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How are new railways coping in Europe?

December 17, 2015
Author: Eve-Marie Morgo

How are new railways coping in Europe? According to Leos Novotny L.E.O. Express CEO, railways are overcoming the difficulties of an open market pretty well. Keep on reading to discover the insights L.E.O. Express provided, into the promising performance of a new entrant. 

L.E.O Express see themselves as the embodiment of the 4th railway package. Leos' presentation was part of an interesting discussion around the possibilities to “new entrant” railways since the opening of some markets to competition.

They are unhappy though that the wording of the package has been changed to make it easier for certain countries to avoid opening their networks to this style of competition. Especially in the context of putting routes to tender, it does not use the word compulsory. This presentation provided much food for thought for Elisabetta Garofalo, a member of the European Union to comment on later.

Even though L.E.O. Express almost went bankrupt over a two-year period when competition tried to price them out of the market, they will record a profit for the first time in 2016 and on top does not need any subsidy to survive in the market. This is a great achievement.

Their strategy now is to bid for tenders around Europe and believe that they can bid lower than the incumbents every time. Their goal is to grow markets and their network. L.E.O. Express sell their services on a door to door basis using Uber taxis to get passengers to and from the stations.

It was the opportunity for the EU to respond to the way new entrants such as L.E.O Express are struggling with incumbent railway’s competition.  Elisabetta Garofalo, DG Move, European Union started with some interesting facts and figures about the Rail industry.

Rail currently has 6% of the modal transport split in Europe for passenger services and 11% for freight. The main growth has been seen in UK, Sweden and Norway, but everywhere else is stagnant or in decline, even though the transport market has increased in size. Rail is being squeezed competitively more and more between low cost air and car/bus.

There are three key obstacles facing the railways today that are hindering growth:

  1. Political – where governments are protecting their national “champions” like state railways (already presented as a case study by Leos)
  2. Economic – in that there is high historical debt in state railways (with Leos proving that private railways will plan to make a profit, and are succeeding)
  3. Social – in that rail tends to be heavily unionised, with high labour costs associated to that.

The EU is aware that this situation cannot go on, otherwise some states will gradually lose rail completely. The 4th railway package is still under negotiation, within the EU parliament. It is expected to be adopted by June 2016 but implementation is another question.

  • The target implementation for open access routes is 2019 (what happened to 2017!)
  • Public tenders will take much longer and could run for another 15 years.
  • Either way market forces are expected to dictate, in that governments will be under more pressure to protect public money.
EU’s advice to Leo Express is to respond to bids, but not in markets where protectionism appears to be in place
  • There is no political will to go back to the original wording of the 4th railway package.
  • The EU will try to support based on formal complaints (Leo already did this 3 years before)
  • They should continue to lobby their own government, regulators, pressure groups and the EU.

Can’t the rail industry see that it has been very slow to realising that cooperation to accelerate rail growth across the EU would have been much more beneficial to the traveller? New distribution innovation to existing transport (car and bus) competition is reducing the incumbent railway’s market share. Quite simply because they have a simple product offer that meets customer expectations, and the distribution method is available to the right customer. What has been set out in the EU white paper is failing to deliver, rail cannot achieve the integrated European rail area unless it starts to cooperate in order to promote rail travel, or risk losing out to car and bus. If we look to the future and its not too far away, driverless cars will take even more market share.

 

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Reinventing rail in europe:
the battle for the customer

The Battle for the Customer will ask how rail can use it to strengthen customer focus and look to other industries for best practices in terms of the strategies and mindsets that drive change.