EUROPE’s railways continue to face the challenge of maintaining high performance in an era of austerity. Yet despite budgetary constraints, several countries have recently adopted ambitious investment plans for their systems.
Last year, Italy unveiled a 10-year programme supported by planned investments of €100bn, including €73bn designated for infrastructure improvements. In 2014, Britain announced a five-year programme to invest £38bn in its system. Belgium approved a €25bn investment plan in 2013, to be implemented over 12 years. Regulators and policy makers considering whether to pursue similarly ambitious programmes need to answer a critical question: how should a country manage its investment policy to ensure a railway system’s high performance over time?
The 2017 European Railway Performance Index (RPI) report by Boston Consulting Group (BCG) provides insights for stakeholders seeking to answer this question. The RPI enables comprehensive benchmarking of European railway operations by considering the three critical components of railway performance: intensity of use, quality of service, and safety.
The 2017 RPI report follows on from the first two editions, published in 2012 and 2015. Over the five-year period covered by the three RPI studies, countries have generally remained within the same performance tiers, although we detect an incipient trend of large systems having more difficulty than small networks in maintaining performance levels.
Safety and quality of service (especially punctuality) are the most important factors underlying changes in a system’s performance. Countries experiencing a decrease in overall performance typically have seen a decrease in their safety rating, while those with improving performance have usually experienced an increase in their quality of service rating.
The 2017 study reaffirms the key findings of the first two editions of the RPI report. We again found that a network’s overall performance typically correlates with the level of public cost, which we define as the sum of public subsidies and investments in the system. The 2017 study found that the correlation strengthens over time: the more a country increases railway investment, the greater the improvement in network performance. We also again found that the value derived from public cost rises or falls along with the percentage of public subsidies allocated to infrastructure managers. The study found only weak correlations between performance and the degree of liberalisation or the choice of governance model.
Taken together, these insights are a warning signal for regulators and policy makers seeking to improve network performance. For countries with slightly decreasing performance, sustaining public cost at current levels may no longer be sufficient to maintain high performance. It takes several years for performance declines to become clearly visible, so now is the time to take action to reverse incipient declines. Significant investments are likely to be needed to produce tangible performance improvements in the short term.
The RPI measures the performance of railway systems in three dimensions for both passenger and freight traffic:
- intensity of use
- quality of service (encompassing punctuality, speed and affordability of fares), and
We restricted the analysis to these dimensions to create an indicator that is comprehensive yet easy to understand. Each dimension comprises at least two subdimensions, and all were given equal weight. We rescaled the data to represent a score of 0 to 10 for each subdimension. To create the index, we then combined the ratings for each dimension and subdimension based on their weighting.
The simplicity of the index results in three methodological biases:
- passenger performance is overweighted relative to freight performance because reliable information about the quality of service for freight operators is unavailable
- large countries are favoured because the quality-of-service dimension takes into account the share of high-speed rail passengers and high-speed is more common in countries with networks covering long distances
- countries where consumers have low purchasing power are favoured because we do not adjust average fares on the basis of purchasing power parity (PPP). Nevertheless, a PPP adjustment would have only a small impact on countries’ rankings, since it would mainly reinforce differences between tiers.
The primary source for data used in the 2017 RPI is the International Union of Railways (UIC) 2014 database. Some countries, however, do not provide all the information that the UIC requests. We were thus unable to include those countries in every analysis, while Estonia and Greece were completely excluded from the RPI due to a lack of data.
For each of the three performance criteria, countries are classed as ‘excellent’ for a weighted rating of 2.7 or above, ‘very good’ (2.0 to 2.6) ‘good’ (1.3 to 1.9), and ‘poor’ (less than 1.3). These are then combined to give an overall score, which determines their tier positioning.
Three groupings of national railways emerged from the analysis:
- Tier 1 (RPI of at least 6 out of 10): Switzerland, Denmark, Finland, Germany, Austria, Sweden, and France.
- Tier 2 (RPI between 4.5 and 6): Britain, the Netherlands, Luxembourg, Spain, the Czech Republic, Norway, Belgium, and Italy.
- Tier 3 (RPI below 4.5): Lithuania, Slovenia, Ireland, Hungary, Latvia, Slovakia, Poland, Portugal, Romania, and Bulgaria.
The results of the 2017 RPI are generally consistent with the results of the 2015 and 2012 studies. Denmark, Finland, France, Germany, Sweden, and Switzerland remain in tier one; Denmark and Finland show overall performance improvements, while Sweden and France have lost some ground.
Austria returns to Tier 1 thanks to improvements in punctuality and intensity of use, although its safety rating of good is among the lowest outside Tier 3. The composition of Tier 2 remains stable as well; Luxembourg and Norway moved up in the rankings, while the Czech Republic and Italy fell back.
Tier 1 railways perform well in at least two dimensions, although the results were not uniform. Switzerland has the highest rating overall with a score of 7.2 overall thanks to excellent intensity of use, notably driven by passenger traffic. It also has a good rating for quality of service and a very good rating for safety. Sweden is also rated excellent for intensity of use and very good for safety, but it has a poor rating for quality of service, mainly because of lower punctuality than other Tier 1 countries.
Countries in Tier 2 have high-performing railway systems overall. The similarity among their RPI ratings, however, obscures a wide range of results among the three dimensions. The highest-ranked systems have high safety scores, but low scores for quality and intensity of use. At 5.4 overall, Britain has an excellent rating for safety but its rating for intensity of use is only good, owing to a low level of freight utilisation while quality of service is poor because of high fares and the relatively low punctuality of regional trains.
The Netherlands has a very good rating for safety but, like Britain, only achieves a good rating for intensity of use due to the low level of freight utilisation. The country also has a poor rating for quality of service.
Spain and Italy have good or very good ratings for quality of service and safety, but low ratings for intensity of use (especially for freight).
The networks in almost all Tier 3 countries have poor safety ratings, although a notable exception is Ireland, which has one of the highest safety ratings in the index. Ireland’s overall rating of 3.9 is pulled down by very low ratings for intensity of use and quality of service.
To identify how railway systems’ performance is changing, we compared the RPI ratings for 2017 and 2012. . While the ratings are generally consistent between the two studies, we identified what may be the beginning of a downward trend in performance.
Significantly, large railway systems show signs of a slight performance decline. Countries with the largest networks (more than 15,000km) - France, Germany, Italy, Britain, and Spain - have all experienced slight decreases in RPI ratings. In contrast, countries with the smallest systems (fewer than 6000km) - Denmark, Finland, Norway, Switzerland, the Netherlands, and Luxembourg - have seen increases in their RPI ratings. The disadvantage experienced by large systems can perhaps be explained by the complexity of maintaining and operating them.
We also found that safety and quality of service (especially punctuality) appear to be the most important factors underlying changes in a system’s performance. We have seen only small variations in intensity of use from year-to-year, and these have little impact on overall performance.
Declining safety typically drives an overall decrease in performance. Germany, France, Spain, Belgium, and Italy have seen slight declines in their RPI rating, usually owing to their systems’ relative underperformance in safety. At the European level, safety improved from 2010 to 2014 (the period encompassed by the RPI studies). Accidents decreased 7% and fatalities decreased 19%. However, most countries with overall declining performance experienced an increase in the number of accidents: Germany (12%), France (14%), Spain (13%), Belgium (18%), and Italy (9%).
Quality of service
Countries with improving performance usually experience an increase in their quality of service rating. Austria’s return to tier one in the 2017 RPI is the result of its relative overperformance in punctuality (more than 95% for both regional and long-distance services.) Increased punctuality also contributes to relatively improved ratings for quality of service in Finland, the Netherlands, Norway, and Switzerland.
It is important to note that the apparent relationship between system size and performance is a preliminary observation. We will continue to explore this relationship in future RPI studies.
With the benefit of data covering a longer period of time, we were able to reaffirm the findings of the first two RPI studies, in particular the correlation between public cost and performance levels. The additional data also allowed us to compare the evolution of countries’ public cost with the evolution of their railway performance.
As in previous RPI studies, we compared each country’s overall RPI rating with its public cost (the sum of public subsidies and investments in the system). Public subsidies are recurring government contributions that support passenger and freight operations and infrastructure maintenance (excluding investment subsidies). Public investments are one-time government and company investments in infrastructure construction projects.
Because public investments are project-based expenditures, we used the average annual investment over the six-year period from 2009 to 2014. To capture the level of public investment in more detail, we adjusted the average annual investment figure to include the cost of servicing debt and the amount of future investments (these adjustments were not made in the 2012 RPI study). We then converted the public cost to per capita figures for each country and normalized the figures on a scale of 0 to 10.
Overall, as in 2012 and 2015, the 2017 study shows a correlation between public cost and a given railway system’s performance level as measured by the RPI. In addition, it reveals differences in the value that countries gain in return for their public cost. Denmark, Finland, France, Germany, the Netherlands, Sweden, and Switzerland capture relatively high value-for-money. These countries outperform relative to the average ratio of performance to cost for all countries. In contrast, Belgium, Luxembourg, Latvia, Slovakia, Portugal, Romania, and Bulgaria get relatively low value-for-money.
We again found that the financing model helps explain why some countries derive more value from their public cost. The 2017 study is consistent with our 2015 study on the relationship between public-cost efficiency and the share of subsidies allocated to infrastructure managers. A transparent subsidy structure, in which public subsidies are provided directly to the infrastructure manager rather than spread among multiple train-operating companies, correlates with a higher-performing railway system.
Regulators and policy makers in countries experiencing the incipient trend of declining performance should consider reviewing planned investments in their systems and decide whether budgets should be increased. In the short term, these countries may need to overinvest in their systems to begin the long process of reversing a downward performance trend.
Our findings suggest that investments to improve safety and quality of service should be the initial priority. If countries experiencing the beginnings of a downward trend hold public cost at current levels, they may not be able to maintain the current high performance of their railway system.
* This article is based on the findings of the European Railway Performance Index, which was compiled by Sylvain Duranton, Agnès Audier, Joël Hazan, Mads Peter Langhorn and Vincent Gauche.