LIKE all industries, rail is reeling from the impact of the global pandemic. As we begin to emerge on the other side and the vaccination programmes in Europe seem to be successful, the full scale of the recovery challenge becomes clear. Despite the uncertain immediate outlook, commercial opportunities for existing and new passenger operators will arise; though some will be more obvious than others. We have explored some of the countries in Europe where such opportunities are likely to exist.
In France, due to the European Union’s Fourth Railway Package (FRP), access to the long-distance passenger market has opened up. For the first time, operators can compete against French National Railways (SNCF) and there has been significant interest from prospective operators. Railcoop, a French not-for-profit cooperative, is targeting province-to-province services with the launch of a Bordeaux - Lyon service in summer 2022, a route not served since 2014. Others such as FlixTrain will continue to look for viable opportunities, which may increase given the government’s clear environmental signals and well reported market intervention to ban specific, albeit limited, domestic air travel routes.
As the FRP requires all rail public service contracts in the EU to be competitively tendered by December 2023, French regional authorities are preparing to meet the deadline. Some regions have already embraced a new approach. Provence-Alpes-Côte d’Azur is competitively procuring a 10-year concession for two groups of local services, representing about a third of all TER services in the region, to commence in 2025. Four other regions have followed suit, although initial issues with the tendering process must be overcome.
Sweden could be a front-runner in Europe for rail demand recovery.Andrew Dundas, principal consultant with The Hub Transport Authority
Spain is another late starter to embrace the FRP, but now the country’s infrastructure manager, Adif, has tendered 70% of available Spanish high-speed rail capacity via three 10-year packages on the Madrid - Barcelona/Valencia/Seville high-speed corridors. From 2022, incumbent Renfe, which won package A representing 60% of tendered capacity, will compete with the two other successful bidders: Ilsa, which is owned by Air Nostrum (55%) and Trenitalia (45%), and SNCF’s Ouigo Spanish subsidiary, which began operating in May. The remaining 30% of capacity remains available for new entrants.
Private companies are also able to submit proposals to operate medium-distance and local services, subject to approval from Spain’s competition authority, which effectively requires zero impact on Renfe’s income. This restriction challenges prospective operators to find new routes not served by Renfe. However, it is not clear if the restriction would provide the new operator with the same protection as Renfe if it did find a commercially viable route.
With an established open-access market and relatively relaxed pandemic restrictions on travel, Sweden could be a front-runner in Europe for rail demand recovery. Added to this is the impact that ”flygskam” (flight-shame) was having prior to Covid-19. Domestic air travel was down 9% in 2018, whilst incumbent SJ reported a 5% increase in passengers. One could anticipate that a significant proportion of any domestic inter-city travel recovery - particularly between Sweden’s three largest cities of Stockholm, Gothenburg and Malmo - would be rail based. In the meantime, open-access operators MTR Express, Snälltåget and FlixTrain are gaining market share from SJ.
Norway started tendering five passenger packages in 2018. Package 1 covering Oslo - Stavanger services was awarded to Go-Ahead Norway, followed by SJ Norway which won Package 2 covering routes north of Oslo, and finally Package 3 for Oslo - Bergen services which went to Norway’s incumbent Vy in June 2019. Bids are due this month for Package 4 for a 10-year contract to provide services around Oslo. However, tendering for Package 5 has been delayed until 2025. The outcome of these bids could mark a significant market shift for the once dominant Vy, formerly Norwegian State Railways (NSB). There may be opportunities for open-access operators to target gaps and opportunities in the market such as Sweden - Norway cross-border services.
Britain is undergoing extensive rail reform with a change from franchises to management agreements with revenue risk shifting from the private to public sector. New Passenger Service Contracts provide the opportunity for the government to encourage the entry of open-access operators, which to date has been largely subdued under the franchising model, but whose commercial expertise could help increase rail usage and speed up the post-pandemic recovery. Indeed, Grand Union has recently submitted a revised application to operate services between London Euston and Stirling. Separately, and perhaps more ambitiously, plans have been recently unveiled by open-access operator Midnight Trains for a night service between Edinburgh and Paris, as part of a network of sleeper services in western Europe.
Given Italy’s success in opening the high-speed passenger market, there could be room for an additional open-access operator to compete with incumbent Trenitalia and open-access operator Italo-NTV. A Mckinsey report pointed to a 69% increase in demand between 2011 and 2018 and a 47% increase in revenues on routes with competing services.
After a miserable year in so many respects, coming out of the pandemic means that operators can start to plan ahead. Given many European countries’ active stance in implementing the FRP and the increased political will to support rail over air, this is the time to get serious about competition and unlocking new market potential.