SUPREME Railways (SR) was formed in December 2013 to operate the 61km Suseo high-speed line connecting the southeastern area of Seoul with the rest of Korea’s high-speed rail network and providing an alternative to the incumbent national operator Korail, which operates its high-speed services from Seoul station in the city centre. Rather than allow Korail to maintain its monopoly, the government of the day was keen to introduce an element of competition on the network.
Nevertheless, as SR’s CEO Mr Lee Seungho explains: “the government decided to give the majority shareholding to Korail to placate the railway union which was opposed to SR.” As a result, Korail has a 41% stake in SR. There are three other shareholders: the Teachers’ Pension Fund with 31.5%, the Industrial Bank of Korea with 15% and the Korean Development Bank with the remaining 12.5%.
The Suseo high-speed line is mainly underground and includes the 52.3km Yulhyeon tunnel, the world’s third-longest mainline railway tunnel. Two of the three stations on the line - Suseo and Dongtan - are also underground while Jije at the southern end of the line is on the surface. The stations are operated by SR, which earns additional revenue through advertising and by renting retail space. SR serves 14 more stations in common with Korail.
SR started operating services from Suseo to Busan and Mokpo in December 2016. From the outset, SR wanted to raise the bar for high-speed operation in Korea in areas such as punctuality, profitability and customer satisfaction. “We have reached almost 99.9% of on-time arrival,” Lee says. “We are 10% cheaper than Korail, our seats are more comfortable, every seat has a power socket, and we offer a higher level of on-board service. As a result, Korail has made some improvements to their services, which is the positive impact of competition.”
SR offers journey times from Suseo of 2h 30min to Busan (400km) and 2h 17min to Mokpo (356.5km), which is slightly faster than Korail because the distances are shorter than from Seoul station.
SR operates around 60 trains per day per direction with its fleet of 32 300km/h SRT trains. Each train is formed of two power cars and eight trailers with a maximum of 410 seats in two classes. SR operates trains in pairs at peak times to cope with demand, and plans to buy additional trains this year, probably with distributed traction to increase the number of seats per train.
SR carried 19 million passengers in 2017, which Lee says is 101.3% of its target. “Traffic built up very quickly,” Lee says. SR estimates that most of it is new business rather than abstraction from Korail because SR serves a different geographic market.
“In 2017, we made a business profit of $US 39m and a net profit of $US 30m,” Lee tells IRJ. Of this, 50% was paid to infrastructure manager Korea Rail Network Authority (KRNA) for access to the network and 23% to Korail for train maintenance and other outsourcing costs. “Debt repayment by KRNA was possible for the first time in 2017, thanks to the high infrastructure charge paid by SR,” Lee points out.
SR expects traffic to top 20 million passengers this year, although Lee admits this is a conservative estimate. Average daily ridership has already risen from 53,210 in 2017 to 57,420 for the first three months of 2018.
Despite this success, or perhaps because of it, Korail’s new CEO, Mr Oh Yong-sik who took office in February, has pledged to merge Korail and SR, arguing that the presence of two high-speed operators in Korea reduces the potential benefits from economies of scale and leads to inefficiency.
“The merger issue is not easy and it is only up to the government to decide,” Lee responds. “I believe in competition, and I would argue that we need more time to prove our business.
“Through competition, we can reduce costs and increase demand,” Lee told delegates during the conference. “Fair competition will provide the backbone for future development.
“The government has appointed a company to evaluate SR’s performance and its effect on the market,” Lee explains to IRJ. He expects this to be completed by early next year at the latest, followed by the government’s decision on SR’s fate.
In the meantime, SR is part of a consortium led by Shinhan Bank which has been chosen as preferred bidder to build and operate a 43.6km line from Samseong to Ilsan, a key component of the first of three Great Train eXpress (GTX) lines in Seoul. It is hoped to start work on the Won 3.64 trillion ($US 3.37bn) project by the end of the year. Shinhan Bank will provide 85% of the funding and the government the remaining 15%.
KRNA is already building the first 6km section from Samseong to Suseo where it will connect with the Suseo high-speed line. SR will operate the GTX trains between Dongtan and Samseong when the new section opens in early 2021, and it wants to extend its own trains to Samseong.
Undaunted, Lee has other ambitions. “With our experience, we hope to become a global leader in high-speed rail, so that we can go abroad and operate high-speed trains.”