ALL recent presidents of state-owned French National Railways (SNCF) have warned about the threat to the funding of TGV high-speed services, a subject rarely reported outside France. This threat is now increasing as competition on the French network begins to ramp up, potentially taking market share away from SNCF, and requiring the government to consider how to maintain the national operator’s financial stability.
Trenitalia is already operating between Paris and Marseille via Lyon, and is planning to compete from 2029 on the Paris - London route with Eurostar, majority-owned by SNCF. Spanish national operator Renfe operates cross-border services from Barcelona to Lyon, as well as Madrid - Marseille, and is also targeting services to Paris. New entrants Velvet, Kevin Speed (Illisto) and Le Train are similarly planning to introduce competing high-speed services on other lines throughout France.
For SNCF the problem is that new entrants currently have no public service obligation (PSO). Their only brief is to repay the capital invested and hopefully make a profit for shareholders. In contrast, French authorities have forced SNCF’s TGV services to cross-subsidise other services deemed to be in the public interest, but which lose money.
SNCF has publicly stated that around a third of its TGV services are profitable, a third cover costs and a third lose money. It needs a 75% load factor to cover costs. From time-to-time SNCF has proposed cuts to the more marginal TGV services - the operator has even said that, as a rule of thumb, TGVs should not stray far from high-speed lines. However, these suggestions are strongly resisted by local politicians who want TGVs to serve their own town or city. At the same time, successive governments have put pressure on SNCF not to raise fares and to maintain fare discounts for young people, those over 60 and other categories.
Since 2010, SNCF has been obliged to cross-subsidise loss-making conventional inter-city services, including the few surviving overnight trains, which the French government is intending to revive. The government is currently investing in new trains ahead of issuing tenders to operate these services, with SNCF winning the first contract for Nantes - Bordeaux. The majority of longer-distance passenger services between regions, and even between the regions and Paris, - all of which are loss-making - have been transferred to France’s 13 regional councils which specify and fund them as part of their respective TER regional networks.
Most new entrants are not entering the market to innovate. The only operator planning to plug a hole in the market is Kevin Speed, which intends to provide improved services to stations built by SNCF on high-speed lines at some distance from city or town centre but close to major roads. One example is Haute Picardie east of Amiens in northern France which currently has no services to Paris. Other competitors are simply piling onto the busiest routes, serving the busiest stations.
Competition from Trenitalia has already chipped away at ticket prices between Paris and Lyon, with transport user group FNAUT noting that this is the only TGV route where fares are not rising. SNCF has also been pushed into improving its high-end offer between Paris and Lyon to win back first class passengers migrating to business or executive class on Trenitalia. Otherwise, SNCF’s traffic on this route seems to be holding up, but with fewer premium fares being sold, what is the impact on revenue?
Government solution?
The French government is beginning to address the problem. In late February former transport minister, Dominique Bussereau, was tasked with examining high-speed services that play a role in regional development. In the context of the passenger market opening up to competition, the study aims to develop proposals for a funding framework that is sustainable and balanced for all stakeholders.
Early possibilities being explored are reducing track access charges on connections to high-speed lines to enable through services to be maintained, and encouraging regional councils to subsidise TGV services running off the core high-speed network. Agreements already exist between SNCF and the Brittany region for services from Rennes to Brest and Quimper, and with Hauts-de-France for Lille to Dunkerque and Boulogne, as well as Arras - Valenciennes. Such funding would be offered to both SNCF and its competitors. The government says that Bussereau will present his initial findings at the end of June.
