The economic crisis of 2008-09 dealt a savage blow to both operators halting growth. This was followed by increased competition from low-cost airlines, car-sharing in France, and more recently, and particularly in Germany, long-distance buses. In France, the financial performance of the TGV network has been seriously harmed by a sharp increase in track access charges which almost doubled from €1.3bn in 2008 to €2.1bn last year, while in Germany, DB was hit by a severe storm last summer which damaged infrastructure followed by a series of strikes by train drivers later in the year.
Last year SNCF's TGV network suffered a 1.1% drop in sales while Ebitda fell by 13% from €782m in 2013 to €680m. DB's long-distance passenger business performed even worse, with Ebitda down 15.9% at €546m and Ebit down by a worrying 34.4% at €212m.
The long-distance bus market was liberalised in Germany in January 2013 and an extensive network of bus services emerged very quickly which Germany's IGES Institute says is now a significant competitor to rail. Bus ridership exceeded 8 million journeys in 2013 and rose to between 15 and 20 million last year. The average load factor for long-distance bus operators in Germany averages 55% compared with only 48% for DB's trains.
This rapid expansion of bus services sparked a price war among operators resulting in a 14% drop in income per kilometre. However, IGES Institute expects the downward trend in fares to stop soon with some operators already starting to increase fares.
But it is not only the low fares which are encouraging Germans to travel by bus, it is also the fact that the buses often link towns and cities which lack direct rail connections. DB is already a player in the long-distance bus market but only has a 10% share of the market according to IGES Institute.
Passenger-km for DB's long-distance rail services fell by 1.8% to 36.1 billion last year while its long-distance bus operation recorded an 18.9% increase in passenger-km to 395 million. Although the bus operation is tiny compared with rail, this cannot be good for the long-term health of DB's long-distance rail business.
SNCF also decided to become a player in the long-distance bus market and launched IDBus in July 2012. Services connect 14 cities both within France and to neighbouring countries. While fares are very low, journey times are typically three or four times longer than by rail as most of the routes rather surprisingly parallel TGV lines. SNCF would argue that IDBus is tapping into a different market as the buses will appeal to people on a tight budget and for whom time is not a concern. Nevertheless it is rather surprising that SNCF is not using IDBus to bridge gaps in the rail network to complement rail rather than potentially competing against it.
SNCF's TGV revival plan aims to enhance quality, offer lower fares, and cut costs to improve operating margins. However, there seems to be a conflict between some of these objectives as SNCF plans to cram another 100 seats into its Duplex double-deck trains to boost capacity by almost 22% to 556 seats. While this will increase revenue per train if the extra seats can be filled and without cutting fares too much, making the trains appear overcrowded could damage overall quality and alienate existing passengers.
SNCF also plans to offer more seats at reduced rates in a bid to tackle a perception that TGV is a premium product. But surely the very point of high-speed rail is that it is a premium product as it offers highly-attractive journey times, reliability and convenience, but at competitive prices.
SNCF needs to be careful that such changes do not damage the TGV brand and end up making the situation worse. If SNCF is serious about improving quality then it needs to address some of the weaknesses with TGV such as its onboard catering which lacks imagination and fails to capture the essence of French gastronomy.
DB has set itself the ambitious goal of attracting 50 million additional long-distance rail passengers a year by 2030. It intends to do this through a mixture of increased frequency with trains running at 30-minute intervals for the first time on the core ICE network, and expanding the network to serve towns that lost their long-distance services when the popular Interregio network was abolished more than a decade ago. Existing trains will be refurbished and new trains introduced to expand the fleet thereby helping to improve rail's competitive position considerably.
All companies need to study their competitors carefully both to learn from what they do and to prepare for any new initiatives which could have a detrimental effect on their business. Railways find it hard enough to react quickly to changes in the market, so managers need to experience firsthand how their competitors operate and what services they provide to stay ahead of the game.