BUSINESS Bloomberg Businessweek August 20, 2018
17○ State-controlled rail companies could face
new rivals modeled after discount airlines
Next Up in Europe:
Nooo---FFFFFFrrrriills Trains
With ever more passengers opting for low-cost carri-
ers such as Ryanair and EasyJet, Europe’s old-guard
airlines have been shaken to their core—forced
to slash prices and stick passengers with fees for
everything from baggage to beer. Soon rail opera-
tors such as France’s SNCF and Germany’s Deutsche
Bahn AG could face a similar shakeup as Europe
pushes for competition in passenger train service.
Lower fares could attract “millions of new passen-
gers,” says Jacques Gounon, chief executive oi-
cer of Getlink SE, the company formerly known
as Eurotunnel that manages the English Channel
Tunnel. Getlink already runs a car-and-truck shut-
tle through the tunnel and is considering a discount
high-speed service that would challenge Eurostar
International Ltd., which now ofers the only high-
speed passenger service through the tunnel, with
fares often topping £400 ($510) for a London-Paris
round trip. “We’re convinced the demand is there”
for a lower-priced alternative, Gounon says.
The European Union has ordered countries to
open all commercial train services to competition
by 2020—and experience says that’s likely to have an
efect. In Austria, the Czech Republic, and Sweden,
the introduction of rival operators on a handful of
routes, such as Vienna-Salzburg and Prague-Ostrava,
has sent traic up as much as 92 percent and fares
down as much as 42 percent. FlixMobility GmbH,
which offers low-cost bus runs across Europe,
recently started high-speed train service on two
German routes, with fares as low as €10 ($11).
In 2012, Italo SpA, a startup led by former
Ferrari NV boss Luca Cordero di Montezemolo,
began high-speed service from Milan to Rome.
Today it serves 17 cities up and down the peninsula
with spify red trains, easy-to-use online booking,
and frequent service. It now controls 30 percent of
Italy’s high-speed rail market, carrying some 13 mil-
lion passengers last year, up from 6 million in 2014.
Italo’s lean cost structure—it outsources mainte-
nance of its trains, for example—helped it undercut
state-controlled operator Trenitalia, which slashed
fares in response. Fares on routes where Italo oper-
ates have fallen an average of 41 percent, while rider-
ship is up an average of 80 percent, according to
THE BOTTOM LINE With the EU planning to open train service to
competition by 2020, state-run operators are preparing to fend of
new entrants ofering lower-cost connections.a study by Andrea Giuricin, an economist at the
University of Milano-Biccoca. And Italo has put
the squeeze on Ryanair and Easyjet, which have
stopped lying between Rome and Milan as Italo
and Trenitalia ofer dozens of departures each day
for as little as €40 round trip. In February, Global
Infrastructure Partners, a New York investment
fund, agreed to acquire Italo for €2 billion.
Some state-controlled operators are shoring
up their defenses against potential low-cost rivals.
SNCF, for example, runs a discount service called
Ouigo, which serves more than a dozen cities along
the same tracks as the country’s TGV high-speed
trains. But the giants can stumble when they venture
abroad. In June, Deutsche Bahn abandoned plans
to begin Frankfurt-London service after it encoun-
tered regulatory troubles, including delays in gain-
ing access to Belgian tracks also used by Eurostar.
Getlink hasn’t decided whether to pursue its own
cross-channel service, but estimates it could turn a
proit with fares at least 25 percent below Eurostar’s.
To avoid steep fees charged by central-city stations,
Getlink is considering a line from Charles de Gaulle
airport in Paris to Stratford in East London. Because
passengers would have to take local trains to reach
the outlying stations, total travel time would be
about 50 minutes longer than Eurostar’s two-hour-
and-20-minute service, with an extra €18 or more for
commuter rail tickets. Unlike Eurostar, there’d be no
cafe car, and the trains would be economy class only.
A study by consulting group Roland Berger projects
annual ridership of about 4 million—with Eurostar
defectors accounting for half that igure.
Getlink’s aping of Ryanair’s bare-bones,
secondary-city model may not be suitable for high-
speed rail. Ryanair attracted passengers by lying to
vacation destinations that previously had little or no
scheduled airline service. “It was as much about con-
venience as price,” says David Bentley, a U.K.-based
analyst at the CAPA Centre for Aviation.
Italo at irst operated mainly from suburban
stations and struggled to attract customers until
Italian regulators ordered that it be given access to
center-city hubs, Giuricin says. Rather than skimp-
ing on service, it’s wooed business customers with
extras such as free espresso and newspapers. And it
helped that wealthy aristocrat di Montezemolo and
his partners could raise €1 billion to launch Italo.
“You have to enter with a lot of money and be very
strong to be competitive,” Giuricin says. “Otherwise
the incumbent will kill you.” —Carol Matlack, with
Christopher Jasper○ Since rail startup
Italo’s launch, total
ridership on routes
it serves is up an
average of80%