Trans Metropolitan, the new entrant that will soon start operating in Germany, is not the first one experimenting the challenges of passenger rail deregulation. Locomore, the world first crowd-funded railway, started its operations end-2016. Aiming to provide long-distance passenger services in Germany, it announced itself insolvent after not reaching a cost-effective balance between passengers and operational costs.
But on the other hand, in the Czech Republic, LEO Express, the privately-owned railway, has succeeded, connecting today 6 European countries. And in Italy, Italo trains (NTV), have been transforming high-speed rail travel since 2012.
The challenges of passenger rail deregulation
For Trans Metropolitan, passenger rail deregulation is a positive thing. However, there is still a lot of work to be done before rail can be in the pole position:
- The European ownership structure needs to change. Rail networks and operations are fully Government-owned. This leaves national railways in a strong position.
- Rail licensing is becoming too granular in comparison with other transport licenses. Furthermore, no trans-European operating license exists.
- The national railway's market power remains too large, controlling upward 90% of the market. This makes hard to compete and get slot tracks.
- The high material cost. Although train revenue is less than airline revenue, the material is more expensive. Any new operator would need a minimum of €50 million capital at the outset.
- The low flexibility that rail represents. For example, a change in schedule may still take ages to be published to customers.
“We need a further round of European market deregulation in order to increase competition. Rail is now where the airline industry was 20 years ago. We are heading in the right direction, but we are not there yet."
The distribution challenges
For Trans Metropolitan, new entrants can face many sales barriers:
- The travel agency barrier: new entrants are not perceived as serious. According to Sven, large travel agencies are not keen to include their offer. However, Trans Metropolitan has experienced the full support of public transport companies as well as rail organizations.
- Collaborating with distribution partners is key, opening the door to new sales channels. However, it can be difficult to differentiate your product.
- Relying on your own website as the only distribution channel: as this will tear rail apart from being integrated into the travel ecosystem.
Only through product differentiation can new rail entrants succeed, Sven argues.
We are looking forward to seeing their success in the European market and we wish them all the best.