Via Rail must improve service, punctuality despite good management, says Auditor-General

On-time performance plunged to 30% in Q1 2025 and the full-year average fell to 51% in 2024 from 71% in 2015; Via reported an operating loss of $385.2M in 2024 (up from $381.8M in 2023) and operating costs were more than double revenue. CN-imposed speed restrictions from October 2024 and extensive shared-track ownership (Via owns ~3% of tracks) were cited as primary drivers of delays; Via sought an injunction in November 2024 and has agreed to collaborate with asset owners to address reliability. Auditor-General recommended stronger board governance, clearer risk-tolerance levels and improved strategic planning, while also noting generally good corporate management; Via says most recommendations are implemented or in progress.

Analysis

Ownership of the right-of-way is a classic chokepoint — the operational friction created by track-owner controls is translating into a regulatory and commercial externality that could compress freight scheduling flexibility and force higher coordination costs across the network. That raises a non-obvious winner: firms that provide scheduling, signalling and crossing-protection services (and the EPC contractors that build segregated corridors) stand to capture multi-year, fixed-price contracts as governments and operators look for technical fixes rather than purely legal remedies.

Near-term catalysts are binary and time-staggered: court outcomes and Transport Canada/Parliamentary reviews can move policy within weeks-to-months, while capital-intensive infrastructure remedies (new passing tracks, grade-separation, dedicated corridors) are measured in years and will reset concession economics for track owners. Tail risks include a regulatory ruling that forces freight rail to yield priority windows (material to revenue mix for owners) or a government-funded build-out that socialize costs — either outcome reshapes margin and capital return assumptions for the incumbent freight owners.

Consensus pain is focused on reputational and litigation risk to the track controllers, but the market may underprice two offsets: (1) the bargaining leverage freight owners retain to insist on costly safety mitigations that preserve long-run haul economics; and (2) the probability that any government response will favor capital spend (contractors) over punitive fines, creating a multi-year reallocation of cash flows rather than an immediate earnings collapse for owners.

Key Decisions for Investors

• Tactical short on CNI via options (6-month bear-put spread): buy a 6-month put 5% ITM and finance by selling a 6-month put ~15% OTM to limit premium outlay. Entry: after next regulatory hearing or any management pushback narrative; R/R: limited downside to spread width vs modest premium paid, target asymmetric payout if regulatory/legal costs crystallize within 3-9 months.
• Pair trade: short CNI / long regional travel provider (Air Canada AC.TO) for 3-months — rationale: modal substitution risk increases airline demand on pressured corridors. Size as a small tactical pair (e.g., equal notional) to capture passenger flow reallocation; hedge: stop if CN guidance reiterates stable freight/passenger SLAs.
• Long Canadian infrastructure engineering contractors (e.g., SNC.TO, WSP.TO) for 12-36 months — buy on any pullback tied to headline volatility. Risk/reward: contractors win multi-year, high-margin project flow if governments fund segregated corridors; downside is project delays and political wrangling, so size 3-5% of risk budget.
• Event-driven: monitor legal rulings and Transport Canada statements; if regulator signals forced access or compensation, add incremental short exposure to CNI over 3-6 months and trim contractor longs. Conversely, if CN and partners announce a commercial SLA backed by capacity guarantees within 60 days, tighten stops and flip to a small long CNI trade (short gamma).