When the world thinks of Europe, they think of the trains. No continent’s countries have so
collectively chosen to develop such dense and efficient networks of passenger railways. One
can step on a train above the Arctic Circle in Narvik, Norway, travel exclusively on the rails,
and end up all the way at the continent’s border with Asia in Istanbul—but it’s not going to be
efficient. That’s because, while possible, this routing touches on the network’s fatal flaw.
France, Germany, Spain, Italy, and others have each developed some of the world’s most
efficient and effective rail networks, but they’re just not well connected.
Take Milan, for example—Europe’s 8th largest metro area. While a world-leading network exists
south to the rest of Italy and north into nearby Switzerland, just three trains go farther—a fairly
frequent service to Paris, a once-daily trip to Frankfurt, and an overnight train to Munich and
Vienna. This isn’t an isolated edge-case. Paris and Madrid are the European Union’s
two largest metro areas, and yet they have zero direct trains running between them.
In fact, the farthest one can travel from France’s borders on a direct high speed train from Paris
is London, Amsterdam, Munich, or Milan. And not only is there a dearth of direct trains,
but connections are hardly straightforward. A herculean effort went into digging a tunnel from
France to the UK to connect the two countries’ rail networks, and yet in practice, they
connected London to the continent—not England, and certainly not the UK. Technical constraints
currently prevent practical cross-border passenger service beyond London or by anyone but Eurostar,
but the Eurostar service does little to integrate with the UK’s existing domestic network. To travel
from Paris to Manchester, for example, one must individually book the Eurostar from Paris to
London, then upon arrival, walk 20 minutes from St Pancras to Euston station to take another train,
which also must be booked individually, up to Manchester. The fact that this itinerary cannot
be booked as a single ticket both means people are less likely to identify it as a possibility,
and that if the first train is delayed enough that the second is missed, there’s no obligation for
the operator to rebook the traveler onto the next one. So, while only four hours of train
travel stand between France’s largest and the UK’s second largest city—a competitive
number versus air travel—these inefficiencies functionally increase it to an untenable level.
The competitor, planes, also significantly undercut trains on fares. Unlike airlines,
who price connecting itineraries lower than direct to compensate for the inconvenience, the fact that
the two segments of this trip must be booked separately, and are therefore priced separately,
makes this functionally impossible—even if it would be a winning strategy. One would
be lucky to find a combination of train fares totaling $150 between Paris and Manchester, while
airfares on this route typically sit below $100. This phenomenon is consistent continent-wide.
Average train fares between Paris and Barcelona typically sit three times higher than airfares.
From Amsterdam to London, it’s four times higher. Cases like Milan to Frankfurt do exist,
where trains only cost marginally more, but that’s not the average: in Europe,
crossing borders by rail is more expensive and less convenient. This is no coincidence.
The better part of a century ago, as Europe rebuilt and reconnected in the wake of World War
Two, countries across the continent searched for opportunities to revitalize their war-torn
economies. A number of them, especially warm, southern nations like Spain and Italy, identified
the potential of tourism. This conveniently coincided with the opening of the jet age,
in which new aircraft development and economies of scale made air travel faster and more affordable.
Package holiday providers took advantage of this to offer increasingly inexpensive trips to
increasingly far-flung destinations, and some even went further to set up airlines entirely dedicated
to flying vacationers like Condor and Britannia Airways. As travel abroad became affordable,
cooler coastal towns closer to home, like England’s Margate, Torquay, and Blackpool, started
a slow slide into ruin. But simultaneously, to the south, tourist numbers exploded as sunny,
seaside towns quickly developed into destinations. The oil crisis in the 70s stunted this growth,
but it soon accelerated again in the 90s as the business model pioneered by Condor,
Britannia, and others was refined and innovated upon: the budget airline was born. Ryanair,
easyJet, and others not only offered lower fares by themselves, they also added market pressure
that pushed down airfares industry-wide. Flying was now an approachable luxury, and
destinations previously too far for a practical vacation became the most intuitive options.
Decades on, budget airlines have thoroughly taken over travel across Europe; they grew out of
connecting the north of Europe to its south, but today go east, west, and everywhere in-between.
Meanwhile, however: trains. The same oil crisis that stunted the growth of international
vacationing in the 70s accelerated the development of high-speed rail. Facing a similar resource
scarcity decades before, Japan captured the world’s attention by opening the first electric,
high-speed rail service between Tokyo and Osaka: the Shinkansen. Embarrassed by being beaten to the
punch, major economies globally started developing their own plans for electric high-speed rail.
While the US, UK, Italy, and others made marginal progress in speeding up their trains,
the first to properly match the Shinkansen’s speeds was France.
On September 22, 1981, France’s Ligne à Grand Vitesse Sud-Est opened for passenger service—what
was a three hours and forty minutes trip between Paris and Lyon the day before now took just two
hours and forty minutes. The engineering effort behind these smooth, gentle tracks was colossal:
the construction cost some $18.7 million per mile, or $11.6 million per kilometer. But as
the country’s first and third largest cities, a first line between Paris and Lyon made sense,
especially since it also reduced travel time to Marseille—the second largest. France continued
developing the network in this intuitive manner, opening LGV Atlantique in 1989 to speed up travel
to Rennes, Nantes, and Bordeaux, then extending the line past Lyon to speed up trips to Marseille.
The nation’s most ambitious connection occurred next with the opening of LGV Nord,
which linked Paris to Calais—the start of the brand new Channel Tunnel to Britain. Come 1994,
just 13 years after the continent’s first high-speed train rolled out of the station,
it was now possible to take a two-hour trip under the ocean between two of the world’s most
economically important cities: Paris and London. This was momentous, but unfortunately,
still is momentous. This is still the most notable example of two European countries collaborating to
connect to each other by high-speed rail. It’s an exception to the norm. You see, France’s
high-speed network developed from the inside-out. In order to justify the enormous upfront cost
of these rail projects, the politicians behind them focused on connecting the greatest number
of French people to the greatest number of other French people—not Germans, Italians, or Spaniards.
Germany did the same, as did Italy, Spain and essentially every nation with high-speed rail
in Europe. This phenomena is paralleled with the trains themselves. With slower
travel speeds and fewer constituents to appease, international destinations have always been an
afterthought to the state-owned operators that dominate the European railway industry. Trains
primarily serve as domestic transport in Europe; planes dominate the international industry.
Perhaps beyond the maps and metrics, the case-studies and figures, the best evidence
of the limitations of cross-border European rail travel is the fact that for decades,
the EU itself has been working to fix it. Cutting against the grain of history since the 1990s,
the EU has authored reports, drafted directives, and passed regulations seeking to address
the two fundamental shortcomings of European rails—a lack of competition, and a lack of
cohesion. Identifying the fact that only a measly 6% of travelers went by rail in 2001,
the EU bemoaned how a lack of modernization in management and infrastructure had resulted in
more road congestion, more bottlenecks, and more car crashes. A series of partially effective laws
followed. Citing the fact that intra-EU rail travel remained at 6% in 2013,
the EU again recognized that rail had effectively stagnated on account of a
lack of competition and standardization, and decided something more needed to be done.
In 2016, the EU passed a series of directives and regulations collectively called
the Fourth European Rail Package—it was the most comprehensive rail legislation to date.
The Fourth Package is broken into two pillars, the Technical and the Market. On the technical side,
the process of disbanding nation-run monopolies took a major step forward with the addition of
more stringent monitoring and the announcement that public service contracts would become
subject to competitive tendering beginning in 2023. The technical side, on the other hand,
sought to simplify by expanding the European Union Agency for Railways into a one stop
shop for all vehicle registrations, litigation issues, and safety certification.
Together, the bundle of legislation aimed to increase competition and cut away some of the
red tape holding back international rail routes. While it was the fourth attempt, the package,
along with the three prior, has effectively cracked the market wide open—theoretically,
any operator, public or private, can now operate passenger trains anywhere within the European
Union. For the first time in a long time, European rail strategy is undergoing fundamental change.
To date, as the EU hoped, the most profound impact of the fourth package and its
predecessors is in the increased competition between the old, powerful incumbents—Deutsche
Bahn, SNCF, Trenitalia, Renfe—and a new wave of scrappy start ups and international subsidiaries.
In 2012, a fleet of stylish, brand-new, high-speed trains appeared on recently liberalized Italian
rails connecting Naples to Milan. The open access private rail company, Italo,
backed by a $1 billion investment, had purchased 25 French Alstom AGV train sets and started direct
competition along the country’s busiest, most densely populated, long distance route. Offering
slightly lower ticket prices; on-board wi-fi; and streamlined, largely automated booking;
the private operator took the incumbent Trenitalia head on, and the company took off.
Leasing access to the corridor, and outsourcing maintenance and food service to minimize overhead,
the service proved viable, and in the years that followed, Italo expanded nationwide, turning its
first profit in 2015. Yet, rather than siphoning away customers from Trenitalia, Italo’s new
service across a critical domestic route unearthed a previously hidden demand. From 2011 to 2018,
while Trenitalia went from commanding all Italian high-speed traffic to only 3/4ths, the revenue
pool had grown to such an extent that the company actually gained business. With competition upping
offerings and lowering prices, more Italians were taking the high-speed trains than ever before. The
loser wasn’t Trenitalia, but rather the airlines, as the Rome-to-Milan air passenger numbers halved
and Ryanair gave up the route entirely. Now, the Italo situation was unique in that it
took on the incumbent provider directly—offering a nearly identical route, with nearly identical
service, on nearly identical trains. In a 2016 study of competitive open access rail providers
previously and currently operating, of the 34 such companies in Europe, only Italo was high-speed,
while 12 offered “low cost, low quality” services and another 11 offered “niche”
services like night trains and weekend routings. In other words, 23 of 34 companies sought to
minimize direct competition by offering something different than the incumbent.
Flixtrain, for example, entered the German rail scene in 2018 when it took over the
Hamburg-Cologne Express line without ever actually buying a single train.
Rather than put up major money to challenge Deutsche Bahn’s high-speed trains directly,
Flixtrain instead opted to run older, renovated trains leased from Railpool and operated by the
German company IGE to offer an alternative and far cheaper service. So far, it has worked.
The success of Flixtrain’s daily service from Hamburg to Cologne—a route far cheaper and only
slightly slower than Deutsche Bahn’s high-speed option—has emboldened the company to expand across
Germany, open a line in Sweden, and even offer its first international connection to Switzerland.
Flixtrain might be unique in the fact that it owns no rolling stock, but its budget business
model is far from uncommon for the early days of what may well be an open access revolution.
The closest precedent to what’s happening now in the European railways industry is the
deregulation of the American and European aviation markets from the 1970s onwards.
It was exactly that that opened the door for Ryanair, easyJet, Southwest and others to grow
into some of the world’s largest and most influential airlines—no longer did airlines
have to charge the fares, fly the routes, and offer the service that the government dictated.
Capitalizing on this precedent, SNCF, France’s national rail operator, knew exactly what to do
back in 2013 in anticipation of the continent’s coming liberalization. Ouigo was founded with the
intention to adapt the low-cost airline business model to the rails. Tickets could only be bought
online, rather than at labor-intensive ticket counters. Upcharges were abundant,
with luggage and even the use of electric outlets costing extra. Legroom was tighter, staffing was
more limited, and daily train utilization was higher. All around, the experience was worse,
but like its airborne equivalent, this was a compromise people were willing to make
in exchange for its rock-bottom prices: while its full-service equivalent offers the 90-minute trip
between Rennes and Paris for no less than $36, Ouigo sells the same route for as little as $16.
While SNCF always had the ability to undercut itself within France, Ouigo was founded with an
eye towards the future we’re now living through. It was a test—and seemingly, a successful one—but
the ultimate ambitions of Ouigo laid well beyond its home country. In 2020, when Spain opened up
its lines for closely monitored competition, Ouigo España was ready and in 2021, France’s national
rail operator started its first route entirely within Spain: Barcelona to Madrid. In quick
succession, and in direct response to the success of Ouigo in France, Spain’s national operator,
Renfe, founded Avlo to also offer low-cost service between the two cities, and a third competitor,
Iryo, is also expected to commence operations on the route later in 2022. Including the incumbent
full-service high-speed train operated by Renfe, that means this route will see four
different services competing head-to-head between the same cities: Barcelona to Madrid is becoming
the world’s most competitive rail route. A certain extent of this cost-differentiated
head-to-head competition seemingly can work, based on the experience of Italo in Italy, and based on
the experience of budget airlines. For example, on the London to Barcelona air route, British
Airways and Iberia’s passenger numbers stayed relatively consistent throughout the early 2000s,
while nearly all of the growth can be attributed to easyJet and Ryanair entering the market.
The budget operators didn’t only capture demand, they created it.
Ouigo has observed something similar. Of passengers surveyed shortly after launch;
50% indicated they would have otherwise taken the full-service alternative;
but crucially, 25% said they would have taken the car, bus, or plane; and another
25% said they would not have traveled at all. Given the parallels in this phenomena, that means
low-cost rail operators don’t need to work within the context of current demand—they don’t need to
compete head-to-head on the continent’s busiest routes like Barcelona to Madrid, Paris to Lyon,
or Milan to Rome. Because they’re creating rail demand, they can create routes that
previously could not have profitably operated given lower passenger numbers. This was how
budget airlines took over the world—not through direct competition, but through induced demand.
So, continuing the parallels with budget airlines, what we’ll likely see going forward
is route innovation, especially focused on appealing to leisure travelers. The French
Riviera is an extremely popular vacation spot, but the stretch from Cannes to the Italian border
currently only sees long-distance service on major routes to major French cities. However,
a private low-cost rail operator could take a page out of Allegiant Airlines’ playbook, for example.
They’re a US airline focused on connecting small towns to popular vacation spots like Las Vegas
and Florida through low-cost flights a few times a week. This is centered on the principle that
vacationers will schedule their trips around convenient transport, unlike business travelers,
who keep to their strict schedule—and the fact that Allegiant has one of the world’s highest
airline profit margins proves this principle true. Similarly, one could imagine a private low-cost
operator running a twice weekly train starting in the early morning from Quimper, in Brittany,
stopping at small towns like Lorient, Vannes, and Redon on its way to Rennes, then speeding down on
the high speed lines to Marseille before dropping passengers off at all the small coastal towns
up until the Italian Border. Vacationers would plan around this convenient transport, and the
business model could prove similarly profitable. But given the weakness of cross-border train
travel in Europe currently, the biggest opportunity for new, innovative private
rail operators in Europe likely centers on long-distance international connections.
One could imagine, for example, a vast network of direct trains from France, Belgium, the
Netherlands, and Germany to popular vacation spots to the south like Barcelona, Florence, and Rome.
Of course, the barrier to this is travel time—especially
relative to rail’s airborne competitor. Passengers do tolerate longer travel times in exchange for
the convenience and comfort of trains, but only to an extent—there’s still the infrastructure
problem. With track development having always been intertwined with rail service development, which
itself has been focused on domestic service, those cross-border gaps in high-speed rail still exist.
Getting to Barcelona, Florence, and Rome requires dealing with the inefficiency of
the tracks between them and the north. This is where the liberalization of the
rails deviates from the liberalization of the skies. Planes only need airports, which exist
effectively everywhere. Trains need tracks, which require a level of upfront investment
far above what most private companies tolerate. Operators can only induce demand where governments
have decided to build tracks. So, in order to fulfill their goal of usurping the aviation
industry and unlocking the full potential of the next era of rail development,
Europe has to find a way to view infrastructure from a continental scale, rather than a
national one—it has to invest in connectivity. But that next era has already started. Relative
to the aviation industry, Europe’s rail industry is roughly here—somewhere between 1980 and 2000,
as deregulation took full force. And of course, what happened next was this:
the fastest 20 years of growth and innovation the industry has ever seen. This revolution
is already starting on the rails. What’s left to decide now, by governments and innovators,
is just how precedent-setting the next 20 years of European train travel are going to be.
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