Two ways to diversify activities of railway companies
Analysis of - Signalling technician and railways observer
(version en français)
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«In Japan, from the early 60s, and the emergence of the car-oriented society, it was understood that, in order to enhance the competitiveness of railways, there were only two ways: high speed trains, and the diversification activities.» These are words of Mr.Yamanouchi, former president of the JR EAST company. One of reasons that encourage railways to diversify their activities is that the core business - rail transport - is not the activity that brings the most income, at least in its current configuration. The railway business is indeed most of the time focused on public service and provides each year a trade deficit which must be covered only by subsidies from government. For two decades, the role of the State is to decrease public funds in all sectors. The railways companies must now to try to find other sources of revenues, by increase of efficiency and by diversification of activities.

Diversify to increase income

Of course, Japan is a very special case: its different kinds of passenger railway companies (JR, Major or Minor; regardless of their size) operate all kind of diversification activities, from real estate to amusement parks, which account for a large part their total operating results. From 1991 to 2004, global results show a convergence of the diversification strategies of the different passenger railway companies. The segments of activity that are generally distinguished are “Transport” (railway, bus, ferry), “Retail” (shops, restaurants, shopping center, department stores in or near stations, directly operated by child companies), “Real Estate” (office, residential and commercial lease in or near stations), and “Others” (hotel, advertisement, credit cards, tourism, other leisure activities). For some companies, Transport activities account for 49%, activities of capitalization of land and commercial rent account for 41% and others for 10%. This shows the importance of outside activities for the railway passengers companies.

In Europe, there is nothing. However, some companies are recently equipped by an estate subsidiary, in order to fructify an exceptional heritage in terms of location. It is difficult to imagine the amount of lands which are the property of the railways companies. Some are the first or the second landowner of the country. In France, SNCF Immobilier is the newest of its five business units, tasked with managing properties owned by SNCF Réseau for optimum value and tailoring them to the Group’s needs, as described on his website. In Switzerland, CFF Immobilier employs 65 developers’ architects on a total of 850 employees.

The other importance of diversification is the revalorization of the stations. Activities of capitalization of land and commercial rent in this sector are mostly shopping activities in stations. European passenger railway companies do not directly operate these shops, but they earn a rental lease which is function of the operating results of the shop. The importance of this activity is the amount of clients who frequent the stations. Recently, Zurich's main station which welcomes every day 437,000 people (passengers and non-passengers, expects an increase in commuter traffic by 70 percent, a flow of 743,000 people per day. According Il Sole 24 Ore, Grandi Stazioni, the railways station management company 60%-owned by Italian state railways Ferrovie dello Stato and 40%-owned by Eurostazioni (Pirelli, Caltagirone, the Benetton family…) manages Italy’s 14 largest rail stations, represents a unique case in Europe for its expertise in revamping railway stations to transform them in meeting and retail points. The figures at stake are high: more than 500 stores opened so far, which will become 900 at the end of the renovation works; 700 million visitors every year (300 million only between Roma Termini and Milano Centrale, the two largest stations), 1.5 million of square meters of real estate. And, especially, more than €900 million of investment combined to redesign the stations in Italy and two others in the Czech Republic (Prague Central and Marianske Lazne). The diversification of stations has allowed the company to book over €200 million of revenues in 2014. But in despite of these examples, a survey of Emmanuel Doumas in 2007 shows that in Europe, the Transport accounts around 92% of revenues.

(photo SBB-CFF)

Diversify to attack the market

The best form of defense is attack. This strategy, which consist to attack the same market that your concurrent, is very different and is not targeted necessarily to increase income, but is designed to contain the competition from outside. This follows some major changes in the mobility. Today, prosperity and future of long-distance services and high speed trains are questioned. Most companies does not seem have taken full measure of societal changes, while the low-cost aviation has become widely imposed on the market and more recently, the long distances buses were liberalized, robbing for example the German company DBAG nearly € 200 million. In France, the profitability of the TGV has dramatically decreased, but remains the first source of revenue of the French company. As described in another post, the first action to undertake is the price, to meet the low-cost aviation. This is what the French did with the TGV Ouigo, which starts from the outskirts of Paris (and not from main stations), where the bar was removed and where the space between seats was reduced. Some people told about the come-back of the third class...But the low-cost railway is not enough to counter the concurrence.

As the liberalization of transport is inevitable, including railways, the best is to enter the market. In two sectors: car and bus. For that reason, SNCF bought in September 2013 the site, in which it had already invested since 2009. In 2014, the French company launched Idvroom, a website focused on the commuters traffic and also compete on a national stage with Blablacar. And the german railway company DBAG also has launched Flinkster, the biggest company of car-sharing in Germany. Approximately 3,600 cars - including more than 600 electric vehicles - can be reserved in 200 German cities to nearly 1000 stations, including all major stations. 2,500 vehicles are available in Austria, Switzerland, the Netherlands and Italy. With the start of cooperation between the German railways (Flinkster CarSharing) and Daimler (car2go) in early June 2015, customers of both CarSharing companies have the option to use with a single registration the two fleets for a total of 7,000 vehicles.

The entry in the bus sector is some years old. French railways SNCF operates coach services in Europe since 2012, under the brand name Idbus. The german railway DBAG has also his bus division, under the name of Fernbus. This presence can be surprising because the two companies specifically complained of the fall of their revenues for long-distance trains, including high-speed trains. But in reality they seek to position themselves in niche markets in goal to corner more market share in this sector. Indeed, the best form of defense is attack.


The core business - rail transport - seems not the activity that brings the most income. This evidence has long been known. To cover a maximum of operating costs, it becomes necessary for railway companies to seek other sources of income. This requires to develop real estate and to enter the market of competitors. This policy does help relieve the company's finances? The future will tell...