200 years of the of the modern railway and the future of train travel

0:11Hello and welcome to The Entrepreneurs on Monocle Radio, the show all about inspiring people, innovative companies and fresh ideas in global business. On today's programme, we're celebrating the 200th anniversary of the modern railway with the CEO of Rail Europe. What we are used to in the aviation sector, now it's coming to the rail part for the very first time. This is The Entrepreneurs with me, Tom Edwards.

0:48You're listening to The Entrepreneurs. It's now two centuries since the world's first modern passenger railway rolled into service in northern England, a truly pivotal moment that transformed how we move, connect and explore. Of course, much has changed since then. As the rail sector reflects on two centuries of innovation and impact, we're looking ahead to what's coming next. To explore the future of rail travel in Europe and beyond, we welcomed a special guest to our Paris HQ, Bjorn Bender, CEO of Rail Europe, the world's leading distributor of European train tickets and rail passes. Before taking the helm at Rail Europe, Bjorn headed Innovation, Research and Incubation at Swiss Federal Railways, the SBB, and previously led its new mobility services division.

1:38Monocle's Paris bureau chief, Simon Bouvier, sat down with Bjorn in our studio in the French capital to discuss the industry's next chapter and the direction of travel. Just to kick things off a little bit, I think what makes Rail Europe so special is this kind of global or big picture perspective. Instead of being stuck in the kind of inner workings of national rail systems, you have this kind of exceptional overview of how everything works. And before joining Rail Europe, you were working at the Swiss Federal Railways, the SBB, and you commute from Switzerland to France regularly because Rail Europe is based here in Paris, but you still have your family in Switzerland.

2:19So you kind of get the big picture insights from your job, and you also walk in the shoes of your customers by using the trains every day. So to kick things off, is there anything that the SNCF does better than the SBB, which everybody considers to be the benchmark? Yeah, actually, I guess every national railway does certain things better than others because it depends on certain products and the customer needs of the certain country and so on. But of course, you refer a bit to the benchmark and the role model SBB has in this sector. And it's definitely this, you know, because of course, trains are punctual.

3:02They invest a lot into infrastructure, rolling stock. The offers not only for international and cross-border services into Switzerland, also for the Swiss themselves, of course. But I always said in the past, because I worked also for the German railways before, and it's a bit similar to SNCF, I would say. we should not compare Apple with peers because, of course, the systems are financed differently. And if you finance, I don't know, five times per head, more the railway infrastructure or even the roading stock, then it's very hard to compare certain things. I would say, given the circumstances, SNCF, Deutsche Bahn, Trinitalia, some others are not doing such a bad job as it probably sometimes perceived in press or media.

3:45And can you give us an overview? You know, again, you have such exceptional insight into these heavy trends that are shaping the industry overall, instead of being stuck in these silos of kind of national issues that might be particular to France or Germany or Spain or Italy. What are the big trends that you're keeping an eye on and that are shaping the industry right now? I mean, there are super, super big trends, very, very visible at the moment. And first of all, we need to be aware that we are talking about the industry 200 years old. And even when you talk about Railure, we are a company almost 100 years old.

4:22So yes, we have legacy history. The entire industry has really history. And this is a bit, of course, the huge opportunity we face. Because when I joined the industry, I would say it was 2007, so 18 years back, no one wanted to talk about train or rail travel anymore. because it was pretty boring. Everyone wanted to fly and wanted to be on the, let's say, more modern, more sexy part of the mobility industry. And it was a bit dead, this sector. And then, of course, we all know what probably the renaissance of rail travel because, yes, it is the society discussion we have and the climate problem we face all together and so on.

5:04And, of course, now probably rail travel is part of the solution, first of all. and now we need to manage let's say the expectations and the reality best because I always say also when we have certain discussions internally of course now giving all the possibilities the customers are expecting a lot from every national railway carrier in terms of offering in terms of safety and price reliability convenience everything but you cannot change a shined like the railway industry in a year or two or even a few. So yes, it's a lot about investing at the right level. And what we see is for the very first time that the European Union is investing into the same direction and part of the European Green Deal, for instance, 100 billion euros are only allocated to the railway system.

5:57In addition, you have all the national and the railway carrier investments undergoing. So there's for the very first time a very strong alignment, even across nationalities and across countries in Europe. And yes, it's for the very first time not driven only out of national interests, I would say. And this is a bit changing the entire system. And of course, when you ask for the trends, we see it's a lot about digitalization, about the infrastructure, but also on the platform level because what we are used to in the aviation sector now it's coming to the rail part for the very first time you know that we can compare prices that we can compare offerings that you find different a to b connections out of different carriers so this is for the very first time the case now for a couple of years and we really face a complete different situation when you compare to other parts of the mobility industry, because still 95 % of the tickets are still sold by the national carriers directly, for instance.

7:01So it's not on any platform, on any comparison functionality, like you know probably from Aviation Skyscanner or others, or Rail Europe or Trainline or Omeo coming now into the railway sector. It's pretty much on what you see that it's dominated by the national ones and out of national interest. And I guess we get back to this later, but the possibilities, I would say, in this part are even endless. Yeah. And it's so interesting because also within Europe, there's this dynamic of progressive liberalization of the market itself, which historically has been dominated by state monopolies and silos here in France, where you have your headquarters.

7:43the foot dragging on this issue has been really intense and now they're just starting to open up the market to competition. Italy has had that happen over the years. There are critics, but most people say that it's been a success. What's your view of this dynamic in general and what is it going to bring to this market in terms of evolution of opportunities and how consumers use train travel? Yeah, I guess we have two different levels of the so-called liberalization or competition. First is really the liberalization level. And what we usually do not know is that the markets are liberalized for, I guess, almost 15 years now in Europe, but no competition was happening yet.

8:31And this is definitely the exception in Italy, in Spain, where you now have four high-speed carriers competing against each other between Barcelona and Madrid, for instance. Even Austria is a little exception because you have a private company really offering the same services as the Austrian ravers are doing between Salzburg and Vienna, for instance. And yes, it's bringing a lot because at the end, the first thing is that the product is improving because the incumbents, the national carriers are forced to invest more. obviously yes second is you find different offers specifically for people who are not traveling with trains today who are used to individual transport who are used to flights and so on and they discover for the very first time maybe a cheap ticket or different connection or even a different routing what was not existing before so we bring more people into the system and they get used to let's say public transport and of course at the end we see that prices the average prices are even decreasing.

9:33And what we read and what we usually perceive are increasing prices because we see inflation, we compare prices probably Friday afternoon or Sunday evening. And of course, it's dynamic pricing at the end, like in every sector as well. And yes, it's getting probably a bit more expensive, but you'll find even definitely less expensive options. So yes, it's offering a lot. And we need this kind of competition to make the industry better. and of course to even increase the capacity for higher demand. You mentioned pricing quite a bit here, and I want to get into that because I think this is one of the fundamental issues.

10:10There's a real hunger on the part of consumers to travel using a form of transportation that has a much, much smaller environmental footprint than air travel. But when you compare the prices, sometimes it's just too much. You know, the delta between the train ticket price and a low-cost carrier flight for a student or a vacationer is just too much for them to take that step, even though they really want to. And train travel aligns a lot better with their values and what they would like to do. Do you think there's a pricing problem here? And how do you see that evolving? What are the fixes for it?

10:52I would not say so that we face a pricing problem. I really would say, first of all, it's still a perception problem. Of course, you have exceptions and also bad ones or challenging ones, let's call them. You know, when you look on London, Paris, and you have a certain capacity and you want to travel at a certain date at a certain time, it can get more expensive than a flight. Absolutely right. Because we see also, again, more low-cost carriers investing into European connections. It was not the case for the last seven, eight years, even started before COVID. and now we see a bit of return here.

11:26But when you look back to the mid of the 90s when the tunnel was opened between France and England and of course plenty of investments were done before this opening and I guess we had three times as many flights connecting Paris and London as today. Three times. And the period or the timing was completely different because if you would accelerate this from the mid 90s to today probably would have five times more flights today. So yes, you see an impact, definitely. And as I said before, I guess what you do not see is that you have much, much more safer fares available across Europe. Usually now you can travel, when you take Germany as an example, from the very south to the north, starting from 19 euros, one, nine euros across Germany in a high-speed train.

12:16I guess you have more or less the same in France when you take the low-cost TGVs. And yes, there are certain options when you say students or let's say senior people and so on, where you get even better or more attractive tariffs. But at the end, it's a perception challenge. And even if this is not the truth that rail travel is always more expensive, because you need also to consider that you can travel from city center to city center. You don't have any airport transfer and so on. Then we have a challenge for the industry because, you know, we are talking about pricing. Pricing, we are talking about safety and we are talking about convenience.

12:55Those are the three main topics in the industry, even if the perception topic is sustainability. But if we ask people, why do you choose a certain routing in a train? It's not sustainability. It's number seven, eight or nine of the criterias why someone is choosing a certain way of transport. And this is very interesting. So I absolutely agree. If the perception is it's too expensive, people will not travel at a level where we could have it as a society and, of course, as a platform provider. Yeah, and I suppose also national contexts matter a lot to whether the pricing is very high compared to what people are used to.

13:34Also, historically, you know, here we're in France, there have been a lot of complaints about the prices of high-speed train tickets in particular because of all of these shortages of trains. and the fact that the demand is outstripping the availability of seats by so much that, you know, as you said, dynamic pricing is now the norm, and people just get sticker shock sometimes, but that's not necessarily the case in every country. On the subject of pricing and of differences in national systems, your kind of signature product is the interrail pass that for our kind of extra continental listeners is this kind of iconic rail pass that allows you for a fixed price to travel in essentially all of Europe using trains.

14:29According to different modalities, we'll get into the details of how the rail pass works. But how attached are you to the image that this pass has as almost a rite of passage for European students who have almost without exception used one to take a kind of 20-day jaunt across Europe? And all of them do it because it's affordable and it gives you this freedom to travel within the whole continent that I think is comparable in terms of image of soft power in Europe to Erasmus, the student exchange program that allows students from different European countries to travel, to pursue their studies and others and facilitate cultural exchange.

15:13It's one of these kind of brands of an open Europe. How important is that to you? And talk about the business model of these passes a little bit, because it seems like it must be really complicated to pull it off, having all of these different railway systems to talk to one another and one ticket to be valid for everyone. So, I mean, first of all, you explained it already very well. What about Interrail and what is the fascination about this? Because it's about freedom. It's about having full opportunities traveling across Europe. But let me get back one step. So when we talk about Europe and when we talk about actually really Europe's business, we combine more than 200 train providers on one platform.

15:57And we're only talking about Europe, more than 200 passenger railway, providers on one platform. And this is a patchwork out of different national railway systems, as we discussed in the beginning. And having a pass, really starting already 60, 70 years back with full freedom, traveling cross-border for one price, for a dedicated number of days, and so on, was definitely a game changer. And many of the people today around 60 or 70 years old, they experience this during their study times. And if we look into who is consuming an interrail or a U-rail pass, a U-rail pass is a similar product for the non-European travelers.

16:40So when you come from the US or from China or India or Australia, you will not have the possibility to buy an interrail pass. You will buy an U-rail pass, but it's a similar product only with a different name. And if we look into this, we have today a very, very stable group of people booking this kind of pass. It's not only the student pass anymore. You have elderly people. You have even many, many people above 80 traveling on an inter-radio Europe pass across Europe. And yes, it's very, very attractive in terms of pricing. It's full flexibility. It's definitely valid in all carriers and all the major carriers are part of this system and pass.

17:20And you have different systems in Europe. We talked about France a bit before where you need to have a reservation for a train traveling from Paris to Marseille. But when we talk about Switzerland or Germany or Austria, you don't need to have a seat reservation mandatory. You can travel from Munich to Berlin without a seat reservation and no one can stop you entering this train. So it means for a pass, you have even full flexibility because you do not need to have even a seat reservation. In France, in the UK or traveling on a Eurostar, in Italy, in Spain, it's different. Here, you only need to have the seat reservation in addition to your pass.

17:58And coming back to the numbers, yes, I guess in the last 10 years, we see almost a 100 % increase in pass travel. And when we look into our customer base, yes, we see increasing numbers from the Europeans, but even higher increasing numbers from Indians, Americans, Australians, Koreans, Japanese, because they want to discover now Europe by train. and they are not chartering a coach anymore or less, less and less. Because at the end, the travel time is a bit of experience itself. And it's not only getting from A to B anymore. And of course, the entire network and the offers changed over time as well.

18:38So yes, it's a very, very exciting experience, I guess, traveling on a path. It's really remarkable that this product that was already extremely popular has seen a plus 100%, you know, skyrocketing in popularity post COVID. Historically, your business has been about promoting intra-European rail travel to extra continental customers historically in the US, but then also elsewhere. How has that evolved in recent years? You touched upon it a little bit. Tell us about your kind of customer breakdown and how that affects your ability to pull this off. Because again, the appeal of this, the simplicity of it, and the pricing is so low for what it is, it kind of beggars belief that you're able to pull this off.

19:33So what's the secret sauce here? I mean, first of all, when we look on the European railway sector, we are talking about a 5 % to 7 % growing industry year by year. And if you look on the cross-border travel, it's probably double-digit across Europe. This is, first of all, the reality we face today. When you look on Rail Europe, Rail Europe did business primarily for non-Europeans. So outside of Europe, bringing non-Europeans onto rail in Europe. because, yes, it was a subsidiary of SNCF and more or less the international distribution subsidiary of the state-owned company. When we got independent three years back, of course, we changed two major things in our strategy.

20:16First is that we face more the consumer side of the business. Raleo was doing B2C business, but primarily B2B business, So serving online travel agencies, tour operators, travel agency chains on one API with the entire European rail inventory. So talking about the 200 carriers on one technical interface. Now, of course, we invest more into our app and website and getting the point-to-point tickets, the passes, the group travel, the packages, everything sold also to consumer business. When we talk about what you said, the inter-European travel, we talk about the non-domestic travelers because a non-domestic traveler usually is facing complex situations, unfamiliar situations, really things he or she is not doing regularly.

21:08So language barriers, tariffs, after-sales processes, currencies, all of this, what they are not used to it. And at the end, it can be a customer flying into Europe and taking a train. It can be some European travelers traveling cross-border. It can be also you and me traveling domestically in another country. So I'm a good example. You said in the beginning, I'm commuting on a weekly basis into Paris from Switzerland. This is a classical cross-border commute. But I could even fly at one point, let's say, to Berlin and I take a train to Hamburg. So it's a domestic German train, but I'm based in Switzerland.

21:49So I'm not used to the German circumstances. And at the end, I buy only a domestic DB ticket, but we sell it to a non-domestic traveler because I'm traveling non-domestic because I fly first into Germany. So this is how we look on our customer base. And the second big strategy shift when I talk about the consumer side is that we do what the company was doing for the last decades, also for the European travel trade. You know, because even when we talk about the French travel agencies, the Germans, the Italians, they do not want to be connected with five or six or seven different railway systems to sell a train ticket to a corporate or a leisure traveler.

22:32They want to have one interface. And this is exactly where we are targeting on. And this is probably, yeah, the two major shifts we have undertaken over the last three years. And of course, now we are independent, we are neutral, we are agnostic, and we are private equity backed. So it's a complete different game than it was 90 years before. And so what's the breakdown currently of where your customers are from? And let's make, for the sake of simplicity, let's make the EU or the European Economic Area plus Switzerland, let's say, one market. I'm just curious how much of it is a surge of tourism from North America, is India, is China, is South America?

23:17What are the markets that, what's the current makeup and what are you looking at for the next steps? So still our number one market is North America. So US and Canada, probably one third of our business is still coming from North America. And then you have the top five markets, including India, China, Japan and or Korea and Australia. And those are probably two or a third of our business, maybe including Brazil at one point at the edge, I would say. Then we do quite still good business in the UK and still very small numbers, but very fast growing numbers in continental Europe. And if you say we look into the EU and Switzerland, exactly this, we do separate the UK and continental Europe.

24:04And we look on the, let's say, top five to 10 non-European markets. So you see, it's still very important for us, of course, all the travels from Asia, from the US, from LATAM into Europe. But of course, it's getting more and more important that we do the job right for the Europeans. because when we talk about the industry, we talk about 80 billion euro industry yearly, 80 billion euros, and probably 79 or 78.5 are sold in Europe to Europeans. So you see that, let's say, there are no ceilings when we talk about the European customer base. And of course, there's a natural ceiling at one point because we have already a high market share outside of Europe.

24:49And, you know, you mentioned also these massive EU investments in the infrastructure itself before we move on to kind of the software digitalization realm. And zooming into Europe, what are the specific countries that you're looking at as this is an opportunity ripe for the picking for us because it's a market that hasn't really developed yet and that maybe because of all of these different circumstances right now is the next big thing for us? I guess we look from two different perspectives on this because First of all, we cover more or less entire Europe. There are only a very, very few white spots left when we talk about certain Eastern European countries, a bit of the Nordics.

25:32We are not that strong yet, but we are working on this in Portugal, for instance. But all the major parts are covered. And there are no exceptions. And we do work with SNCF or with France and Germany and Italy and Spain. And the banner looks in the same way. What is different is how carriers are looking on us as third-party partners, because we see ourselves as a partner for the railway carriers, not as a competitor, because usually we bring them business they could not reach out to easily. and of course we are working hand in hand bringing more people into railway systems more people into public transport and here definitely we define and we separate how we target certain groups of potential tourists traveling to europe with different campaigns with different pricings with promotions we talked about interrail and ura they do it very very data-based now and very streamlined throughout the entire system.

26:34So yes, there are some differences, but in general, we see ourselves, as I said before, as neutral and agnostic. And this means we really treat everyone the same way and we partner or we want to partner and we open up and we give our hand to everyone in the same way to really get a win-win situation out of this partnership. And that kind of brings us neatly into how you create these partnerships and how you're essentially bringing business to all of these, this mosaic of different carriers from all of these European countries. In 2017, Rail Europe, which was still SNCF back then, acquired the loco2.com, the British essentially train travel booking platform.

27:20Tell us about how that reshaped your business after you kind of took your independence from SNCF and became this kind of standalone company that you run. Yes, I would say we really reinvented ourselves in a way the last three years. And we always say we're undergoing a holistic transformation. And when we talk about a holistic transformation, it means everything from brand over product, the way of working, the way we do after sales, the way also we do not only customer acquisition, we really put our focus on retention. Because what we talked about before, when two-thirds of our customers are non-Europeans, I mean, it's clear that our retention possibilities are very, very low.

28:02And when we talk about Europeans, yes, they travel, I don't know, twice, three, maybe 10 or 15 or 20 times yearly. So it was definitely a game changer. And at the end, we also need to be aware we are talking about a high volume and low margin business. And it's not special for the railway part. It's just the travel industry itself, starting from packages and hotels and even aviation and rental cars and also up to rail. So what it means at the end, yes, for us, we need to provide the best services we can. And Loco2 was a game changer back in the days for the consumer business. Unfortunately, it was not the focus for the last eight years since Rail Europe acquired this company.

28:46We refocused on the consumer side one and a half years back. And now we still build our future on this very strong technology because it's still from the core very strong. Only the front end and the UX and the UI needs to have some rework on that. And of course, we need to monetize what we do best. And monetizing means, yes, that we provide ancillary services, additional services like luggage transport, like the right cancellation insurance, eSIM. All of this to bring this into a package where at the end, we are able to, of course, cover our costs to offer an excellent service, but on the other side, also build a sustainable, healthy business model.

29:33And this is probably when you ask me what changed the most over the last three years, it's exactly this, that it's not, let's say, a company where we are burning money and we are really working as a, let's say, subsidiary of a state-owned company. know we need to be profitable by what we do and this is particularly the distribution part of rail travel getting together with other services we provide and this changed and this we see also in the feedback we receive from our customers that they value that we improved our services even and this is i guess a good example for this if we still charge a service fee for a ticket sold but But at the end, if we can make a difference and if we can show up better prices and better services, people are willing to pay.