The next Ryanair rides on rails

The EU wants to increase competition in passenger train travel. It paves the way for a “Ryanair on rails”.

As someone who travels often between London and the Netherlands, I face a choice between cost and convenience.

Convenience is travelling from Central London (St Pancras) by train to Amsterdam Central Station.

No long waiting times, no luggage restrictions, Wi-Fi, and comfortable seats with plenty of legroom.

Inconvenience is having to take a 45-minute train to Stansted Airport and then flying in an uncomfortable low-budget plane with only limited luggage allowed on my journey.

Still, I am prepared to suffer a little if it keeps some extra money in my pocket.

If I were to book a return trip to the Netherlands for next month, a Eurostar train ticket would set me back £126.50 while I could fly with Ryanair for less than £40.

Even if I added the train tickets for London – Stansted (£29) and Eindhoven – Amsterdam (€39) to make it a fair comparison, I’d still be better off travelling by plane.

That could be about to change. New EU regulation paves the way for a “Ryanair on rails”.

Could rail companies ripping off the “Ryanair model” in the future outmanoeuvre low-cost airlines?

Gap in the market

Budget airlines like Ryanair and easyJet have transformed travel.

Thanks to their savvy business model that helps them undercut bigger rivals, they’ve made air travel affordable to the masses.

Trains can’t compete with the cut-throat prices for air travel. In many cases it’s even cheaper to fly than to drive somewhere in your own car.

Ryanair and easyJet have proved good investments.

Both airlines have turned their incredible growth in passenger numbers into profits. As they conquered the European short-haul market, their share prices quadrupled between 2010 and 2015.

Low-cost carriers have been a blessing for European consumers by significantly bringing down the cost of travel. You can now fly pretty much anywhere in Europe for a very reasonable price.

The EU would now like to see something similar happen to train travel. Member states have to allow competition in all commercial train services from 2020.

Rail generally has two problems: it’s too expensive and it’s underused. EU pressure to open up the market to competitors is meant to overcome both.

“Greater competition could spur increased use of Europe’s 9,000-plus kilometres of high-speed track, much of it underutilised,” writes Carol Matlack in Bloomberg.

The Channel Tunnel between the UK and France is a prime example. At the moment it operates at only 58% of capacity while the monopoly of (French) state-owned Eurostar has kept fares at a premium.

Demand for low-cost train travel is there, no doubt about it.

In EU states where new competition has already entered the market, ticket prices have gone down while ridership has shot up considerably.

Competition has done wonders in Austria, the Czech Republic and Sweden, where ticket prices have fallen by 42% while traffic has gone up by as much as 92%.

In Italy, newcomer Italo has already gained a 30% market share since it started operating in 2012. Fares on Italo routes have dropped 41% with passenger numbers up 80% on average.

There are more reasons to be bullish about rail and bearish about air travel.

Budget airlines have clashed with staff over pay and working conditions. Costly flight cancellations and higher labour costs are eating into profits.

And environmental concerns about the polluting effects of flying could lead to higher taxes on plane tickets in an effort to discourage air travel.

In short, railway companies are only now trimming the fat as train tickets in most countries can and should go down substantially.

The price of plane tickets, it seems, can only go up.

Ryanair on rails

More competition on Europe’s rail network is likely to do it a lot of good.

It forces train operators to be creative, like Ryanair, to push down costs and make trains more affordable.

Or, instead of being creative like Ryanair, they can simply be Ryanair. Railway companies have already started copying the “Ryanair model”.

Ryanair and easyJet can be cheap because they stuff their aircrafts with extra seats. That way they can sell more tickets.

In Spain, bullet trains are getting 30% more capacity as operators squeeze five seats in what used to be four-seat rows. It’s knocked 25% off the price of a journey between Barcelona and Madrid.

Next, budget airlines tend to land in secondary airports. More often than not they are about an hour away from the city you’re visiting.

Trains will similarly save on station fees by operating to and from less centrally located stations.

Getlink, the Franco-British company that operates the Channel Tunnel, is considering operating a line from Charles de Gaulle airport in Paris to Stratford in East London.

Oh and of course you’re charged for everything “extra”: more legroom, drinks and snacks, more luggage, priority boarding, you name it…

It’s no coincidence that companies are already preparing for the EU’s liberalisation of passenger train travel in 2020. With competition about to be opened up across the continent, it’s becoming more interesting to fight the established rail companies.

A cost-effective rail company could try out services in one member state in the next few years. If their model proves successful, it can roll it out in the wider European market and quickly become the “Ryanair on rail”.

It’ll be interesting to see if railway companies have it in them to “out-Ryanair” Ryanair. The first signs are promising.

Trains between Rome and Milan have become so frequent and cheap that Ryanair and easyJet have stopped flying between those cities.

If train operators can bring down ticket prices considerably, it’s quite possible that more and more people will opt for train travel in the next years and decades.

Get ready for no-frills trains that’ll reduce both the comfort and the price of riding rails.

Given how well budget airlines have done on the stock markets when they increased market share and profits, investors may want to keep an eye out for the Ryanair of rail.

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