How Spain became the arena for high-speed rail competition

In 2016, the EU brought into force the Fourth Rail Package, a program of changes to rail regulations across the EU.

The package, which includes reforms to rolling stock, workforce skills, independent infrastructure management standards and permits, was designed to reduce EU rail subsidies. The package’s key strategy is to liberalize domestic rail passenger services across Europe and combat the ability of rail companies to raise prices if they dominate both rail and train.

The portfolio is divided into two areas: technical support and market support. The technical pillar transferred the railway approval process from national authorities to a single central European body, the European Union Agency for Railways, which reduced costs, led to faster approvals, and harmonized technical regulations to ensure the same level of access to national markets across EU countries. .

The market pillar of the fourth package of laws gradually opened up the market, starting with the first rail package introduced in 2001, opening up the European long-distance rail market, bringing public tenders as a standard process and legislating non-discrimination of trains. road allocation and infrastructure charges.

In fact, it opened public and private routes to any European rail operator, regardless of the country of operation of the route or the operator’s country of residence on the European rail market, thereby increasing and driving down competitiveness. price for travellers.

EU rail dominance faces new competition

The liberalization of railways in Europe has meant that incumbent operators have faced new competition or, in some cases, created their own rivals.

Germany’s national operator Deutsche Bahn (DB) is now battling open access operator FlixTrain, which is run by budget long-distance bus operator FlixBus. Focused on the low-cost market, FlixTrain’s operations are aligned with FlixBus’ routes and aim to simplify connections between budget road and rail. Opting to lease rather than own its own rolling stock by the end of 2022, FlixTrain operates a domestic network covering 70 routes, as well as services in both Sweden and Switzerland.

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FlixTrain is working to capture the low-cost market, with travelers willing to take longer journeys due to price cuts, while open access operator Nuovo Trasporto Viaggiatori (NTV) is taking on Italian operator Trenitalia for high-speed routes via Italo. brand. Italo operates a fleet of Alstom rolling stock, mainly Alstom AGV trains, on the Italian high-speed network, but also uses some Alstom Pendolino models.

Flixtrain has launched passenger services between Sweden’s two largest cities, Stockholm and Gothenburg, in 2021. Credit: Tommy Alven/Shutterstock

Italo has been quite successful since its reopening in 2012. NTV, Europe’s first open access operator, broke even for the first time in 2016 and has been profitable ever since. In 2018, NTV was sold to international fund manager Global Infrastructure Partners III (GIP) for 1.98 billion euros; and in September 2018, German insurance giant Allianz GIP bought 11.5% of NTV.

Although Italo changed Trenitalia’s market cap by 100%, the open access operator had a market cap of 29% by 2018, according to management consulting firm McKinsey & Company – Trenitalia’s revenue has actually grown during this period. High-speed rail was, and still is, in competition with low-cost flights, and although the market prices for both train operators have changed, they actually attract more passengers from air to rail than either. In fact, the rise of high-speed rail in Italy has been directly cited as one of the factors behind the collapse of Italian flag carrier Alitalia in 2021.

The growth of Italo and Trenitalia was due to demand: if you build it, they will come. Or you could say that the market for low-cost high-speed rail didn’t exist until Italo created it. An established high-speed operator operating alongside a budget option, both thriving, may have been behind French national operator SNCF’s launch of its low-cost rival, Ouigo.

Ouigo operates regular and high-speed routes and uses many of the practices that have made low-cost airlines successful. Tickets can be purchased online only and include additional features such as reduced operating costs, charging for each item of luggage, allowing pets to travel, and being placed next to a power outlet.

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Ouigo is a much worse experience than traditional rail services. Surcharges make ticketing more complicated (and if you want to travel with luggage, you might pay a surprise fee on the day of travel), lower comfort levels (reduced legroom) and limited timetables have drawn criticism. Smith (Sixty-one seater) called it “a train for pilots, not for those who enjoy the comforts of ‘regular’ railways”.

But, like the operators in Italy, we can see the demand generated by Ouigo successfully. People will put up with cheaper services at lower prices, and budget travelers will switch to planes when trains may not be accepted by existing rail passengers.

High speed train show in Spain

While Ouigo is fighting a friendly battle with SNCF’s parent company in France, the real success may be the proof-of-concept for future operations.

Thanks to the fourth rail package, Spanish railways will be open to access operators in 2020, and thanks to a centralized approval process through the European Union Railway Agency, SNCF has spent little time moving into new markets. In 2021, Ouigo Espana opened as the inaugural route of the high-speed line connecting the capital Madrid and Spain’s second most populous city, Barcelona, ​​and connecting Tarragona and Zaragoza.

Ouigo Espana, which competes with Spanish operator Renfe’s high-speed AVE brand, has been successful, carrying more than two million passengers on the Madrid-Barcelona route in its first year. Travel times are essentially the same between operators, but Ouigo Espana has entered the budget market; As Ouigo was in France.

Renfe also launched its low-cost Renfe avlo service in 2021. Although there are two other high-speed services on the existing route; avlo has been successful, boasting over 90 percent occupancy on its routes. The operator has launched the Madrid-Valencia route and is planning future services from the capital to Seville.

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The Iryo train sits next to the Ouigo service at Madrid to Valencia Joaquín Sorolla station. Credit: Robert Solsona / Europa Press / Getty Images

As if three operators weren’t enough, a fourth, Iryo, will start operations on the Madrid-Barcelona high-speed route in November 2022. The service appears to be positioned between Renfe’s AVE and Ouigo and Ouigo’s budget options. avlo. Co-owned by Trenitalia, Spanish airline Air Nostrum and infrastructure investment fund Globalvia, Iryo is priced between Ouigo/avlo and AVE and offers more luxury facilities than budget operators, such as 5G connectivity on its Frecciarossa 1000 rolling stock.

While Ouigo and Italo have created their own demand, Iryo hopes to create a third market of mid-range “premium budget” from existing options for commuters. In any case, the Madrid-Barcelona high-speed line, with four operators competing for orders, is now the most competitive route in Europe; leaving passengers with varying levels of choice in terms of quality, price and availability. Time will tell if having four competing operators on the same route is sustainable, but for now the outlook looks positive.

The liberalization of European railways opens up other new opportunities for operators across the continent, and increased competition ultimately leads to better customer service. Renfe is even reportedly looking to break Eurostar’s monopoly on the Channel Tunnel route between London and Paris. In the UK, open access operator Lumo has had some success getting people on board to fly between London and Edinburgh or use the more expensive LNER services.

Passengers want more sustainable travel options relative to the carbon footprint of air travel; If restrictions on domestic air routes continue, the future will shift to rail across the continent. When in doubt, look where the money is. Allianz, one of the world’s largest insurers and financial services groups, owns a major stake in Italo; and Iryo is part of a Spanish airline that poses a direct threat to rail travel; This may indicate how serious the competition is for open rail.


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