The most important prerequisite for well-running trains is good infrastructure. But while more investment in the rail network would certainly be positive, it is not enough. As the Monopolies Commission observed in a recent report, the train system also needs the right kind of incentives.
Let us consider just one: liability. It is generally assumed that the train operator who causes a delay should provide compensation to passengers. But DB Fernverkehr AG, which operates more than 99 per cent of long-distance trains in Germany, is less generous than this assumption might lead one to expect. Passengers receive a payment equal to 25 per cent of the ticket price for delays of 60 minutes or longer and a payment equal to 50 per cent for delays of 120 minutes or longer. Why are there no tickets that provide more compensation? Something like punctuality insurance could be offered for an added fee.
Regional train companies must pay their contracting authorities when they fall below 90 per cent or 95 per cent punctuality, depending on specific terms and conditions. This has proven effective: punctuality among regional operators averages around 94 per cent.
By contrast, DB Netz AG, which runs all of Germany’s rail networks, bears a relatively minor share of the responsibility. This is surprising because around one third of delays are attributable to the railways, not cancelled locomotives or absent personnel. The clause on performance-dependent compensation in Germany’s newly proposed rail legislation can make sure that the true culprit for delays is held liable. That is why it is important that the law be broadly enforced.
“A strict separation of the divisions in the DB Group would benefit competition”
In most markets, competition is the key driver of quality. Good and innovative service becomes more important as competitive pressure increases. But competition on the rail market continues to be lacking. DB’s monopoly on long-distance train service and railways have led to high route prices, creating barriers to market entry. If prices are to decrease, the new regulation must give DB Netz AG effective incentives for reducing costs. For example, when calculating the capital costs of DB Netz AG, lawmakers should consider that the company is entirely state-owned and thus carries few risks. Moreover, costs that arise for DB Netz AG from its performance and financing agreement with the federal government should also be aligned with efficiency criteria.
Competition in the rail sector has been hindered by the fact that both the railway operator and the transport companies are part of the DB Group. A strict separation of the divisions in the DB Group would benefit competition by eliminating price discrimination and incentivising better service. It is hard to imagine that an independent DB Fernverkehr AG would tolerate the quality deficits of today’s DB Netz AG.
Obviously, there’s much to do if Germany’s long-distance train service is to become more reliable and affordable, and is thus to attract more passengers. Until then, vacationers traveling by train can take comfort in Tolstoy’s famous credo: “Everything comes in time to those who know how to wait.”
This article first appeared on 26 July 2019 in “Börsen Zeitung”.