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Q+A: Corin Dann interviews Jim Quinn

Q+A: Corin Dann interviews Jim Quinn
Q+A understands the Gisborne-Wairoa line is to be mothballed following the slip. Quinn won’t confirm, however, saying, “Our responsibility is to look at the commercial aspects of the challenge.”
Kiwirail CEO paints bleak picture for passenger services in New Zealand, says freight’s where the money’s at; he won’t use that to subsidise passenger rail
“There’s no doubt at all getting the freight business right is what will create the sustainable railroads… There is no other business I’ve got that has the potential to put the margins in that we need.”
“There is an opportunity for the passenger business, but… it can’t be run from some emotional view that it’s cool to have a scenic train.”
Quinn backs Chinese locomotives, says he doesn’t regret the deal: “These locomotives have done 2 million kilometres on the track…. and without these locomotives in our fleet, we simply wouldn’t have coped.”
Says the locomotive failures aren’t “costing us at all”; Labour’s wrong to claim otherwise.
KiwiRail’s freight revenue up 25% in past two years and market share is growing.
“Our customers are not seeing service failure.  They’re seeing us improving every day.”
KiwiRail has cut investment into the track by about 200 million over the next three years, spending less on assets.
“We also, though, have a very clear mandate.  Our job is to sit down and make the right commercial calls.”
Backs ferry service to Clifford Bay: “It’s an obvious thing” in terms of bringing Auckland and Christchurch closer.
Q+A, 9-10am Sundays on TV ONE and one hour later on TV ONE plus 1
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Q + A
GREG            New Zealand Railways, Tranz Rail, Toll, now KiwiRail.  Whatever the name, our rail network has a long and proud history.  But is KiwiRail going off the rails?  Does rail even have a future in this country?  This past week Labour released a leaked report confirming major problems with the cheaper Chinese trains that arrived here in 2009.  So many problems, in fact, that KiwiRail isn’t taking the second batch of locomotives due at the end of the year until they are sorted out.  Labour MP Clare Curran says the report vindicates her concerns that New Zealand bought cheap and got cheap and signed the death warrant for Dunedin’s Hillside Workshops in the process.  It’s the latest in a string of bad news stories for KiwiRail, so its chief executive, Jim Quinn, is with political editor Corin Dann in Wellington.
CORIN           Thank you, Greg.  Good morning, Jim.
JIM QUINN – KiwiRail Chief Executive
            Good morning, Corin.
CORIN           Could we start with these Chinese locomotives?  Do you regret now having gone with the Chinese?
JIM                  No, I don’t at all.  Look, we’ve— we’re in the middle of our plan.  One of the things we’re trying to do is to renew our rolling assets.  We’ve been buying diesel locomotives offshore for years and years and years, so, you know, the ‘60s since we’ve been buying them.  One of the challenges KiwiRail has is that every locomotive we’ve bought -- because of the big gaps between times that we’ve bought them -- have effectively been a bespoke build, so we have to design them from the wheels up.  And we design them into a very tight envelope, so both the weight we can afford to have them be on our tracks and the size of them means that we’re compressing a lot of technology—
CORIN           How much does it costing you, though, the repairs here?  Because Clare Curran argues, for example, that the alternators are stuffed in some of them and you’re going to have to spend $5 million, you know, getting right into the engine to fix them.
JIM                  Oh, that’s just not true.  The manufacturer has stood behind these all the way through.  They’re continuing to, so we’ll work with them to finalise any of the issues we’ve got and to put them straight.  So this isn’t costing us at all.  I’m not sure where Clare got that.
CORIN           But is it costing you time?  Is it slowing down what you’re trying to achieve with this whole turnaround plan?  Because you’re having to wait now to fix these things up.
JIM                  Sure, we’d like to be moving faster if we could, but let’s be clear.  These locomotives have done 2 million kilometres on the track.  They’ve done 15,000 services.  We’ve just got through a busy summer peak, Fonterra’s busiest year and the Auckland Port strike, and without these locomotives in our fleet, we simply wouldn’t have coped.  We didn’t cope the year before, so, you know, the illusion that these things are somehow slowing us down is wrong.  Are there issues?  Yes, there are.  Do you expect to have some?  Yes, you do when you do a bespoke build.  And what we’re working through is a very structured programme to put them right and to ensure that we’ve got a product from here on in.
CORIN           Everyone would accept that there was going to be problems with big engines like this, but is there more of a problem?  Is it something that’s actually— I mean, have you bought for a price rather than quality, as is the argument from the critics?
JIM                  Yeah, I don’t think that’s fair at all.  We buy based on a set of criteria, and we then settle the price, assuming that that criteria is met.  There are certainly more issues here than we would have liked.  We would have liked none, so that’s obvious. And anybody sensible would have wanted that.  But they’re running every day, they’re hauling the freight we need to haul every day, and they’re getting the job done.  Our customers are not seeing service failure.  They’re seeing us improving every day.  We measure faults very carefully so that we get these things right, but they’re not translating into the marketplace.
CORIN           That’s interesting you mention the customers because isn’t there a danger here that the last thing you need is any public-relations disaster around the quality of your rolling stock?  Because you need to improve that to make sure customers stay with rail.
JIM                  Absolutely, so we’ve grown the freight revenue in the two years we’ve been implementing the plan – 25%.  We’re growing at about $30 million to $40 million a year.  Any company would be happy with that growth rate.  Our customers are committing.  If I talk to my customers about how we’re going overall, they would say we’re better to deal with, they would say we’re servicing on time more often, we’re more reliable, we’re more predictable, and we’re a more important part of what they’re trying to do.  They would quickly add, ‘We’re frustrated, though, because this takes a long time to turn this thing around.’  And that’s true.  This is a long job.  This is going to be a 10, 15-year job before we’ve got this all right, and we’re trying to do it while we’re running in real life, so— But the customers are saying to us we’re working well, and they’re committing with their own funds.
CORIN           All right, the turnaround plan’s been in place for two years now.  You started out with, I think, an 18% market share in terms of freight.  Have you lifted that yet?
JIM                  Well, we’re growing, and we’re growing well.
CORIN           Is it bigger than 18?
JIM                  Well, the measure of the market share is really really hard to be precise about.
CORIN           Because that’s the key, though, isn’t it?  I mean, you need to get that— You used to have 60%.  You need to get that back.
JIM                  I’m not sure we ever had 60%, unless it was when it was totally regulated and nobody else was allowed to move freight.  But, look, we are very clear at what we’re good at, and we are growing in the markets we’re in.  We’re a line-haul provider to industry.  We’re no longer in the road space at all, so we’re able to get alongside our customers well, work with them and provide the services they want.  The market are committing really well.  Do we want this noise out there?  No, we don’t.  And that’s— But our view would be that our customers weren’t seeing the impact of the commissioning of these locomotives at all.  We’d managed this extremely well.
CORIN           But I’ll just come back to the point of the market share, though, because you’ve clearly— in your turnaround plan, you’ve identified freight as the key area where you can make this business profitable.
JIM                  Yeah.
CORIN           Surely, two years into a 10-year plan, you would be making progress.  Have you increased that market share?
JIM                  We’ve grown the business 25%.  We know that’s way outstripping the market, so our market share has grown.  My comment only was the exact measure of market share is quite hard to get right, because we’re a line-haul operator and the markets are quite ill-defined.  But at the growth rate we’re at, there is no way in the world we’re not growing our share.
CORIN           Okay, if I could come to the issue of infrastructure, jobs, investment?  There seems to be a contradiction here.  On the one hand you’re investing $750 million over three years into this company, but yet you’re also cutting staff.  Why?
JIM                  Well, firstly the 750 million is the equity our shareholders have given us over those three years.  We’ve invested far more than that, and we’re going to continue to invest.  Over the 10 years, we’ll invest a little over 4 billion into the railroad and another three into the metro railway.  So we’re spending a lot of money out there.  What this is about is getting the network up to the standards to enable us to be able to be sustainable for the very long term.  When we came in what was clear was the business couldn’t trade its way out of the difficulty it was in.  It needed to be able to invest to get on top of the hump and then to be able to sustain—
CORIN           Did it also need to be able, though, to make a workplace conditions—? Do you need more flexibility?  Do you need to reduce wages?  Is there something going on here as well?
JIM                  Oh, look, we’re looking at every part of what we do and every part of the business.  It’s important when we come out of this plan we’ve dealt with everything.  We need to be competitive.  We need to be sustainable.  What the cutting of the roles is about is because we’ve reviewed our plan.  We reviewed it based on what we’ve achieved so far.  We’ve reviewed it on the fact that the market has changed around us, and we know a lot of things that changed in the market over the last 12 to 18 months.  So we’ve sat down and we’ve said, ‘Well, we’re going to need to prioritise and spread this out a bit longer,’ so we’ve cut our investment into the track by about 200 million over the next three years.  That means we’re going to do a little less over that time.  Those jobs will still be—
CORIN           Can you give some specifics?  What sort of investment will you be—?
JIM                  I don’t have a list of those, but we’ve looked at all the priorities we’ve got, and we’re just reprioritised those based around the demand we’re seeing, what we really need to do, which bridges we need to do, which parts of the track we need to refurbish.  It’s those sorts of things.  It’s lots and lots—
CORIN           Isn’t that exactly the problem that we had under the last private owners – that they weren’t investing in that infrastructure, and then it got you guys into trouble having to fix it all up?
JIM                  Oh, no, that’s not fair.  We’re cutting our investment over three years by 200 million.  We’re still going to spend 750 million over those three years on the track alone, so we’re still spending capital at a rate far more than was being spent in ’04, ’05.  Far more than was being spent in ’98 and ’99.  So this is not about going back to ‘let’s not spend any dough’.  This is about making sure we prioritise well, making sure we cut the cloth to suit the circumstances we’re in.  We can’t live in some vacuum when the world descending around us and our government has only a limited amount of funds and pretend that there’s just some unlimited amount of money available.  We have to get this right, and we need to craft the plan around what the market needs.
CORIN           That’s interesting, because you’re effectively going to become a SOE, aren’t you, I mean, with this—?
JIM                  We are—
CORIN           With the change in structure, you’ve become an SOE.  Do you have some social responsibilities with that role?  Does it make your job actually much more difficult to turn this company around?  Because you have to give some, I guess, account to the communities, to workers, all those things that perhaps a private company wouldn’t.
JIM                  Oh, well, I don’t think any company that’s an infrastructural part of the country can say it has no social responsibility regardless of who owns it, so we have to take into account what we do in communities.  We cut communities in half with our tracks, we’re associated with all the communities. So we have community responsibility in our DNA regardless of our ownership, and of course our ownership gives us some.  We also, though, have a very clear mandate.  Our job is to sit down and make the right commercial calls, prioritise this right so that we deliver a business that stands on its own feet.
CORIN           So let’s just talk through a couple of examples of those.  So, Hillside Engineering – unions and Labour would argue that you weren’t thinking of the community at all there.  You could have actually kept that place afloat with building some engines there.
JIM                  We could do that, but that would require us to spend a huge amount more money than we’re spending now.  So we’ve got to balance the commercial priorities and what is the right way to get this done with what we’ve got and make the right call.  So we’re— You know, nobody said these calls were going to be easy.  Nobody said getting this right was going to be a simple task, but we’ve got to make the right calls and we’ve got to get it right.  Nobody’s going to thank us for turning round in 10 years and going, ‘Well, it still needs truckloads of dough.  It’s never going to stand on its feet because we just simply didn’t deal with what’s in front of us.’
CORIN           What about Gisborne – the Gisborne line?  Have you made a decision on whether you’re mothballing that line?
JIM                  We’re working through the process on that  We’re working with the agencies around us, and we expect to be able to announce what the answer will be on that.  Again, our responsibilities are very clear.  Our responsibility is to look at the commercial aspects of the challenge.  Our job is then to work with our shareholder and the agencies around them for them to cast the political or social lens over that.  And I think keeping those two responsibilities crisply apart means you make the calls for the right reason, rather than some grey sludge where you don’t actually really understand the consequence.  So, you know, all parties have the right to do what the right call is from their lens, at the end of the day, we’ll do what we’re asked to.
CORIN           The fact is you’re prioritising here around freight and the main trunk line.  There isn’t much future for passenger-tourist type operations, the smaller trunks, is there?  I mean, you need to concentrate on this if you’re going to turn this business around.
JIM                  There’s no doubt at all getting the freight business right is what will create the sustainable railroads, so that is our first and foremost task.  There is no other business I’ve got that has the potential to put the margins in that we need.  There is an opportunity for the passenger business, but it’s got to be managed well, it’s got to be looking at where the real opportunities, and it can’t be run from some emotional view that it’s cool to have a scenic train—
CORIN           Is it profitable?  Is the passenger part of the business—? Taking metro out, the passenger – the long-haul passenger?
JIM                  Well, I was surprised as probably a lot of folk when I came into this role to find that we only have six passenger trains in the country, and three of those – the other one going back.  So it’s not like it’s a very big business.   
CORIN           And you’re saying you won’t tolerate, you won’t subsidise that part of the business by a profitable freight business?
JIM                  That’s right, so our job is not to subsidise at all.  So, the passenger business was making money prior to the Christchurch earthquakes, given two of the trains emanate from Christchurch.  Those two services have been hit hard.  We’ve just relaunched the Northern Explorer, and we’ve got time to see now whether that will come right.  It certainly wasn’t making money before the relaunch.  The feedback we’ve got from the people who have experienced it is great, so I encourage folk to get on it.
CORIN           But you’re saying it’s down to some other operator to come in and run these.  You don’t want these passenger parts?
JIM                  It’s not that we don’t want it.  What we’re trying to do is make sure we focus our energy and our time into the area where we can make the most gains.  And if others can do more around us and continue to grow those as well, then the whole railway works better.
CORIN           Do you personally think that there is any future for those passenger lines in New Zealand, given our geography and how difficult they are to run?
JIM                  Well, I mean, New Zealand has always been an attractive tourism destination.  So there’s no doubt the TranzAlpine particularly is a world-class train.  It’s made money repetitively, and it still does.  So that train is good.  The Coastal Pacific has been more challenged, and the Overlander when it was around simply had too much cost around it.  So as I said, we relaunched the Northern Explorer.
CORIN           Sure.
JIM                  There is some opportunity there, but it’s important we understand it and get it right.
CORIN           So you would sell those if you could?
JIM                  Oh, we’d be happy to work with somebody who could bring more energy to it and put some real focus on growth in that, but that has to be for the deal.  It has to bring more value to the pie rather than just because I don’t want to do it.  That’s the wrong reason to invest.  So we haven’t made a deal.  We will work through what the right answers are, but it’s about making sure that somebody can come in and add more value than we are at this time.
CORIN           A couple of quick things.  In terms of the time you need to cut down between Auckland and Christchurch – that’s a 13-hour trip – you need to take two hours off that.  Have you done that yet?
JIM                  We’ve taken an hour out quite comfortably, and we’re running now.  Our first goal is to really get reliable, and our premium trains, the ones that our customers put the most urgent freight on, are running on time pretty much all the time.
CORIN           Do you need Clifford Bay, though?  Is that something you want the Government to do?
JIM                  Oh, Clifford Bay is something that takes some sailing time out and takes some road and rail time out, so that’s a New Zealand Inc type project that has some productivity benefits.  From KiwiRail’s perspective, at the end of the day, we’ll sail to where the port is and we’ll put the stuff on trains and trucks after that.  So does it make sense in terms of bringing Christchurch closer to Auckland?  Sure.  It’s an obvious thing at that level, but somebody is working through what the business case would be.  And as I say, this is a New Zealand Inc project which rail, like road, would benefit from.
CORIN           Jim Quinn, that’s a nice place to leave it.  Thank you very much, Jim Quinn from KiwiRail.
JIM                  Cheers.


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