating, these are the closest to go-anywhere trains on the market currently.

Alstom Avelia Horizon (commonly known as TGV-M) might be harder to re-deploy – the lower number of doors and slower acceleration mean these trains work better on routes with big distances between stops. But were you to want to re-deploy them in France or Spain it would also work out, and the massive capacity of a double deck train would allow deployment of these trains for a low cost operator. A Talgo AVRIL would be more of a risk, because of the teething problems with these trains – would they ever be OKed in Germany for example? Big question mark.

And then there is the issue of train length.

Eurostar’s existing Channel Tunnel fleet – both e300 and e320 – are both fixed 400m formations. Huge trains. So you run one only when you have a lot of passengers, and that imposes operational inflexibility. Buying 200m trains, and running them as double sets when necessary, gives you a double advantage: it will increase the likelihood of being able to re-sell the trains if you have to, and it increases your operational flexibility through the Channel Tunnel – one path with a double set from London to Lille, split there with one set to Bruxelles and one set to Paris, for example. The downside is that you lose a little bit of capacity that way, in that the driving cabs take up space. And yes, before anyone asks, as far as I am aware you do not need a 400m long train to operate through the Channel Tunnel.

So were I an investor, and Virgin Trains (or anyone else for that matter) came to my door, these are the questions I would be asking. Oh, as well as a few other questions I highlight in this blog post!

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Source: https://jonworth.eu/new-channel-tunnel-entrant-you-need-a-plan-for-what-happens-if-you-fail-so-you-can-actually-succeed/