They're working on. It's been under 'serious' discussion since the 80's. There are currently vague plans being discussed that would lead to a high speed rail link being in place as early as 2032, but most people consider that pretty optimistic.
Melbourne and Sydney are both cities of over 4 million people though.
I think it might be due to the fact that Sydney are Melbourne are both similar sized, so it's 50/50 where a company should set up their office, so for in-person meetings, there's a lot of flying to and from required.
Unfortunately the problem is low population density.
Political parties are constantly proposing to build a fast rail link between Melbourne, Sydney and Brisbane.
But at this stage the populations of the cities are just too low to make it economically feasible.
Melbourne and Sydney are about 4M each, and Brisbane is 2M.
By comparison, the Northeastern United States [1] has a population of 55M, in a smaller geographic area. And Japan has a population of 130M in an area about half the size of Sydney's state of New South Wales.
I wish it could be done. It would be so much better to be able to board and disembark in the centre of town rather than having to drive/commute to and from airports. I'm hopeful that Hyperloop may be the answer, but we'll see.
Isn't the number of people travelling between the cities the thing that actually matters?
Not if you have lay new tracks, then that cost will dwarf all other considerations. A lot of the land between Melbourne and Sydney is quite valuable as well making it even more expensive. Plus the fact that there already are fully functional and reasonably priced air routes makes it much harder for high speed rail to charge a premium, making the profit pr. passenger quite slim.
Had they started building the high speed rail line in 1984, before the land prices started to sky rocket and before low cost airlines took of, then it might have worked out very well. Starting to build it today is an entirely different prospect.
I gather the very reason it's the second-busiest air route in the world is that it's just far enough below the margin at which it becomes economically feasible to build fast rail (for now).
As a comparison, London and Paris, which are of comparable proximity and economic importance to one-another, have much bigger populations, and thus fast rail is justifiable, so the two cities don't rank highly on the busiest-air-routes list.
Those airports already exist for other flights, and you don't need to negotiate track and land space for the path between cities. So I could see a heavily trafficked air route being (1) more logistically expedient (2) politically viable
Maybe not. Given Australia's distance from other populated countries (okay, the US), the added distance to travel to Melbourne on a single flight may be non-trivial. Additionally, the amount of travel on a given day to Australia might not be enough for an airline to dedicate large 747 or A380 routes to multiple airports; people flying 16 hours over the Pacific might not expect a nonstop flight regardless. Hence, Sydney became a defacto hub for much of Australia's air travel. And once you're already paying one airline to get you there, you might as well take their connection to Melbourne, rather than pay another vendor, collect your baggage, find the train station, etc.
Just this past May I flew from SFO to MEL. My options on United were SFO-SYD-MEL or SFO-LAX-MEL. I actually preferred the Sydney connection because I reasoned a missed connection in Sydney wouldn't put me off my journey by much, but a missed connection at 9pm in LAX would ensure I'd lose at last half a day if not a whole day getting to Australia. Ultimately I went with the SFO-LAX-MEL route for 2 reasons; the Sydney option routed me on Qantas for the Australia "domestic" leg and I didn't get any miles for it, plus the LAX-MEL route was served by a 787 which I deemed preferable for its potential to reduce jet lag (jury's still out on that one).
The advent of smaller planes like the 787 serving MEL from, one would hope, an increasing number of US cities, might take stress off of SYD.
Distance is a factor, as distances get larger airplanes' speed advantage gets more and more important. High speed rail is 250km/h, while airplanes generally run 900km/h. Travel time is enough to ensure that even if the train is a lot cheaper (rail costs enough that this is unlikely) many people will fly.
High speed rail is very useful for medium distances, but has you get to long distances it doesn't really make sense.
Exactly my point: Madrid to Barcelona is a medium distance application where high speed rail makes sense (in a general sense - geography can be a confounding factor)
As long as Australia is powered by coal, there's no point. The main benefit of high speed rail over air travel is that it's greener... and in Autralia, it isn't.
Interesting, with just about 900km between both cities they seem the perfect candidates for a highspeed rail link instead.