April 03, 2014

Moretti: FS to break records in 2015

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In an exclusive interview, Mauro Moretti, CEO of Italian State Railways (FS), explains how the national railway has managed to weather one of the worst financial and economic crises to hit Italy while at the same time facing strong competition. David Briginshaw and Marco Chiandoni report.

THE Italian economy, which is the third largest in Euro-zone, has been in the doldrums for many years recording little growth for at least a decade and was already in a weak state when the financial and economic crisis started to bite in 2008-09. According to the International Monetary Fund (IMF), Italy's economy last year was smaller than it was in 2000, having contracted by 1.8% in 2013 while unemployment was at 12.7% by the end of 2013. The IMF estimates Italy's gross debt at more than 130% of annual GDP.

Nevertheless, the Italian economy is now officially out of recession having grown by 0.1% during the last quarter of 2013, and last month the new prime minister Mr Matteo Renzi announced a e10bn package of tax cuts, investment and job creation measures designed to stimulate the economy.

Italian State Railways' (FS) CEO Mr Mauro Moretti is bullish about the company's performance during this difficult period and its prospects as the economy gathers momentum once more.

"Let's start with an important fact: the FS Group should be considered unique in the Italian industrial panorama because it is anti-cyclical compared with the economic crises," Moretti says. "We are one of the few companies in the Italian market which for years has recorded a positive trend. In the last six years, starting from a deficit of €2bn and a loss of €115m, we have achieved top efficiency in the European context and have been able to issue bonds successfully particularly in the international market. This now allows us to make investments in Italy and abroad, even through self-financing, enabling us to compensate for the scarce state and regional resources. This is an exception, especially in the public transport sector, where it is difficult, if not impossible, to find healthy companies."

FS-AprilWhile the consolidated accounts for 2013 have yet to be approved by the board, FS anticipates a profit of about €450m, the sixth consecutive year of positive results. The 2014-2017 plan forecasts that revenue will grow at an annual rate of 3.5%, to reach €9.5bn in 2017. Last year FS launched bonds worth €1.35bn and this month plans to issue another e150m in bonds. The company has recently launched its 2014-2017 strategic plan which calls for investments of €24bn, of which €8.5bn is expected to be self-financing.

"As far as passenger traffic is concerned, in 2013 we transported 42 million travellers on our high-speed services," says Moretti. "For freight transport, however, we are focusing on the European market and intermodal integration with road and sea, on the assumption that railfreight is only really suited for heavy loads and long distances."

In December 2009 Italy completed the construction of the high-speed network and Trenitalia, the train operating subsidiary of FS, took the opportunity to relaunch high-speed services under the Freccia brand, with Frecciarossa for the fastest trains and Frecciargento for tilting high-speed trains.

"With the completion of the high-speed network we redesigned the geography of Italy," Moretti says. "We have shortened distances, reduced journey times and created a new way of commuting thanks to high-speed rail linking the largest cities of the country. Today it is possible to live in Naples and work in Rome. The same applies to other connections such as Milan - Turin, Milan - Bologna or Florence - Rome."

Trenitalia now offers four classes of passenger accommodation on its services, which Moretti says has helped rail to win traffic from the airlines. "On the Rome - Milan corridor almost 60% of travellers use the train, and that's not all," Moretti says. "We have signed agreements with 10 international airlines to create an integrated transport system for both international tourism and business travel."

Italy is currently the only country where public and privately-owned operators compete head-to-head on the national high-speed network following the launch of private operator NTV in 2012. Moretti says he welcomes the arrival of new entrants to the long-distance rail market.

"Competition is always good, as long as there are the same rules for everyone. Our know-how, the result of decades of experience, has led us to develop a magnificent service and, at this point, a winner. Frecciarossa has become synonymous with efficiency and a very powerful brand, and with the launch of Frecciarossa 1000 at the beginning of 2015, we plan to establish new records. Firstly related to speed: 400km/h is quite a challenge don't you think?"

At the other end of the passenger spectrum, Trenitalia's regional passenger services have a very low quality because of extremely low fares dictated by government and the resulting lack of investment. So is FS making any progress to lift these services out of the mire?

"This is a complicated process, in which the key role is played by the regions," Moretti replied. "It is their competence, as patrons of the service, to decide the fares on the basis of resources allocated each year in their budgets. The regions also decide which services will be provided, with which trains and with what characteristics." Moretti says that Trenitalia receives as little as €0.13 per passenger/km from traffic revenues and fees, compared with €0.25 in France, €0.19 in Germany, and €0.17 on Italian suburban buses.

"Despite the limited economic resources available, we are investing through self-financing e3bn for the purchase of new trains and the development of technologies to service commuters. And that's not all: at the end of March, as part of a national forum, we presented our concrete proposals to improve the efficiency and effectiveness of the local public transport system in Italy."

Netinera

FS purchased the Arriva Germany regional transport business from German Rail (DB) in 2011 and subsequently relaunched it under the Netinera brand. Moretti is encouraged by Netinera's "very good performance," which he says was confirmed by the fact that one of the companies in the Netinera group was rated in 2013 among the best in Germany in terms of quality.

As far as Netinera's participation in tenders is concerned, he says the company will continue to analyse and evaluate carefully all the public transport tenders published by German local authorities, both rail and road. "For those which look favourable and profitable, we will present our bid," Moretti says. "The minimum expected performance from the tenders in which we participate is at least 8%. Up to now we have increased the volume of business by more than 30%, compared with when we acquired Netinera and we are currently bidding for further tenders."

Elsewhere outside of its home market, in 2011 Trenitalia set up a joint venture called Thello with Veolia with the intention of developing passenger services between Italy and France. However, it recently suffered a setback following the decision to withdraw the Rome - Paris night service, leaving just the Paris - Milan - Venice service.

Moretti says the service between Paris and Rome was suspended for two reasons, the first being the decision to create a hub in Milan, which enables Thello to connect with all the major Italian cities, including Rome. The other reason is due to problems with the French network that he says would have prevented Thello from offering a quality service in terms of regularity and punctuality.

"We are now carefully considering the possibility of increasing the daily links, both night and day, between Italy and France, but much depends on the opening of the French railway network," Moretti says.

With FS continuing to expand its international activities, Moretti is eager to see that European legislation on the reform of the railway sector is fully transposed at a national level to ensure a level playing field.

"Europe is our market," Moretti says. "I wish that all European countries would recognise this, especially in the field of transport. FS is unique in having a high-speed competitor.

"Starting from this point, I think it is necessary to streamline the process of liberalisation, to establish common rules and standards for interoperability, and focus on the completion of the EU internal rail market. In addition, ours is the only sector in Europe where it is necessary to have safety certificates and transport licenses for each country and market. This makes it extremely complicated to setup a homogeneous process of liberalisation."

Well-known

Moretti is a well-known figure on the European stage having served as chairman of the Community of European Railway and Infrastructure Companies (CER) from 2009 to 2013 and is currently vice-chairman of the International Union of Railways (UIC), and he cites his main achievement as relating to the Fourth Railway Package, which was approved on its first reading by the European parliament last month.

"We have fully embraced the proposals of the European Commission concerning the opening to competition of all domestic markets in order to overcome the current national asymmetries, and the strengthening of the competences of the European Railway Agency (ERA) on the centralised commissioning of rolling stock and the issuance of a single European safety certificate," Moretti says.

"One of our successes at the European level was to make it clear that unbundling - the separation of the network from services - would increase the costs of the European rail system by at least e6bn a year and could reach up to €15bn a year under the rail growth forecast assumed by the EU."

At the heart of the Fourth Railway Package is the notion of Europe's railways playing a major role in its sustainable future, a point that is not lost on Moretti.

He concludes by stressing the important role he sees railway transport playing in fostering sustainable mobility, both in Italy and across the continent. "For the future, I think that mass transport should be the key elements on which to re-establish our cities," he says. "Promoting the development of sustainable settlements and effective mobility systems are essential to improve the quality of people's lives: they are the objectives that FS has been pursuing for years with precise choices in the direction of sustainable mobility."

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