Are Europe's airlines underestimating the impact of high-speed rail services?

Andrew Chuter/LONDON

If the old maxim that the customer is always right still has meaning, then the airlines that ply the world's busiest air route between London and Paris have a fight on their hands.

The Eurostar train service linking the UK and French capitals via the Channel Tunnel is winning customers in increasing numbers. In late May, it carried its one millionth passenger, having run only a limited service between London, Paris and Brussels since November 1994, starting with two trains a day in each direction to Paris and Brussels. By 1997, the company believes that it will be carrying ten million passengers a year, and continue to grow from there.

From July, Eurostar steps up its service to nine trains each way between London and Paris, and five between London and Brussels. Each train carries almost 800 passengers, 210 of them in first class.

The airlines estimate that they will initially lose around 15%-20% of their London/Paris traffic to the railways once Eurostar starts a full service later this year, with 15 trains a day each way. A similar service will start to Brussels. The damage will be limited, however, the airlines believe, with passenger numbers returning to previous levels within two to three years.


In the short term, the damage caused by the 1 million people travelling between London and Paris and Brussels on Eurostar trains means that some air services are already suffering. Some of the major carriers say that their passenger numbers are down by less than 5% and point to their rivals - particularly Air France - as having suffered the problems. On the Brussels route, the railway company has had less success, and the airlines report anything from around a 5% drop to no visible decline in traffic.

Bob Ayling, British Airways managing director, says that he is hardly surprised that the Channel Tunnel has had an affect on traffic, given that London/Paris traffic is 3 million passengers a year, and the train capacity is 10 million. "If you don't believe that will have an effect, you're living in cloud cuckoo land," he says.

The airlines' optimism on returning traffic levels is based on historical precedent which shows that the easier you make travel between two points the faster the growth - which has anyway been running at a 10% increase a year between London and Paris.

British Midland, for example, points to its experience on the Heathrow/Leeds Bradford service which saw passenger numbers fall by 15% when British Rail electrified and modernised the railway line between London and Yorkshire. Two years later, travel had risen between the two destinations to the point where the airline was carrying record numbers of passengers.

For the time being, the airlines serving the London/Paris route are keeping to themselves their plans to counter the predicted 15%-20% drop in passengers - temporary or otherwise. Most are awaiting to see what effects a full service at Eurostar has on their traffic before considering what action to take. Nevertheless, most acknowledge a market shake-up will rapidly follow.

At present, seven airlines fly between London (City, Heathrow, Gatwick and Stansted) and Paris (Charles de Gaulle and Orly). Heathrow/Charles de Gaulle attracts the most traffic, carrying nearly 2.7 million passengers in 1994.

Thankfully for the airlines, the UK has been slow to embrace the possibilities of a high-speed railway renaissance - its key high-speed link to the Chunnel Tunnel is not expected to be complete until 2002. At the moment, the journey time city-centre to city-centre is 3h for London/Paris and 3h 15 min for London/Brussels.

In 1997, the Belgian high-speed service comes into service, cutting the journey time by 30min in 2002, when the Brussels time will be cut to 2h 15min, while the London/Paris journey time will drop eventually to 2h 30 min.

Airlines will also be casting their eyes to the possible knock-on effects of increasing integration of the European high-speed network. Eurostar has already started promoting London/Amsterdam services via Brussels in just over 4h, and believes that it can make serious inroads into this market sector, particularly among economy-class travelers, and particularly when the journey time falls to around 3h with the opening of the new high-speed links.

Ultimately, high-speed links to Amsterdam and beyond into Northern Germany, will see the railway company make still further inroads into airline markets.


In May, Eurostar started tapping markets beyond its normal catchment area of south-east England by starting services from cities in Scotland and western and northern England, and it plans to run a sleeper-train service across the Channel in 1996. In particular, it sees a niche market in the night run from London to the Netherlands and Germany, and a similar service linking Scotland and western England with Paris. A decision on which route to launch first is due in the next few months.

Journey time is critical for the advocates of high-speed train travel, although there is some divergence of opinion about where the cut-off point is for the airlines to come into their own.

A 1994 report on "High speed rail in Europe" by the International Union of Railways argues that the train has the advantage when distances are below 800km (500 miles), and travel time is less than 3h.

Karl-Heinz Neumeister, the Secretary General of the Association of European Airlines (AEA), believes that the distance is closer to 400km. He says, that about 26% of AEA members' capacity are offered on routes below that distance.

He argues, however, that many of the routes below 400km are across water and many have traffic volumes far below the needs of a high-speed train. "The dilemma of the fast train lies in the fact that one needs prices which only the airline passenger is prepared to pay, and a passenger volume at a level of those who would normally travel by car. Thank heaven I do not need to try and solve this problem for the railways."

He believes that only about 6% of AEA airlines' capacity offered below 400km could effectively be threatened by rail. "Even if this traffic were completely taken over, 6% is just about the growth rate of air transport in one year."

Time will tell whether Neumeister's view of the railways is born out. The likelihood is, however, that his members will find the competitive reach of high-speed trains eventually threatening more than 6% of their capacity.

An earlier study by the Paris-based Institute of Air Transport for the European Commission estimates the battle ground to be between 350km and 1,000km. The study says that over distances of 1,000km, the aircraft should never lose more than 10% of its traffic to high-speed trains. The market-split between 1,000km and 350 km will depend on the "relative prices of the two modes", while at distances below 350km the train will "gain a decisive advantage".

Heavy inter-airline competition on the London/Paris route has already had its affect on prices. British Midland chairman Michael Bishop points out that business fares have fallen from £240 to £204 in the five years his airline has operated the route. The study reckons the new train competition will push down international air fares further.


Eurostar business manager John Segal is not so sure about the future of prices on the route, and he believes that the business market in particular is not that price sensitive. "If it was, British Midland would be the only airline in business," he says.

"If the airlines insist on a price war, we don't have a choice, but it is not our objective to win market share this way," he says. Just as important are things such as quality of service, reliability, and journey time, says Segal.

Whatever happens with Eurostar, the reality is, that the spreading network of high-speed routes, are beginning to traverse Europe, with sometimes damaging results for the continent's regional-airline services. Meanwhile, work is under way in France on the next-generation of the Train   Grand, (TGV), parts of which will be double-decked and capable of speeds around 350km/h (220mph), enhancing its appeal as an airline rival.

In France and Germany, the emergence of high-speed rail as a viable and cost-effective alternative to air has hit the domestic-aviation market hard, and could soon have a wider effect regionally as lines are extended into neighbouring countries such as Belgium, Italy, The Netherlands, Spain and Switzerland.

SNCF French Railways, the pioneer of high-speed rail, and one of the most vocal supporters of the European Union's aim to build a network of high-speed lines spanning the continent, has developed the most extensive system to date. Its high-frequency 300km/h TGV services link many major city centres, and are now said to carry up to 90% of domestic travelers on some trunk routes, with Air Inter being on the receiving end of most of the traffic loss.

France's major domestic airline acknowledges the problems. "On the shorter journeys of 2h or less, and where air and rail connect the same two centres such as Paris to Lyon, Renne and Nantes, the TGV has taken as much as 90% of the market. Airlines generally have seen a 40-50% drop in traffic, and, in the case of Paris-Lyon, it is as high as 65%," says Air Inter.

The carrier adds, however, that it is far from being pushed out of the domestic-travel market. It still has an effective role to play on medium-distance routes of around 3h. Even here, the TGV is taking an increasing share of the market, claiming a 60% share of traffic on the Paris/Bordeaux route.

SNCF believes that the days of the regional airline in France are probably numbered. It believes that the future for air is now over long distances. According to the company, every key route in France is, or will be, served by a TGV train, with the next to come on line being Paris/Strasbourg. The journey between Paris and Marseilles, one of France's most lucrative air routes, will be undertaken by a TGV in 3h by 1999.

Air Inter believes that it will survive the challenge of rail by offering "simple, price-competitive products". Nevertheless, it concedes that the TGV is taking up to 5 million passengers a year from the airline.

The airlines' problems are being further compounded by recent developments in intermodal travel. A new station at Charles de Gaulle opened in November 1994, bringing TGVs into the heart of the airport. Lyon/Satolas opened the first high-speed rail/air link last June, and other airports are expected to follow the lead over the next few years, with the railways expected to increasingly co-operate in feeding passengers into international services at the major hubs.

Air France and the SNCF have pointed the way ahead in what is known as "rail/air complementarity"by signing a deal allowing customers to buy an air/rail ticket combining a TGV journey from Lille to Charles de Gaulle with an international flight.


Interconnections between rail and air already exist elsewhere in Europe, but the Charles de Gaulle project is the first major hub to be linked with a high-speed train network.

To start with, the service will be available only from Lille, but the two concerns intend to extend the operation to several cities. Passengers will have only one ticket, and complete all boarding formalities at Lille. The TGV seats will be marketed by Air France under its own code through airline computerised reservation systems

High-speed rail in Germany has only been in existence for four years, but is starting to have a profound affect on regional-airline travel.

Since national railway company Deutsche Bundesbahn introduced the ICE high-speed train, it has carried 67 million passengers, with an estimated 11% of these being new rail passengers drawn from other means of transport. About 33% of these new passengers have been drawn away from the airlines, says the company.

The German rail service is, like its French counterpart, keen on the benefits of intermodal travel, and plans to serve Frankfurt airport directly with the ICE, via the new Frankfurt-Cologne route to be built by the end of the decade. A new junction will also be built on the Stuttgart-Munich ICE route leading to Stuttgart airport.

In 1990, the then-Lufthansa-chairman Heinz Ruhnau prophesied that the shape of Europe's transport future would include a railway station beneath every airport, providing passenger feed for intercontinental services.

The ICE network, and its projected expansion, is forcing many German airlines to rethink their strategies.

Airlines operating regional networks are being forced to shift their focus from domestic to international routes, while Germany's biggest carrier, Lufthansa, is already talking about shutting down services where the rail competition is expected to become most intense.

Lufthansa director Klaus Nittinger says that the airline is prepared to drop all air routes equivalent to 2h or less of ground travel time.

The threatened routes would include links from the Frankfurt hub to Hamburg, Cologne and Stuttgart. Nittinger admits that Lufthansa has been making losses on these services for some time, but they are useful as feeder routes to keep passengers on the Lufthansa network. Given that, Nittinger says that allowing the railways to take over these routes would be a relief - if an agreement integrating the services could be reached.

By the end of the decade, it is expected that new rail terminals will be built at Frankfurt, Munich and Dusseldorf airports. This could allow Lufthansa to extend the "rail and fly" concept already applied between Frankfurt and Cologne, where the airline sells tickets which are valid for Lufthansa flights and trains between the two cities. Lufthansa offers four daily flights on this route, but the addition of the rail service brings the total number of daily connections to 27.

Nuremberg-based regional carrier Eurowings is also a victim of the ICE's success, announcing recently that it would refocus its efforts on to developing international routes. Marketing and sales chief Karl-Friedrich M_ller says that this strategic rethink was driven by the success of the ICE and improvements in road links with eastern Germany.

While the policy change will not immediately have a dramatic effect on Eurowings' services, says M_ller, new routes from now on "...will be mainly international".

Germany's second-biggest carrier, Deutsche BA, is not unduly concerned by the ICE developments. Managing director Richard Heideker sees the company's future growth efforts, like those of Eurowings, clearly focused outside Germany.

"We see our domestic network as a clear necessity for market awareness", he says. Although he recognises the growth of Germany's rail network as a competitive threat to domestic air services in general, Heideker plays down its possible effects on his company's network.

"Our aircraft are not working on routes which will be affected in the long term by train competition," he says. "On the other hand, we do not open routes where we can see that the train is a more attractive mode of transport, like Munich-Frankfurt. In total domestic traffic, we see that there is a clear trend towards using trains," says Heideberg.

The European Union's dream of a community-wide high-speed network still faces some significant hurdles. While the technological problems have been largely overcome, at issue is the delicate and difficult question of financing. Industry insiders say that some 65 million ECUs ($50 million) will be needed between now and the end of the century to construct the missing links - particularly into Germany, Spain and Italy, which are seen as crucial to unfolding the vision of a Europe unified by rail.

Although, with a few exceptions, most European states are pressing ahead with their own system developments, no two networks are yet linked. These missing links are the source of much discussion in the railway industry and European political chambers, and could yet prove the saviour for much inter-community air travel.

Source: Flight International