January 08, 2015

German bus liberalisation hurts long-distance rail

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Low-price long-distance buses are proving stern competition to rail operations across Germany to the extent that Veolia's InterConnex service was withdrawn in December. Christian Schreyer, Veolia Verkehr's CEO, outlined his views on the situation to Kevin Smith.

LAST month Veolia's InterConnex long-distance service operated its final trains from Berlin to Leipzig, and Leipzig via Berlin to Rostock and the Baltic Coast.

The withdrawal was a sad end for the service, which just a few years before was reporting steadily increasing traffic, and a small profit. InterConnex had found a workable niche in the market by presenting itself as a transport provider below the level of German Rail's (DB) flagship ICE service, but still good quality, and importantly, low-cost.

However, since the liberalisation of the German long-distance bus market in January 2013, bus companies have competed directly with rail operators on long-distance routes, making low-margin services like InterConnex extremely vulnerable.

Christian Schreyer"Our traffic was steadily increasing up until the third quarter of 2012," says Veolia Transport CEO Mr Christian Schreyer. "Since then there has been a steady decline, which was evident in the results of our marketing activities. In the past we had more passengers using our services following these campaigns. But at the end of 2013 the effect was more or less zero."

Bus companies are in an advantageous position in Germany because they are not saddled with infrastructure access charges like rail operators and lorries using Germany's roads. Schreyer estimates that at 2012 ridership levels, it was costing InterConnex e11 per passenger to meet the €1700 access charge for a service from Leipzig to Berlin and Rostock. As a result its tickets were priced at €29.50 for the complete journey and e15 from Leipzig to Berlin and Berlin to Rostock. In contrast the average bus fare between Leipzig and Berlin is now €7.

"We are unable to compete with that," Schreyer says. "The impact on us was that we lost a third of our revenue compared to our peak. If we were reporting zero losses then we would have continued with the service, but take away a third of our revenues and it resulted in huge losses."

Similar problems

InterConnex is not an isolated case. Germany's other private long-distance operator, Hamburg-Köln-Express (HKX) is experiencing similar problems, while reports in the German media suggest that DB's rail operations have lost around e100m in revenues.

Schreyer says the company did explore options to keep the service operational - a new service to Thuringen was considered - but these efforts were in vain. And with the company unable to negotiate track access charges with infrastructure manager DB Networks because its prices are set by law, it was left with little option but to withdraw.

"From all of our calculations we found that there were no profitable long-distance rail business opportunities in Germany," Schreyer says. "With DB's mandatory ICE long-distance services there is simply no space left to offer an alternative service."

Schreyer has been vocal about his disappointment with the withdrawal of InterConnex. He says that he received words of encouragement from railway and public transport associations, other operators, including DB, and even members of the public who wrote to him personally.

However, he says the German Ministry of Transport, and transport minister Mr Alexander Dobrindt, have been ominously silent. Schreyer even wrote an open letter to the minister encouraging him to rethink the government's position on infrastructure access charges to bus operators and to try InterConnex for himself before it was withdrawn.

"There has been no answer, and I think it comes down to the fact that the Ministry of Transport is not interested in rail," Schreyer says. "In the past we had a ministry that was interested in rail, but now the current ministry is only interested in roads and digital infrastructure."

He also concedes that changes in the bus market could end up hurting regional rail operations. Long-distance bus services are defined as those above 50km and bus companies are already competing with Veolia's regional services from Hamburg to the Danish border, and Munich - Salzburg.

"The difference on these services is that we receive a subsidy to operate them," Schreyer says. "However, we're finding that our calculations of the development of passenger numbers for 12-year long concessions are becoming irrelevant because bus companies are using these routes. What I think we will see happen is that us and other companies will take this into consideration when making calculations for future concessions, and offering low fares will require greater subsidies from the government. They will end up losing out because they receive no payment from the bus company to make up for this."

Schreyer says Veolia would consider re-entering the German long-distance rail market if his regulatory concerns are addressed. However, he does not foresee this in the near term. The government says that it is not likely to review the situation until at least 2018.

"We have support from the Ministry of Environmental Protection on this, but unfortunately they do not make the decision. That is left to the Ministry of Transport, and they have no interest right now," he says.

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