I read yesterday that a group of investors is pursuing a railway project in Iceland to link the airport to the capital in light of the expected significant expansion of tourism in the next years. Two years ago, I had a chance to visit the country, explore the pristine nature and I am eager to visit it again ever since. However, I do not believe that a railway line is the right option of Iceland.

Background

• Reykjavik, Iceland’s capital, has frequent traffic jams during the rush hours.
• Everybody owns and drives their own car.
• Public transportation on Iceland centers in a small bus station, called BSI, in Reykjavik close to the hospital.
• Iceland has harsh climatic conditions, especially in winter.
• The distance between the airport KEF and the city center is about 49 km and takes about 40 minutes by car.
• Reykjavik region has a population of about 200’000, Iceland has a population of about 330’000 inhabitants.
• Currently about 1.5 million travelers visit Iceland (3 million trips to/from the airport), this is expected to grow to 3 million in 2030.

The Plan

The planned railway line connects the city with the international airport in 15-19 minutes. The alignment is planned to be over ground and underground within the city boundary with its terminus at the BSI station. It is expected that the line would cost between 750 million EUR and 1.2 billion EUR.

• The purpose of the line should be mainly for the tourists to reach the city faster and to ease congestion.

Business Mechanic

The first thing I usually look at is the overall business mechanic. In this particular case, the ticket fare as main revenue, the operating costs (OPEX) and capital costs (CAPEX).

With the proposed ticket fare of ca. 10 EUR, this could generate up to 60 million EUR per year in revenues.

Operating costs depend on the actual operation plan, the number of rail vehicles, staff, cleanliness levels etc… and are therefore difficult to estimate.

Capital costs should be, as this is supposedly a private investment, between 5%-15%, or 37-180 million EUR. Given the low revenues, such high EBIT seems to be difficult to achieve.

• Such a large investment with low revenue potential does not seem feasible from a business mechanic perspective before even looking into depreciation and OPEX

Location of stations and alignment

The BSI bus station is located remotely but in walking distance (ca. 15min) from the city center. Hotel guests would certainly need to have a taxi, hotel bus or another kind of transportation from the BSI to their lodging.

• The terminal station should be located closer to the city center, i.e. the congress center/opera area.

The main issue regarding congestion in the city will not be affected by the railway line as it goes in a totally different trajectory.

• No effect on congestion

Alternative

Iceland is an ideal test bed for new technologies and ideas. With about 15-20 million EUR, Iceland could buy 250-300 new tesla cars and 20-50 group transporters with autonomous driving, install additional substations for charging and build a maintenance facility to maintain them. This would provide an optimal tourist experience, driving them straight from the airport to their respective hotels, at the same time advertising the countries highlights, manage bookings for the attractions and so ideally cater the expected high-end tourists. At the same time, autonomous cars can drive with much less distance between the cars and increase capacity on the existing roads (given that most cars drive autonomously). This would allow to have better results at a fraction of the costs.

Let’s be visionary Iceland and leapfrog in the autonomous driving implementation!