Welcome back to our second blog in our series on how to win ‘the battle for the customer'. In this blog, we take a look into "launcher" companies and the challenges these emergent companies are facing.
Cars and coaches are still the majority transport for certain lucrative routes, especially between large conurbations and/or city pairs with smaller destinations along the route. However, their unique startup business model is shaping the future of rail.
To make it easier for non-incumbent railways, new rules designed to create fairer conditions for access to rail infrastructure were adopted by the European Commission on April 7, 2016, coming into force on December 1. The Commission believes this:
- Would create new opportunities for employment and investment
- Will make the rail market more competitive and responsive to changing customer needs
The biggest challenge for new entrants or “launcher” railways mentioned in our recent blog is that they are not the only companies taking advantage of open access.
Innovation, sustainability and customer focus: LOCOMORE
One such launcher, Locomore, describes itself as the 'world's first crowd-funded railway'. This innovative approach to financing has funded a planned December launch of an open access inter-city service between Berlin and Stuttgart. What is Locomore doing differently?
- A clever, complimentary distribution strategy which benefits the traveller in terms of price, product and service
- A strong commitment to sustainability, using the German traction electricity market to source its power from sustainable sources
- A strong customer focus: bicycles will be carried, and the menu will offer vegetarian food, and also vegan and gluten free options. Organic and fair trade food are their main pillars. These customer choices could be pre-booked using ancillary services, improving the yield on the route and leading to a more profitable railway.
- The possibility to choose a compartment by topics you are interested in like "Startup Networking/ Entrepreneurship", "Board Games", "Backpacking", "Sports", "Knitting" and so on. The idea is to make it easier to spend the time on the train in a meaningful way by finding people to talk to.
Being the alternative to air
Whereas their journey times will be longer than Deutsche Bahn (DB), their prices, product and service will attract a different customer segment, as Locomore see DB as a premium product. According to Managing Director Nicolas Dietrich, a popular domestic city pair should provide enough market share. Not everyone can afford DB's fares for last-minute travel, and not everyone needs to travel at a particular time or requires flexibility, Locomore's model is to win traffic from cars and airlines. The opportunity to display their ticket price alongside airlines for any given city pair would be beneficial, as it would give their service greater visibility as a viable alternative to air.
Launcher companies: a new, beneficial, approach to business
With the ability to operate across the continent, entrepreneurs are seeing a wealth of potential opportunity and revenue to be had in the backing or setting up rail companies. These ‘launcher’ companies will have their own unique challenges and opportunities as they will be competing against trusted and established networks, and in some countries, against the only national carrier. Their objectives in launching these companies will be to challenge the market share of transport providers through innovative new products and services.
Launcher companies have the advantage of not being tied to cumbersome legacy IT systems. They, therefore, have the ability to adopt new and innovative technologies to improve the customer experience. It is this that could differentiate them from the established and trusted brands.
For example, with travellers increasingly demanding a seamless door-to-door journey, we can expect to see a growing number of rail companies seeking to adopt mobile ticketing technology which will allow customers to simply turn up and board the train, with no queuing and no need for a paper ticket, as well as to modify and update their journey from their mobile device. They are looking to win the battle for the customer.
Challenges to be surpassed
The ability to offer personalised journeys will also be a key differentiator. New companies can configure their systems so that they have access to passenger details and habit thus helping improve customer service levels by being proactive and not reactive. Focusing on, and addressing, the needs of the 21st-century traveller will support new companies as they seek to carve a place for themselves in a newly invigorated and competitive marketplace, as well as provide new sources of revenue. But there will be also some challenges in order to gain traction in this competitive market.
Launcher rail companies will need to:
- Lead the way with modernisation and innovation
- Build alliances with rail companies, ensuring that their distribution systems allow them to effectively sell to both domestic and international travellers
- Choose the right distribution channels, so that they can offer cross-border services while still growing
Amadeus Rail solutions supporting the "Launcher' railways
Amadeus Rail solutions allow companies to distribute tickets in the same way, independent of market, railway and type of channel. Using this technology would allow launcher companies to build cross-border alliances and sell multi-operator tickets, meaning they can both offer an international offering and expand their customer base at home.
In the following weeks, we will continue with our blog post series, on how industry dynamics and customer needs are shaping the way each segment competes to win ‘the battle for the customer’.