Elon Musk publicly announced the Hyperloop in 2012 as an innovative new mode of transport via electric propulsion through a low-pressure tube. In a CNN article (Hargreaves, 2013), Musk stated that the idea for the Hyperloop originated as an improvement to the proposed high-speed-rail. The Hyperloop could travel six times faster than and cost a tenth of the $70 billion required for the high-speed rail system.
The original Hyperloop Alpha paper (Space X, 2013) states “The traffic between Los Angeles and San Francisco is estimated to be at least 6 million travellers per year. This possibly represents the busiest corridor of travel in California” and that one-way tickets could be as low as $20.
To determine the feasibility of a high-speed transport system such as the Hyperloop One, it is first important to look at the function of transport. Bonavia’s “The Economics of Transport” (Bonavia & Guillebad, 1946) reminds us that “man is a spirit” and goods are but satisfactions. The author describes that matter is more desirable or useful in one form than another, such as when humans strive to change the seed into the fruit and the ore into the metal. Matter is also more useful or desirable at one place than another, at one time than another. Thus, transport was born.
Drivers of Demand
It is important to analyse the nature of the demand of the Hyperloop and identify who the consumers are in order to analyse the potential demand for the LA-SF route. There will be two types of consumer for the Hyperloop: individuals and organisations.
The Hyperloop will indirectly satisfy the transportation needs of an individual, since the main reason for a consumer to travel between LA and SF will be external reasons, such as holidays, family and more. The internal characteristics that people choose a certain mode of transport will include the price, speed, frequency, reliability, comfort and more. Behind the consumption of a specific route for individuals will include how strong the leisure is in an area, how strong the market is in a specific area and more.
However, the Hyperloop will directly satisfy the transportation needs of an organisation. Organisations demand resources, which could include freight transport or transport of labour. The drivers of demand for a specific mode of transport will be how productive the mode is and other factors that are behind the productivity.
Figure 1 shows the segments of travel purpose for passengers in 2009 from a report (Bureau of Transportation, 2016).
Figure 1 – (Bureau of Transportation, 2016; Bureau of Transportation, 2016)
When modelling the demand for the Hyperloop, certain problems arise. (Harris, 2017) Normally when analysing a new route for transport, a good approach would be to collect trip data, collect passenger feedback and extrapolate from existing cases. However, since the Hyperloop is brand new and vastly different from any other mode of transport, there is no trip or passenger data yet and no existing Hyperloop cases to extrapolate from.
Price
Price is perhaps one of the most important internal drivers of demand for a mode of transport. Often price is an indicator of luxury, especially when there is an absence of other quality signals. However, in the case of the Hyperloop, the biggest indicator for luxury would be travel duration.
Figure 1 shows a diagram from Hyperloop One’s website showing existing modes of transport for this corridor, assuming the Hyperloop travels at 1080 km/h regardless of terrain. This clearly shows that the Hyperloop has the highest quality of luxury in terms of trip duration, cutting the time of its closest competitor by nearly one quarter.
Figure 2 – (Virgin Hyperloop One, 2018)
Additionally, if the released interior designs for the similar Hyperloop for the Dubai system is any indication, luxury is a priority. An article from Dezeen (Hitti, 2018) reported on the release of the designs, describing the interior as having a “human-centric interior” where “the pods have a sleek, futuristic aesthetic, with adjustable white leather seats and integrated touch-screens.” This focus on luxury for the consumer’s will almost certainly increase demand of the Hyperloop and will give it an advantage over competitors.
I will explore the claim in the Hyperloop paper (Space X, 2013) that anticipates that travel along this corridor will “increase with completion of the Hyperloop due to both decreased travel time and decreased travel cost.”
Price elasticity will be affected by the nature of the product. Individuals using transport for discretionary reasons will lower the elasticity, as they have the freedom to choose whether to purchase or not. For these individuals, expenditure share will be low as the estimated price of a ticket is only $20, meaning that consumers are less conscious to price and will again lower elasticity.
However, the majority of transport using this Hyperloop route would be a necessity for both individuals and organisations which will significantly raise elasticity. Organisations require resources to be transported which therefore makes this a necessity.
Demand for the Hyperloop from price will be heavily influenced by substitutes and we can assume that if a consumer has the ability to shop around to satisfy their needs, they will do so. Many modes of transport exist between on this route including planes, trains, bus, car, shuttles, taxis and water, therefore price elasticity will be high.
Figure 2 shows the estimated average price of a ticket for this route using range of modes of transport, including the proposed high-speed train that Hyperloop aims to compete against.
Figure 3 – Estimated Prices and Duration of Trips between LA-SF
Population
The population of the two connected cities will be a driver of demand for any proposed Hyperloop route, as it will indicate the number of potential consumers of the route.
San Francisco currently has a population of 884,363 (U.S. Census Bureau, 2018). It has a population density of 17,160 per square mile and is the second-most densely populated major American city behind New York (Wikipedia, 2018). Figure 4 shows the historical population of San Francisco and the rate of growth each year. As the graph shows, the growth since 1890 has hovered between around 0-2% with only 3 years with a decline in growth.
Figure 4 (Wikipedia, 2018)
Los Angeles currently has a population of 4 million (U.S. Census Bureau, 2018). Figure 5 shows the population and growth rate of Los Angeles County since 1850 to an estimated figure for 2014. The rate of growth has dropped significantly since the volatile rates between 1850 and 1950 and since 2010 has started to level at around 3.0%.
Figure 5 (Wikipedia, 2018)
For both cities, the population is huge, and the growth is most recently 2-3% and is expected to continue at this rate. This will increase demand for the Hyperloop as it will mean there is more potential consumers of the Hyperloop.
Distance from the Hyperloop station will also be a considerable factor, as potential customers will only be willing or able to travel so far to use the Hyperloop. Figure 6 shows a map of travel distance from the centre of Los Angeles by driving and train and Figure 7 shows a similar graphic for San Francisco. Both maps cover the majority of each city, including surrounding significant neighbouring areas.
Figure 6 – LA (TravelTime Platform, 2018)
Figure 7 – SF (TravelTime Platform, 2018)
http://cdn2.hubspot.net/hubfs/278711/Convenience-and-Choice-in-Travel-July2015.pdf
In November 2016, Hyperloop announced its vision for pods that can drive and automatically insert themselves into the Hyperloop (Hyperloop One, 2016). These pods can be hailed from a smartphone to anywhere, meaning seamless travel between your location and your destination. This would make many areas of the travel distances irrelevant and would increase demand for the Hyperloop even more due to ease of use.
However, population analysis is based on the nature of the product. For transport, it is important to look at those who specifically would use the Hyperloop. Between 2014-2015, over 3.6 million passengers made the flight between San Francisco and Los Angeles, making it the second busiest air route city pair in the US (Wikipedia, 2018).
Another factor is the population who do not own a car, as those may choose to drive the corridor instead. A report from StreetsBlog SF (Bialick, 2018) quotes Liable City Executive Director Tom Radulovich that “A lot of people who are moving here are choosing it because it’s a place you can get around without a car”. It states that “Between 2000 and 2012, the city has seen a net increase of 11,139 households, and 88 percent of them have been car-free” and “One net result of this shift is that the proportion of San Francisco households who own zero cars increased from 28.6 percent in 2000 to 31.4 percent in 2012, the fifth-highest rate among large American cities.” The target consumer market is even stronger due to this fact, as residents will not have the option to drive the LA-SF corridor and are more likely to use the Hyperloop due to lower choice available.
The opposite is true however for Los Angeles, which shows a steady incline of average cars per household according to data from governing.com (Governing, 2016).
Income
Income is a proxy variable for the demand of the Hyperloop. As income rises, the demand to visit a city will be higher, especially that a time of 40 minutes between the cities now makes commuting a possibility. Figure 9 shows Real Per Capita Income in the state of California. It shows an exponential increase for projected values to 2050 at an already high level compared to the rest of the US. This, along with the Hyperloop infrastructure in place could attract many people to relocate to California, as the Hyperloop allows for more flexibility in location for living and work, due to commuting being a possibility.
Figure 9 (California Department of Transportation , 2016)
The effect of the Hyperloop may also cause consumers to consider moving to one of these cities, to lower living costs. San Francisco is known for its inconceivably high housing prices, and relocation to Los Angeles with a daily commute to San Francisco will now be possible.
Novelty factor
There is also a novelty factor to consider for the Hyperloop, especially for such a technologically innovative system. Demand will increase in the first months/years of the public opening as consumers will want to experience it, especially that more Hyperloops are planned to open across the world if successful.
Works Cited
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