March 04, 2015

PKP IC looks to privatisation as ridership plunges

Written by  Andrew Goltz
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Despite the recent launch of a new premium express service intended to draw traffic back to rail, these are turbulent times for Poland's national long-distance passenger operator. Andrew Goltz considers the reasons behind declining traffic and looks at potential solutions to the problem.

JUST one month after the high-profile launch of its flagship Express InterCity Premium (EIP) service on December 14, Poland's long distance passenger operator PKP InterCity (PKP IC) said goodbye to its CEO Mr Marcin Celejewski.

Celejewski's departure from the helm had been on the cards for some time as he had failed in his main task of delivering cheap airline-style demand-related pricing and he had been unable to stem the haemorrhaging of passengers.

PKP IC carried 30.7 million passengers in 2013, but only 25.5 million in 2014, a loss of approximately 5.2 million passengers (-17%). Most of the passengers deserting PKP IC were those who used the company's services for relatively short journeys, and the decline in passenger-km from 7.1 billion in 2013 to 6.2 billion last year was a more modest fall of 7.9%.

While PKP IC has yet to publish its 2014 financial results, a quick calculation reveals the magnitude of the disaster. In 2013, PKP IC declared an overall loss of Zlotys 87.2m ($US 23.7m), on a margin of Zlotys 91.3m between sales revenue and operating expenses. Adjusting sales revenue in accordance with the 8% reduction in passenger-km in 2014, and assuming that any savings achieved in operating expenses were cancelled out by increased debt service charges, the gap between sales revenue and operating revenue widens to a huge Zlotys 282.6m.

On initial consideration it would seem Celejewski' s successor, 33-year-old PKP Group privatisation guru Mr Jacek Leonkiewicz, should find his period at PKP IC less of an uphill task than his predecessors - after all, over the last 10 years there have been no less than nine chairmen.

In recent years track has been upgraded, speed limits removed, and new or refurbished rolling stock introduced. In step with all these investments, PKP IC is repositioning itself upmarket as a competitor to domestic airlines rather than targeting low-fare long-distance bus services operated by PolskiBus, a new company launched by Stagecoach Group chairman, Mr Brian Souter.

So will the strategy work? PKP insiders as well as external rail pundits have their doubts. Many Poles see themselves and their country as still trying to catch up from 60 lost years between the start of the Second World War and the end of communism and Soviet hegemony in Poland. Owning and using a car at every available opportunity is widely seen as part of that catching up process. With the exception of long-distance commuters and bargain hunting holidaymakers, Poles who have a choice prefer travelling by car.

PKP IC uses three brands: EIP for Pendolino services, EIC for other high-quality premium-priced services, and TLK for the rest.NA-PKP

For PKP IC to market its EIP Pendolino trains as a premium service, the whole journey - door-to-door - needs to be seen as a 'premium' experience, not just the rail portion. However, the other elements of the journey - taxis, buses and trams - are very much 'second class' transport while most stations lack safe, secure, and convenient parking places.

Here we find the nub of the issue, as the decision to focus on the higher premium market stems not from careful market analysis, but rather is forced on PKP IC by high track access charges. This is a fundamental problem facing all Polish train operators. The Polish government sees little value in subsidising Poland's railway network, and encourages infrastructure manager, PKP PLK to take a 'what the market will bear' approach when setting charges.

So what about the remaining long-distance services operated by PKP IC under the TLK brand, originally Tanie Linie Kolejowe (Cheap Railway Lines), but now Twoje Linie Kolejowe (Your Railway Lines)? Much of Poland's secondary trunk rail network remains in an appalling state, and this means journey times and ticket prices are uncompetitive on routes served by PolskiBus. A negative feedback spiral is in progress - passengers are leaving the railway in droves, services are cut back and more passengers desert the remaining services.

So what should Leonkiewicz be doing to reverse the flow of desertions from PKP IC? There are six priority areas which require his urgent attention:

 Re-focusing the company on the customer: too many people in PKP IC are still focused on the trains. There has been some progress - customer-facing staff have been sent on 'customer satisfaction' courses, train managers are more polite, and have even been known to stop departing trains so that last minute stragglers can board. But senior people have yet to realise that true customer focus must start at the very top of an organisation. When things go badly wrong, staff need to be empowered to deal with such problems on the spot, by granting them the authority to revalidate old tickets, or issue new replacement tickets, without having to charge the customer a second time. An enormous amount of acrimony can be avoided and goodwill generated through such a simple step. When things do go wrong, one of the worst things that can happen to a passenger is to be told by the train manager that a brand new ticket must be purchased, and that a refund for the old ticket can only be obtained via a bureaucratic complaints system.

 Improving internal communications: most of the PKP group's internal culture is still firmly rooted in 'command and control' mode, a legacy of the days when Poland's railways were an integral part of the Warsaw Pact's military machine. Senior directors feel more at home attending Powerpoint presentations from consultants than communicating with their employees. Instigating a 'reverse channel' so information can flow upwards from staff to their managers, regional directors and main board members should be one of the top priorities.

• Commissioning a new ticketing system: despite PKP IC's attempt to introduce low-cost airline style yield management, the fares system is still a shambles. For example, passengers needing to change trains are forced to buy separate tickets for each train (thus losing the through journey discount) when booking online.

 Improving the customer experience at stations: in the last few years major stations have undergone complete rebuilds or makeovers - a process partially accelerated by the Euro 2012 football championship (even though relatively few football fans actually travelled around Poland by rail). But too many stations lack decent waiting rooms with comfortable seats; passenger information is often incomplete; decent restaurants and bars are conspicuous by their absence.

• Improving access for passengers with reduced mobility: to give credit where credit is due, major stations around the PKP network are being equipped with escalators and/or lifts. But architects are failing to provide integrated solutions - complete routes that can easily be navigated without encountering a flight of stairs. One can, for a time at least, excuse such problems at legacy buildings like Warsaw Central, but for new projects, such as the new passenger facilities at Krakow Glowny, this is really inexcusable.

 Enthusing staff and passengers with the ideal of safe, ecologically sound, rail transport: Rail travel was once seen as a premium travel mode and in many parts of Europe that notion is returning. PKP IC should be engaging its passengers and staff in a campaign to promote the benefits of safe, ecologically sound, rail transport.

Will Lenkiewicz have the courage to tackle PKP InterCity's internal problems head on, or will he see his main priority as quickly getting the company in better financial shape for privatisation and making deep cuts in loss-making services? Whatever business strategy he adopts, with parliamentary elections due in November this year, he may, like his predecessors before him, have very little time to make an impact.

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