• European railways are in upheaval: Planning processes are becoming increasingly complex and changing faster and faster – flexible planning systems are called for
• 40% of those surveyed are critical of the first EU railway package designed to liberalize the markets – But there are also fears of overregulation
• Approval procedures for railway technology are still time-consuming and inefficient
• 81% of those surveyed want to finance infrastructure and trains themselves by realizing more efficiency and higher earnings
• Participation by private investors (public private partnership) is an attractive financing option – especially in the municipal transportation sector

In 2013, European railway companies will be focusing on improving their profitability and financial situation. This is because railways are experiencing major changes across Europe: Rising complexity of the railway market with new players and changing rules is leading to increasingly complex planning processes. This means railway operators must be able to develop flexible planning systems and quickly deal with changes in the market. A special challenge are the changes introduced by the first European railway packages for liberalizing the market. 40% of those surveyed fear that the planned reforms will actually lead to market overregulation. Furthermore, 80% of the railway companies expressed criticisms of the time-consuming approval processes for railway technology. Financing railway operations plays a key role: 81% of railways want to finance infrastructure and trains using their own resources – through improved efficiency and higher earnings. In contrast, at the municipal level, 60% of those surveyed are in favor of financing through public private partnerships. These are the key findings of the study entitled "Executive Rail Radar" by Roland Berger Strategy Consultants. The study surveyed more than 280 railway companies, infrastructure operators and municipal transit companies.

"Railways want to further improve their profitability and efficiency. To do so, they must improve their planning processes," explains Martin Streichfuss, Partner at Roland Berger Strategy Consultants. "But this is exactly where the major challenge lies. Increasing railway traffic, the plethora of players and changing rules in Europe are making the environment increasingly complex and unpredictable."

Railway companies are looking to operate more profitably

In 2013, European railway companies will be focusing on improving their profitability and financial stability (56%). Much lower down on management's to-do list are topics such as investments (28%), quality improvements (26%) and infrastructure upgrades (22%). "The survey clearly shows that the majority of European railways are focused on stabilizing their own financial situation," says Roland Berger Partner Andreas Schwilling. "This is because if railway companies are not profitable enough, they can hardly invest in infrastructure, train upgrades and improving service to grow further."

This makes planning all the more important. Accordingly, 38% of the respondents feel the market environment is placing more demands on them. New market players, stronger fluctuations in demand and uncertain public subsidies make long-term planning difficult: 31% of those surveyed say they have trouble setting up their budgets for a 5-year period. "That's why railway companies tend to plan for the short term," explains Schwilling.

But even short-term planning (21%) and estimating passenger and cargo volumes (19%) is more difficult. "Therefore, rail operators should ensure efficient budgeting to avoid losing sight of their goals and to be able to react quickly to changes," advises Streichfuss.

Deregulation is leading to overregulation of the railway market

About 45% of the railway companies agree that constant market changes require greater planning flexibility and faster reaction times. To making planning easier, they use historical data (45%) but consciously exclude complex planning parameters such as marketing campaigns (34%). "However, this is a risky approach," says Schwilling.

Furthermore, the railway industry is worried about the impact of the first European railway package designed to liberalize the market. More than 40% of railway managers fear that planned deregulation will backfire and lead to overregulation of the European railway market. Almost half of those surveyed criticize the fact that long-term agreements between the state and infrastructure operators will be required in the future. Especially critical are the responses from Germany, Switzerland, Denmark, Slovakia and Slovenia. In particular, railway groups (63%) and railways without infrastructure (50%) expect negative effects in the wake of pan-European liberalization – much more than do infrastructure operators (25%). In contrast, half of the respondents would like more control in terms of route prices. "Only regulated fares that enable railway operators non-discriminatory access to routes will guarantee actual market liberalization," says Streichfuss.

Another problem are the railway approval procedures in most European countries – 80% of railway companies view these as inefficient. The only exceptions here are Switzerland and Austria. The reason for the onerous approval processes is mainly due to higher safety requirements stipulated by several national railway laws.

Looking for private investors

To finance their infrastructure and daily operations, 81% of railway companies are relying on their own resources. To do so, they intend to improve their efficiency and earnings. Nevertheless, 60% believe public subsidies will still be needed; and even up to 90% in the municipal sector feel this way. "The fact that many railway companies are depending more and more on their own financial resources is a reaction to the euro crisis and uncertain financial situation in several European countries," explains Schwilling. "Many companies know that empty state coffers mean they have to rely on themselves for financing."

A lack of public subsidies means public private partnerships will play an increasingly important role in the next five years – especially for municipal transport systems. However, 57% of those surveyed view private investors as purely functional privatization for building, maintaining and managing infrastructures – but without transferring ownership to private investors. Such PPP models are especially ideal for railway stations and primary infrastructures of specific rail lines, such as connections to airports, or high-speed and cargo routes. "Such investment models offer ideal options for upgrading the infrastructure. However, investors expect high profitability and take a more short-term perspective than state investors. This is putting railway companies under considerable pressure," says Streichfuss.

Source: Roland Berger