European Transport Agencies Consolidate Intercity Rail Operations in Face of Competition

» As Veolia closes in on Transdev, Deutsche Bahn completes acquisition of Arriva. All before much real competition has begun.

Compared to Western Europe, the U.S.’s intercity passenger rail system seems positively easy to understand, with exactly one major carrier. The Old Continent has a glut of operators providing services along thousands of miles of travel corridors, representing billions of rides every year. In Western Europe, with serious competition in play in the United Kingdom, Germany, and the Netherlands, this makes for a complex system of corporate link-ups and competing systems, as the chart above shows.

With European Union regulations promoting competition in international services across the continent beginning this year and in domestic services over the next few, the system will get a whole lot more complicated. That is likely to benefit most directly three major corporate entities: The German national rail company DB, the French national rail company SNCF, and private company Veolia Transport.

DB completed the acquisition of the Arriva Group last week, making a wholly-owned subsidiary of the British company that operates several rail franchises in the United Kingdom, Germany, and the Netherlands. Though the German businesses of Arriva will be divested as part of a deal with European regulators, this will give DB a major foothold in the U.K. to join with its already clear dominance in its home market.

Meanwhile, the merger of Veolia Transport and Transdev, both French companies, seems likely to create a similar powerhouse if the deal goes through as expected either in 2011 or early 2012. The merged group, representing almost €10 billion in annual revenues, is primarily involved in public transit operations, but it is advancing rapidly towards increasing its presence on the intercity rail market. Veolia announced late last year that it is working with Italian national rail operator Trenitalia to run high-speed trains into France.

SNCF has been expanding its international presence through its Keolis division, which already runs trains in Britain, Germany, and the Netherlands.

Each of these companies is either completely owned by a national government or has some government involvement in its organization. National European rail operators are relatively autonomous in their decision-making. Still, this could produce an interesting situation in the near future in which, for example, a division of the government of Germany could operate trains between destinations in France and the United Kingdom.

The dominance of these three players is likely to upset the current deals that allow high-speed trains to travel between European countries, since until recently the major national rail companies stuck to their own countries. In essence, E.U. regulations will allow any operator to use tracks in any of member countries as long as they pay the required track use fees and win a schedule slot. DB is planning to run its ICE trains through the Channel Tunnel, competing directly with primarily SNCF-controlled Eurostar; NTV, a new fast train company partly owned by SNCF, will compete with Trenitalia beginning later this year; through Keolis, SNCF has said it may run TGVs into Germany for the first time without agreement from DB.

The sheer size of companies like DB, SNCF, and Veolia increases their ability to bid for intercity rail operating contracts in countries across the continent. This seems likely to put into difficulty the existing national operators not only in the countries where competition is already accepted but also eventually in places like Spain, currently monopolized by national service Renfe.

Notes about the chart above: To simplify matters, I’ve only included the U.K., Ireland, France, Spain, Belgium, Luxembourg, Portugal, Germany, and Netherlands; Western Europe is larger than that, but there’s only so much to be shown on one chart. I also have included several deals that are not yet completed, included the Veolia-Transdev merger. In addition, some of the chains of control are simplified, excluding some subsidiaries sitting between corporate HQ and actual operations. Local public transit is not included here.