executive rail radar - roland berger · 2020-07-19 · the european rail practice management team...

SURVEY RESULTS

The European rail industryExecutive Rail Radar

March 2013

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> In 2011, we conducted and published the first Executive Rail Radar to support industry leaders in identifying key issues that drive their industry, and to promote executive-level thinking in the European rail industry

> As a top strategy consultancy in the rail sector and other transportation industry segments, we aim at regularly providing fresh insights into the rail industry's current and most important issues

> We have therefore put together a second Executive Rail Radar, capturing opinions and responses on the key rail industry topics

> Here, we present the key findings and conclusions, and trust you will find them insightful in supporting your strategic thinking and decision making. We would welcome the opportunity to have a more detailed discussion with you on any of the issues presented

THE EUROPEAN RAIL PRACTICEMANAGEMENT TEAM

The new Executive Rail Radar presents key insights into the rail industry – We look forward to discussing the results with you

BACKGROUND AND INTRODUCTION

Didier Bréchemier (Paris)Francesco Calvi Parisetti (Milan)

Alain d'Oultremont (Brussels)Roland Falb (Vienna)

Andreas Schwilling (Munich)René Seyger (Amsterdam)

Maria Mikhaylenko (Moscow)Pedro Galhardas (Lisbon)

Martin Streichfuss (Düsseldorf)Roland Zsilinszky (Prague)

Friedrich Demmer (London)

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Jorge Delclaux (Madrid)

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The results are based on contributions from senior executives across the European rail industry

PROFILE OF RESPONDENTS

> The responses to the Rail Radar survey are well balanced in terms of participating countries: Austria, Belgium, Czech Republic, Denmark, France, Germany, Italy, the Netherlands, Romania, Russia, Slovak Republic, Slovenia, Switzerland and the United Kingdom

> In addition, different rail segments are represented in the survey: 45% of responses are from integrated railways and 24% from municipal transport firms. The remaining survey participants are from train operating companies (17%), rail infrastructure providers (9%) and other segments (5%)

> Almost two-thirds of the responses were provided by executives at top management level, 16% came from CxO level

> The online survey was conducted between November and December 2012

PARTICIPATING COMPANIES

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The survey yields key topics on rail executives' agendas for 2013 and details selected broader industry issues

Profitability, stabilityFinancing

Growth and expansion

EU legislation

Public private partnerships

Homologation, TSI

HR managementQuality

Asset management

Flexibility, efficiency

Innovation

AGENDA 2013

SELECTED KEY ISSUES IN FOCUS

> Topics at the top of rail executives' agendas in 2013

> Key changes versus previous survey

> Detailing of selected broader industry issues:– Planning process– EU rail legislation– Financing– Homologation

Planning processes

Proximity of topics to the center indicates importance

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Executive summary (1/2)

COMPANY'S AGENDAS IN 2013

RECENT DEVELOPMENTS IN (DE)REGULATION

COMPLEXITY IN CORPORATE PLANNING

> Profitability and financial stability remain at the top of rail executives' agendas this year, financing and asset management are subsequent priorities – All of these topics became even more important since the previous survey conducted in 2011

> Quality enhancement lost importance since 2011, but is still high on the agenda> Innovation and HR management grew strongly in importance> Cost cutting/efficiency programs will be continued, extended or newly set up in 2013

> The recast of the first railway package is viewed very critically by rail executives –More than 40% even expect adverse effects, considering it too regulated

> All individual key rules of the recast are supported by (often far) less than 30%> Although rail executives support the stricter control of track access charges in

general, they are opposed to the recast's infrastructure charging rules> In 2013, railways will keep up intensive interaction with EU officials on the future

development of EU rail legislation

> The importance of planning is showing a tendency to rise, while a broader scope and short-term nature are increasing planning complexity

> Budgeting is considered as being the most complex planning process> To reduce planning complexity, rail companies avoid details, rely on past experience

and reduce output parameters and forecasting periods

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Executive summary (2/2)

FINANCING OF RAILWAYS AND MUNICIPAL TRANSPORT

> Rail executives aim at internal sources of financing infrastructure/operations through efficiency and revenue enhancements. However, the need for public funding remains

> As today, public-private partnerships (PPP) are considered to play an important role in municipal transport, rather than for railway financing

> PPPs are seen as both a blessing and a curse: Additional efficiency pressure and cultural change are appreciated, while the profitability expectations of private investors are seen as a key disadvantage at the same time

> Railway stations and primary infrastructure of individual lines are considered to be most suitable for PPP investments in infrastructure

> Functional privatization via dedicated service contracts is expected to prevail over other forms of privatization, material privatization with asset ownership is seen as an exception

HOMOLOGATION AND ITS EFFECTS

> The vast majority of rail executives considers homologation procedures lengthy, often problematic

> Lack of efficiency is viewed as a similar problem in European countries, whereas other industries are considered to be more efficient in homologation

> European initiatives for TSIs are generally appreciated by rail executives. However, faster and more intensive implementation is demanded for 2013

1) Technical Specifications for interoperability

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TOPICS a. COMPANIES' AGENDAS IN 2013: Profitability and financial sustainability are top priority

b. COMPLEXITY IN PLANNING: Importance and complexity of planning are rising

c. RECENT DEVELOPMENTS IN (DE)REGULATION: Recast of first railway package viewed very critically

d. FINANCING OF RAILWAYS AND MUNICIPAL TRANSPORT:Internal and public financing preferred over PPP

e. HOMOLOGATION AND ITS EFFECTS: Procedures lengthy, other industries more efficient

f. YOUR CONTACTS AT ROLAND BERGER: We will be happy to discuss the results with you

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Profitability/efficiency, financing and asset modernization dominate rail companies' agendas in 2013 – Broad variety of specific topics

TOP TOPICS ON COMPANY'S AGENDAS IN 2012-131)

> Profitability issues are ahead of other topics on rail companies' agendas in 2013; cost cutting programs will be continued, extended or newly set up, networks and offers might be reviewed

> In addition, two topics relatively specific to the rail industry come in second and third, i.e. financing and modernizing infrastructure, indicating impact from the European debt crisis and financing concerns

> Growth and innovations are fifth and sixth, indicating room for expansion, top line and service-related topics

> Overall, a great variety of topics was noted by the survey participants as being important in 2013, incl. sustainability, specific contracts, ERTMSdeployment or safety issues

> The ranking of top topics is fairly similar across countries and company types

Source: Roland Berger Executive Rail Radar

HR management and development

Modernizing rolling stock

Growth

Geographic expansion

Improving flexibility, efficiency

Innovation, innovativeservice offerings

Modernizing infrastructure

Quality improvement

Financing (investment,public service obligations)

13%

Profitability, financial stability

13%

20%

15%

19%

19%

22%

26%

28%

56%

1) % of mentioning as one of the top 3 topics in a list of 20 topics

a. Companies' agendas in 2013

12

3

4

56

7

8

9

10

8

9

Profitability, financing, asset and HR management gained impor-tance versus 2011– Quality and growth lost, but are still in the top 5

CHANGES IN TOP 10 TOPICS VERSUS 2011 SURVEY


> In 2011, we conducted and published the first Executive Rail Radar, asking the same question on the top topics on companies' agendas

> Profitability was considered the most important topic in 2011 and has gained even greater importance since then

> Asset management (infrastructure, rolling stock), financing, innovation and HR management gained strongly in importance

Rank 2012

∆ rank vs. 2011 Topic ∆ score vs. 20111)

1) ∆ %-pts. of mentioning in top 3 topics in a list of 20 topics

HR mgmt. and development

Modernizing rolling stock

Geographic expansion

Improving flexibility, efficiency

Innovation, innovativeservice offerings

-17%Growth

4%

Modernizing infrastructure

0%

Quality improvement

0%

Financing (investment,public service obligations)

2%

Profitability, financial stability

9%

5%

-15%

11%

8%1

2

3

4

5

6

7

8

± 0

+5

-1

+2

-2

+9

-2

± 0

9 +1

10 +8

a. Companies' agendas in 2013

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The importance of planning has tended to rise, while a broader scope and a short-term nature are increasing planning complexity

IMPORTANCE OF PLANNING1)

> The rail environment is becoming increasingly important, complex and short-term oriented

> This has to be mapped in planning processes– Planning is intensified– Planning systems are made more flexible,

aiming to cope with short-term changes> Consequently, the planning itself becomes more

complex> As efficiency/profitability is high on companies'

agendas, rail companies must – despite the highly complex environment – aim to reduce this com-plexity in planning processes

No change in importance of planning 6%

Other 9%

Shorter planning periods, more frequent changes 11%

Importance unchanged, reaction times more important 32%

Scenario-based approach, uncertainties in environment 36%

Planning is intensified, more variables, inputs, parameters, etc. 36%

Planning becomes more important, more complex environment 38%


1) % of answers; multiple answers possible

b. Complexity in planning

10

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The planning of budgets and demand forecasts are considered particularly complex issues

MOST COMPLEX PLANNING PROCESS1)

> More than half of rail executives consider pro-cesses for long and short-term budgeting the most complex issues in planning. Especially here, complexity should be reduced

> Passenger demand forecasts are fairly simple on an overall level. However, on a route, day and time basis it becomes quite complex

> Although revenue management has been introduced by many European passenger railways (DB, SNCF, SJ, Eurostar, Thalys and many more), only one in seven rail executives considers the top line to be the most complex item in planning

> Some rail executives note that public financing can add complexity to any respective planning

> Rail companies might decide to work on their budgeting processes, making them more efficient


1) % of mentioning as top 1 topic


13%

19%

14%

31%Yield andrevenueplanning

21%Annual budgetPassenger/cargo forecast

Capacity planning 1%Other

Long-term budget(e.g. 5-year period)

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To reduce planning complexity, rail companies avoid details, rely on past experience, and reduce parameters and forecasting periods

MEASURES TO REDUCE COMPLEXITY1)

> As we have seen above, rail companies must offset the increasing complexity in planning processes

> In particular, they acknowledge that the environment and planning assumptions can change quickly so that flexible reactions become more important than detailed planning

> The extrapolation of previous figures is seen as an equally important way to reduce complexity – For overall figures this is often fine, on a more detailed level this appears to be a critical/dangerous approach

> Furthermore, rail companies also reduce output parameters, forecasting periods and input variablesOther 4%

Use a random-based approach 4%

Reduce inputs 15%

Reduce forecastperiods 17%

Reduce planningparameters (output) 34%

Extrapolate on basisof previous figures 45%

Focus on flexible response,rather than details 45%




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More than 40% of respondents criticize the recast as too much regu-lation, 36% consider it a good compromise, 17% think it is late/soft

OPINIONS ON THE RECAST OF THE FIRST EU RAILWAY PACKAGE


TOTAL SURVEY

17%

17%

50%

40%

4%

Municipal transport 10% 40% 10%

Rail infrastructure 25% 25%

Train operating company 50% 33%

Integrated railway 63% 29% 4%

All 43% 36% 4%

> Recast in general viewed critically; especially executives in Germany, Switzerland, Denmark, Slovakia and Slovenia expect the recast to have a negative impact

> As expected, executives from train operating companies and separated infrastructure operators have a more positive opinion on the recast than those from integrated railways

> However, 25% of executives from rail infra-structure companies consider regulation too strict and expect negative impacts

> 17% of the executives think that the recast comes too late and should be stricter. Unsurprisingly, nobody from an integrated railway shares this opinion

> Interestingly, countries that are advanced in liberalization (according to LIB Index1)) view the recast especially critically

Regulates too much,adverse effectsGood compromise betweenstakeholders in railway transport

Comes too late,stricter rules requiredOther

BY SEGMENT

c. Recent developments in (de)regulation

1) The LIB Index shows the relative status of liberalization of the rail transport markets in Europe. The respective study is conducted regularly by Prof. Kirchner/Humboldt University Berlin and IBM

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Feedback on the rules of the recast was mostly critical –"Counter-productive" and "No significant effects" total > 70% for most rules

ASSESSMENT OF THE MAIN RULES OF THE RECAST1)


1) % of answers

> For all eight rules, about half of the respondents feel that they will have no significant effects

> All of the eight rules are assessed as being important and highly relevant by less than 30%

> Given this overall negative assessment, more detailed network statements, the strengthening of the regulator and the independence of the regulator are regarded in a relatively positive light

> Most negative feedback was received for the requirement of long-term agree-ments between state and infrastructure managers and for more precise infrastructure charging rules

51%

61%

51%

48%

49%

53%

56%

40%

29%

Requirement of nat. long-termagreements state/IM

Requirement of more preciseinfrastructure charging rules

12%

30%Establishment of explicit ruleson conflicts of interest

29%

24%

Improved access torail-related services

Independence of regulatorfrom other authoritiesExtended competenceof rail regulator

Requirement of more detailednetwork statements

18%

23%

Strengthening powerof regulators

12%

30%

15%

28%

24%

21%

22%

27%

48%

Will have no significant effects Counterproductive,negative impact on the industry

Important and highly relevant


14

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Stricter regulation is in general viewed rather critically – Stricter control of track access charges receives the broadest support


> None of the specified rules is supported by more than 50% of rail executives

> Stricter control of track access charges receives the highest support– Interestingly, here the support from integrated

railways is significantly higher than from train operating companies and infrastructure providers

– Note that rail executives oppose the infrastruc-ture charging rules as formulated in the recast

> Only 21% of rail executives support legal action for stronger separation from train operators – This does not exceed 50% among infrastructure operators

> Other areas mentioned are independent access regulation and stricter control of funding authorities and regulating bodies

> Comparably broad support for stricter rules comes for instance from France and Slovakia – Low support from Czech Republic and Switzerland

26%

Stricter control oftrack access charges 50%

Other 7%

ETCS-differentiatedtrack charging 12%

No profit transfers allowed 21%

Separate infrastructure fromtrain operators 21%

Separate legal entitiesfor rail-related facilities


AREAS FOR STRICTER REGULATION1)


15

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Railways consider internal sources of finance crucial, in particular productivity gains – PPPs more important for municipal transport

50%

20%

60%

90%

90%

50%

30%

OPINIONS ON MAIN LEVERS FOR FINANCING1)


1) Financing of infrastructure projects and transport operations; % of mentioning in top 3

d. Financing of railways and municipal transport

35%

40%Additional revenues,e.g. in stations

81%

60%

16%

Increase price differentiation 21%

Redesign network

Price increases at railways 42%

Improved efficiency andproductivity of railways

Public financing

PPPs

ALL SECTORS MUNICIPAL TRANSPORT> Rail companies emphasize sources

they can influence themselves, i.e. productivity gains and additional revenues

> Public financing remains among the top financing sources for railways

> This can be interpreted as a reaction to insecure or even reduced public funding due the European debt crisis, i.e. as railways shift financing options to internal sources

> PPPs come in last in total survey responses, but have a much higher importance for municipal transport

16

17

PPPs will gain importance and will be significant for developing countries, but public financing will prevail as the dominant source

IMPORTANCE OF PPPs IN THE NEXT FIVE YEARS1)

Other 5%

PPPs will become a majorfinancing mode in Europe, too 5%

PPPs will be a unique formof financing worldwide 5%

PPP will be importantfor developing countries 31%

Public financing will remainthe dominant financingmode for railways

40%

PPPs will not fill the gap, although public financing will be reduced

60%


> The responses point to a relatively critical attitude on the part of railway companies to PPPs; railways assume that PPPs will not be big enough to compensate for potential financing gaps from public sources

> Potential reasons might be insufficient experience with PPPs and hence reservations, lack of access to PPPs, or structural reasons (PPPs not suited for general or long-term financing, rather for specific purposes)

> Another reason is that respondents expect PPPsto better suit specific projects, e.g. stations or individual lines, i.e. where revenues and cost can be directly allocated to the project

> Only 5% of respondents expect PPPs to become a major source of financing in Europe. The 60% majority expects PPPs not to fill the public financing gap1) Financing of infrastructure projects and transport operations;

% of answers; multiple answers possible


17

18

PPPs considered both a blessing and a curse: Pressure and cultural change appreciated, while expectations of private investors feared

51% 46%

95%

57%93%

60% 48%

98%

Complex structures, contracts,control mechanisms

Higher return expectations from private investors

Not suited for rail trans-port, public financing needed

Public authorities lose control

Additional funding

Pressure by private investors

Cultural change to business culture

Risk transfer

MAIN DISADVANTAGES OF PPPs1)MAIN ADVANTAGES1)

1) % of mentioning in top 3

> The key advantage of PPPs is the additional source of funding

> Structural PPP items are a further key advantage: Move towards stronger business and private economy orientation

> Almost all rail executives consider additional complexity to be one of the top 3 disadvantages

> Rail executives fear higher return expectations, this view is shared by integrated railways, infrastructure operators, train operating companies and municipal transport alike


+ –


181) % of mentioning in top 3

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Railway stations and primary infrastructure of individual lines are considered to be most suitable for PPP infrastructure investments

INVESTMENT NEEDS SUITED FOR FINANCING INFRASTRUCTURE THROUGH PPP1)

Secondary infrastructure

8%Other

15%

Primary infrastructure of entire (sub)networks 28%

Primary infrastructureof individual lines 55%

Railway stations 63%



> Almost 2/3 of rail executives consider railway stations as suitable for PPP investments

> More than half of rail executives believe that primary infrastructure of individual lines (e.g. airport connections, high-speed routes, cargo routes) can be financed through PPPs

> Only a limited number of rail executives can imagine financing primary infrastructure of an entire (sub)network or secondary infrastructure (embankments, bridges, tunnels) in this way

> Other investments suitable for PPP include car parking and cargo terminals

> Earlier, we have seen that profit expectations of private investors are viewed as the most important disadvantage of PPPs – Hence, railway stations appear to be a rather profitable investment on average. Additionally, revenues and cost are comparably easy to attribute to railway stations


19

20

In PPPs, functional privatization (dedicated service contract) is expected to prevail over other forms of privatization

DEGREE OF PRIVATIZATION LIKELY TO PREVAIL IN FUTURE PPPs FOR RAIL FINANCING1)

22%

Material privatization(permanent ownershiptransfer)

Functionalprivatizationwith temporaryownership transfer

57%

Purely functionalprivatization(no ownershiptransfer)

22%


1) % of answers

> The majority of rail executives expects purely functional privatization to prevail in the future: Partnership via service contract, e.g. for designing, building, operating and/or maintaining, without asset transfer

> Less than half of rail executives forecast at least temporary asset transfer, less than 1/4 envisage material privatization prevailing (permanent transfer of ownership)

> The result reflects the timescale that different stakeholders foresee for a PPP investment– Private investors have short/medium-term

expectations– Public authorities take a medium/long-term

interest


20

21

Homologation procedures are considered lengthy, sometimes even problematic – Safety levels appear extremely high

ASSESSMENT OF HOMOLOGATION FOR RAILWAYS AND MUNICIPAL TRANSPORT1)

Homologation is insufficientand represents a safety risk 5%

Homologation procedures areefficient and fast 5%

Homologation procedures arelengthy, but not a problem 38%

Homologation procedures arelengthy and cause significant problems for the industry

45%

The safety level in my countryis extremely high 57%


> The overwhelming majority considers safety issues to be fulfilled with current homologation practice– 57% consider the safety level extremely high– Whereas only 5% see a safety risk due to

insufficient homologation> However, homologation procedures are widely

considered to be inefficient– More than 80% consider the process lengthy

(esp. in Eastern Europe) – Whereas only 5% view the process as efficient

and fast (Austria, Switzerland)> Railway executives would support an

improvement in efficiency in the homologation process without compromising on quality/safety


e. Homologation and its effects

21

22

Homologation is mostly seen as comparable to other European countries, but as more complex than in other industries

COMPARISON OF HOMOLOGATION1)


> On the one hand, rail executives see the complexity of homologation processes as similar across countries – However,– In Switzerland and UK, executives consider the

homologation process to be more efficient than in other countries

– In Germany and Eastern Europe, the process is seen as rather lengthy

> On the other hand, rail executives assume homologation processes in rail to be more complex than in other industries like utilities, telecommunications, aerospace or automotive –This is especially true for executives from Germany, France and Eastern Europe

> Hence, an improvement of the homologation process should be targeted and for this, inspiration from other industries is more helpful than a cross-border comparison of national practices

INTERNATIONALLY

ACROSS INDUSTRIES

1) % of answers;


More efficientand faster thanin other Euro-pean countries

21%

More complex,lengthy, competitivedisadvantage for rail

38%

About the samelevel as in otherEuropean countries

41%

26%

More complex,lengthy, needsto be redesigned

25%

About the samelevel as inother industries

Lower than inindustries withsimilar safetyrequirements

49%

22

23

European initiatives for TSIs are generally appreciated, but faster and more intensive implementation is demanded

RATINGS OF THE EUROPEAN INITIATIVES FOR TSI1)

Other 2%

Make homologation morecomplicated and lengthy 32%

On the right track, but tooslowly implemented 66%


1) % of answers

> About 2/3 of rail executives see the European initiatives for TSI pointing in the right direction, but consider implementation in national laws as too slow or insufficient

> About 1/3 of rail executives expect the initiatives for TSI to make homologation more complicated and lengthy – This assessment is common among executives from France, Germany and Switzerland

> There are some worries that TSIs are not sufficiently specific and detailed to ensure technical convergence

> Overall, there is acknowledgement of the European Railway Agency's efforts, while a faster transfer to national laws by member states is demanded


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executive rail radar - roland berger · 2020-07-19 · the european rail practice management team...

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