Summary
Rail respondents are the most convinced of the emergence of new opportunities in the market (50 per cent to aviation’s 46 and shipping’s 48 per cent), and the most positive out of the three sectors.
While aviation and shipping regard new assets as their number one investment choice, rail’s priority is investment in infrastructure, with inadequate infrastructure coming out top of the list of the sector’s greatest challenges. Respondents are also positive about the availability of funding for investment and growth. Bottom of its priority list is M&A.
Investment opportunities
Infrastructure investment is the most popular form of government support for rail respondents and there is a growing interest in deregulation and fiscal incentives. Among the most popular choices are government guarantees and the establishment of specialist transport funding institutions.
Like their aviation counterparts, rail respondents acknowledge the positive developments associated with highcapacity and high-speed assets, while at the same time expressing some doubts about the sustainability of operating these assets.
However, respondents from this industry express the most positive views of all three sectors, with 42 per cent saying that the assets open up new opportunities.
Western Europe tops the list as the most important market for the sector, followed by North America and the Middle East.
Funding
Rail respondents cite the availability of funding as their second highest reason for optimism as funding appears to be settling down, with largely the same pattern for the past three years (after a very mixed picture in 2009).
Government support remains the leading source of funding followed by shareholders/equity, bank debt and capital markets/bonds. All other sources lag some way behind, although hedge funds have emerged strongly into fifth place, apparently drawing some interest away from private equity. The use of retained earnings has dropped significantly.
The next five years
As in other sectors, rail has seen a shift from retrenchment and the disposal of non-core assets, to greater emphasis on strategic alliances/joint ventures/pools and a significantly increased interest in strategic acquisitions. There also seems to be more interest in raising equity and/or debt and in takeover or mergers.
As with aviation and shipping, the sector predicts greater domination of the industry by larger participants and an increase in joint venture/alliance/pool activity. Rail respondents are also slightly more optimistic about the arrival of newlyprivatised operators or new start-ups as subsidiaries of existing participants than are the other two sectors.
The sector’s respondents are also the most optimistic about a rise in fares/ freight (75 per cent, with only five per cent predicting a fall) and the industry has the greatest increase in those expecting a rise in infrastructure investment (up from 38 per cent in 2010 to 60 per cent in this survey). It also takes the crown for the most confidence in an increase in passenger numbers/freight volume (85 per cent). It is less optimistic about a rise in the routes/services offered, with just 53 per cent foreseeing a rise.
There is also some optimism in the sector’s view of running costs. While more aviation and shipping respondents are anticipating a diversion of funds from investment towards running costs, this is not the case in the rail industry where numbers predicting redirection of funds are down three per cent from 2010, to 38 per cent.
As with aviation and shipping, fuel costs are a major concern, with price/economy cited as the number one determiner in choice.
