FRANCE will need to consider reducing the number of stations served by TGV services if the network is to stand any chance of being profitable, according to a report on the finances of TGV, which was published by the French Court of Auditors at the end of October.
SNCF Mobility currently operates nearly 5500 TGV services per week serving around 230 stations. Because of the huge range of destinations served, around 40% of travel time is on the conventional network. High-speed services carry only 7% of passengers using the French rail network but account for 61% of the total traffic (passenger-km).
While total long-distance ridership has increased by 50% over the last 30 years, TGV has seen a fall in passenger numbers since the economic crisis, with traffic falling 0.5% in 2013 to 53.8bn passenger-km. Operating margins fell from 29% in 2008 to 12% in 2013.
"The French high-speed rail model is now in difficulty," says the report. "While TGV has been one of the brightest manifestations of French technological achievements, its balance sheet has been severely degraded in recent years. The French as a whole, from passengers to policymakers, want continued expansion of the network (beyond the four lines currently under construction) because they see high-speed rail promoting economic development of the regions and reducing the impact of transport on the environment. These assertions are justified, but it is no longer possible to pursue a policy of "all TGV," especially if we are going to speed up renovation of the conventional network, which has been neglected for 30 years and now in need of an upgrade. The investment that will be required to achieve this means upgrading of the conventional network is incompatible with the continued development of high-speed lines."
The report argues that international experience proves the most financially successful high-speed networks around the world focus on high-density routes serving a limited number of destinations with good connections to regional services, maximising the journey time benefits between key cities. It notes that the Tokaido Shinkansen carries one-and-a-half times the traffic of the entire TGV network but serves just 17 stations, although this is perhaps an unfair comparison given that the Japanese high-speed line was built to serve one of the most densely-populated regions on earth linking cities strung along a narrow strip of land between the mountains and the sea. The geography of France, and therefore TGV, is quite different, and the 2036km high-speed system has developed as a hub-and-spoke network reflecting the economic dominance of Paris and the long distances between cities.
SNCF argues that TGV was always intended as a network operation, and this is a strength rather than a weakness. "From the beginning the French people, the government and the regions, wanted a TGV capable of servicing the regions, and this is what made the TGV model a real success," it says.
The auditor says that profitability of new lines is lower than forecast, for example 5% on TGV Nord compared with an estimate of 20%, and 8% on TGV Méditerranée compared with a forecast 12%. With lines being constructed in reverse order of forecast profitability, the report observes that the network has now expanded to a point at which further new lines are unlikely to generate revenues that justify their construction, at least in the short to medium-term.
The National Federation of Transport Users Associations (FNAUT), argues that the report's analysis on TGV's financial performance fails to highlight the tax advantages enjoyed by competing modes. "While the state has increased VAT on rail fares from 7% to 10%, the airlines pay no tax on kerosene and fuel taxes cover only a fraction of the costs of road congestion, accidents, pollution, and CO₂ emissions," it says. "We expect the Court of Auditors to call for a level playing field between different transport modes in its upcoming assessment on government funding for projects such as [Nantes] Notre-Dame-des-Landes Airport and the A381 highway."
SNCF points out that TGV's contribution to infrastructure costs has risen from €1.3bn in 2008 to €2.1bn this year and is set to reach €3bn by 2020, and the climb in track access charges has paralleled the drop in operating profits. Infrastructure manager SNCF Network says that access charges represent around a third of the total operating cost of TGV, with different charges for high-speed and conventional lines and variation in rates between the peak and off peak. Charges also differ between lines - SNCF Mobility pays €30/km in the peak on the Paris - Lyon line but only €7/km off-peak on TGV Rhine-Rhône.
Nonetheless, it is an inescapable fact that a significant proportion of TGV revenue is coming from the core of the network. "High-speed trains run for much of the time on the conventional network with reduced occupancy rates, in contradiction with economic logic, which suggests that to be profitable high-speed lines need to link major centres of population with few intermediate stops and restricted operation over conventional lines," the report states. "All foreign networks that achieve good levels of profit are based on this concept."
On key TGV routes such as Paris - Lyon and Paris - Nantes, which are both served by 23 trains per direction per day, revenues are described as "significant" and the auditor sees potential for developing services on such high-density corridors to maximise income. TGV has by far the largest market share on journeys of 1h 30min-3h and the auditor suggests that SNCF concentrates on targeting this segment of the market to maximise fare revenues.
The report warns that funding for TGV is likely to be squeezed in the future by the need to focus funding on the upgrading of the classic network and the emergence of competing modes, not least long-distance buses. There is strong evidence that the recent liberalisation of the long-distance bus market in neighbouring Germany, and subsequent surge in bus ridership, has occurred at the expense of rail.
This topic is revisited frequently through the report, and indeed liberalising the bus market seems to be one of the defining themes - perhaps not a cure for the ills of the long-distance rail market but, in the eyes of the auditor at least, part of the solution.
The auditors recommendations include:
• better integration of high-speed services with regional rail and other modes and liberalising the long-distance bus market
• restricting the number of stops on high-speed lines and reducing the number of services operating over conventional lines
• requiring SNCF to publish traffic data for individual lines to accurately monitor the revenue performance of each route
• giving priority to socio-economic assessment of planned high-speed lines, and
• deferring studies on new lines until a business case has been developed.
There is merit in some of these suggestions. Closer integration of high-speed rail with other transport modes is a necessity that hasn't always been given the consideration it deserves. For example, Avignon TGV station opened in 2001 but it took another 13 years to establish a rail link to the city centre, which simply involved constructing a few hundred metres of track to the existing Avignon - Miramas conventional line. Elsewhere, connections between TGV, regional rail services and other modes are often poor, in some instances because of the remote locations chosen for new high-speed stations.
Indeed, this is one of the few conclusions of the audit supported by FNAUT which criticises "the aberrant positioning of TGV stations with no connection to local transport, which is imposed by local officials more concerned about prestige than the interest of travellers." FNAUT argues the state and RFF [now SNCF Network] have been complicit in the poor location of TGV stations and the failure to integrate these facilities into local transport networks.
However, even with a huge improvement in links to local transport, the suggestion that regional towns and cities should lose direct high-speed rail connections to Paris - even with the sweetener of significantly improved regional rail services - is likely to be perceived as anything but integration. Many regional politicians fought hard to get their TGV links and the loss of these services is inevitably going to be viewed by the electorate as a retrograde step, something an unpopular national government will no doubt have already realised. Even at a time of significant strain on the public finances, it seems unlikely that politicians will be willing or able to convince voters that they should sacrifice their TGV services.
SNCF says it is ready to address the question of how TGV can be better integrated with regional rail (TER) services. "Since the first high-speed lines opened the regional network has clearly improved in parallel," it says. "Now the question of how we achieve a smart, efficient TER/TGV combination arises. There will always be cases where a TGV needs to serve a whole route. But should it be on a daily basis, on every line, in any conditions and with every train? This is what needs to be decided and SNCF will work on that with regions and the state to find the answer."
The task of making TGV profitable is defined in the report as a straightforward public policy choice. On the one hand, the construction of new lines could be cancelled or deferred until the very distant future. On the other, the report suggests a "difficult but necessary" restructuring of the TGV network, with enhanced regional services providing better connections for stations away from the high-speed network, which it says could be carried out gradually as part of a broader multimodal transport plan.
So if cutting back the number of stations served proves difficult to implement, could the axe fall on proposed lines instead? Four lines totalling 671km and representing a combined investment of €14.9bn are currently under construction and all are due to be completed by 2018. As lines are constructed in descending order of economic priority, the business case for lines proposed for construction in the 2020s is naturally weaker than for those currently being built. Nonetheless, planning for new lines continues and public inquiries began last October for two lines totalling 420km linking Bordeaux with Toulouse and Dax on the Atlantic coast. The total investment in these two projects is estimated to be around €9.1bn.
The auditor says that against a backdrop of constantly rising construction costs and overly-ambitious traffic forecasts, new high-speed lines will be less profitable. Furthermore, the ability to fund new lines is threatened by the difficult financial position of various potential contributors and it says construction has become a key contributor to the €35bn debt of infrastructure manager SNCF Network.
The future rail investment in France is increasingly being framed as a decision between building more high-speed lines or revitalising the conventional network. The report rightly draws attention to the need for investment on conventional routes, in particular reviving the Intercity network, which has been marginalised almost to the point of extinction over the last three decades. In December 2010, the government signed an agreement with SNCF to revitalise the so-called Balance of Territory (TET) trains, a network of 40 loss-making long-distance services. However, over the last three years operating losses have increased from €210m to €312m and 10% of TET services have been withdrawn since the accord was signed.
On November 20, less than a month after the publication of the TGV report, secretary of state for transport Mr Alain Vidalies announced that the government will form a commission of politicians and industry experts to develop proposals for the future development of the country's conventional Intercity services.
SNCF says it will spend €309m on the operation of TET services this year, but the government will cover only 6% of these costs, using funds from highway tolls. However, the government has agreed to fund investment in new rolling stock to replace the ageing fleet of Corail coaches.
The commission is expected to publish its initial report in the second quarter of this year and Vidalies says recommendations will be implemented by the end of the year with the aim of achieving tangible improvements by 2016.
By favouring bus market opening, the auditor's report contradicts its own recommendation on development of the Intercity rail network because arguably this would further destabilise the fragile economics of TET services. According to the International Association of Public Transport (UITP), inter-city bus users in Europe tend to be younger or older travellers, the lower-income population, and international travellers, groups which make up a very large chunk of TET ridership, as well as a fair proportion of TGV passengers.
German Rail (DB) notes in its 2014 Competition Report: "There are clear indicators that long-distance bus transport is luring a large number of potential passengers away from long-distance and regional rail. Based on current data, roughly one third of long-distance bus customers have switched from long-distance rail, which puts even more pressure on the earning power of long-distance services and on the operation of routes which have become unprofitable, particularly in the supplementary network."
This suggests that large-scale opening of the long-distance bus market in France would not be conducive to improving the economics of TGV and could prove disastrous for the TET network at a time when there is political impetus for developing these services.