“I’M very, very happy to be CEO in this project, because I see Ilsa as the most interesting and exciting project in the railway sector, not only in Spain, but in Europe.”
Mr Fabrizio Favara was appointed CEO of Ilsa in September 2020 and is leading a busy period of work for the fledgling high-speed operator as it prepares to launch services in 2022.
Ilsa is a consortium of Italy’s state-owned operator, Trenitalia, which holds a 45% stake, and the shareholders of Spanish regional airline, Air Nostrum, which hold 55%. The operator was selected by Spanish infrastructure manager Adif in November 2019 as one of three winning bidders to operate a package of high-speed services on three corridors:
- Madrid - Barcelona - French border (Corridor 1)
- Madrid - Valencia/Alicante (Corridor 2)
- Madrid - Seville/Málaga (Corridor 3)
Ilsa is set to go head-to-head with incumbent state-owned operator Renfe, and Rielsfera, a subsidiary of French National Railways (SNCF), as Spain finally begins to liberalise operation of its passenger network.
Renfe secured Package A consisting of 60% of services and began operating three trains per hour on the routes at the start of the 2021 timetable in December. Rielsfera will operate under SNCF’s low-cost Ouigo brand and is set to commence operation on May 10, two months later than initially planned, due to the impact of the coronavirus pandemic. Tickets are on sale for services, which will operate at three-hourly intervals under Package C, which equates to 10% of all services.
Ilsa will operate Package B, which accounts for 30% of all services, under new branding that is yet to be revealed. However, it is running a little further behind. Speaking in his first international media interview since his appointment as CEO, Favara says the operator now expects to begin services in the second half of 2022. This is a delay from the previously announced start date of March 1 2022, which was pushed back from January 2022. No firm date for the start of operation has yet been confirmed.
Favara says delays to the manufacturing of its new fleet of trains is the reason for the hold up. Trenitalia confirmed a €798m order with Hitachi Rail and Bombardier Transportation to supply 23 ETR 400 high-speed trains for Ilsa in August.
“We are the only operator that will deploy a completely new fleet, but I am very sorry to say that Covid-19 has affected production of the trains,” Favara says. “The plant was closed during the first wave of the pandemic and during the second and third waves, social distancing rules are impacting production.
“Covid-19 is a global situation; it is not just an issue impacting the railway sector or Ilsa. For the contract, it is clearly a situation of force majeure. There is no consequence and no issue in terms of contract rights. I hope with the vaccine, the situation will improve in the coming months.”
“Obviously we cannot start the service with one train. “At least to start between Madrid and Barcelona, we need nine or 10 trains.”
Fabrizio Favara, Ilsa CEO
Hitachi confirmed to IRJ that it is on course to deliver the first train for the start of certification on the Spanish network in August as planned. Favara says two further trains are expected to arrive in September and more by the end of 2021.
“Obviously we cannot start the service with one train,” he says. “At least to start between Madrid and Barcelona, we need nine or 10 trains, and then you will need more for Madrid - Levante (Corridor 2) and to Andalusia (Corridor 3). We have been talking with Adif since October to start the service in the second half of 2022.”
Favara confirmed Ilsa’s plan to gradually ramp up its service offer and is likely to reach full operation “four or five months” after launch. “It also depends on how demand will return after Covid, and when is the right moment to start,” he says. “Demand can be quite different in the mobility sector, for example during Christmas, February or the spring.”
Ultimately, Ilsa’s aim is to secure 30% of the Spanish high-speed market by transporting 8 million passengers per year, operating an hourly service on each of the three routes with Package B accounting for 20% of all services.
Centrepiece
The new trains are the centrepiece of Ilsa’s offer to the market and Favara says he believes Ilsa will be the only operator to offer a complete fleet that meets TSI 2019 standards.
Ilsa’s €1bn total investment includes €200m on the service, including IT technology and services, as well as the process of launching operation in the market, to deliver what Favara describes as “a 100% digital company.” The company is also set to employ 2600 direct and indirect staff with the process to hire drivers expected to begin in early 2022.
The trains will adopt three levels of service, which Favara says is “the right way” for Spain compared with the four levels available on Trenitalia high-speed trains in Italy. The offer will target different service groups, such as business, leisure travellers and families. Favara adds that the service will emphasise high quality in onboard catering and offer reliable Wi-Fi, as well as enhanced comfort by maximising the available space for seated passengers and by minimising noise and vibrations. The seating layout will also be adapted to the specific requirements of Spanish passengers.
“Spanish passengers prefer an airline seating arrangement over four seats around a table which is preferred in Italy,” Favara says. “Spanish customers also put a lot emphasis on quality of the customer offer, which is going to be evident in our offer for the market and how we are going to differentiate ourselves from our competitors. You need to know what the customer wants, and you need to be in a position to offer it at the right price.”
A key part of Ilsa’s efforts to become a digital company is in ticket and journey sales. The operator will offer passengers the opportunity to integrate their rail journey with other transport options such as air travel, taxis and bike sharing to deliver first and last mile options. Negotiations with potential partners are underway and Favara is hopeful that these agreements will be in place by early next year.
Favara adds that Air Nostrum’s experience of the Spanish transport market is proving critical in developing these relationships as well as commercial marketing and the design of the product, which will be formally announced by the end of the year or in early 2022.
Likewise, Trenitalia’s knowledge of operating the ETR 400s as well as wider industrial processes for the rail sector is set to inform Ilsa’s decision-making as it nears the start of operation. Indeed, the operator’s experience of liberalisation in Italy since NTV entered the market in 2012 as a direct competitor to its Frecciarossa service is at the heart of Ilsa’s approach.
Patronage on the Italian high-speed network has doubled in that time and Favara says there is scope to match if not exceed this in Spain. However, rather than being disrupted, this time it is the disruptor, and Favara believes active experience of how Trenitalia was able to deliver such impressive growth in Italy is set to give Ilsa the edge in Spain, although he admits it won’t be straightforward.
“We’re trying to do what NTV did in five years [from 2007 until 2012] in just two-and-a-half years, and during a global pandemic,” Favara says. “This shows the level of challenge we are facing. We cannot take our time because we have no extra time.”
The key lesson from Italy according to Favara is to grow the market by encouraging people to switch from other modes of transport, such as road and air, by offering them a personalised reliable and high-quality rail service.
“The only way to do that is to open and liberalise the market,” he says. “Only by doing that are you able to provide an offer which is designed with the customer in mind.
“The goal is to personalise our offer for families, business and leisure travellers, you cannot just do a basic offer. Our competitor, Renfe, has a quality product, but it is the standard. It is very difficult to differentiate when you are not in competition. It was the same for Trenitalia. Trenitalia started to learn to differentiate when it was forced to compete.
“For us it means that we need to be and will be very, very fast in deploying new commercial offers, new promises to the customers, our integrated transport solutions, and an overall offer that is designed to meet customer needs. We are not only promising the best price, but the best quality at the right price, that is our difference.”
Year of the team
Favara describes 2020 as the year of building a team that can put Ilsa in a position to compete. Favara was previously senior vice-president of strategy, planning, sustainability and innovation at Trenitalia parent, Italian State Railways (FS). And on taking the role, together with Ilsa’s founder and director general, Mr Victor Bañares, who spearheaded the development of Renfe’s high-speed service, including the launch of the Madrid - Barcelona AVE, he set to work to bring in the necessary expertise.
A major strengthening of the executive team in October included bringing in experience from low-cost airline Vueling, travel specialist Amadeus and rail freight operator Transfesa (German Rail (DB)) to boost commercial and marketing capabilities. These individuals all have specific experience of the Spanish market. Trenitalia’s directors of operations, and operational quality and safety have also joined the Spanish operator, while another former Trenitalia employee will head Ilsa’s finance department.
“This is the knowledge that I need,” Favara says. “Our strategic approach has been to select the best people from a company that has experienced the industrial processes necessary to operate successfully here. On the other side, we have a team with a strong knowledge of the local mobility market, which is able to design and present the right services for Spain.”
Moving on to 2021, Favara says the year is all about decision making. He expects Ilsa to certify and secure safety certification for the fleet and establish a maintenance regime for the new trains by selecting a supplier of a full-service agreement, an area of potential innovation for the Spanish sector brought about by liberalisation. 2022 is the year of starting the service.
“We are not only promising the best price, but the best quality at the right price, that is our difference.”
Fabrizio Favara
But Ilsa is not looking to stand still. Indeed, this is just the start. Beyond 2022, Favara says Ilsa is targeting further expansion in the Spanish market. Under its current contract, the company already plans to compete with Renfe on medium distance routes by offering a stop in Córdoba on its Madrid - Seville/Malaga service.
In a note to Spain’s Competition and Markets Authority (CNMC), Ilsa says it plans to offer 27,117 seats annually between Córdoba and Seville on its Madrid - Seville service, and 27,427 seats between Córdoba and Malaga on its Madrid - Malaga trains, by 2024.
CNMC has approved these figures, meaning Ilsa is fully compliant with Spain’s public service obligation (PSO) economic equilibrium rule, whereby a new operator is not able to reduce the incumbent’s revenues beyond a certain percentage. As the PSO operator on the route, Renfe is also reportedly satisfied with this arrangement.
However, Ilsa believes that it would be best to restructure the PSO scheme on these routes to offer more options and a better service for passengers. It has shared its views with the Spanish Ministry of Transport (MITMA). In addition, Ilsa does not rule out participating in future bids to operate PSO services in Spain. “The aim of Ilsa is to have Ilsa services everywhere, which will provide value for Ilsa and our customers,” Favara says.
Unlike Italy, where two high-speed operators go head-to-head, Ilsa will be competing with two other operators and three different services - Renfe confirmed last month that it will launch its low-cost Avlo service on the Madrid - Barcelona route in June. For this reason, Favara says the eyes of Europe are on the Spanish liberalisation project, justifying his excitement for leading one of the new entrants in what he believes will become a benchmark for future market opening.
It also comes at a key time for the sector. The coronavirus pandemic has decimated passenger rail traffic across Europe, and many are questioning how the sector will recover. Favara says he expects less demand from business travellers, but leisure travellers to more than make up for this. Indeed, the importance of the tourist sector to Spain’s economy is a source of encouragement.
As are recent government policies in France and Germany to boost use of rail services by eliminating direct air competition, in the case of France’s subsidies to Air France, and tax reforms offered by the German government. While he expects it will take a little time for traffic to recover to 2019 levels, he says it is imperative that governments encourage the use of railways as a means of tackling a larger problem: climate change. If this proves the case in Spain, Ilsa seems well placed to benefit.
“I think it is important to underline that there is a future after Covid,” Favara says. “But we need to start work for this kind of future, and we need to think about how we are going to be more resilient. I think the railway is one of the ways that we can be more resilient.”
