Will high-frequency trains derail Via's legacy revenue?

The high-frequency-rail project between Toronto and Quebec City is creating big questions around the future of Via Rail. New passenger trains sit on the tracks at the Via Rail Canada Maintenance Centre in Montreal, Thursday, Feb. 22, 2024. THE CANADIAN PRESS/Christinne Muschi

MONTREAL — The high-frequency-rail project between Toronto and Quebec City begs big questions about the future of Via Rail.

On track to start operations in about a decade, the so-called HFR promises to transport more passengers more quickly, more often. But the swifter service also threatens to redirect cash away from Via Rail's broader service, which derives the vast majority of its revenue from the central Canadian corridor.

On top of government funding, Via relies on the stretch of track that runs between Quebec City and Windsor, Ont., to sustain operations across the country. Last year, 96 per cent of its riders and more than four-fifths of its revenue stemmed from the corridor.

The flow of that income is now in limbo, with both services — the current one and the HFR — set to run under a public-private partnership, or P3.

Via Rail — a Crown corporation rather than a P3 — derived 64 per cent of its gross income from government funding, with most of the rest coming from passenger revenues. The idea behind a P3 is that the efficiency and dynamism injected by private sector players would result in a business that is smoother, more self-sustaining and less dependent on federal coffers.

But money spent by private companies also needs to be recouped, with healthy profits as the main goal.

"What happens to the revenues of Via Rail's corridor services? Well, they all go to the private partner. And we don't know how that's going to play out in terms of whether there's going to be anything left to give back to the government at the end of the day," said Terry Johnson, president of passenger advocacy group Transport Action Canada.

"We're actually quite worried about this scenario."

Concern about passengers and profits originated in March 2022 with Ottawa's request for expressions of interest to design and build the HFR. Receiving little comment at the time, the document sought feedback from engineering consortiums around "finance, operation and maintenance of the HFR project."

That specification for bankrolling and running the railroad went beyond the initial scope of merely "designing and planning" it that the government laid out in 2021.

The HFR and its older, slower sibling would also run under a single umbrella, said then-transport minister Omar Alghabra in the request: "The operations of new HFR services and local services will be treated as an integrated system for the entire corridor."

Martin Imbleau, who heads the Via HFR project, has forecast that the corridor will host 17 million riders per year by mid-century, far outstripping last year's 4.1 million.

Despite its location in the two most populous provinces, Johnson said the whole country has a stake in the high-frequency line — if its revenue is spread across the rest of the rail network, from Halifax to Prince Rupert, B.C.

"The original hope with HFR ... was that the corridor would start generating surplus and you could create this positive feedback loop where some of that surplus is reinvested in improving the service for the rest of Canada," he said.

"What happens if you take that away?"

Via HFR Inc. — currently an arm’s-length subsidiary of the passenger rail Crown corporation — explains the decision to go with a public-private partnership on its website.

"This type of integrated delivery model, with early private sector involvement in all aspects of this major project, can produce better outcomes by boosting innovation and collaboration between the public and private sectors. This approach is expected to lead to better project results and provide the best value for Canadians," the site states.

Via CEO Mario Péloquin says the Crown corporation plans to discuss its business model with the federal government in several years, but that service will be maintained in Ontario and Quebec — under the P3 — as well as on Via's long-haul routes.

"Before 2030, a lot of these aspects will become more clear, more concrete," he said in an interview. "We will have those conversations with the government of Canada about the model for funding and revenue generation."

Last week, Via reported an operating loss that increased eight per cent to $381.8 million in 2023, even as ridership continues to grow, with a record five-million-plus customers expected this year.

Péloquin is banking on more business passengers and fewer short-haul commuters to drive up revenue as part of a five-year strategy that aims to cut operating costs and replace the organization's 75-year-old long-haul fleet.

This report by The Canadian Press was first published May 23, 2024.

Christopher Reynolds, The Canadian Press