Today, the Swiss newspaper Sonntagszeitung published an Article on profitability of railway routes within Switzerland. The article was published in the environment of growing discussions if the Swiss intercity railway transport should be opened up to additional players (BLS and SOB). The main questions in the article was which railway lines are profitable and which not, respectively how a package of routes could be given from the incumbent to a new party. In this context, I think that we are still not asking the right questions that would help us to decide on this matter.
Roles and responsibilities
Based on this discussion, it is easy to dissect the different responsibilities of the roles involved: In this context, this would be the Railway infrastructure, the Train operations and pricing.
The objective of the railway infrastructure provider is to ensure safe and reliable operations on its infrastructure. For this, the provider, builds and maintains the railway infrastructure based on demand scenarios technical and regulatory requirements as well as macro-economic goals (e.g.: lower factor costs with high mobility within the country). Especially economic effects and the long term impact of the investments require an provider with a similar long-term perspective.
Railway infrastructure provider are mostly not profitable by design but create large positive externalities, such as cheap transport.
The responsibility for railway infrastructure should lay with the government, or a government owned entity. With a liberal philosophy, this entity should also ensure that there are low market entry and exit barriers.
The objective of the train operating company (TOC) is to provide efficient and attractive operation with high availability and reliability. The TOC seeks to acquire, operate and maintain the trains in a efficient way while meeting many side objectives such as attractive transportation. From their perspective, overall demand is mostly given and can be slightly fine-tuned (as for instance seen in the Westbahn/ÖBB competition between Salzburg and Vienna). This party can be privatized or can be independent but government owned as it follows more mid-term objectives.
TOCs can be profitable, but are often only profitable due to the subsidies given by the government.
Pricing again is more a economic affair due to its large and long-term effects on the country. Relevant input factors are the incitement policy or modal-split goals, the available budget and the costs from the infrastructure and train operation. A government driven pricing ensures a fair competition on the cost side, while it does not allow the TOC to lower fares on its own risk. This is why some governments (e.g.: UK) allow the TOC a certain amount of liberty to create their own pricing scheme or adapt it dynamically to their customers’ needs.
However, the overall pricing philosophy and the instruments in which the TOC operates should be given by the government.
Now applying this concept and coming back to the actual case in Switzerland, the questions the BAV (ministry of transportation) should pursue is:
- Shall the infrastructure responsibility remain with SBB for the tracks in question: Most likely yes, as SBB seems to perform construction and maintenance in an efficient way and SBB (as well as BLS and SOB) is governmet owned.
- Which of the TOCs offering to perform the service is the best on a mid-term perspective: Economic efficiency, meets availability, reliability and attractiveness goals for each of the lines (including costs for possible changes of operators).
- Pricing: Does the pricing need to be adjusted or even the share of revenue from pricing between the lines to better meet the overall economic goals?
What is your opinion, is this a too simple way to see it?