Discount Business Model Disrupts Train Travel

Discount rail services are challenging transport incumbents

In the UK, traditional rail services have hit a crisis point. Passenger numbers are no longer rising, and it’s not difficult to work out why. Congestion, delays, and high ticket prices are just a few of the potential factors. Those who are not eligible for discounts, or don’t buy their tickets weeks in advance, can pay extortionate prices to get from A to B. In fact, it can be cheaper to fly from one city to another than to take the train. Traditional train travel is in dire need of transformation… But how, and by whom?

Riding the wheels of change

Rail services, particularly in the UK, don’t have the best track record. In response, the EU has asked countries to open up their commercial services to competition, creating a huge opportunity for challengers. Across Europe, rail incumbents have been forced to make way for cheaper challengers like Flixtrain and Italo SpA. These companies are mirroring the impact that discount airlines like Ryanair and EasyJet have had previously on air transport behemoths, driving down prices and increasing passenger numbers.

Italo SpA has had an especially successful journey, growing from a single service between Milan and Rome to a transport giant with control of 30 per cent of Italy’s high speed rail market. Last year, the company carried an estimated 13 million passengers. Italo has partly been able to offer such low prices due to a strategy of outsourcing train maintenance. This has had a knock on effect in the areas they serve, where fares have dropped by 41 per cent. It’s not just incumbents that have been derailed by affordable alternatives – governments also stand to face losses if they fail to adapt. For example, SNCF, France’s state owned railway company, has set up its own discount service called Ouigo. A similar situation is unfolding outside Europe in China, where Hong Kong’s transport minister has called for discounted tickets and the close collaboration of rail service providers with the government. In other words, there is a struggle for control, and consumers will decide who wins.

A first class ticket to disruption

Lower rail fares are likely to attract more passengers, increasing the strain on services. Luckily, digitalisation could help to meet this demand. Automated ticket machines are easing the burden on staff while easy to use, online services are gradually replacing the ticket booths themselves. These comprehensive screens are just one example of automation in the sector. Eventually, having your tickets checked and ordering food may also become part of an automated process. Rail services are transitioning to become mobile first, as more people opt to use on-screen ticket barcodes instead of waiting to print out physical copies. Connecting with customers in the digital sphere will improve the capacity of service providers to collect travel data. Rail companies could then send personalised offers based on historical data, working out where passengers travel most and targeting them with those areas in mind. They could present perks or rewards that suit the passenger’s individual needs – the easy one, which is already pushed by most train companies, is free WiFi. Throw in a free coffee and a croissant and suddenly you’re playing to the masses of railway commuters.

Of course, attracting customers is not quite that simple. Sooner or later, rail companies won’t just be competing with cars and buses. They will also have to contend with disruptive travel options – think autonomous vehicle fleets or even eventually the super fast underground network proposed by Elon Musk’s The Boring Company.

The global railway industry will be disrupted . Disenchanted with inadequate services at extortionate costs, customers are seeking a better way to travel. In Europe, cheaper, user friendly alternatives have championed change throughout the industry. The presence of startups and the wider availability of new business structures and systems has already had an impact on existing rail giants. Incumbents can either fix their own infrastructural issues, build their own competitive rail companies (like SNCF’s Ouigo), or face the rejection of their customers. Hopefully they can make these changes before the industry leaves them stranded on the platform.

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