Should China further expand its high-speed rail network? Consider the low-cost carrier factor

Abstract

This paper examines China’s large-scale high-speed rail (HSR) expansion, announced in July 2016, and the associated benefits assessment of the expansion program from the perspective of HSR-LCC (low-cost carriers) interactions. Our analysis suggests that in the highly populated and developed corridors the HSR expansion is likely to leave LCCs with little survival room, which is also shown by our case study on Spring Airlines. On the other hand, in the low-density corridors especially in the central and western China, LCCs might leave HSR with little survival room in the long run. By conducting a “propensity score matching” to pair HSR-linked city pairs in China to the counterfactual US airline routes, we find that most of these Chinese routes would be viable markets for LCCs to operate. The benefits of HSR expansion may thus be overestimated if not recognizing the LCCs’ role as an alternative mode to serve these markets. In particular, for the routes to the central and western China with very small travel demand and high HSR construction cost, LCC service could be more cost efficient and operationally flexible than HSR. Our analysis calls for a more careful evaluation of the program and, more generally, a balanced and coordinated HSR and LCC development in China.