18.08.2018
Ryanair and EasyJet revolutionized aviation when they launched low-cost flights. Now the same fate could befall rail travel. The European Union wants to open up markets to competition from 2020, writes Bloomberg.
Ryanair and EasyJet have shaken up the old players in the market very badly. They have had to lower prices and this has also led to other costs for passengers – charging for baggage handling and beer, and in some cases the companies have even gone bankrupt. The same fate awaits railway operators such as France’s SNCF and Germany’s Deutsche Bahn. The European Union has a plan to introduce competition to train traffic as well. It is expected that lower ticket prices “will bring in millions of new passengers,” said Jacques Gounon, CEO of Getlink, the company that manages the Eurotunnel. Getlink already operates a train carrying passengers and trucks in the tunnel, and they are considering introducing high-speed trains with cheap tickets, which should compete with Eurostar International, the only train currently operating in the tunnel. Ticket prices there could reach 448 euros. According to Gounon, they are convinced that there is a demand for cheaper tickets.
The European Union has ordered member states to open up all commercial routes to competition by 2020. Experience shows that this has a very significant impact. For example, the market was opened between Prague and Ostrava, which almost doubled the number of passengers and has brought down ticket prices. FlixMobility, which offers cheap bus travel across Europe, recently started offering cheap services on trains. On two routes in Germany. The ticket price there is 10 euros. Greater competition could significantly increase traffic on Europe's more than 9000 kilometers of high-speed rail network. Much of this rail is currently underused. Eurotunnel is currently operating at only 58% capacity. There is still room.
Some newcomers have already made a very good start. In 2012, Italo, a start-up run by former Ferrari boss Luca di Montezemolo, began operating between Milan and Rome. Today, they operate in 17 Italian cities and have a 30% share of the country's high-speed rail market. They carried 13 million passengers last year.
Italo's cost structure is such that, for example, train maintenance is outsourced. This has helped them drive down ticket prices. The state-owned Trenitalia had to do the same. On the routes operated by Italo, ticket prices have fallen by an average of 41%, while passenger numbers have increased by 80%. And Italo has even pushed EasyJet and Ryanair out of the market, which no longer fly between Milan and Rome. Italo and Trenitalia offer dozens of departures a day for just 40 euros. In February of this year, just before its planned IPO, New York-based Global Infrastructure Partners bought Italo for 2 billion euros.
In Austria, the Czech Republic and Sweden, market opening on certain routes has also produced incredible results. Between Vienna and Salzburg, passenger numbers increased by 92% and ticket prices fell by 42%.
Some big state-owned companies are already securing their backs. France's SNCF has its own low-cost carrier, Ouigo. But big players can get into trouble if they want to do something abroad. Deutsche Bahn had to cancel plans to create a route between Frankfurt and London because regulations were tightening. For example, the permit to run on a railway line in Belgian territory, which is also used by Eurostar, began to be delayed. Getlink says that the French government has been working hard behind the scenes to protect Eurostar's monopoly. It is run by France's SNCF.
Getlink has not yet decided whether to start operating with Eurostar in the Eurotunnel, but they have calculated that they can make a profit with 25% cheaper ticket prices.
This also involves high fees charged by central stations, which is why Getlink would start running from Charles de Gaulle Airport to Stratford station in East London. Passengers would therefore have to travel on local lines. This would take 50 minutes more than the Eurostar's 2 hour and 20 minute journey. Passengers would have to pay 18 euros to travel on. Unlike Eurostar, there would be no café on the train and there would only be standard class carriages. Research has shown that the new model and the low-cost company would steal half of Eurostar's passengers, but since the general interest in train travel would increase significantly, the impact on Eurostar would also be positive.
Skeptics say that low-cost travel may not work on rail, because Ryanair, for example, started flying to places that previously had poor air connections. Both convenience and price played a role. Getlink's approach - offering travel to places without any extras, from where you still have to travel on, may not work.
Rail Baltic Estonia project manager Vaiko Eggert comments:
The impact of such developments is certainly positive, especially for intercity passenger and flight transport. It makes travel between certain destinations faster and smoother and also forces existing carriers to work harder and improve quality. Any increase in competition is beneficial for the end consumer. This encourages increased competition between companies providing passenger transport services by rail, which in turn should have a very positive impact on the end consumer in terms of both more affordable ticket prices and the quality and diversity of services. All this positive impact should also be reflected in higher passenger numbers on Rail Baltica. This is precisely why the European Union's policy is aimed at creating an open competitive situation and also allows start-ups in the transport sector to enter the market, who can bring new life to the sector, influencing both service prices and the business models used so far, as well as increasing the number of service users.
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