UBS Evidence Lab's mapping of intra-EU air routes at risk from existing/future HST
COVID-19 could accelerate the shift from air to rail travel in the EU and China
Clearly, consumers and governments globally are becoming more climate-aware. The COVID-19 outbreak is showing industrialised countries not only what clean air means and how to cope without travelling, but also how a cleaner environment and healthier populations cope better with diseases. Some investments ($300bn-plus) for projects to lower carbon emissions may be diverted to supporting the transport and travel industries, but we do not believe the developed world will abandon its ambition of “net zero” carbon emissions by 2050, nor that consumers will no longer want to optimise the use of their time by taking longer train journeys.
We therefore expect an acceleration in the shift from planes to high-speed rail (HSR) in both Europe and China. In this report, we analyse how governments could pursue the expansion of HSR (>€100bn in EU and >RMB800bn in China), generating incremental demand for new equipment to boost speeds and density. On the flipside, our analysis suggests this could slow global air traffic growth to 4.6% per annum over 2018-28: no growth in intra-European traffic, 6.1% within China, and 2.8% in the US. Such a scenario implies airlines could save up to 3.4m tonnes of CO2 by cutting the fleet in-service by c96 units per annum.
Which sub-sectors are most and least impacted? 12 sectors, 40 companies
Based on our analysis, which focuses primarily on Europe and China, we conclude that lower intra-regional air traffic growth could weigh on volumes and valuations in the Aerospace, Airlines, Airports, Infrastructure and Oil sectors. Faster growth in rail demand would benefit manufacturers of rolling stock, signalling, controls and brakes. We estimate the European HSR market opportunity to grow to €11bn in 2022 (3.5x 2016 levels), well above the €5.9bn forecast of the European rail industry body UNIFE, suggesting a CAGR up to 10 ppts over the UNIFE base in 2020-30. The most significantly affected sectors will likely aim to find new business models, and to develop products and infrastructure that can accelerate the reduction of carbon emissions.
Business travellers’ tolerance of longer rail journeys improves
Data from a UBS Evidence Lab survey of 1,000 people in four European countries and China suggests leisure travellers would tolerate 5-6 hours on a train, and EU business travellers up to four hours vs the general consensus of 2-3 hours. In China, HSR has taken more travellers off the roads than away from airlines, but that could change. Service and frequency are key drivers of demand for longer train journeys, and both can be improved when competition among operators is introduced.