For French High-Speed Rail, a Lower-Cost Future Pondered

» National operator SNCF is considering expanding low-cost options for country’s fast trains in response to increased competition. Increasing premium services also proposed.

Faced with the prospect of direct competition for the first time and settling into a difficult fiscal environment, French national rail operator SNCF is strategizing for a more nimble, efficient future that will include cheaper tickets on some of its most frequented routes. In five years, passengers traveling between big cities like Paris, Lyon, and Marseille can expect to see a variety of companies offering similar services at reduced prices.

SNCF is expected to begin offering an increasing number of low-cost services beginning in 2012.

For train riders on the low end, this could mean a sharp turn towards TGV high-speed rail operations based on those promoted by low-cost airlines — at least for routes that have the demand to handle the crowds that these services require. Business people may be asked to pay more for the products they’re used to receiving for free. On minor routes, customers may see fewer trains — and they may have to be subsidized by the government.

It’s a mixed bag, but one that results from a system that disincentivizes solidarity in provision for transport across the entire nation even as it increases offerings for well-used routes.

SNCF’s future is one that will be marked both by international expansion and domestic competition. The company’s majority-owned offshoot Keolis already operates transit systems in a number of cities worldwide and is now pushing to do the same in high-speed rail, starting with the €10 billion Medina-Mecca link planned for Saudi Arabia. At the same time, foreign competitors are entering the French market — by 2012, Deutsche Bahn will link Paris with Brussels and London and Trenitalia will run trains from Milan and Genova to Paris. This competition will reduce the ability of SNCF to use the TGV as a cash-cow whose profitable operations cross-subsidize its other intercity routes, which explains the company’s new effort to adapt itself to a changing market.

Moreover, the company, faced with extremely high track use fees, is desperate to increase its revenue stream. Despite the fact that both SNCF and the national track owner, Réseau Ferré de France (RFF), are entirely government owned, they have been at odds with each other because of their diverging interests since the latter entity was created in the late 1990s (previously the tracks were owned by SNCF). European Union rules have allowed government monopoly ownership of rights-of-way even as they have promoted competition in operations.

RFF has been increasing its track use fees significantly over the past decade, and plans to continue to do so in order to contribute to the funding of new high-speed lines in France and to pay off the enormous €28 billion debt it has inherited. This situation, however, has put SNCF in a bind; its TGVs aren’t bringing in enough money to pay for the their operations, track maintenance, and the construction of new lines. For now at least, the company’s long-term model isn’t sustainable.

The odd result is that last year, RFF made its first profit since its creation even as SNCF lost €500 million (after a one billion Euro profit the year before). The situation is becoming so bad that almost a third of TGV services, once all operationally profitable, will require subsidies from the government beginning next year, irritating other potential operators. SNCF has a major high-speed train fleet replacement program planned, but that can only be possible if the company finds more funds.

It’s a bizarre state of affairs in which one government entity must hand over its profits to another, with an end result that threatens the integrity of national rail service in France.

Thus the new effort by SNCF to both increase ridership on trains through lower prices and more (packed) seats, along with a parallel effort to introduce business service offerings. Whether this will increase revenues by 28% by 2015 has yet to be demonstrated.

SNCF already arguably has the cheapest high-speed services in Europe, with average trips costing only €42. But the new plan will introduce more low-cost trains similar to the company’s already existing iDTGV fleet, which offers trains with fewer personnel on board, more for-purchase services, off-train ticket-checking, and at-home ticket printing. An example of a particularly cheap iDTGV ticket: €19 between Lille and Marseille, a 1000-kilometer trip. That’s an amazing deal.

Similar offers will be expanded over the coming years to fight off other companies. France, probably the most lucrative rail market in Europe because of its large tourist base and high train-using public, will be the beachhead for the future of high-speed rail in which multiple operators serve the same routes. The German, Spanish, and Italian networks are likely to see similar situations over the next decade. As I’ve discussed before, this situation is likely to result in cheaper tickets and more offerings between the biggest cities but fewer travel opportunities elsewhere unless the government steps in.

The French government’s choice to subsidize TGV routes to less popular destinations rather than having SNCF cancel them because they’re no longer profitable is a political response to a management problem, since SNCF no longer is making enough money on its most-used lines to cross-subsidize within the company. Yet there is no way to assume that this is a permanent solution, since competitors will begin pushing for their own subsidies soon enough. The prioritized association between the goals of the French state and SNCF will slowly dissolve.

Yet that relationship, which ensured good rail service throughout the country, has had its major benefits. While it may theoretically be possible to have cheaper service along major corridors, their profits has meant excellent access by train to just about anywhere. It also also allowed the implementation of major social benefits programs that provide large discounts to the young, seniors, people with large families, and the unemployed. Can a system in which there is competition allow that to happen? Does it make sense to transfer the obligation to fulfill those programs, enshrined in goals of solidarity, from the rail operator to the government?

American planners considering how to implement high-speed rail services have an obligation to look across the Atlantic to judge how they ought to approach similar situations in the future. There are a variety of questions that must be pondered based on the relationships our governments establish between high-speed rail track owners and operators.

Assuming that tracks are publicly owned, should train service providers be required to pay high track use fees, in order to maximize the use of operational profits for the creation of new lines? Or should profits from high-speed lines be redirected towards the operation of less productive corridors in order to encourage geographical equity, with the government stepping in to fully cover the construction costs of new tracks? Should we expect to see a direct fiscal payback for initial capital expenditures, or is it reasonable to simply ask that high-speed rail services cover their operations and maintenance regimes?

For services that are not profitable, should the government use separate funds to ensure their continued running? Wouldn’t that simply result in the all-too-familiar privatization of profits and socialization of losses?

It troubles me that states now funding new intercity corridor development, including California, Florida, Illinois, and Wisconsin, have failed to address these questions straight-on, as complicated as they might be. Considering international experience, the projects in each of these states are likely to produce operational profits, but state governments haven’t established where that additional money would be directed. If we’re serious about improving the U.S. rail system, we have an obligation to do so in a way that establishes our response to these problems before we run full-on into them.

Image above: A TGV in southeastern France, from Flickr user Jean-Louis Zimmermann (cc)