Sweden: Several for-profit passengers rail operators competing - good?

[beautifulplanet]

Thanks to the European Union and some of its neoliberal policies (not liberal as in U.S. terms, neoliberal=free-market fundamentalist, economic liberalism like mid-19th-century Manchester liberalism), there are "open access" rules regarding passenger rail in Europe, and in member states implementing this in national regulation, everyone is free to start for-profit passenger rail service if they want to.

In the case of Sweden, this leads to three different passenger rail operators on the Goteborg-Stockholm route, starting on March 17, 2015.

Profitable, for-profit state-owned SJ already competes with Bla Taget (Blue Train), still SJ operates about 19 trains (in each direction) every weekday, while Bla Taget only operates one train, on select days. Since December, tickets are on sale for another, bigger competitor: MTR Express, with 9 trains (in each direction) every weekday, by the HongKong-based rail company already profitably operating different rail services in Asia, Australia and Europe. So far, most of them, like the Stockholm metro MTR operates, those are local services that went out to tender, not self-sufficient intercity services. (Another private for-profit competitor, Citytag (City train) announced starting 3 daily trains in each direction in the near term, though everything seems vague and it doesn't seem like service will start soon.)

Here is an impression of the SJ 2000 trainset:

source: http://railpictures.net/viewphoto.php?id=137830&nseq=23

Here is an impression of the new, modern Stadler FLIRT Nordic trainsets that MTR Express will use in revenue service starting March 17 (while testing in Switzerland):

source: http://www.eisenbahnfotos.ch/bahn/displayimage.php?album=135&pid=7184#top_display_media

Stations served by MTR Express:

source: http://www.railwaygazette.com/news/passenger/single-view/view/mtr-express-orders-flirts-for-stockholm-goeteborg-open-access-service.html

So to some it may seem, that policy makers in Brussels and elsewhere might think, rail is just another transportation mode like air travel, and as there are different air operators, there should be different rail operators, because competition is good, and private companies do everything better than state-owned companies etc. Also neoliberal media outlets like The Economist might view things the same way.

At the same time, some might think, the past experiences with rail privatization are not these great success stories.

New Zealand reversed its privatization, and made a loss of several millions of hundreds of dollars doing so. Foreign Control Watchdog Inc summed it up the following way:

Further, the record of some privatised assets has not been great. Two examples readily spring to mind – Air New Zealand and Kiwi Rail (formerly New Zealand Railways). Both of these agencies had been previously owned by the State and then sold off to private investors. In both cases, private owners ran the industries into virtual economic and developmental insolvency. Both New Zealand Rail (which became TranzRail) and Air New Zealand were progressively asset stripped and underdeveloped by their private owners to the extent that both would have collapsed if the State had not repurchased them.

source: http://www.converge.org.nz/watchdog/29/03.htm

And even in some of the pamphlets of ultra free-market think tanks from the US, (while of course maintaining the idea that private companies are just the bee's knees ) it is mentioned that rail privatization in the United Kingdom did not go so well:

In an effort to save money, [privatized Railtrack] deferred maintenance, resulting in a poor on-time record as well as three serious accidents that killed 42 people between 1997 and 2000. As a result, the government bought out Railtrack and now operates the rail infrastructure through a quasi-governmental organization called Network Rail.

source: www.cato.org/pubs/pas/PA712.pdf

And also in those countries where the infrastructure always remained in public ownership, at least some might wonder, if it is really the most efficient way to set up the passenger rail transportation system, to introduce "open access" services.

In Sweden, concrete effects might be:

- While in the past, if one had a flexible SJ ticket, one could hop on any train, now travelers can only use SJ trains with it.

- If there is a delay, in the past, one was just able to hop on the next train departing, now one might have to skip a train or even two, to wait for the next train of the respective train company.

- SJ, though it is state-owned, is profitable, and policymakers also ask it to be profitable. While MTR can just cherry-pick and operate on the most profitable route only, SJ (at least currently) offers "open access" (also meaning financially self-sustaining) intercity services across a wide network. If SJ is generating less profits from its most profitable route, it might eventually decide to cut back service on other less profitable routes, in order to remain at the same level of profitability. This cut back service on other routes might be likely to be then permanently lost, as MTR or others might not come in to those routes, to offer to replace the frequencies that SJ cut.

- The age of rail being simple, just getting to the train station, getting a ticket from the ticket office or vending machine, and getting on the train (any train, and any office/vending machine, because there just is one operator), will be over, as now first the consumer has to inform itself, or otherwise the information deficit also leads to imperfect market dynamics.

- In addition to competition in the form of car travel, air travel, bus travel, now there will be extra competition in rail, though one result could be that the market is not big enough to support several operators in its current size. If the outcome might possibly be in the end, that SJ is cutting back frequencies, and MTR is cutting back frequencies, because there is overcapacity with this level of service, then it might also be an economic inefficiency, as a given market is just split up between different companies creating an extra organizational layer instead of using economies of scale.

- For the consumer, rail gets more and more confusing, the more competing rail operators are in the market. In the United Kingdom, it is often difficult to understand for people not familiar with the matter, which rail company is offering what kind of services on which route, and how the whole rail system works. Of course, with just three operators Goteborg-Stockholm (and Snalltaget "fast train" open access rail Malmo-Stockholm), Sweden will not nearly have the same kind of fragmentation in its rail system, still the mechanism causing all those disadvantages is the same.

- At least some might come to the conclusion, that though some might think transportation is transportation, so the dynamics of air travel should also apply to rail travel, this is an oversimplification of reality, as there are so many characteristics of rail travel that are different from air travel (or other modes).

Many might be interested to follow the developments in Sweden, to see how all of this plays out and to see - in the years to come - the consequences of decisions made many years ago.

More about the topic of rail privatization can be read in the following articles by railroad industrial engineering consultant David Burns:

http://www.railwaygazette.com/news/single-view/view/time-to-be-realistic-about-railway-privatisation.html

http://www.railwaygazette.com/news/policy/single-view/view/recognising-the-total-value-of-railways.html

 

[neroden]

Natural monopolies don't work well when privatized. Rail service is a natural monopoly.

 

[cirdan]

In the UK, besides the franchised rail operations, where private operators basically bid to run services to standards dictated by the government, and receive subsidies for doing so, there are also a small number of independent open access train operations. These typically run between city pairs that the "official" service does not serve well. They do not receive subsidy payments and the timetables are often accordingly sparser, with a handful of trains a day being the norm rather than an hourly service or better such as the franchised routes are offering. The Wrexham and Shropshire used to run from London's Marylebone through to Shrewsbury and Wrexham, a route that had been cut by Virgin Trains some years before amid a lot of passenger protest. The revival of the service was thus welcomed. The dining car on this train was excellent, and voted I think as best on-train dining experience in the country. The route has since been discontinued again but not without alternative services being improved. One that is still running is Grand Central, running from London Kings Cross to Sunderland and some other otherwise poorly connected cities in the north east. That operation has since been bought out by DB, so they definitely believe in it (despite it supposedly losing money). There is also an operation called Hull Trains, which as its name suggests, serves Hull, and is run by the First Group. This also fills a gap that the government didn't consider worth serving and hence there is no franchised operator on that route. Various others have been proposed over the years but none of these have come to fruition as far as I am aware.

The incumbent franchise holders have not been overly happy about these open access operators as they have subtracted traffic on the sections where they run parallel. But overall the passengers like them and they have certainly forced the incumbents to be more on ther toes so i'd say they've been a good thing.

All these operators cross-accept regular tickets and receive a share of the revenue accordingly. So if you miss a train or need an alternative connection there is no need to re-book. Also, seeing they run additional services rather than cannibalizing the existing backbone network, they are expanding the overall quality of the rail system rather than damaging it. In the days when government controlled the railway in a strict manner, this would not have been possible. Many services were discontinued over the years and despite people claiming there would have been a way to make them profitable, and some even offering to do so, this was not allowed. I like the fact that entrepreneurs are now free to challenge the status quo and show the pundits that they might be wrong.

 

[neroden]

I don't have a problem with *permitting* entrepeneurial service; why not? Don't expect them to be able to provide decent backbone service, though. The extreme example of failure is Railtrack.

There's a very limited scope for open-access operators on the British railways, and it's due to the limits of the natural monopoly; basically, they can only work in areas with overcapacity -- where the slots aren't all claimed already. (Once there are loose slots which nobody is demanding and few are contending for, you have a limited area with a lack of natural monopoly characteristics.) So, fine for proving that a route rejected by the central government has potential, no good for addressing overcrowding on the East Coast Mainline.

 

[cirdan]

I don't have a problem with *permitting* entrepeneurial service; why not? Don't expect them to be able to provide decent backbone service, though. The extreme example of failure is Railtrack.

Railtrack was neither a franchise nor an operator. It was basically the company that managed the track and real estate and made these available for other operators to run trains on.

It was thus not fundamentally different to BNSF or Norfolk Southern, only if you imagine that these didn't run their own freight but lived off the income gained by allowing others to run on their tracks.

The UK has since reverted to a system where the infrastructure is state controlled, and this is also the model being pursued in other countries that are permitting private operators. The list includes Germany, France, Sweden, Spain, Italy, Poland and others.

A lot of people like to say how bad the UK situation is, but passenger numbers are now at an all time high, having now overtaken the previous all time high which was in the early 1920s. And this at a time that many other countries are seeing decline or stagnation. This is of course not entirely of the making of the railroads themselves, as things like increased commuting are part of the equation. And this is government policy as the government knows London needs lots of people to work there but that real estate is beyond what many can afford and so is permitting people to live outside by throwing money at the commuter lines (rather than say trying to limit the growth of London and encouraging other cities to grow). This is a geopolitical policy, not a transportation policy. But for a country in which traditionally the railroad has been a punchbag, underfunded and run down, its pretty amazing how the private sector has managed to turn things around,