Winning from liberalization

Transcription

1 Transportation Winning from liberalization Initiatives to profit from the Fourth Railway Package Munich, April 2017

2 EU-wide railway market liberalization is in its final stages Existing players need actionable plans on how to benefit from this scenario Context market liberalization st council directive 1 st railway package 2 nd railway package 3 rd railway package Recast directive 4 th railway package Full liberalization target On-going PSCs/PSOs not affected until max Past Cope with increased impact of regulations and initial opening of markets Now Win from full liberalization of domestic and regional passenger transport The European Union (EU) to > Enable connected rail traffic across Europe > Liberalize rail traffic and open it up to further operators > Increase efficiency of the railway system > Establish open access principles for international rail freight and cross-border passenger service > Define a common approach towards rail safety regulation > Create prerequisites for interoperability > Separate infrastructure managers and transport operators > Found common representation of interests, i.e. the European Union Agency for Railways (ERA) The market incumbents to > Understand the current market environment and respective impacts from most recent railway package > Identify key levers for successfully navigating through the on-going push for liberalization > Re-shape organizational set-up to allow for a more powerful, flexible and lean decision-making process > Benefit from measures to improve operations efficiency and profitability EU regulation efforts have pushed market incumbents to improve operations efficiency and quality of service Market incumbents will have to lay out a strategic concept on how to benefit from regional openings 2

3 As of today, the degree of rail market liberalization within the EU is still quite diverse UK and Sweden with full liberalization Degree of market liberalization Fully liberalized markets > All pkm are in open access or all Public Service Contracts (PSCs) are competitively tendered, e.g. Sweden and UK Largely liberalized markets > More than 33% of pkm are in open access or correspond to competitively tendered PSCs, e.g. Austria, Germany and Italy Partially liberalized markets > Less than 33% of pkm are in open access or correspond to competitively tendered PSCs, yet new entrants have taken up a significant share of the liberalized market, e.g. the Netherlands, Czech Republic and Portugal Quasi-liberalized markets > The whole market is open for access, but there is no effective competition in the market > New entrants operate directly awarded PSCs, e.g. Denmark and Poland Non-liberalized markets > Incumbent operates all commercial services and Public Service Obligations (PSOs), e.g. France, Spain, Belgium and Finland Full Large Partial Quasi None Competitors (non-incumbent) Note: Analysis based on overall share of total pkm; respective focus on regional or inter-city transport with potential to slightly distort the picture; Czech Republic considered increasing its share of tendering for PSCs; Estonia, Latvia, Lithuania and Slovakia all PSCs should henceforth be de jure competitively tendered; in reality, only the incumbents participated in the tenders; Germany, the amount of train-kilometers of PSOs competitively tendered has progressed to 51%; Switzerland and Norway both with a share of 18% Source: European Parliamentary Research Service, IRG Rail #

4 Now, the Fourth Railway Package targets a fully open domestic and regional passenger transport market as of 2019 Content of the Fourth Railway Package Technical pillar Expansion of ERA's powers > European Union Agency for Railways as Onestop-shop for rail suppliers and operators > Wide-spread implementation of harmonized signaling system > EU-wide vehicle authorizations and single safety certificates Introduction of risk control measures > Implemented by all rail contractors, infrastructure managers and entities in charge of maintenance > Reinforced powers over national authorities allowing ERA to carry out audits and inspections Improvements to ERA governance > Establishment of an Executive Board and independent board(s) of appeal > New sources of funding The Fourth Railway Package Governance and market pillar Enhancement of rail governance structure > Immediate access to the passenger markets in the EU by 2019 for suitable rail operators > Reinforcement of infrastructure managers Liberalization of passenger transport > Mandatory public tendering and nondiscriminatory access to rolling stock > Voluntary introduction of integrated ticketing and information exchange schemes Maintenance of a skilled railway workforce > Mandatory take over of workforce of public services Source: UNIFE World Rail Market Study 2016, European Parliamentary Research Service 4

5 Opening domestic passenger markets is thought to increase competition, resulting in better prices and higher customer satisfaction Elements of liberalization 1 New entrants Liberalization of domestic passenger 3 transport 2 Operational amendments More attractive prices Mandatory tendering Increased customer satisfaction 1 New Entrants > Allow companies to either offer competition in the market, meaning they can provide competing commercial services, or to give them the chance to compete for the market, meaning they can bid for public service rail contracts 2 Mandatory tendering > Authorities will be mandated to publicly tender public service rail contracts, a significant change from the current situation with many contracts being awarded directly, which only in some exceptional situations will be allowed in the future 3 Operational amendments > Encourage authorities and railway operators to set up integrated ticketing schemes on national levels > Requirement for authorities to take over the financial risk of the rolling stock's residual value and thus ensure nondiscriminatory access to suitable rolling stock Source: UNIFE World Rail Market Study

6 Decreasing subsidy needs will further support the regulatory push for liberalization in the regional rail transport sector Effects of liberalization Example Germany Operating performance in RRTS 1) Subsidies in RRTS 1) [in million train km] [in EUR cent per pkm] Competitors' 3% 6% 10% 24% 29% market share +8% % Deutsche Bahn 1) Regional rail transport sector Competitors Source: Deutsche Bahn AG 6

7 Regional rail transport incumbents will need to apply five key levers to benefit from liberalization Key levers for rail incumbents Marketing and Lobbying Competence centers Transformation Personnel Maintenance > Following key account management principles, marketing and lobbying is to be intensified with key regional authorities and clients > Functional descriptions of services are set up to define the desired target state, yet leave room for entrepreneurial decision making > Cross-regional task forces are to be implemented to increase hit rate on any tender-related topics > Transfer of cross-regional competence principle also onto other topics such as efficiency assessment of regional infrastructure and assets > Business restructuring on target costing basis to ensure lean organizational structures and hierarchies, allowing for an improved responsiveness and decision-making towards tender-related topics as well as adaptation of operation networks, following a change in competition > Increased competitiveness of personnel tariffs despite anticipated resistance from employee/union representatives > Focus on work-force flexibility as well as reliability and conditions of service > Competitive target costing principle to be applied also for maintenance > Innovative concepts such as preventive maintenance, mobile maintenance teams, etc. must be introduced to reduce maintenance costs and increase vehicle availability Develop powerful, flexible and lean tenderresponse setup Implement future oriented target operating model 7

8 A stringent setup ensures pro-active account management and proposal delivery as well as effective aftersales activities Tender-response setup Market potential evaluation > Tenders and schedules overview > Network/route profitability analysis > Competitive landscape screening > Strategic roadmap and "battlefield" setting Professional tender management Feedback > Focus on market-oriented tender planning, bidding and winning > Strategic marketing unit to spearhead future tender management efforts > Business unit restructuring to bundle core competencies for increased impact and success rate > Dedicated cross-regional key account management for large-sized "VIP" customers > Tender task force set-up Aftercare solutions > Proposal refinement (if needed) > Communication of outcomes and learnings Concept focus on > Excellence > Efficiency > Profitability > Impact > Responsiveness > Flexibility Organizational design > Cross-regional synergy assessment > Governance structure review/re-design Operations leadership Governance excellence Operational adjustments > Outcome-related down- or up-sizing > New operations setup definition > Process blue book update 8

9 In addition incumbents will have to aim for operations leadership and governance excellence to ensure sustainable competitiveness Future oriented target operating model Learning from new competitors Exemplary advantages of new railway players entering the market: > Flat hierarchies and more flexible decision-making structures > Lean and agile operational processes approach, based on e.g. greenfield set-up opportunities > Focus on profitable core business with established network of partner-ships for supporting services, e.g. maintenance and handling > Possibility of Day-1 outsourcing, automation and digitization of e.g. non-core business items > Lower-to-no legacy costs to ensure sustainable competitiveness in liberalized markets A B Operations leadership > Performance benchmarking and continuous process improvement measures > Target costing-based process restructuring for front- and back-end units/services > New business model generation and adjacent, added-value service offerings Governance excellence > Organizational restructuring to ensure lean/flat hierarchies and less bureaucracy > Impactful transfer of decision-making powers and capabilities, e.g. as part of task-force setting > New partnership models setup, JV opportunities screening and innovation focus 9

10 Your global contacts The authors Your contacts at Roland Berger Dr. Martin Streichfuss Head of Transportation, Düsseldorf +49 (211) Andreas Schwilling Partner, Munich +49 (89) Didier Bréchemier Partner, Paris +33 (1) Tobias Schönberg Partner, Berlin +49 (30) Sarna Yeung Partner, Shanghai +86 (21) Alexis Gardy Partner, Montréal +1 (514) Rene Seyger Partner, Amsterdam +31 (20) Gustavo Lopes Partner, Sao Paulo +55 (11)

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12 In particular within the European RRTS, various RB projects have already tackled the inevitable impact of market liberalization Selected Roland Berger project portfolio Market studies Strategy development Value chain optimization Improvement potential identification Commercial re-franchising > Creation of a strategic overview on European regional public transport > Identification of current and future market size and volumes > Development of relevant market entry strategies and prerequisites > Assessment of future business model relevance and partnership opportunities > Evaluation of Joint Venture candidates for more profitable market coverage > Organizational and operational design of joint fit-for future business setup > Benchmarking of key financial and performance indicators to identify value drivers and threads > Business model re-design, incl. pricing, for services and production units within the value chain > Development of measures and tools to ensure successful steering and monitoring > Analysis of loss-making operations following a series of new operating license acquisitions > Conception of a restructuring framework to improve profitability levels > Organizational and operational re-design to monetize on newly found volume increase > Assessment of commercial opportunities and risks of a franchise model restructuring > Financial impact calculation including probability assumptions on e.g. payment default > Identification and recommendation of potential opportunities for diversification of operations 12