Price Elasticity of Demand on the High-Speed Rail Lines of Spain: Impact of the New Pricing Scheme

Abstract

Reduced travel time, regional cohesion, economic development, and environmental benefits were some of the reasons given to develop a high-speed rail (HSR) network in Spain. Since the first high-speed line in Spain opened in 1992, HSR has been a part of the travel experience, despite recent concerns raised about the lack of demand and low occupancy rates of HSR trains compared with those in other countries. In February 2013, Renfe Operadora, Spain’s state-owned transport company, implemented a new pricing scheme, which reduced ticket prices by at least 11% and introduced flexibility in their purchase. In this research, the effects of the new scheme were analyzed, and the impact on the shift in transport modes was substantiated through consideration of a discrete choice model. As a consequence of this policy, occupancy rates were increased hugely. Although apparently ticket price was not regarded by users as the main reason to travel by HSR, the price elasticity of demand turned out to be high. Given the transport modes that competed with HSR, the effects were quite different. For short routes connecting small- and medium-sized cities with big metropolitan areas, growth in demand was achieved at the expense of the car and the bus, whereas for long routes connecting large cities in which air transport was available, the growth occurred mainly at the expense of air transportation, and induced demand also was triggered. Finally, when the owner of the infrastructure and the train operating companies were managed by the government, the rail infrastructure fee policy set may have prompted unfair competition with other transport modes.