Aside from the accident, 2016 was another successful year for Transdev Germany. We strengthened our position as the largest private regional rail operator in Germany with a 7% market share, based on train-km operated. We continued on our growth path by surpassing our revenues of €800m in 2015 and improving our final result significantly compared with 2015.
We had several successful operational start-ups in 2016, for example two regional networks in Saxony: Central Saxony Electric Network and Leipzig-Döbeln. Furthermore, we managed to win another tender in Bavaria: the regional network Augsburg 1 which will start up in December 2018.
Another major step forward was winning the first public tender for regional rail sales services in Germany. Transdev will be the sales service provider for all Rhine-Main Transport Association (RMV) businesses as of January 2018. We will operate and manage more than 600 ticket vending machines as well as RMV’s entire sales subscription service.
In 2017, we are keen to participate in selected tenders which fit our present contract portfolio and which make sense from a financial and commercial point of view. Bavaria will be one of the states with some major upcoming tenders in which we will consider participating.
In general, the market situation for private operators in Germany has improved, and by 2019 their market share will grow to 34% of kilometres operated. The recent arrival of new international players from Britain demonstrates that the market situation has eased.
However, in some areas like Berlin there is still a high degree of political reluctance to promote fair competition so it seems unlikely that a service like the Berlin S-Bahn will be awarded to a private operator in the near future.
Nevertheless, we still face challenges. On the one hand, the capital intensity of the business - with fleet investment for single projects regularly exceeding €100m - remains a huge issue as private operators have constraints regarding their debt situation, and tighter accounting rules in future will not ease the situation.
Many authorities have reacted to the financial crisis by developing different methods of support for the crucial issue of fleet financing. We would like to see these new and innovative forms of fleet financing continue to flourish, not only models where the authorities involve themselves but also partnerships with industrial and financial players who can be attracted to the rail market if the conditions and incentives are right.
On the other hand, staffing new projects is getting more and more challenging as the labour force is a rare resource in a highly-industrialised country like Germany.
Another crucial challenge in the future is to improve revenue allocation and ticket selling conditions with German Rail (DB) which are still far from achieving a level playing field.
The federal government in Germany is concerned not only about its role as the owner of DB but also its role as the regulator of the transport market and the creation of an environment in which a dynamic and growth-oriented rail business can flourish. Both roles are contradictory when it comes to creating market dynamism at DB’s expense. This should be solved in near future, but it is not yet on the political agenda.
Behind the scenes there is more concern about less-publicly discussed issues like access to DB workshops, traction power fees and ticketing and fare allocation in which DB still has a lot of historical advantage. The role of the federal regulator needs to be further strengthened and a number of key court cases are likely.
There are major differences between how the various regional transport authorities manage their regional concessions. Our clients can range from small county administrations to huge professional transport organisations like Bavarian Railway Company (BEG) or Rhine-Rhur Transport Association (VRR).
We also face various concession models which trigger the need for nationwide operators to adapt to many different contract environments. The main variations are the allocation of responsibility for fleet sourcing and financing and the allocation of commercial and industrial risk between authorities and the operator. The level of risk for passenger revenue, for example, can be anything between zero and almost 100% of operator revenue. We also see many different types and styles of tendering procedures.
We select tenders to bid for based on different criteria in which we consider the financial impact of a new concession on our group as well as the balance of commercial and industrial risks and opportunities that could arise from a new business. We try to use our existing portfolio to increase competitiveness and to respond to the needs of our clients in the best way. The clarity of the authority’s agenda including a proper tendering and mobilisation timeline and a transparent procurement process is also taken into consideration.
In order for regional authorities to attract more bidders for their tenders, the key issues are provision of off-debt fleet financing models and a clear and fair allocation of risks and opportunities for both commercial and industrial matters. But it is also important to provide a clear view of the authority’s agenda, its targets and objectives, and a reliable, transparent and communicated bid procedure with realistic time lines and no unnecessary complications in legal and formal aspects. Authorities which have published their tendering schedules well in advance, with credible information about what is contained in the tender documents and how the process will run, have been rewarded with a good response from the market. Tenders with five to seven bids, as we have seen in some cases, show that there is a vital bidding community that can be attracted with the right approach.
Finally, under the Fourth Railway Package, the certification of new rolling stock remains the prime responsibility of the manufacturers. The reorganisation of the process is designed to reduce the risk of late delivery and technical issues. However, its effectiveness has yet to be proven.
