23.09.2024
A comprehensive study examining the effects of competition in the EU’s rail market provides new insights into how liberalisation is influencing prices, service quality, and market dynamics in both passenger and freight rail transport.
Passenger Rail: Open Access vs. Public Service Obligation
- Open Access (OA) Services: The study finds that competition in Open Access (OA) passenger services, where multiple operators run along the same lines, has significantly reduced ticket prices and improved service quality. Countries that opened their markets early, such as Italy and Sweden, have seen price decreases of up to 28% immediately after competition was introduced. Notably, high-speed rail routes in Spain and Italy witnessed dramatic fare reductions, with competition pushing operators to offer more attractive pricing and improved services. Increased service frequency and upgrades, such as free Wi-Fi, have been noted across multiple countries.
- Public Service Obligation (PSO) Contracts: Unlike OA services, competitive tendering for PSO services has not directly affected ticket prices, as these are regulated by public authorities. However, competition has increased economic efficiency, with countries like Germany and Denmark reporting significant savings in public subsidies. In France, competitive tendering has led to increased service frequency and lower costs per train-kilometre. In some cases, operators have upgraded rolling stock and enhanced service quality as part of their bids to win PSO contracts.
Freight Rail: Cost Efficiency and Market Dynamics
- Price Reductions: The study indicates that liberalization in the freight rail market has resulted in a downward trend in prices. Case studies in France and Croatia show a steady decrease in freight costs since competition was introduced. However, perceptions about the impact of competition vary, with railway undertakings viewing liberalisation as beneficial for price reductions, while shippers are less convinced.
- Service Quality and Challenges: While competition has spurred cost efficiency among operators, the freight sector has not seen as much improvement in service quality due to infrastructure issues and network delays. Investments in intermodal solutions, which combine different modes of transport, have been a focus for some operators to meet the demands of modern logistics.
Key Challenges and Market Barriers
Despite the positive impacts of competition, several challenges remain:
- Barriers to Entry: New entrants face significant hurdles in acquiring rolling stock and accessing key infrastructure, which can limit their ability to compete effectively with incumbents.
- Incumbent Dominance: Incumbent operators maintain a stronghold on ticketing platforms, which can make it difficult for new operators to attract passengers and raise awareness about their services.
- Regulatory Oversight: The role of independent regulatory bodies is crucial in ensuring fair competition, especially in the allocation of PSO contracts and the management of infrastructure.
Looking Ahead.
The full impact of rail market liberalisation is still unfolding. In the passenger rail sector, EU legislation only mandated market opening in 2020 for OA services and in late 2023 for PSO services. As a result, the long-term effects of competition on pricing, service quality, and market efficiency will continue to evolve in the coming years.
Source: European Commission