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German Regional Passenger Rail Market Hamburg, April 2014 Information based on BAG-SPNV’s/BSL’s “Market Report 2013”
German Regional Passenger Rail Market
Hamburg, April 2014
Information based onBAG-SPNV’s/BSL’s “Market Report 2013”
Page 2
Aim
Content
Presentation of market developments 2002 – 2012Illustration of current challenges in the German regional passenger railmarket
Outline of the upcoming performance and framework for the future ofregional rail services in Germany
Compilation of a comprehensive picture showing the current status of theGerman regional passenger rail marketPresentation of market structures and of the competitive situationand competitors
Outlook for future market developments
BasisDetailed market research by BSL Transportation Consultants
Market survey and numerous expert discussions with authorities,politicians and operators conducted in 2013
On behalf of BAG-SPNV (the German Association of Passenger RailAuthorities), BSL created the market study “Marktreport 2013”
MARKET STUDY “MARKTREPORT 2013”
Regional rail market at a glance
Market analysis
Regulatory framework
Summary and outlook
Agenda
Page 4
Based on the number of passengers, Germany is ranked first in theEuropean regional rail transport
Source: BSL Transportation research, ERRAC
MARKET OVERVIEW OF GERMAN REGIONAL RAIL TRANSPORT
Germany is the biggest regional rail market in Europewith roughly one quarter of the total number ofpassengers carriedSince 1994, liberalisation, regionalisation and transferof responsibility to Federal State level (Länder) hasled to the expansion of transport services and asteady increase in competitive tendersSurge in tender procedures: The volume of currenttenders amount to ~ 70m train-km p.a. and this isawarded in roughly 30 procedures p.a.Market structure:
PTAs1) as contracting authorities withdiffering requirementsTOCs2) as service providers– Deutsche Bahn (DB) as the main operator– Meanwhile several competitors such as
European state-owned railway companies Number of passengers in regional rail transportin selected countries
1) Public Transport Authorities refer to Passenger Rail Authorities2) Train Operating Company
Page 5
Between 2002 and 2012, average utilisation rates in regional railtransport have increased by 20%
Source: BAG-SPNV
PASSENGER DEMAND
Passenger volumehas grown by
approx. 30% withinthe last 10 years
adding up to nearly
2.5 billionpassengers
Utilisation [passengers per train] in 2002
Utilisation [passengers per train] in 2012
Page 6
The operating performance of competitors in regional rail services hasmore than tripled between 2002 and 2012
OPERATING PERFORMANCE IN REGIONAL RAIL SERVICES BASED ON TRAIN-KM
Source: BAG-SPNV, Federal Statistical Office,Deutsche Bahn AG
In 2012, trains in regional rail servicesran the equivalent of 45 times around
the world Competitors (excl. DB)circled the world threetimes a day in 2002
In 2012 the world wasbeing circled 11 timesper day
Train-km in regional rail services in millions
Competitors
DB
Regional rail market at a glance
Market analysis
Regulatory framework
Summary and outlook
Agenda
Page 8
Regional rail transport shows the highest growth rates; however, itsoverall market share is still less than 5 per cent
Source: BMVBS 2012, Innoz 2012
REGIONAL RAIL TRANSPORT GAINS MARKET SHARES AT A LOW LEVEL
2010
1,075
83.9%
1.0%
7.3%
3.4%
4.5%
2008
1,062
83.7%
1.0%
7.5%
4.6%
bnpass.-km
2012
1,103
84.0%
1.0%
7.0%
3.4%
0.9%
7.9%
3.1%
3.8%
2002
1,036
3.4%
4.4%
2006
1,053
83.8%
0.9%
7.8%
3.3%
4.2%
2004
1,052
84.3%85.0%
0.8%
7.3%
3.2%
3.7%
Motorised individual transportDomestic air transport
Regional public road transportLong-distance rail transportRegional passenger rail transport
Passenger transport performance(bn passenger-km)
Growth in transport performance2002 - 2012
Overall passengertransport 7%
Domestic air transport 26%
Motorisedindividual transport 5%
Regional rail transport 34%
Long-distance railtransport 14%
Regional public roadtransport 0%
Page 9
In recent years, the volume of services awarded has increased andbecome more complex and diverse in terms of defined conditions
BASIC FACTS CONCERNING THE COMPETITIVE AWARDING OF REGIONAL RAIL SERVICES
The average service volume per contract is currently 3.5million train-km, maximum volume of services awardedis approx. 10 million train-kmThe average turnover which corresponds to services withcontract durations of about 10 years is approx. EUR 500millionThe structure of services tendered has becomeincreasingly diverse and complexThe services include smaller local networks in ruralareas as well as Express and S-Bahn services inagglomerations
The framework set by transport authoritiesunderlines this complexity and diversity
E.g. several alternatives have been developedregarding the provisioning and financing of vehicles
Page 10
DB is increasingly losing market shares (train-km) to its competitors;however, this has only a small impact on its share in passenger volume
Source: BAG-SPNV 2010/2011, DB AG 2011/2012
REGIONAL TRAFFIC / PASSENGER DEVELOPMENT
12.1
557
76
2002
605
8.2
555
49
[Million train-km]
2012
653
24.8
493
159
2010
634
21.1
500
134
2008
627
18.7
509
117
2006
638
15.4
540
98
2004
633
market share of other TOCs [%]DB Regioother TOCs
[Billion passenger-km]
2012
51
14.6
43.4
7.5
2010
48
13.5
41.5
6.5
2008
47
11.5
41.5
5.4
2006
44
8.8
40.3
3.9
2004
40
5.5
37.9
2.2
2002
38
3.9
36.7
1.5
Prior to market liberalisation in 1994, the overall regional rail traffic volume was approx. 480 milliontrain-km p.a.The volume has since increased by 36% to 653 million train-kmDespite a reduction in DB’s relative share of total train-km, its share in the volume of passengerscarried is still 85%
Page 11
DB AG is still dominating the German regional passenger rail marketwith a market share of 75%
Source: BAG-SPNV, BSL Transportation research,Status: June 2013
MARKET SITUATION 2012 BASED ON TRAIN-KM
6%
3%
3%
ErfurterBahn
1%
Abellio1%
Rurtalbahn
1%Keolis2%AVG2%
HLB2%
Netinera
BeNEX
Veolia
DB AG
4%
Others
75%
(Total volume approx. 650 million train-km)DB AG is followed by nationaland international operatorssuch as
Veolia - the owner Transdevis currently selling its Germantransport operations “VeoliaVerkehr GmbH”,BeNEX - owned by publictransport companyHamburger HOCHBAHN(51%) and the infrastructurefund International PublicPartnerships (49%), andNetinera - owned by theItalian railway Ferrovie delloStato (51%) and the Cubeinfrastructure fund (49%)
and public-owned transportcompanies (e.g. HessischeLandesbahn)1) HLB = Hessische Landesbahn GmbH
2) AVG = Albtal Verkehrs Gesellschaft mbH
1)
2)
Page 12
The volume of commencements of operations to be awarded by tenderuntil 2019 amounts to more than 250 million train-km
Source: BAG-SPNV, BSL Transportation research,Status: June 2013
TOTAL STARTS OF REGIONAL PASSENGER RAIL OPERATIONS (IN MILLION TRAIN-KM)
5
0
10
20
30
40
50
60
70
80
90
100
20
93
11
60
2
6
381
30
60
2012
46
14
Million train-km
2013 2014 2019
54
13
41
2018
72
72
2017
100
3
96
1
2016
68
1
42
22
3
2015
76
5
57
10
The tender phase usually startsabout 2-3 years prior to thecommencement of operations
In some cases, it can take up to5 years in total until operationstarts
It should be noted that there is acontinuous adjustment and shiftin tender activities as well as anadditional number of tenderswhich have not yet beenreleased
assigned by tenderdirect assignmentto be awarded by tender
type of award still open
Page 13
Train operating companies are interested in tender activities but thenumber of bidders per tender is rather low
Source: BAG-SPNV, BSL Transportation
TENDER PARTICIPATION
Between 2010 and 2012, on average sevenTOCs have expressed their interest in awardprocedures which are already completedand start operations in the upcoming yearsHowever, only 2.5 of those TOCs took part inthe bidding processThe number of bidders has stabilised at arather low levelBy comparison, 3.8 bidders still participatedon average in the bidding process between2007 and 2009Some of the potential reasons for the lownumber of bidders are
High number of tender proceduresAbstinence of other bidders as aconsequence of the financial crisis
2012
2.6
6.6
2011
2.4
6.7
2010
2.5
8.9
… EoI1) process… Bidding process
Average number of TOCs during the…
1) Expression of Interest
Page 14
The competitors’ share in newly-started operations will rise steadily -total market shares, however, will only change moderately
Source: BAG-SPNV, BSL Transportation research,Status: June 2013
138
20
27
91
Others
4%Abellio
2%
Keolis2% BeNEX5%
Netinera9%
Veolia10%
DB AG
67%
143
376
100
Others
11%
SNCF (via NEB)3% HLB
4% National Express/IntEgro
5%
Netinera9%
Abellio16%DB AG
52%
… 2015/2016
Tender results foroperations started in…
… 2013/2014
[m train-km]
[m train-km]
Others8%
Veolia4%
Netinera4%
DB AG 69%
SNCF(via NEB)
1%AVG
1% Keolis2%HLB3%
BeNEX4%
Abellio4%
Operations not yet assigned amounting to 8% ofthe total performance are not considered here
direct assignmentto be awarded by tenderassigned by tender
Expected resulting overallmarket structure in 2016
Regional rail market at a glance
Market analysis
Regulatory framework
Summary and outlook
Agenda
Page 16
Germany has more than 25 rail authorities with differing characteristicsand award procedures
RAILWAY AUTHORITIES AND CONTRACT DETAILS
The contract volumes vary due to differentfunctional set-upsTypical total revenues in regional passenger railservices are approx. EUR 15 per train-kmThese revenues cover the whole value chain(including infrastructure and stations)Among other things, the variation of TOCs’revenues is determined by:
The inclusion or otherwise exclusion ofinfrastructure costsThe provision or otherwise procurement ofnew or used rolling stockUse of existing or otherwise new depotinfrastructureOperational characteristics (e.g. train length,rural vs. urban, etc.)
Page 17
Price indexing
Vehicle financing
Vehicle provisioning
Different models and options which differ with regard to their distri-bution of risks and responsibility have been developed for each area
Source: BAG-SPNV, BSL Transportation
CONTRACTUAL AND STRUCTURAL VARIETY
Operations
Fare revenues
Vehicle pool by PTA1)
PTA’s rolling stock financing model1)
Life cycle model1)
Debt service guaranteeAcceptance of interest rate risks by PTAsGuarantee for re-use/ readmission
Bonus-malus-contract for the
operative area of responsibility
Indexing of all types of costsIndexing of costs of energy and labour
Gross Cost ContractCorridor model / shared revenue risk1)
Initially Gross Cost, later Net Cost Contract1)
PTA share of risk and responsibility Operator
1) For further information see following pages
Vehicle provisioning by TOC
TOC’s property or leasing model(without the financial support of PTAs)
Bonus-malus-contract for the overall
performance (e.g. including all delays)
Partial indexing allowing for productivitydecreases
Net Cost Contract
Page 18
Gross and Net Cost Contracts determine the way contract payments arecalculated, a process which is increasingly diverse
TYPICAL CONTRACT REGULATIONS
Revenue risk completely with authority, TOC is not affected by changes in demand
Gross Cost Contract
Revenue risk with authorityTOC is engaged in changes in demand via additional incentives in the transport contracts
Gross Cost Contract incl. incentives
Revenue risk completely with operator
Net Cost Contract
Start securing model (Gross Cost Contract, to be transferred into Net Cost Contract)
Revenue risk at first with authority, TOC can gather practical experience with revenues andrevenue-sharing to participate in a Net Cost Contract after a pre-defined period
Revenue risk completely with operator to a defined extentWhen operator’s risk limit is exceeded, the authority participates in the risk
Corridor model
Page 19
In addition to traditional financing options like leasing, several otheralternatives are being discussed and established
ROLLING STOCK FINANCING FORMS AND RELEVANCE
Life cycle model Authorities’ rollingstock pool
Authorities’ rollingstock financing
modelLeasing TOC’s property
Owner PTA or third party PTA PTA Leasing company/TOC
TOC
Responsibilityfor vehicleselection
PTA PTA TOC TOC and leasingcompany respectively
TOC
Procurementstructure
Tender process byPTA
Tender process byPTA
TOC sells vehicles toPTA, PTA leasesvehicles back to TOC
Responsibility ofleasing company
Responsibilityof TOC
Vehiclefinancing
Local authority loan(in case PTA is theowner, if possible)
Local authority loanor regionalisationfunds
Local authority loan(if possible)
Via leasing company TOC
Vehiclemaintenance
By PTA, tenderedtogether withvehicle provision
By PTA, tenderedtogether withvehicle provision
TOC under thecontrol of an assetmanager
TOC under the controlof an asset manager
TOC
Variants Alternative vehiclefinancing dependingon owner
Federal state ownsrolling stock pool
Maintenance by thirdparty (manufacturer)
Finance Lease(accounting atlessee/TOC)
Model adjust-ments freelyselectable by TOC
Page 20
The market participants mostly consider innovative forms of financingrolling stock to be highly effective for a positive market development
Source: BSL Transportation market survey
ASSESSMENT OF…
11%
5%
9%
11%
9%
7%
86%
Allparticipants 84%
TOCs 78%
PTAs
effective/highly effectivemoderatenot at all/hardly effective
23%
22%
9%
16%
56% 22%
68%
28% 56%
…implementation of alife cycle model
(decoupling of vehicle procurementand maintenance from operations)
…risk taking in respect ofvehicles by PTA/third party
The life cycle model isbasically comparable tothe structure in othercountries, e.g. the UK
Implementation inGermany is not yetcommon
There is a crucialdiscussion as towhether and in whatcases the life cyclemodel is a usefulvehicle provisioning andfinancing model
Page 21
Relevant marketvolume for operators
The volume of the German regional rail market amounts to nearlyEUR 10bn, with fare revenues accounting for approx. 40% of this
Source: BSL Transportation, Bundesnetzagentur 2012
THE GERMAN REGIONAL RAIL MARKET SYSTEM [FIGURES 2012 IN EUR P.A.]
EUR 9.6bn Infrastructure
~ EUR 2.9bn
Stations
~ EUR 0.7bn
Passengers
~ EUR 3.8bn
Regional authorities(PTAs)
~ EUR 5.8bn
TOCs(DB Regio andcompetitors)
~ EUR 6.0bnVolume of the Germanregional passenger rail
market
Subsidies 61%
Fareboxrevenues
39%
Page 22
The most relevant aspects for the rail market are the development offinancing and the future composition of subsidies
ASSESSMENT OF FINANCING IN THE GERMAN REGIONAL PASSENGER RAIL MARKET
40%
40%
54% 8%
8%
Financingassessment base 38%
Development/predictability 53%
Total volumeof subsidies 35% 25% 45%
45%
74%
10%
8%
26%
45%
48%
Current assessmentAssessment of pastdevelopment
17%2%
2%
2%
2%
15%
80%
95%
83%
Total market relevance
relevant/highly relevantmoderately relevantlow/ not relevant
good/very goodmoderatepoor/very poor
Page 23
Regulation is currently one of the main challenges as DB’s market shareis still high as regards the total value added in regional rail services
Source: BAG-SPNV, BSL Transportation research
TOTAL VALUE ADDED REGIONAL RAIL SERVICES (2012)
6%9%
38%
9%
38%Sales and distributionEnergy
Infrastructure(Network and stations)
DB’s market share andmarket influence respectively
Operations
DB Regio
Competitors
Other sectors
Of this, over 95% ineach case is generatedby DB companies
Page 24
All market participants are currently discussing controversially regar-ding future orientation and standardisation in the regional rail market
Source: BSL Transportation research and market survey
STANDARDISATION VS. MODEL DIVERSITY
Selected market sectors
Sales andDistribution
Vehiclesand their
equipment
Awardprocedure
Requirements for TOCs vary due to differentstructures in the award proceduresIncreasing (financial) effort for TOCs and PTAsHigh risk of formal errors and misinterpretation aswell as additional number of detailed inquiries
Requirements of PTAs should makestandardisation possible but not mandatoryDetailed design in the sense of entrepreneurialfreedom should be reserved for TOCs
Several existing models starting from holistic salesconcepts to separate award procedures for certaindistribution channelsA reduction in potential discrimination and increasein competition often involves higher coordinationeffort
Opinion of market participants
Majority of market participantsfavour standardisation interms of:
Process of prequalification
Award procedure and
Vehicle requirements
On the other hand, modeldiversity is supported by mostmarket participants with regardto:
Vehicle procurement
Vehicle financing as well as
Contract types (Gross Cost orNet Cost Contracts)
Regional rail market at a glance
Market analysis
Regulatory framework
Summary and outlook
Agenda
Page 26
The development and current challenges of the German regional railmarket will lead to a more differentiated regional rail market in the future
SUMMARY OF CURRENT MARKET SITUATION (1)
Passenger increase of 30% over the past10 yearsIncrease of utilisation by 21%Usage of modern vehicle fleets
Market is more diverse and highly competitiveHigh volatility in operators
Increased transport performance andefficiency
Efficient award procedures for operations,sales, energy and infrastructure
Structured variety of tenderingmodels with standardised formal
requirements for bidders
Modal share can be increased by a further50% to 7.5%Change from optimisation ofthe awarding structures towards astronger orientation to the passengermarket
High volume of tenders vs. low numberof bidders
Increased risk-taking of transport authoritiesDiversified tendering models and increased
standardisation
Alignment towards competition vs. providinga simple system for passengersIncreasing demand vs. population decrease
PASS
ENG
ER M
AR
KET
AWA
RD
ING
STRU
CTU
RES
DEVELOPMENT
SCENARIO„REGIONAL RAIL
IN 2030“
CHALLENGES
Page 27
The development and current challenges of the German regional railmarket will lead to a more differentiated regional rail market in the future
SUMMARY OF CURRENT MARKET SITUATION (2)
Rising equality of opportunities regardingaccess to infrastructureInfrastructure increasingly financed byregional rail services, however, usage offunds is not fully transparent
Increased user financingRegionalisation funds increased less
than actual costsShare of regionalisation funds used for
infrastructure amounts to 50%
Financial allocation is adjusted to costdevelopments and service volumes
Common aims in environmental,transport and financial policies
result in a long-term strategy forregional rail services
Regulation is limited to a minimum leveldue to equality of opportunity for allcompetitorsOpen market access in all sectorsof regional rail services
User financing is limitedLong-term planning is lacking due to
revisions/ time limit for importantsources of financing
Further opening of the sales marketrequiredNeed for regulation due to high overallmarket share of DB
REG
ULA
TIO
N FINAN
CIN
G
DEVELOPMENT
SCENARIO„REGIONAL RAIL
IN 2030“
CHALLENGES
Page 28
ChallengesOpportunities
Differentiated awarding structureconcerning volume andrequirements
Ongoing high level of tenderprocedures
Postponing and prolonging oftender activities
Various tender, financing andoperating models
Market participation is facilitatedthrough the risk taking by PTAs
Differentiated market analysisrequired
Detailed expertise in tenderparticipation necessary
Limited entrepreneurial freedomfor operators
TOCS’ OPPORTUNITIES AND CHALLENGES
The German regional rail market has an attractive volume withpromising competition and diverse awarding structures
Tender volume
Awarding structure
Market strategy
Risk taking
RegulationIncreased competition due todeveloped regulation
Continuing strong market positionof DB
Page 29
BSL Transportation Consultants GmbH & Co. KGCölln HausBrodschrangen 3 – 520457 Hamburg
T +49 40 22 63 67 [email protected]
Bundesarbeitsgemeinschaft der Aufgabenträgerdes SPNV e.V.Hardenbergplatz 210623 Berlin
T +49 30 81 61 60 [email protected]
We would be happy to provide more information on the Germanregional rail market and to answer any upcoming questions
The German Association of Passenger RailAuthorities
Independent management consultancy with aclear focus on the transport and logistics sectors
