European passenger rail is an industry of paradoxes. The sector is seeing a steady growth in passenger numbers, coupled with a tradition of strong advancements in terms of technological innovations. However, fragmentation continues to pose a problem, particularly for rail journeys over national borders. Incumbent rail operators often have firm holds over their respective markets and the numbers suggest their focus is for the most part domestic. Domestic rail travel accounts for 96 per cent of overall passenger kilometers in Europe, and accounts for 99 per cent of overall passenger rail volume.
It’s clear that railways are not fully prepared to profit from the market opportunities that exist today, and there needs to be a real push for cooperation and integration between rail operators to open up the market for travellers who are increasingly requesting cross-border travel.
Six key trends
A new report by Amadeus, The Rail Journey to 2020, identifies six key trends that are considered critical to shaping the future of the European rail industry. Some of the them apply specifically to passenger rail, while others are more general, providing a strong business case for greater levels of intermodal cooperation.
The trends are:
Since 2001, the European Union has driven progressive liberalisation of the European market for rail, in line with its vision to create a single European market. This is progressing on a stage-by-stage basis: the third package, adopted in October 2007, introduced open access rights for cross-border rail passenger services and was implemented in 2010. Details of the most recent and fourth package were published in early 2013.
Liberalisation is expected to eventually bring more operators into Europe’s rail markets, offering more choice to rail passengers. However, as the Amadeus report notes, early trends indicate that this is fragmenting services on some long-distance routes, because operators regard other players on the route as competitors.
ii) New market entrants
Structural separation, along with the EU’s wider drive to spur competition on domestic and cross-border rail, will potentially pave the way for new market entrants. This newer, more ‘open’ market could alter the way in which the more dominant operators have traditionally operated in their home markets. However, competition is expected to be driven mainly by incumbent passenger rail operators expanding their operations abroad, rather than entirely new companies starting from scratch.
iii) Completion of new high-speed lines
High-speed rail will remain a key focus for the rail industry. There has been a notable expansion in high-speed routes in recent years, particularly within the Italian and Spanish regions. An additional 5,000 kilometres of new high-speed lines are to be laid by 2020, and the report explains how the continued expansion of the high-speed network will allow rail companies to leverage the time advantage it offers for competitive differentiation. New high-speed lines could significantly spur cross-border passenger volumes.
iv) New hubs
The EU has suggested that enhanced multimodality is the key to unlocking Europe’s congested transport network. Through its TEN-T programme (Trans-European Transport Network), it aims to support the introduction of multimodal hubs at 37 key airports by 2030. Today, only 14 airports are connected to long distance or high-speed rail services, so this is a clear area for growth.
v) Air-rail and rail-rail cooperation
Greater levels of cooperation – both air-rail and rail-rail – are touted as essential to delivering the kind of seamless passenger experiences that will drive up passenger volumes. Already, where multimodal hubs are present, passenger rail providers and air carriers are developing corporative relationships. Cooperation can take the form of commercial agreements (where airlines sell a unique ticket for a trip which includes a second leg operated by a railway, say) and joint business ventures, such as the NS Hispeed-KLM joint venture.
Ultimately, the most crucial factor that will drive greater air-rail cooperation is infrastructure: it simply has to be in place if rail companies and airlines are to capitalise on the opportunities cooperation poses. A single ticket for an air-rail journey can be issued using technology available today, but this is dependent on a commercial agreement between the airline and rail company. Once such an agreement is achieved, technology can also ensure a consistent level of service and ‘total trip experience’ for the traveller across both rail and air segments.
vi) Railways’ costs
In the period covered by Amadeus’ report, it’s suggested that the chief impact on railway’s costs will be external, and relate to economic conditions. In the event of a general economic slump, the cost base for railway operators is assumed to grow. In the longer term, beyond 2020, structural changes driven by liberalisation will potentially alter the cost base, as rail operators seek efficiencies and leverage their scale.
The future of European rail travel looks promising, though there is clearly much work to be done throughout the industry. Growth in passenger numbers highlights the popularity of rail as a preferred mode of transport, though this will invariably be accompanied by heightened expectations from travellers and operators alike – expectations that rail companies must anticipate and cater to.
Long-distance rail, in particular, is touted to undergo significant growth. The report forecasts that we will see long-distance passenger traffic in Europe increase by 21 per cent (2.2 per cent annually) to reach over 1.35 billion by 2020, up by almost 250 million from 2011 figures. The report also highlights the significance of the UK rail industry for the sector as a whole: it is to be accountable for the greatest proportion of growth in long-distance passenger rail in Europe in the period to 2020, and will contribute 29 per cent of growth to the total European long-distance growth in the period 2011-2020.
Greater cooperation with airlines
The future of long-distance rail travel looks set to be a bright one, and we’re increasingly seeing passengers look to cross-border rail journeys as an alternative to air travel. However, rail competing with airlines does not mean that a chasm need develop between the two. Quite the opposite: the two industries must begin to cooperate more fluidly, and share both customer information and infrastructure between them if they are to achieve growth potential.
It’s interesting to note the countries driving the bulk of the growth in Europe – the anticipated increase in passenger volume over the period 2011-2020 will be driven by four key markets in particular: the United Kingdom, France, Switzerland and Germany. Switzerland is perhaps a surprising addition, given its size and relatively small infrastructure, however the abundance of rail routes feeding into and through it from its neighbours helps it to become one of the busiest regions in that respect. Again, the UK has a particularly hectic future: it’s set to be the market contributing the greatest proportion of this increase – 70 million passengers.
Passenger rail providers will face a very different world in 2020: developments over the next seven years will transform the industry and the wider environment, and the impact will be far-reaching. If the growth forecast by Amadeus stays on track over the period to 2020, rail companies across Europe can look forward to a bright, busy future.
Thomas Drexler is director of Rail at Amadeus. The company’s new report, The Rail Journey to 2020 is a comprehensive look the European rail industry in the years up to 2020.