Rail Deregulation in Europe, and Prospects of Air-rail Integration

Rail Deregulation in Europe, and Prospects of Air-rail Integration


Nathalie Lenoir, Ecole Nationale de l?Aviation Civile, FR; Isabelle Laplace, M3 SYSTEMS, FR


In this paper, we are looking into the evolution of competition between air and rail operators , in the context of rail deregulation, with the tools provided by network economics.


Rail deregulation is progressing in Europe. European guidelines have been applied in different ways across countries, and railroads structures are slowly changing. For example, in some countries, infrastructure management has been separated from train operations, in others it has not been the case. The common denominator to all restructurings is that they allow for a non discriminatory access to the market to new entrants.
It will go further. Freight services will be totally liberalized the first of January 2007, while passenger services should be substantially liberalized in 2010. New freight operators have already appeared on the European market, so far partially liberalized. For passengers, possibilities are so far more limited; however, on several international markets, a few new entrants are already there, and offer innovative new high quality services (for example experimental internet access on Thalys trains in 2005).

The development of the high speed train (HST) network in Europe, combined with rail liberalization, has already influenced passengers mode choice, and triggered reactions from competing modes. This may be only the beginning of the story. Airlines, cornered by the lack of capacity at airports, and by the poor profitability of short haul flights (worsened by rising fuel prices), can possibly find opportunities in cooperation with rail operators. This has already happened, but remains limited: Lack of ?enthusiasm? of historic rail operators ? Conflicts of interest on the side of the airlines ?
So far, a few ?intermodal? agreements have been signed between airlines and train operators : Air France and SNCF, Air France and Thalys, Lufthansa and Deutsch Bahn AG. Other non European airlines have also done so.
There is only so far one case in which the dominant airline has stopped operating its flights after concluding an agreement with the train operator : On the Brussels-Roissy CDG route, Air France entrusts its passengers to Thalys in order to get them to and from the airport.

With the progressive opening of the rail markets, other developments may take place, and it is not unbelievable that the whole scene of medium distance European public transport will be changed deeply. New or existing operators will most likely develop new services, and the borders between air and rail operators could become blurred. Air and rail products are indeed sometimes substitutes (pushing towards competition) and sometimes complements ( pushing towards cooperation). This is awkward in terms of competition and may call for a re-definition of the product : why couldn?t the same transport operator run trains and planes ? If the technology is different, the business purpose is the same : transporting passengers from A to B (possibly through C). And in a hub and spoke network, it would make sense for an airline to control its feeder markets, whether by air or rail. It could also be pertinent in terms of response to the ?low costs? airlines threat.
In networks economics literature, the case for integration of components of the network in a single firm has been studied as well as the impacts of integration on network compatibility and on competition. We make use of this literature to study the potential case of air-rail integration, and to draw implications in terms of competition.

In a first part of the paper, we look into rail deregulation in Europe, its progress and its results so far in terms of entry into the industry. In the second part, we examine the current situation of air and rail in terms of competition and cooperation and endeavor to explain why so little cooperation has occurred. In the third part, we study the impacts that rail deregulation could have on competition and cooperation with airlines (and between airlines?). We conclude by assessing the possibility of emergence of multi-modal network operators.


Association for European Transport