10 years of Italian high-speed rail liberalisation: lessons and next steps

The rail liberalization process that has taken place on the Italian high-speed network is seen by many as a successful example of competition in the rail market. April 28 marks the tenth anniversary of the introduction of new high-speed services by Italo, the competitor of national incumbent operator Trenitalia. What are the results so far and what are the possible future developments in Italy and Europe?

April 2012 marked a historic date for the Italian rail market, since for the first time competition was introduced on the Italian high-speed network. Italo was finally a concrete reality after six years of conceptualization. This brand new bright red train is the result of the vision of a group of Italian entrepreneurs, among them the former CEO of Ferrari, Luca Cordero di Montezemolo, who seized the opportunity of the rail liberalization promoted by the European Union. Of the nine initial destinations served on the Milan – Naples corridor, Italo trains can now be boarded at forty stations in thirty-five different cities across Italy.

This remarkable expansion has significantly improved service levels on Italy’s high-speed rail (HSR) network, spurring both Italo and national incumbent operator Trenitalia to perform better. Frequencies have been increased, prices have been lowered and a wide range of high quality services are now available. After several years of operation, which also saw the participation of the French SNCF (with 20%), Italo was sold in 2018 to an American infrastructure group for 1.98 billion euros, after an initial investment of almost 1 billion euros. Today, the Italian HSR network is taken as an example of liberalization by many countries, and Italo and Trenitalia use their experience of decades to replicate this model also outside their national borders.

Reasons for competition

Italy was among the first countries to liberalize its rail market and the first to see a private open-access operator on high-speed lines. The need to open the market could be mainly attributed to low productivity rates in the rail sector and high government subsidies. Since 1985, Ferrovie dello Stato (FS), the national incumbent operator, has undergone various restructuring processes which imposed an economic and financial recovery which transformed FS into a joint stock company in 1992 and led to the vertical separation of infrastructure and of services in 1998. From this, freight transport was also liberalized quite early (2001) and the network expanded with the construction of the Italian high-speed train backbone from Turin to Salerno in 2009.

Italo seized the opportunity of this changing market and brought a supply shock with huge investments in rolling stock and an innovative yield management strategy like in France. Inspired by the structure of “low cost” airlines, fixed costs are minimized and each process is digitized to the maximum, while many tasks are outsourced, such as maintenance of rolling stock, catering and security. Finally, the Italian LGV network has certain characteristics which favor competition and the use of rail. The HSR infrastructure crosses the most densely populated areas of Italy, with towns separated by 150 to 200 kilometers, which makes the train very competitive compared to the car and the plane. Secondly, the network extends on a single axis, unlike Germany or France where the lines are more decentralized, thus increasing the density of demand and allowing a better competitive environment.

Trenitalia’s Frecciarossa 1000 high-speed train

More trains, cheaper tickets

The competition introduced by the new entrant had three different effects: more capacity with increased frequencies, lower prices and the provision of better services to users. The incumbent operator Trenitalia did not reduce its services, but rather increased them, and many secondary stations and new lines began to be served by the high-speed train. Prices are estimated to have been reduced by 30 percent in the early years compared to before the competition, thanks to new tariff structures which widened the tariff differential.

The two operators also offer a wide range of different tailor-made travel experiences, with different price classes and features such as the silent room or the meeting lounge for companies, making quality the new competitive advantage over savings. travel time. New rolling stock has also been purchased and put into service, improving safety and interoperability standards for both fleets. More importantly, the number of passengers has increased at a rapid pace in recent years, increasing the modal share of rail, for example between Milan and Rome, from 34% in 2008 to 65% in 2014. Overall, high-speed trains travel in Italy are now more modern, more efficient and serve an increased number of destinations and passengers at affordable prices.

Main lessons and challenges

The Italian experience shows how competition could be a solution to improve efficiency and quality of service in the high-speed rail market. Italo proved not to be a threat to the national starter, but rather a stimulus to improve and become more productive. Furthermore, a strong and impartial regulator, combined with low access charges and the absence of subsidies, could create a very cost-effective and efficient high-speed transport environment.

After ten years, high-speed rail competition has significantly changed mobility habits in Italy, creating two strong and resilient rail companies that can now bring this success also elsewhere. The future therefore seems to be focused on competition, and some other countries are also preparing to open the market. Thanks to this experience, Trenitalia has already established various partnerships for high-speed services, in Spain from 2022 with Air Nostrum and in the United Kingdom, with FirstGroup from 2026 on the HS2. Will the Italian success be replicated and will the European high-speed network become a reality? It is not yet certain, but the competition between Italo and Trenitalia has given a first concrete example of what a well-structured open market can accomplish.

Jose P. Rogers