This article considers some of the competitive factors relevant to the liberalisation of domestic passenger rail markets and what the European Union (EU), national governments and tendering authorities can do to ensure that competition is established and delivered in the most effective way.
Over the last 20 years, the EU has introduced three packages of railway directives aimed at opening up domestic and international rail passenger and freight markets to competition. The packages have included requirements for member states to:
- Un-bundle the management of infrastructure from operations;
- Establish non-discriminatory infrastructure access charges and capacity allocation rules;
- Establish an independent body to regulate competition; and
- Establish open access rights for international rail passenger services between member states
To date, however, the implementation of the legislation has varied across national governments, resulting in a situation where the stage of market liberalisation varies significantly from country to country. Whilst some countries, most notably the UK, but increasingly Sweden and Germany (in the regional segment), have reached an advanced stage of liberalisation, others, such as France, Spain and Italy, have to date made less significant moves.
In a bid to remedy this and achieve its objective of creating a Single European Railway Area, the EC unveiled a fourth package of railway legislation on 30 January 2013. The package seeks to establish non-discriminatory access to infrastructure and other essential services via the legal, financial and operational separation, or unbundling, of infrastructure management from train operations. Importantly for rail owning groups (whether privately or publicly owned), it also includes proposals to introduce cross-acceptance procedures for rolling stock to operate across national borders and to open up domestic passenger markets to competition by December 2019.
The benefits to passengers and taxpayers of opening domestic passenger rail markets to competition have been well documented. For example, the recent Brown Review in the UK found that, since privatisation, the UK has, by some margin, enjoyed the fastest rate of passenger growth amongst major European railways with current performance and customer satisfaction at record levels. It also stated that the UK currently has the safest major railway in Europe.
However, creating an environment to stimulate competition across a single European passenger rail market will not be easy. It will require a degree of separation between the management of infrastructure and operations and the creation of non-discriminatory infrastructure access rights. Once these rights are established, competition can be encouraged via tendering (i.e. competition for the market), open access (i.e. competition in the market) or some combination of the two.
Open access competition is most prevalent on profitable long distance routes where operations are genuinely commercial.
Recent developments indicate that interest in developing new open access operations is growing across Europe. Examples of this are:
- Deutsche Bahn/Arriva is currently finalising its plans to launch a number of open access services on the UK West and East Coast Mainlines from 2013, via its subsidiary Alliance Rail.
- NTV (20% owned by SNCF) started high speed services between nine Italian cities in April 2012 in competition with the state operator, Trenitalia.
- WESTBahn (35% owned by SNCF) introduced open access services between Vienna and Salzburg in December 2011 in competition with the state operator, ÖBB.
However, the fact that most rail operations require a degree of public funding means that the scope for on-track competition will ultimately always be limited. Where rail services are subsidised, competitive tendering is the most appropriate model for allowing effective competition, whilst ensuring the social obligations of the railway continue to be met.
This is recognised by the current EC proposals which allow for open access competition in commercial segments whilst introducing mandatory tendering of passenger rail services that are provided under public service contracts by December 2019. According to the EC, the latter accounts for more than 90% of EU rail journeys.
Therefore, with a regulatory framework for market liberalisation in place, national Governments and rail authorities will have a key role to play in designing effective tendering processes to ensure that competition is delivered. Only then will the vision of a single European Railway Area be fully realised.
To ensure that a level playing field for competition is established, sustained efforts will be required to address some of the well-known structural and strategic barriers that exist to the establishment of an effective Single European Passenger Railway Area. These barriers include:
- Technical interoperability barriers such as different track gauge widths, electricity systems and voltages, signalling systems, platform dimensions and operational rules
- The absence of an effective pan-European rolling stock leasing market and access to depots; and
- The fragmentation of tendered contracts and variability in approach across regional tendering authorities. Often contracts are too small or offer too little opportunity for commercial innovation to stimulate a genuine market interest.
In addition, the market power of national state operators, within specific networks, has historically had the potential to give rise to anti-competitive behaviour. The last five years has also seen significant consolidation in the European passenger rail market, including:
- Deutsche Bahn’s acquisition of Arriva;
- The merger of Veolia and Transdev;
- NS’ acquisition of Abellio; and
- SNCF increasing its share in Keolis to 70%.
Monitoring will be required to ensure that the continued trend towards consolidation does not result in increased levels of anti-competitive behaviour.
Whilst the EC’s proposals are yet to be approved by the European Parliament and Member State Governments, the unveiling of the Fourth Railway Package represents a further step towards the establishment of a Single European Railway Area.
The introduction of competition to rail markets, if established and delivered in the most effective way, has the potential to deliver cost savings, improve service quality and lead to growth in rail use. These benefits may look increasingly attractive to national governments as budgetary pressure grows and they look to improve infrastructure performance in order to stimulate growth.
Rail owning groups should therefore continue to monitor market developments in the EU closely in order to position themselves for the opportunities which may arise. In addition, state owned railway operators and infrastructure managers should seek to ensure that they are adequately prepared for what has the potential to be the most radical change in their history.
 In June 2010, the EC commenced legal proceedings against 13 member states for failing to fully implement the set of directives known as the First Railway Package, including Directive 2001/12/EC covering the separation of infrastructure management and operations.
 The objective of creating a Single European Railway Area was established in the EC’s Transport White Paper “Roadmap to a Single European Transport Area” (March 2011), where it stated that remaining barriers must be removed as a matter of priority.
 Whilst institutional separation is established as the preferred mode to ensure a level playing field, the EC has also, in the face of opposition from a number of member states, including Germany and France, confirmed that a vertically integrated structure can be accepted if strict “Chinese walls” are in place. State owned rail groups who do not establish such structures by 2019, may be prevented from operating in other Member States.
 “The Brown Review of the Rail Franchising Programme” (January 2013).