Competition in the airline industry led the growth of Low-Cost Carriers (LCC). Today, railways are looking at the airline world to reduce operational costs and gain rail passengers. Is the low-cost model a sustainable way for railways to grow and compete?
Why a low-cost model?
As airlines did 20 years ago, national and private rail operators are looking at new business models to face competition. Some national operators have already adopted low-cost strategies: SNCF Ouigo and Renfe's EVA are two examples. Also, private operators such as Locomore, now owned by Flixbus, tried to find a place in the high-speed rail market following a low-cost strategy.
The low-cost model might be the answer for some railways to increase revenues and reduce operational costs. Let's see how.
Low-cost to win more customers
Price is a differentiating factor when it comes to winning the battle for the customer and to compete against private operators. Railways are seeking to reduce their operational costs by:
- Powering ancillary services, such as WiFi, power charge, food, etc
- Increasing the frequency of their trains
- Running trains maintenance at night
Italo Train, the private Italian rail company, has reduced drastically its operational cost, turning into a lighter cost structure. It has achieved a cost per available seat kilometer (CASK) of 4 cents, a level lower than the low-cost airlines Easyjet or Vueling!
Outsourced maintenance combined with a higher manpower productivity led to a ratio of passenger-KM for employee higher than 5 million. Understood as a factor to measure the train's productivity, this ratio places NTV as the most efficient rail company in the world!
The Italian company can only be considered as a low-cost railway in terms of operational costs, not in terms of demand, as they are targeting leisure and business travelers alike. We saw the same path in the airline market, where low-cost airlines are focusing more and more on the business segment.
Another example is RENFE’s EVA. The 100 daily services between Madrid and Barcelona will cover the demand from both business and leisure travelers, and will compete against one of the most popular airline routes in the country. The Spanish low-cost railway is a good experiment.
There are many ways railway companies can look for to reduce their costs. Technology is one of them.
BeNe rail: cutting operational costs
Learn how BeNe Rail has partnered with Amadeus to cut down operational costs and build the next generation Rail IT Platform.