Rail special report: Opening up Europe

The EU wants to open up the continent’s rail industry, but what obstacles could block the track to a single rail market? Rob Gill reports

When the CEO of a transport company steps up to speak at an industry conference, you usually expect to hear a lot about all the services they can offer.

But this was not the case when Sven Gossel, CEO of Germany-based Trans Metropolitan, gave a presentation at the Amadeus Rail Innovation Forum in Prague.

Gossel simply would not be drawn on what type of services his new rail company would be operating and on which routes its trains would be running – although the few hints he did give suggested that Germany would be heavily involved in Trans Metropolitan’s plans.

So far, all we really know about Trans Metropolitan is that Gossel set up the company in 2016 with “friends from the airline and car industry” and it plans to run rail services that will “connect major European cities”.

What Gossel did talk about at the conference was the European Union’s plans to deregulate the rail industry, which is officially known as the 4th Railway Package and is due to start opening up rail to more competition across the EU from 2020. It aims to remove bottlenecks, build missing cross-border connections and promote integration and interoperability between different modes of transport.

A single European rail market
It may not have a catchy title, but the 4th Railway Package has the lofty ambition of creating a “single European rail area” by “encouraging competition and innovation in domestic passenger markets”.

The general idea is to replicate – at least as far as possible – the single European aviation market across the continent’s rail network, which, the EU hopes, will lead to “wider choice, cheaper fares and improved quality for passengers”.

The EU makes the point that countries currently use their own individual safety standards and technical systems in their rail networks. Cross-border services are hampered by the need to deal with multiple safety authorities in each of the nations they travel through, as well as technical hurdles such as different signalling systems.

This is why the EU wants the European Railway Agency (ERA) to become the sole issuer of safety certificates and vehicle authorisations across all member states, to “remove the remaining administrative and technical barriers” to its dream of a single European rail area.

One of the imminent plans – known in EU circles as the ‘market pillar’ – is to open up domestic railways to new competitors and train services from December 2020.

From this date, newcomers will be able to launch competing services on existing rail routes. They will also be given the opportunity to bid on public service rail contracts from 2023 – competitive tendering for these public contracts will then “become the norm”, says the EU.

It is this opening up of rail markets in the EU from 2020 that companies such as Trans Metropolitan want to exploit – even if they are not yet willing to tell us about the routes they plan to serve.

“We are looking at taking advantage of European market deregulation,” says Sven Gossel. “Rail is really where the airline industry was 20 years ago back in 1995.”

But he admits that starting a new rail company is a far from an easy proposition, adding: “As a newcomer, you are just not taken seriously.”

Competing with the “big guys”
One of the biggest barriers to new entrants is the fact that many state-owned rail companies are currently so dominant in their individual domestic markets – often with market shares of more than 90 per cent. “It’s going to be hard to compete with the market power of the big guys. They are so big – the likes of SNCF, Deutsche Bahn and Trenitalia,” says Gossel. “That may change or may not change.

“In most of the countries, the network is still owned by the government and that creates a clear conflict of interest. The EU needs to do a lot of homework on this.”

The potential opening up of European rail to increased competition could eventually make a big difference to the industry, according to Antoine de Kerviler, director of rail and ground travel at Amadeus.

“There are very few routes where you have two railways operating on the same route,” says de Kerviler. “There is one route in the Czech Republic and a couple of routes in Sweden, but that’s about it, where you have different providers on the same city pair.

“My understanding is that railways will be able to operate in any EU country but we haven’t heard any clear announcement about this yet,” he adds.

“Deutsche Bahn carried out an experiment of running trains in the Channel Tunnel to London a few years ago. If they put on a train from London to Frankfurt that’s not going to change things, but if they put on a train between Paris and London then that would change the picture.”

De Kerviler thinks the EU’s plans to create a single European rail market could encourage competition with other modes of transport, particularly low-cost airlines.

But what impact (if any) will the EU’s radical plans have on the British rail and other transport industries once the country leaves the EU – still currently scheduled for March 2019?

Like most things connected with Brexit, how the exit from the EU will affect the UK rail industry seems to be entirely unclear at the moment – particularly with the government seemingly split on key issues such as the single market and customs union. Talk of a ‘transition period’ of some description has gained more momentum since June’s general election.

Louise Butcher, transport policy specialist at the House of Commons, says: “The continued relevance of these provisions in the UK depends entirely on whether the UK negotiates some sort of EU exit agreement that includes an exemption from the market pillar.”

One of the ironies of these developments is that the EU’s plans have been partly inspired by the way the UK has managed its rail industry over the past 20 years with the franchise system that was introduced following British Rail’s privatisation in the 1990s.

The UK also already facilitates some degree of ‘open access’ competition, allowing firms to bid to operate rail services on the East Coast and West Coast main lines to compete with the incumbent franchise holders on those networks. For example, First Group is due to start a new service between London and Edinburgh by 2021.

Interestingly, if the UK does not introduce the new EU competition rules on rail, it could make a potential renationalisation of the country’s rail network significantly easier – rail renationalisation being one of the resurgent Labour party’s key policies.

On a more pressing matter, Eurostar has already raised questions about the impact of the 4th Railway Package on its operations after Brexit, particularly if there is “divergence between UK and EU rules”.

“Under the 4th Railway Package, we expect to have a single safety certificate with a one-stop shop [through the ERA] to obtain this for our entire operation,” said Eurostar in a submission to a House of Lords committee. “If UK-registered companies were not able to obtain this certificate and/or the UK were to adopt a different approach, we would face uncertainty on the compatibility of the rules between the UK and EU, and ongoing additional costs, were there to be an additional UK-only system.”

Eurostar is also concerned that its “competitiveness” could be affected if it was not able to benefit – as a UK-based company – from the introduction of the single European rail area.

Brave new world?
While it seems as if nobody’s got a clue how the EU’s rail changes are going to affect the UK industry post-Brexit, should we expect to see a host of new train operators and services on the rails across Europe at the start of the next decade?

Don’t hold your breath, as even Trans Metropolitan’s Gossel makes it sound like a tall order, particularly given the high barriers to entry for any newcomers.

He cites the high costs of trains as a major issue – a new Intercity Express (ICE) train with capacity for 650 people is priced at around €30 million – which means newcomers are likely to use second-hand options. He also points to varying train standards across EU countries as another stumbling block.

“Although train revenue is less than airline revenue, the train stock is more expensive,” adds Gossel. “Only a European product standardisation will open up markets in full. You need to have a situation where you can be guaranteed to run your trains everywhere and we are not at that point yet.”

With so many barriers, it’s tempting to ask why Trans Metropolitan is even bothering to undertake the seemingly Herculean task of taking on the titans of European railways? Gossel says this challenge is one of the reasons why his company is spending plenty of time “doing our homework” before announcing any concrete plans.

“The key thing is product differentiation – you have to start small and offer something that they do not already offer,” he explains. “You have to look at city pairs and how you are treating your customers.

“You have to make sure your customer experience exceeds the competitors’. The big guys are super-tankers and we are designing a speedboat.”

It may be that small “niche” players will be the first to dip a toe in the water of the new competitive rail landscape when it comes to offering new services.

But what will be the potential impact for passengers? One of the few countries to have competing rail operators on the same track is the Czech Republic and that is not without its drawbacks.

Zuzana Cechova, director of pricing and marketing at Czech Railways, says: “When it comes to the competitive environment, Prague to Ostrava has three competitors on the line, and competition has also started on Prague-Brno.

“This situation has created a new volume of transportation and more passengers are travelling on the line to Ostrava. But there is also a negative side to having competition on the track because there is not enough capacity for freight and regional transport systems.”

Perhaps it would be too optimistic to think that a more competitive rail market in the EU could be created quickly – after all, there is still not much competition within the UK despite the franchise system having been in place for 20+ years.

Protectionism by some EU states could also rear its head – it’s worth noting that the EU originally wanted to make competitive tendering mandatory for all public service contracts. But this has now been watered down to include some exceptions under which a government can still award a rail contract directly to a company if doing so leads to a “better quality of service or cost efficiency”.

There are plenty of reasons to keep an eye on the European rail industry over the next few years – and not just to see whether the UK decouples completely from the EU’s planned single rail market and goes down its own solitary track.


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