February 15, 2018

BLS sets its sights on Swiss inter-city concessions

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A crucial decision on the future of Switzerland’s inter-city network will be made this year, which could break SBB’s monopoly on the sector. BLS CEO Bernard Guillelmon talks to Keith Barrow about how the country’s second-largest railway plans to re-enter the long-distance market.

FOR Switzerland’s railways, 2018 will be a year of big political decisions. The Federal Council will finalise its position on the 2035 Strategic Development Programme for Railway Infrastructure (Step 2035), a SFr 11.5bn ($US 12bn) package of around 200 infrastructure upgrades to build more capacity and higher performance into the network. The Federal Department of the Environment, Transport, Energy and Communications will launch a consultation before the end of the year on plans to open access to traffic data and distribution systems. A decision is also expected on the future concessions for the operation of domestic long-distance services.

BLS FebSwitzerland’s second-largest railway BLS ceded its last-remaining long-distance services to Swiss Federal Railways’ (SBB) in 2004 in return for control of the Bern S-Bahn network, but with SBB’s current national long-distance concession due for renewal, BLS plans a return to the inter-city market. “Opening the long-distance concessions to competition will help rail to become more service and customer-oriented, which is important,” BLS CEO Mr Bernard Guillelmon told IRJ in an interview on January 22. “Of course, you can’t expect to change everything in one day, but there’s a lot to be said for moving things away from the classic monopoly of the state-owned railway towards a more customer-driven environment.”

Discussions between Switzerland’s Federal Transport Office (BAV) and the operators on the new concessions began in 2016 but concluded in February 2017 without an agreement. SBB continued talks with BLS and Switzerland’s third-largest railway Southeastern Railway (SOB). SBB initially sought to reach an agreement with BLS and SOB for a single concession covering the whole country, with the smaller railways operating services on selected routes, but BLS ultimately opted to launch its own bid for rights to operate regional express and inter-city services. Both BLS and SOB submitted their applications to BAV in September 2017, with a decision on the concession award expected by the end of the year.

However, on October 23, BAV announced that it would postpone its decision on the long-distance concessions to allow time for “further clarification and additional analysis” of the proposals from SBB and BLS, with SBB receiving a two-year extension to its current concession, which was due to expire in December 2017.

BAV says most of the Cantons and transport operators have taken a neutral or positive position on the extension, although the decision was rejected by SBB, which argues that the necessary co-ordination between competitors could not be achieved within a two-year timeframe.

“It was clear that a serious decision on the issue couldn’t be made between September 8, when the applications were submitted, and December 8,” Guillelmon says. “If BAV had decided to award concessions to us, it wouldn’t have been possible to obtain the rolling stock we would need in the available timeframe, so the advantage is with the incumbent. On the other hand, there’s a real risk that the incumbent will step up its lobbying against a more open approach to concessioning, saying anything other than the status quo won’t work. I’m in favour of a fast decision process on this issue, with a clear timeframe for implementation.”

BAV expects to make a decision on the concessions by the middle of the year, with the new agreements coming into effect in December 2019, although there remains a possibility that the applicants could go to arbitration before a solution is reached.

SBB’s application covers operation of the entire domestic inter-city network. In July 2017, SBB reached an agreement with SOB, which will operate Gotthard Panorama Line services from Basle and Zürich to Locarno and Lugano via the original Gotthard line, and Bern - Olten - Zürich - Chur services from 2020 under a co-branding arrangement.
SOB will use its own rolling stock for these services, and placed an order for 11 Stadler Flirt EMUs for the Gotthard Panorama Line in December 2017, even though the concession has not been finalised, to ensure new rolling stock is available when it takes over these services in December 2020.

SBB is seeking a 15-year term on the grounds that it has already invested SFr 800m in new long-distance trains for this time horizon, triggering rolling stock orders worth around SFr 2.5bn. The incumbent claims its application will save the Swiss government and the cantons up to SFr 30m a year.

BLS has set its sights on routes starting in the Swiss capital, the core of its existing operations, and is seeking concessions to operate Interlaken - Bern - Basle and Brig - Bern - Basle inter-city services, together with regional express services on the Bern - Olten, Biel - Bern and Le Locle - Bern routes. The transfer of these services to BLS would take place on a staggered basis.

Growth

Guillelmon says the bid for long-distance concessions is central to the company’s growth strategy. “Clearly, we need to grow as a company, because our fixed costs are high and growth is a strategic option for reducing the cost per kilometre of running our services,” he explains. “If we want the money to develop BLS, we need profits to invest back into innovation. In Switzerland, the only routes where you can really make money are long-distance lines. Running trains is a core competence for us, so it’s natural that we should be looking at long-distance concessions. Of course, this is also an issue for SBB, because about a third of its routes are profitable, a third roughly break even, and a third are loss-making. This means a balance has to be maintained within SBB, but we are not after their most profitable routes. I still think we can find a solution that strikes a workable balance for both BLS and SBB.”

BLS says it adopted a “limited market-opening variant” as it believes this approach is in the best interests of both the company and the overall system, creating “a classic win-win,” strengthening the customer offer without weakening the incumbent long-distance operator, and keeping the door open for continued collaboration between BLS and SBB. Previously, SBB has had cooperation agreements with other operators - including BLS - to optimise its operations where working with a partner generates an advantage.

SBB said in September 2017 that it is still willing to co-operate with BLS if this takes place within the framework of a nationwide operating concession, warning that splitting the long-distance network would result in transitional costs of SFr 20-40m and increase operating costs by SFr 15-20m a year. “It would create false competition, which brings few additional customer benefits, but incurs considerable additional costs,” SBB states. “The current balance between profitable and unprofitable lines would no longer be guaranteed. The change of system would open the door for foreign competitors to enter the domestic long-distance market.”

Guillelmon rejects the notion that BLS could come to a SOB-style co-branding agreement with SBB. “We see SBB trying to protect its monopoly and market share, saying we won’t be able to collaborate any more if there’s competition,” he says. “I believe competition is good for the customer, it makes us more efficient, and there’s no reason why competition has to mean the end of collaboration. Look at other industries such as airlines, where alliances and cooperation generate efficiency. Maybe it would be good to do some things like train maintenance together. But at the same time, we are not willing to be a junior partner - that’s our red line. We want our own concession so we can define our own marketing and product, but we should still be able to collaborate with SBB on production.”

If it is successful in its bid, BLS plans to invest SFr 495m in new rolling stock for the four corridors. Guillelmon says additional Stadler Flirt EMUs would be procured for the regional express services using an option in the contract for 52 trains signed last month (see panel below). A separate fleet of 200m-long 200km/h inter-city trains would be ordered for the services from Interlaken and Brig to Basle. “If we were awarded these concessions we would make a subsidiary to separate them from the subsidised parts of the business and we would get private capital in to support the investment in rolling stock,” Guillelmon explains.

With the Fourth Railway Package bringing further liberalisation of passenger rail markets in the EU member states that encircle Switzerland, could BLS seek new opportunities abroad? Freight subsidiary BLS Cargo has successfully projected its operations out from a transalpine core into neighbouring countries, and in February 2017 BLS sold a 45% stake in the operator to SNCF Logistics.

“If you look at the freight business, we do very few things ourselves and we are asset light,” Guillelmon explains. “BLS Cargo has its own management and locomotives, but it ‘rents’ drivers from the parent company or elsewhere. It started in Switzerland and then moved outwards into neighbouring countries. This principle applies to our long-distance strategy. We’re starting from the region around our core market - Bern - and moving outwards. In the longer-term we might look at how we can expand further, but you have to look at the costs and the assets you would need to achieve this. I could imagine being a partner with another company to run international services, but we have specific competencies in running trains in Switzerland, and we’re too small to run long-distance international trains on our own.”

For BLS, 2018 is all about the key political decisions that will shape the future of rail operations in Switzerland. “For now, we are focussed on the domestic long-distance concessions,” Guillelmon concludes. “It’s a big step for us, and we need to do it well.”

 

Stadler EMU order to bring fleet standardisation

BLS concluded its largest-ever rolling stock order on January 15, when the company’s CEO, Mr Bernard Guillelmon, and Stadler CEO, Mr Peter Spuhler, signed a contract for 52 Flirt EMUs for regional and suburban services.

Stadler was selected as preferred bidder for the order in May 2017 and the signing of the contract follows approval of funding for the new trains by the BLS board, the cantons, and the Swiss government.

The order comprises 24 trains for RegioExpress services and 28 sets for the Bern S-Bahn network. All sets will be 105m long and formed of six cars.

The RegioExpress trains will be used on Bern - Spiez - Zweisimmen and Brig - Domodossola services, as well as a new Bern - Burgdorf - Thun RegioExpress service. BLS had originally intended to order 30 sets of the RegioExpress variant, but now only requires 24 trains because the Bern - Neuchâtel - La Chaux de Fonds services will operate as part of the long-distance network.

A full-scale model will be built at Stadler’s Bussnang plant in the middle of this year and production of the first bodyshells will begin early next year. The first trains will be ready for mainline testing by mid-2019.

BLS expects the Flirts to enter service between 2021 and 2025, enabling the withdrawal of 43 older trains from the EW III, RBDe 565 and RBDe 566 fleets, and supporting the introduction of 15-minute-interval services on core sections of the Bern S-Bahn network.