November 02, 2015

Will Europe really back more passenger rail competition?

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THE announcement last month that the 26 transport ministers of the European Union (EU) have finally decided to open up the domestic passenger rail market in each member state to competition from 2020, and to reform the way loss-making passenger services are funded and procured, could herald a passenger rail revival in many countries provided private operators are given the chance to compete fairly.

The current situation in Europe is a hotchpotch. Open-access competition ranges from a fully-liberalised market in Sweden, partially-open markets where competition is allowed on certain routes in countries such as Austria, the Czech Republic and Italy, or countries where the market is supposed to be open but there are so many obstacles to private operators that access is in reality very difficult, such as Britain and Germany, to the majority of EU member states where access is currently denied.

A similarly fragmented picture emerges for the concessioning of passenger services which require subsidy. While Sweden and Germany put all such services out to tender, the Netherlands and Denmark currently grant their incumbent national operators exclusive access to a defined core network of services, while tendering all other rail services. Netherlands Railways (NS) has a 10-year contract which expires in 2025, and this will be affected by the new legislation. Some countries tender a portion of their services or are starting to introduce concessions, while others have made no such changes. France allows regional authorities to plan and specify local services but they are often frustrated in trying to implement change as French National Railways (SNCF) is the sole operator and all rolling stock must be procured through SNCF.

Britain has a unique system of franchising passenger services where franchisees bear the revenue risk for the services they provide and either have to make premium payments to the government or receive a subsidy. These payments are determined for the life of the franchise as part of the bidding process. Two open-access operators compete with the franchisee on the East Coast Main Line, and a third has been granted access for a Blackpool - London service on the West Coast Main Line. But the process of applying for access is long-winded and tortuous. Access is only granted for a specific route, such as Hull - London, a defined number of paths per day, and for a fixed period of time. Despite these restrictions, there is still a thirst from the private sector for greater access. Stagecoach and Virgin, which jointly operate the West Coast and East Coast franchises, have suggested doing away with franchises on these two important corridors and auctioning batches of paths to the highest bidder.

While incumbent railways have generally been opposed to open-access operators for fear of losing traffic and revenue, and often use their dominant position to put obstacles in the path of private operators, in most cases direct competition has expanded the overall rail market and led to an improvement in quality and performance. The advent of NTV on the Italian high-speed network spurred incumbent Trenitalia to up its game by relaunching its services under the Frecciarossa brand. As a result, Italy now has some of the highest-quality high-speed services in Europe.

Concessioning has usually led to a reinvigoration of local and regional services, with new or refurbished trains and higher-frequency services which attract more passengers.

So why are some governments still opposed to private operators? The reasons include strong opposition from trade unions, protectionism, fear of change, and political opposition. Some countries would rather see rail services wither away and die than allow someone else to have a go.

The EU proposals, which will form part of the Fourth Railway Package, will now go to the European Parliament for further deliberation which could result in changes or compromise. Each member state then has to transpose the directive into national law, which takes several months or even years. Some member states have a poor record of applying EU legislation even when it is adopted, and too many politicians pay lip service to new EU directives but have no intention of applying them, knowing that it will be years before the European Commission takes legal action against them.

If European politicians are serious about opening the domestic passenger market in each country to competition, it will take more than legislation to make it work. Governments need to ensure that the rules of the game are fair, and that incumbents do not obstruct private companies from competing fairly. Train paths and access to stations and maintenance facilities must be granted equitably and at an affordable price. Regional procurement authorities must be given the tools and expertise to be able to issue tenders, judge them dispassionately, and monitor the performance of the contracts when they have been awarded.

Private operators should be allowed some freedom to innovate. This is a major failing of the British franchising system where the contracts are so tightly controlled by the government that innovation is stifled and making any changes to services becomes so difficult that they often have to wait for a new franchise.

Competition is usually a spur to improve performance and achieve growth, and Europe's incumbent railways should not be afraid to embrace it. Yes, rail competes with road and air transport, but it is not quite the same as having another train company on an adjacent track. Europe's railways must not lose sight of the main goal: to grow rail's market share.

David Briginshaw

David Briginshaw joined IRJ in 1982 as associate editor, and was appointed editor-in-chief in 2001. He has travelled the world extensively interviewing many of the CEOs and senior managers of the world's railways and transit systems which has given him an in-depth knowledge of the global railway industry.

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