January 16, 2018

New entrants seek strength in numbers

Written by  Nick Brooks
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Nick Brooks, board director, AllRail.

ALLRAIL, the Alliance of Rail New Entrants, was founded in April 2017 as Europe’s newest railway association. It brings together non-incumbent companies from the passenger rail market comprising operators MTR, Leo Express, Westbahn, NTV, RegioJet, and Ilsa Intermodalidad, multimodal journey planner and online booking platform FromAtoB, and rail booking service Trainline.

All our members share the belief that further market liberalisation is the only way to achieve a modal shift to rail and help the European Union (EU) achieve the ambitious targets laid down in the 2016 Paris Climate Agreement.

Around Europe, it has been proven that an open rail market leads to:

  • innovation and improved service
  • lower fares
  • passenger growth, and
  • new jobs.

For example, since NTV began competing aganist the incumbent, Trenitalia, in the Italian high-speed market five years ago, average fares have fallen by 41% while demand increased by 101%. The incumbent is more profitable than before, and both operators have introduced new trains. The table illustrates some of the benefits of competition.

AllrailIn addition, wherever competitive tendering has been introduced for publicly-funded rail services, taxpayer cost has decreased, and quality has improved.

While all stakeholders - passengers, taxpayers, the rail sector and legislators - benefit from liberalisation, over 80% of EU passenger rail does not experience any form of competition, so there is a lot of work still to be done.

In particular, the European Commission (EC) and its transport commissioner, Mrs Violeta Bulc, have a unique opportunity to enshrine these benefits in various forthcoming pieces of legislation, such as the recast of EU Rail Passenger Rights Regulation and the PSI Directive, otherwise the vision of a liberalised European rail market will not be achieved.

We face challenges in five key areas:

  • direct-award concession contracts
  • economic equilibrium testing (EET)
  • open data for rail
  • ticketing and passenger rights, and
  • commercial viability for licensed ticket vendors.

EU law still allows member states to award public service obligation (PSO) contracts directly without competitive tendering until 2023. But such PSO contracts are often not properly defined, resulting in over-compensation, cross subsidisation and market distortion.

For example, the Slovakian government pays its incumbent €4.9m a year as a direct award contract to operate night trains, while two of AllRail’s members operate similar night trains at no cost to the taxpayer. Meanwhile, on daytime services, incumbents can use their own PSO services to feed their long-distance services, using voluntary through-ticketing to benefit from a network effect.

In short, the EU needs a strategy that checks direct-award contracts for features which undermine competition while increasing the amount of competitive tendering.

Some incumbents have used the EET as a weapon against market opening by either blocking or delaying the plans of new open-access operators. To prevent this, AllRail supports the EC’s position that EET is undertaken by a regulatory body only if there has been competitive tendering for PSOs and brand-new open-access services are planned. A new open access service would only be prevented if the EET demonstrated a significant loss of benefit to the PSO operator.

Regarding open data for rail, the data refers to raw timetable data, real-time train running information, access to all the fares of operators, and infrastructure managers which are owned or funded by the taxpayer.

This serves two major purposes. It provides full customer choice and information, making rail easier and more accessible, and it gives new entrants the exposure they need, and independent ticket vendors the ability to innovate, thereby overcoming major barriers to market entry.

More attractive

To make passenger rail more attractive, it is crucial that passengers can both search and book all rail options through all ticket vendors. This includes both incumbent in-house ticket vendors, considering that they benefit from considerable inherited brand equity, as well as independent ticket vendors.

Unfortunately, through-tickets involving a change of operators under one single journey contract are still only voluntary. This means that for the vast majority of rail connections, through-tickets are the privilege of large rail incumbents, who can pick which other operators they want to work with. Typically, new entrants are excluded.

But digitalisation is not waiting. Independent ticket vendors already combine separate tickets of connecting operators to provide the cheapest and fastest journeys between any two stations, even if the operators concerned do not offer through-tickets.

While these combined journeys offer a wide range of new rail options, passengers continue to only have the right to missed-connection protection - when the first train is delayed and the second train is missed - if they buy a through ticket.

As a fair solution, AllRail thinks that passengers should have the right to travel on the next available service following a missed connection regardless of whether they booked a through ticket as a one-ticket contract or a combined journey as two or more ticket contracts.

In July 2017, 14 incumbents joined forces to create a missed connection protection scheme for combined journeys involving two or more ticket contracts called the agreement on journey continuation. AllRail believes that all EU rail operators must be obliged to participate and that this should be a passenger right.

Licensed independent ticket vendors are embracing digitalisation by putting together new rail options not offered by through tickets. However, as over 80% of EU rail routes are not yet open to competition, this puts market-dominant operators in a position where they can dictate disadvantageous commercial terms to independent ticket vendors.

Once again, AllRail proposes a fair solution: there should be the same commercial terms between dominant operators and independent ticket vendors as they give to their in-house ticket vendors. For the same performance, there should be the same reward.

Otherwise there is the real risk that it will become unviable for independent ticket vendors to provide innovative and impartial services to passengers, which would have a serious negative impact on new entrants gaining exposure and the entire sector becoming less competitive, thereby failing to achieve the vision of a liberalised EU rail market.

AllRail wants to see real change in one of the last network industries dominated by state-owned companies. We welcome Finland’s plan to introduce an open data law for public transport. There are similar initiatives at the EU level too, such as the current laudable initiative by the EC on the accessibility and re-use of public and publicly-funded data. It is crucial that state-owned passenger rail operators do not receive a continued exemption.

However, it is important not to let vested interests maintain the status quo at the expense of liberalisation. As can be expected, we notice intense pushback lobbying.

In conclusion, it has been amply demonstrated that vibrant competition within integrated rail markets achieves efficiency, improves customer service and significantly grows the number of passengers travelling by rail. Currently there are five practices that are preventing this from happening: direct-award contracts, EET, the lack of open data for rail, passenger rights, and commercial viability for licensed ticket vendors

Stakeholders should recognise that passenger rail can only be an effective part of any multi-modal transport system if it is as open and competitive as all the transport modes. To achieve this goal, the Single European Rail Area should be supported by a robust regulatory framework that creates a fair, reasonable and non-discriminatory environment.

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