SNCF maximise passenger revenue

International Railway Journal, June, 2003 by Steve Bennett

SNCF realise it must capitalise on its profitable passenger services and has been taking steps both to streamline its management and maximise revenue.

SEPARATION of rail infrastructure from operations may have proved an unpopular move in France, but there is no doubt that the transparency of revenues and costs which followed the creation of French Rail Network (RFF) six years ago has forced French National Railways (SNCF) to look more closely at its levels of efficiency.

Although there has been no sign of improvement in its loss-making freight business, the operator has maintained a steady course in its long-distance passenger services and, indeed, is striving hard to ensure that these

remain profitable against a background of increasing track access fees imposed by RFF.

SNCF's long-distance passenger services division--known as grandes lignes--incorporates three units which are responsible for TGV high-speed services, so-called "classic" services operated by a fleet of 1200 Corail coaches, and international joint-ventures such as Eurostar and Thalys.

The division has undergone some key changes during the past 18 months since the arrival of Mr Mathias Emmerich as its director. He has reduced the number of managers from 35 to 12, and has provided a new commercial philosophy which seems to be reaping dividends. SNCF's performance in this area is especially critical because it must be fully prepared for the scheduled opening of the 300km TGV Est line between Paris and Baudrecourt in July 2007.

Emmerich told IRJ in Paris: "Unlike the commuter rail services, grandes lignes is not subsidised. So we have to try to be self-sufficient. Since I took over, I have reorganised the division to concentrate on delivering the product rather than dealing with the geography of services.

"We are trying to replicate the sort of commercial structure which you would find in any normal company. As well as streamlining the management, a new reporting system has been created which gives each manager a bigger remit and greater autonomy to make decisions personally. This is not only more efficient, it also allows us to identify our profit margins and operate more closely to them.

"Our business is not just about volume, it's about margins too. We increased our annual revenue by almost 10% before track access fees last year. I think this was a good performance."

The grandes lignes division's turnover in 2002 was about [euro]5 billion. However, track access fees accounted for almost a quarter of this figure as it paid [euro]1.1 billion to RFF, plus a further [euro]100 million to Eurotunnel for operating Eurostar services through the Channel Tunnel.

Soaring Access Fees

Emmerich pointed out: "During the past four or five years, our track access fees to RFF have increased from [euro]200 million to [euro]1.1 billion. That is a very heavy increase. As a result, our margin is now only 1% of turnover. This is not exciting, but it is an achievement in the circumstances. I think we have now reached a level where, if the fees continue to increase, it will put at risk some of our traffic.

"I don't blame RFF, because it has to pay for infrastructure development. If anyone is to blame, it's the government because it did not write off RFF's debt. As a result, RFF has been pushed into financial decisions which may be short-sighted and not in the interests of the nation.

"If track access fees are truly meant to reflect the market, we have reached our limit. At the moment, our cash flow doesn't cover investment year-on-year. If this continues, it may halt the development of our TGV services and kill the goose that lays the golden egg."

SNCF is attempting to maximise its profits from TGV services through the introduction of increasing numbers of high-capacity Duplex double-deck trains. A further 16 will be delivered during the course of this year. The advantage of these trains is not simply that they can carry more passengers, but, even more importantly, the revenue they generate can cover the increasing costs of track access.

The grandes lignes division must continue to purchase and allocate new trains to existing routes during the build-up to the opening of TGV Est. It will then face a different kind of challenge when the line opens.

Emmerich explained: "This will require a further major change in our fleet. Coral trains will be replaced by TGV trains when the line opens in mid-2007. We must prepare for that sudden, massive transformation, and that is the reason why we need to keep buying double-deck TGVs. We have to minimise the impact on all our services when TGV Est opens.

"Having profitable TGV services now is essential for us to meet our existing cash flows and also to invest in future TGV Est services. TGV represents 75% of grandes lignes' business today, and this will increase to 85 or 90% when TGV Est opens. In effect, Corail services will become only a residual part of the enterprise. We are going to become more and more of a purely high-speed division.

"We will also have to reassess our market because the growth of the TGV network together with the European high-speed network will provide more opportunities for international traffic. At the moment, this represents 20 to 22% of the division's turnover. But in the future, this is likely to increase to as much as 30%."