What has the liberalization of the european railways brought?

The liberalization of the railways has always been misunderstood and poorly explained and still creates intense and sometimes irrational debates today. This is due to the fact that the railway is much more imbued with politics than other competing modes of transport. What has happened in thirty years of profound socio-economic changes? In fact, these transformations are a process that goes back long before legislative Europe. Then we have to look at what we have obtained so far.

Liberalization? A 70-year process
Five features have characterized the way to the point we know today. From 1880 to 1947, the entire European rail network was nationalized, as rail was a dominant and essential means of transport for the economy of nations, and … for military affairs. But the post-war period was already the end of railway domination: we were entering the second industrial revolution, that of oil. The railways were considered a state administration that was asked to perform many tasks, sometimes improbable, most of the time without paying the costs. Gradually, the railway was left to deal with its own particular social culture, marked in particular by an environment that forged political concepts which are not found in aviation or the automobile.

The second feature is the gradual arrival of economics, which permeated public action and the spheres of the state from the 1950s to the 1970s, so that the value of things, the state and public services brought about major political changes. Whereas in the past, public service was a national matter that was taken for granted, it gradually had to be understood, identified and reframed. This affected all railways, with the result that the standardisation of accounts was launched by the International Union of Railways (UIC) as early as the 1960s, long before Europe became involved.

The third feature, a consequence of the second, is the advent of contractualisation. In the 1980s and 1990s, the initial status of administration evolved towards public limited companies under public law or similar, to varying degrees depending on the political cultures of the countries (1991 in Belgium, 1994 in Germany, 1999 in Switzerland, etc.). The consequence for the railways was the introduction of invoicing for all services and the end of « compensations » between networks. This new regime gives a real view of the finances but also has revealed the true cost of the train, in particular through the introduction of rail tolls. States thus concluded service contracts with their state railway enterprise, which provided a framework for the services to be provided. Moreover, this contractualisation was mandatory with the standardisation of the state accounts, and the railways could not be an exception. In Great Britain, those who called for rapid renationalisation soon came up against the reality of franchise contracts, which included termination clauses. Contractualisation is of utmost importance today when it comes to establishing responsibilities, in particular for the reimbursement of international train tickets in the event of delays.


The fourth feature is the strictly national frame to which the former railway administrations belonged. Crossing borders required extensive paperwork, the drafting of which had to be approved by each parliament. Similarly, cross-border ticketing was made very difficult because endless negotiations, sometimes at a high institutional level, had to take place to allocate deficits. Many political parties do not accept that national money should go to the neighbour country. Social policy, e.g. towards children or students, differs from one country to another, making it difficult to decide age of access to reduced fares…

The fifth feature is that Europe was first built on concepts chosen and decided by the Member States. The Council of Europe, which brings together all the heads of state and government, is indeed the final body that gives its approval to the policy of the European Commission and the amendments of the European Parliament. In the 1990s, many national governments were of social-democratic coalitions, with a few exceptions (Great Britain,…). This was the great era of François Mitterrand and Chancellor Helmut Kohl. There was a consensus to transform the railway sector which offered strong political resistance and cost a lot of public money.

So it took almost 70 years to get to the situation today, with, in addition, major socio-economic changes in the industry (smaller, more scattered, more specialized) and in society (fewer blue-collar workers, more middle class,…), as well as much less militarized nations, as Europe’s founders intended. All this is fundamentally different from the 1930s, when railways were a dominant transport.

The idea was how to make the railways more efficient and how to get money from other sources. Industrialists were willing to pay, but not at any price. So it had to give them guarantees…

Liberalization is intended to provide a framework for public finances and to shift some modal shift costs to the private sector, where possible. For its part, the industry wanted to be free of national borders in order to expand its business and no longer be dependent on national orders, which were too political. The Member States and the European Union hoped that, with this new impetus, rail could once again take centre stage, rather than being an option chosen by default by citizens.

In addition, we are also witnessing a transformation of large companies, and in particular the end of the conglomerates in the world. Being on all markets with hundreds of trades is a strategy from another time, which would no longer have its raison d’être in 2020. If we find sometimes that reasons behind the dismantling of large industries are linked to stock market valuations, it remains true that the more targeted companies function better and are therefore more productive. Conglomerates are together but too often there are no synergies in them. Can this be applied to the railways? As the former head of DB Cargo himself pointed out, with regard to rail and logistics: « There are important differences between logistics and rail, for example in terms of the type of customers, the scope of the network and the investment cycles. DB Schenker has completely different investment cycles (…) and fast innovation cycles, whereas rail is calibrated to the long term.« 

The sectorisation of the railways was already a state of affairs within the unified railway companies. Infrastructure, Rolling stock, Freight, Intercity, each service actually lived its own life with its own rhythms. It is therefore not surprising that in the years 90-2000, each historic company started its sectorisation, which differed from one country to another according to political and trade union cultures. This makes it possible today to present the railway sector as follows:

Railway-sector(drawing Mediarail.be)

Blue represents the sectors that are subsidised and subject to public service, while yellow represents the sectors that can live without subsidies and are no longer subject to public service. Let’s see this in detail.

It can be said that the industry has benefited greatly from the new railway framework. In the years 90-2000, a strong concentration of manufacturers took place in Europe and the industry took over the rolling stock know-how from the companies. In several countries, rolling stock experts were seen leaving the historic company to join private industry, demonstrating the change that was taking place at the time. Today, the industry works by platform: metro, tram, regional train, high-speed train, locomotives. Each plant is specialised. This platform policy has made it possible to provide standardised trains at the base for the whole of Europe, with the end customer opting for a package of options. This is how Bombardier’s TRAXX locomotive, the result of a study by the former ADtrans, was sold in almost 2,700 units and now runs on all networks. This is how a small Swiss company, Stadler, was able to grow and offer its Flirt and Kiss railcars throughout Europe. And the same goes for Alstom’s Coradia platform. The internationalisation of traction is something that the historical companies were not interested in and it is good that the industry has been able to change this.


Renting rather than buying
This internationalisation of production suited Europe well: it allowed small companies to obtain rolling stock, whereas previously it was an insurmountable barrier to the launch of liberalisation. As the purchase was too heavy for these companies, the idea of renting came rapidly. This is how a new leasing industry (the Rosco, Rolling Stock Companies) was born, beyond the manufacturers. This sector, in full growth, has created new jobs and know-how. As the historical companies did not want to do maintenance, which made them miss out on a juicy market, the Rosco’s turned to other workshops. We find again the manufacturers, who are in the best position to maintain the fleets they build. These workshops have, in some cases, become laboratories for receiving wear data from the rolling stock, a feedback from which the studies for the following and future fleets will benefit. This is how liberalisation has really set up a whole sector.

Another example is Talbot, the manufacturer who was to disappear from Aachen. Bought out by part of the management, the factory has since 2013 become a workshop for renovating old cars that Deutsche Bahn wants to scrap. These cars enabled operators such as Flixtrain to enter the mainline market.

Talbot-Services-GmbHPhoto Talbo Service GmbH (facebook page)

Intensified regional action
Another important change has taken place in several countries: rail transport competences have been transferred to the regions. Until the 1990s, regional public transport meant bus networks. Building a rail service was a new development for regional authorities because that meant to entry into the unknown world of railway workers. This was not made without difficulties, but little by little, countries with a cultural habit of decentralization transferred whole areas of political responsibility, of course with the help of ad-hoc funding laws. Now in Europe, some regions, Lander or Provinces are accountable to their electors. The policy of reopening small lines, often costly, has thus been taken out of the hands of the historic companies which, ironically, are delighted to have been rid of these political burdens .

These regions can choose the operator of their choice by tender if political conditions allow. These operators benefit precisely from the industrial sector described above to respond to offers with new rolling stock, even if this has not always been easy in some markets. This regionalisation of rail is completely different from the British franchise option, because all European countries have social policies on ticketing, which Great Britain does not have.

It should be noted, however, that the nature of the contract and the distribution of financial risks are crucial to the success of rail regionalisation. It is clear that the current pandemic has undermined this system, from the moment « the bread was taken out of the mouths » of these railway companies, in this case the customers asked to stay at home by the governments of the Member States.

Transdev-MeridianMeridian in Bavaria (Transdev group)

Refocusing public investment
There are areas where the train can get by without subsidies. This is the case of long-distance trains, which welcome a very different public from the everyday train: the tourist, individual or business clientele. The proposed fares are in competition with long-distance coaches and low-cost aviation, but it has been found that a well-targeted offer can fill the trains, for example the SNCF’s Ouigo or the ÖBB’s Nightjets. Some countries also transfer part of the rail fees to the State, to alleviate train costs. After all, all Member States heavily subsidie road transport by not making it bear its real costs…

The other sector is freight. Shifting freight from road to rail requires a detailed knowledge of logistics, which a state operator subject to multiple political contradictions does not necessarily have. Moreover, rail freight operates in an entirely commercial environment, since its customers are all shippers or private industries. This liberalisation of rail freight was moreover the first act of the European Union, in 2003, and it can be said that the number of alternative players that appeared has been able to maintain the rail market shares and avoid the collapse, even if more is expected. 

These two sectors, moving towards « self-sufficiency », then made it possible to refocus public funds on infrastructure and the everyday train, which was a demand of many states. The public service was thus strengthened and the commercial risks transferred to alternative operators.

This cost refocusing is necessary for another sector: infrastructure! Apart from routine maintenance (rail, catenary, …), it soon became apparent that the increase in weight and speed of trains and the intensity of traffic over the years had worn out the track more than expected. Over time, it is also water infiltration and vegetation that must be monitored. These are also level crossings that record many more crossings than in the past. In addition, the new accounting standards for works, risk analyses and the drafting of numerous supporting documents led to many additional costs. In addition, new technical standards have been developed over time for both civil engineering and electrical engineering, as well as for noise reduction, with many requests for noise walls. We all know of a small local line which, unfortunately, has a bridge at the limits of its existence, and which would require millions of euros in renovation, only to run 10 trains a day…

On the line Stolberg-Raeren, Germany…

Increase of traffic
In the end, there have been few alternative open access operators in Europe. But those that have started have recorded good results, before the pandemic. With the Italian NTV-Italo, Italians not only rediscovered the « modern train without military livery », but they also saw that the old company « Ferrovie dello Stato », which became Trenitalia, lined up ultra-modern trains to go to Bologna, Rome or Venice. That’s why the CEO of Trenitalia finally admitted that, « yes, this competition towards modernity has brought us customers who otherwise didn’t come to us and only knew about low cost airliners. » 

When Regiojet started on the Prague-Vienna route with prices of 19 euros for 400 kilometres, the two public companies CD and ÖBB immediately lined up. Before the pandemic, the two capitals were linked by 11 trains instead of 7, which was also the case in Sweden between Stockholm and Gothenburg. In all cases, there has been an upturn in traffic, although it is difficult to say where the transfer came from. This competition has led to a different way of working within the public service itself. Thus, the SNCF’s TGV Ouigo trains spend much less time in the workshop, which allows a better rotation of the rolling stock and thus additional sales with a small number of trainsets.

Of course, the pandemic has shaken up the whole system. Citizens were asked to stay at home. When the flour is removed (the customers), it is indeed no longer possible to make bread (the train service)…

TrenitaliaRome-Termini (photo Mediarail.be)

It is difficult to argue that the train is a basic need like water, energy, waste, health care or education. Those who say that the state is currently out of the railway sector are short-sighted. Public companies are still there and some are even being reinvigorated. Just look at the ÖBB and their European vision with the Nightjets. Just look at what has become Trenitalia comparing with 20 years ago. Moreover, Spain realised that in order to pay back its huge high-speed network, the incumbent operator alone would never have been able to do so. To attract other operators, the country has opted for an original and controlled liberalisation, by batches of traffic, so as not to kill the incumbent operator. Behind this choice, there is once again the visionary State.

The state is the sole owner of the infrastructure, regardless of the institutional architecture chosen. The state is still present to regulate and enforce standards, for example against train noise. It is also present in the many public service obligations, regardless of the institutional architecture chosen. Finally, it is still active to promote R&D through various associations between universities and industry. By the end, liberalization means bringing more people together to bring out the best ideas, for example through hydrogen sector, or digital sector or multi-transport services, or to show other ways of making train services.

There will be no going back on the achievements of liberalization, now well established in the rail sector. But there will certainly be new forms of cooperation or association in the future that will allow the railways to maintain and, it is hoped, increase their presence in the mobility of goods and people at an acceptable price.

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