2023

RAIL 2040
Scenarios andCEO agenda

CONTENTE XECUTIVE SUMMARY
1.

3O R G A N I Z I N G & M A N A G I N G R A I L W AYS Y S T E M S F O R M A X I M U M I M PA C T

42.

KE Y TRENDS RESHAPING THE INDUSTRY

63.

THE GENERAL MARKET ENVIRONMENTF O R R A I L W AY S E R V I C E S

124.

MARKE T SCENARIOS BY COUNTRY

165.

I M P L I C AT I O N S F O R C E O A G E N D A S

28

MICHAEL ZINTELVINCENT BAMBERGER

Partner, Head of Global Rail
Travel & Transportation
Frankfurt
zintel.michael@adlittle.com

Partner, Travel & Transportation
Parisbamberger.vincent@adlittle.com

JULIEN PLUCHETRALF BARON

Principal, Travel & Transportation
Parispluchet.julien@adlittle.com

Partner, Travel & Transportation
Frankfurtbaron.ralf@adlittle.com

ALEX ANDER HENSLERSTEPHEN WATSONManager, Travel & Transportation
Munichhensler.alexander@adlittle.com

Principal, Travel & Transportation
Cambridge
watson.stephen@adlittle.com

We would like to acknowledge all those who contributed in the review of this Report, especially:
Maximilian Scherr, Yusuke Harada, Francois-Joseph Van Audenhove, Raimundo Cisneros,
Andrea Visentin, and Stefano Decadri.

2

ARTHUR D. LITTLEEXECUTIVE SUMMARY
The demand for energy-efficient mobility is growing
significantly, and transportation must meet theserising needs. Rail transport has clear advantages
to meet these challenges over other modes oftransportation. The coming years are essential forall stakeholders: public authorities, rail incumbents,
and potential new entrants. Each one faces a strong
growth perspective and uncertainty about how therail market will evolve. Public authorities need tomake informed decisions around regulations andpublic funding. To make the most of the decarbonizing
power of rail, incumbents must continue to prioritize
strategic choices to maintain their leadership, improvetheir profitability, and expand into new territories.
New entrants must make careful choices to become
relevant in the sector.
In this Report, we first explore key trends that will
reshape the industry and assess the general market
environment for railway services. Next, we developa scheme that puts regulation and operation into acomprehensive framework to show options for setting
up different rail systems today and tomorrow. We
follow with case studies of the railway markets in eight
countries, examining the potential for competition,
regulatory impacts, and performance statistics. Finally,
we share our outlook to inform the agendas of CEOsand other rail company decision makers.

3

R E P O R T: R A I L 2 0 4 0

1 . O R G A N I Z I N G & M A N A G I N G R A I LW AYSYS TEM S FO R M A X IMUM IMPAC T

The next 10 years have the potential to be the“Rail Decade.” Compared to other sectors, therail sector’s technological development andgrowth rates have historically been modest.
However, today, we see global trends with great
potential to reshape the industry: accelerated
green transitions, technological breakthroughs,
shorter technology cycles, growing public
involvement, and increased regulation. And
within the industry, the demand for moving

THE INDIVIDUALCAR IS NO LONGER
THE PREFERRED OR
D E FA U LT O P T I O N F O R
OPTIMAL TRANSPORT
EXPERIENCES AND
M O B I L I T Y PAT T E R N S

passengers and goods is expanding. The
growth of passenger-kilometers (pkm) andtonne-kilometers (tkm) is expected to be
200% by 2050 (ITF/OECD, base year 2019).
The above trends and developments showcase a
new global paradigm shift and must be managed
through a triangle of increased sustainability(energy efficiency and inclusion), efficiency,
and resilience.
In the context of rapid change, higher demand,and sustainability, rail has clear advantages
over other transport sectors:- A developed railway system can support thegeneral pattern of integration of transportmodes by serving as a natural backbone forshared mobility systems, which are createdby mass transit and supplemented by active,
shared, and micro-mobility options for ajourney’s first and last miles.

- The individual car is no longer the preferredor default option for optimal transport

experiences and mobility patterns, indicatinga growing customer preference for rail. A car
is no longer a “status symbol,” according to anumber of empirical studies (see, for example,
the Arthur D. Little [ADL] Report “The Futureof Mobility Post-COVID-19 — Turning a Crisis
into an Opportunity” with analyses of mobility
trends and the evolution of mobility patterns).

4- Government and public transport authorities(PTAs) must make careful decisions to address
three important issues in order to maximize
and exploit these opportunities:- What is the best regulatory scheme toframe the market as a good platform togrow modern mobility services?

- What is the best funding mechanism andhow can both public and private investment
stimulate growth and innovation?

- How can multi-stakeholder ecosystems,
which are key for integrated mobility
systems, be encouraged?

- Public transport operators (PTOs) must

determine how to use new regulatory settings(especially regarding liberalization, public wellbeing, and pricing) as they strive to provide
their best and competitive customer services.

ARTHUR D. LITTLE

5

R E P O R T: R A I L 2 0 4 0

2. KEY TRENDS RESHAPING
THE INDUSTRY

ADL has a long record of advising railway

Each category can be directly or indirectly

systems around the world. Our approach involves

managed within the big picture, which issystematically monitoring trend analyses ondetermined by uncontrolled catalysts: climate

a global scale and building a synthesis withchange, geopolitical and macroeconomic

direct insights from our experience with railway

situations, pandemics, demographic shifts

clients. There are 45 trends that will be crucial

and urbanization, and technology disruptions.

to reshaping the industry within the next 20

re 1. Trends radar

years. These trends fall into three classes:(1) technology and infrastructure, (2) consumer
behavior and value proposition, and (3) regulationand organizational setup (see Figure 1).

Figure 1. Trends radar

RAILWAY TRENDS
Consumer behavior & value proposition

Technology &infrastructure

Regulation & organizational
setup
Mass customization
25
High-speed & metro
prioritization

New digitalbusiness models

8

31

7
Closing theelectrification gap
18
Remotetelemetry

17

Nanotechnology
19

20

29

Artificial
intelligence

30
Multimodal
mobility

3

21Standardized
Digital automatic steering
coupling
15

3D printing

Digital twins

16

13

Visual & robotic
rail automation

Augmented& virtual410High-speed lines

Internet of Trains

20 years

6
Smart & agile
rolling stock27
26(5G) connectivity

Passenger
experience

Business mobility
evolution

9

1

Alternative
power

Modernizationof tracks

Global railstandardization
41

45

Open accessliberalization

Capability retention& expansion

43
35

23
22

Interoperable
tickets

Embeddedpayments2
Modernizationof stations

42

Industry
consolidation
32

On-demand
services

1138

Modal shift
to rail

Mobility-as-a-Service(Maas)

Train automationFlaw
detection

14

New formsof transport

5
12

24

28

Leisure mobility
evolution

36
Infrastructure/44
operations
unbundling
Cybersecurity

Fossil fuelbans

Vehicle ownership& asset efficiency

34
Climate neutrality

39

European railstandardization

37

33

Increasing
privatization

Pro-railtransport policy

10 years

40

10 years

Breakup oftransport networks

20 years

Today

Climate change

Geopolitical &macroeconomic
situations

Pandemics

Demographic shift &urbanization

UNCONTROLLED CATALYSTS
Source: Arthur D. Little

6

Technology disruptions

ARTHUR D. LITTLEU N C O N T RO L LABLEC ATA LYSTS & T HEI R
P OSS IB LE I MPACTS
In the coming years, the rail ecosystem
may undergo unprecedented changes that
profoundly transform the structure of its value
chain, its size, and its profitability in establishedrailway markets. These changes are driven by
five uncontrollable catalysts:
1. Climate change. Transportation is responsible
for about a quarter of CO2 emissions. The
goal to reduce Europe’s emissions from 8
tons per capita to 2 tons per capita requires
a significant modal shift to more sustainable

3. Pandemics. Rail ridership was strongly
impacted by the COVID-19 crisis. During thepast few years, passengers and freight volumes
have been at historically low levels while costs
remained stable, which limited the railways’
ability to invest and innovate. Since mid-2022,
the volume of business traffic has reboundedin many countries but continues to suffer interms of value (fewer one-day trips and lesswillingness to pay for fully flexible fares), while
leisure traffic is peaking in many European
countries (notably supported by the trend of“revenge travel”). COVID had a limited impact
on rail freight transport, with pre-crisis traffic
recovering in 2021.
4. Demographic shifts and urbanization.

transport modes, with rail (national and

Population and mobility per capita continueintercity) and urban mass transit as natural

to grow in Europe and throughout the world. In

backbones. In this context, rail is a particularly

the EU, mobility measured in pkm/per capita

important option that is increasingly favored

has increased by 27% over the last 25 years

by both the population and public authorities.

according to a 2020 Eurostat report. Mobility

Beyond its status as an essentially electric

growth rates for the next 10 years could bemode of transport, passenger rail is also

even higher. In this growth scenario, thevery energy efficient (3-4 kWh per 100 km

railway system has a competitive advantage:for France’s TGV against 15-20 kWh for an

the transport capacity of a train is unrivaled. A

electric car). The outcome is similar for freighthigh-speed line has a transport capacity twice

rail transport, with an electric consumption

as large as a bidirectional three-lane highwayof 8 kWh/ton per 100 km for the rail againstwith lower land consumption (a 15-meter-wide

15 kWh/ton per 100 km for an electric truck.

railway against 25-meter-wide highway).

2. Geopolitical and macroeconomic situations.

5. Technology disruptions. The speed of

The return of inflation could cause majorinnovation is increasing. Over the last few years,

difficulties for the railway sector, and thewe have seen a significant number of disruptive

threat is aimed at multiple dimensions. The

technologies solutions that improve network

decrease in purchasing power and the increase

efficiency, rolling stock utilization, distribution,in transportation costs could significantly

and on-board experience. They include train

reduce the number of passengers taking

automation, Internet of Trains, digital twins,

leisure trips. A slowdown in the economy

and many other solutions that have already

would mechanically slow the recovery ofpassed the PoC (proof-of-concept) stage.

business travel to pre-COVID-19 levels. Higher
electricity costs could multiply costs forrail operators by a factor of 2 to 4. Similarly,
the cost of materials directly impacts
maintenance, prices of rolling stock, and theability of infrastructure managers to maintainand improve the network within the same
expenditure package.

RAILWAY TRE NDS
Table 1 explains the 45 trends represented by
Figure 1, color-coded by class: blue for technology
and infrastructure, purple for consumer behavior
and value proposition, and gray for regulationand organizational setup. Railway companies
currently monitor each trend, placing them at the
top of their management agendas; each company
defines its own strategic positioning to approach
the spectrum.

7

R E P O R T: R A I L 2 0 4 0

Table 1. 45 trends by class1

Modernizationof tracks• Ensuring: (1) existing railway lines canbe used by high-speed, electric trains;(2) network robustness; and(3) implementation of efficient control
systems (European Rail Traffic
Management System [ERTMS])• In Europe (within ERTMS),
implementation of Global System
for Mobile Communications (GSM),
European Train Control System (ETCS),
and automatic train operation (ATO)

Technology & infrastructure4High-speed
lines

Modernizationof stations• Enabling existing stations to increase
efficiency by: (1) expanding capacity
to receive trains and (2) optimizing
increasing and condensed passenger
flows• Modernizing stations to fulfill customer
experience expectations regarding
on-demand services/retail, amenities,
safety, and accessibility

5

Train
automation• Extending track networks with travel
speeds of 200 km/h and higher,
allowing for high track utilizationand optimized capacity• ATO to increase network capacity,
reduce energy consumption, improvepunctuality and safety, as well as
reduce operational expenditure• Boosted by many markets trying toincrease alternatives for flying anddriving between two cities within
national borders• Current Grade of Automation (GoA)of most markets is Level 2 (semiautomatic), while ambition is Level 3(driverless) or 4 (unattended)

7

Closing theelectrification gap• Closing the gap of unelectrified tracks
within individual market systems tocatch up to the forerunners• While some markets and major partsof passenger lines have been electrified(especially in Western Europe and East
Asia), other markets (especially theAmericas) and most parts of freightroutes have not

10

Internet ofTrains• Implementing the Internet of Trains,which, like the Internet of Things (IoT),
connects trains and their components
to the Internet and is thus the key
enabler of smart and agile rolling stock,
increasing reliability, efficiency, andsafety• Strong focus on building the ability toremotely monitor and control trains,
adapt routings, as well as the ability tosend real-time updates to passengers
and cargo clients

13

Augmented &virtual reality• Some markets will see trend to
separate and unbundle infrastructure
operations from transport operators to
break up conglomerates (as done in the
UK and planned for Germany startingin 2024)• Goals: (1) improve efficiency of track
network and (2) ease access for various
operators, in turn increasing
competition

8

2

8

High-speed &metro prioritization

3

Standardized
steering• Implementing standardized signaling
and controlling systems (e.g., ETCS toreplace incompatible legacy train
protection and safety systems)• First standardization to be seen intrackside equipment and unified
controlling equipment within train cabs(within ETCS, most European markets
are now transitioning from level 1-2
with the rollout of GSM-R)

6

Smart &
agile rolling stock• Expanding advanced technologicaltools and systems can collect, transmit,
and act on data that enables rollingstock to be more reliable andresponsive to changing conditions• Key goal is reducing unplanned
downtime through predictive
maintenance and improving safety
and reducing energy consumption

9

Alternative
power• Increasing focus on high-impact
investments and offering maximum
utility for passengers, includingintercity high-speed lines and intracity
metro lines (reducing travel times andsubstituting air or motorized traffic)• Further decarbonization of railway
sector by replacing conventional(diesel) trains through e-locomotives(preferably powered with renewableenergy sources like solar and wind) orhydrogen fuel cells• De-prioritization of conventional,
rural track extensions• As electrification is already progressing
in many markets, especially hydrogenfueled, trains will see exponential
growth (25%-30% CAGR in the next
10 years)

11(5G)
connectivity• Rolling out advanced mobile rail
communications systems, enabling
low-latency, high-performance
communications, and improved
infrastructure reliability• Operators benefit from improved
control/maintenance while passengers
benefit from solutions enabling accessto ticketing systems, on-board
entertainment, as well as information
on travel, accommodation, passenger
numbers, and routing

14

Nanotechnology• Utilizing nanotechnology, involving thetargeted fabrication, characterization,and modeling of materials and systems
at the micro/nanoscale• Improving efficiency and decreasing
wear and tear by using lighter andstronger railway components (wheels,
axis, tracks)

12

Artificial
intelligence• Applying deep learning algorithms
and neural networks across asset
management, predictive maintenance,
emergency handling, scheduling/routing, and in customer interactions(through real-time updates andpersonalized recommendations)• Forecasting of passenger and freight
volumes and real-time adaptations toscheduling/routing will optimize
efficiency of track

15

Digitaltwins• Applying digital twin technology(digital representation of real-worldthings, can utilize real-time data andapply machine learning or AI inplanning, development, and operationof railway tracks, rolling stock, andstations• Allowing for advanced simulations
when adapting components, hardware
and software, or routings

ARTHUR D. LITTLE

16

Visual & robotic
rail automation

Rail flaw detection

18

Remote telemetry• Application of new visuals (cameras,
drones), sensorial technologies, andlaser-based solutions for inspection
purposes of trains and infrastructure(screening of train tracks to detect
and respond to hazards)• Detecting flaws through use ofultrasonic rail testing and highresolution digital magnetic signatures,
allowing unseen levels of detectabilityof defects (track structure changes,
lose bolts)• Applying remote telemetry, allowing
for additional performance control ofinfrastructure and components throughmonitoring and controlling systems,
track conditions, and rolling stock
operations• Technology will play vital role in
improving safety, increasing efficiencyof maintenance, and reducing delays• Increasing safety through early alerts
if foreign objects are on tracks (debris
due to adverse weather or animals)• Key use case: point heating to combat
frost and prevent snow/ice buildup on
critical infrastructure

19

New formsof transport• Introduction of new forms oftransportation building on existing(electric, autonomous, vertical takeoff
and landing, hyperloop, or maglev) or
not-yet-invented technologies thatshake up and disrupt the market• Railway infrastructure and rolling stock
operators must be wary of thesedevelopments and potentially adapt
their offerings or integrate new formsof transport

22

Business mobility
evolution• Changing business travel habits due to:(1) pressure on corporate travel
budgets, (2) environmental awareness,(3) remote working, and (4) commuting

Consumer behavior & value proposition

17• Adapting business models to reflect
these shifts and allow for a moreseamless work experience onboard ofrolling stock and within train stations(through working stations, high-speed
Wi-Fi, or closed-off phone booths)

25

Mass
customization

20

3D
printing• Using sensors and computers toautomatically couple and uncouple
rolling stock wagons, replacing buffersand chain couplers, eliminating needfor manual coupling and uncoupling• Enabling production of complex parts
onsite, allowing for more efficientmaintenance and repair• Increasing safety and efficiency,
allowing for monitoring of wagon
performance and providing remote
breaking

23

Leisure mobility
evolution• Expanding service offering topassengers to take advantage ofthese shifts by providing direct routes
to tourist destinations or partneringwith leisure service providers• To support this, we will see various
incentive schemes, including subsidies,tax breaks, and increased investments
in infrastructure

26

Passenger
experience• Expanding station offerings throughdirect delivery of food, drinks, or
products to passengers on trains
passing through en route to destination• Railway operators will integrate theiroffering into homegrown as well as
external MaaS applications

Modal shift
to rail• Increasing push for a modal shift fromother modes of transport (primarily
from roads) to railways to easecongestion and improve national
carbon footprint by governments
and regulatory bodies• Simultaneously, operators will expect
individually tailored rolling stock fromOEMs

• Integrating existing and new mobility
services into one single digital platformto provide customized door-to-doortransport and offer personalized trip
or packages planning and payment
options24• Growing leisure mobility habits due to:(1) an increasing middle class, (2) longer
healthy lifespans that increase ability
to travel, and (3) increased individual
desire to travel (especially after
COVID-19)• Improving experiences through:(1) automated ticketing, value-added
services, and further segmentationof travel classes, (2) security features,and (3) passenger engagement, seat
assignments, and infotainment systems

Mobility-as-a-Service(MaaS)

Digital automatic
coupling• Revolutionizing supply chains,potentially eliminating the need formass production, transportation andstorage due to 3D printing and additive
manufacturing• Increasing focus on individually tailoredofferings regarding digital retail,hospitality, and seamless connectivity
from railway operators, which will be
expected by Gen Y and Gen Z (majorityof travelers by 2040)

28

21

29

On-demand
services• Expanding on-demand service offerings
within stations and onboard of rollingstock• Use cases include food & beveragecatering, shopping delivered trackside
upon arrival, entertainment onboard,and alternative transport mediums
should trains not run

27

Embeddedpayments• Embedding payments through direct
integration into customer interaction,
creating seamless transactions• Services can be purchased on-demand
digitally within apps and portals but
also within stations/rolling stock(micro-payments)

30

Multimodal
mobility• Integrating several different forms oftransport within a single journey fromboth operator and customer
perspectives• Train stations will be transformed
into increasingly fluid platforms for
multimodality/transport hubs (alsooffering connections to bike/car
sharing, scooters, taxis, shuttles, etc.)

9

R E P O R T: R A I L 2 0 4 0

31

New digitalbusiness models• Rise of new, fully digital service
offerings by new or incumbent market
players to fight for market share• Customer-centric sales and asset-lightbusiness models will thrive by taking
advantage of existing infrastructure
and limiting CAPEX costs

34

Climateneutrality• Introduction and expansion ofregulatory requirements to operatewith a neutral carbon footprint willalter sourcing of materials,
construction of infrastructure, androlling stock operations• A transitionary period is expected
where players are allowed to offset
emissions; however, strong limitations
are expected 2030 onward

Regulation & organizational setup

37

Increasing
privatization• Further deregulation and privatizationof both infrastructure and operations,which are still directly or indirectly
controlled by governments in mostmarkets• Goals: (1) increase competition and(2) increase efficiency of incumbents

40

Breakup oftransport networks• Break up geographically limited
transport networks into larger, national,
or cross-border networks (primarily forregional, low-speed rather than highspeed trains)• Standardization and harmonization of
infrastructure, offerings, and payments

43

Vehicle ownership& asset efficiency• Rise of shared vehicle ownership,
increasing system-wide asset efficiency
by reducing idle time and sharing
investment and operational costs• New transport business models arelikely to be developed throughpartnerships and alliances

Source: Arthur D. Little

1032Interoperable
tickets

33

Pro-railtransport policy• Introduction of flat rate (all-in-one)ticket systems that are valid for various
modes of transport and for various
players to encourage intermodal traveland provide seamless door-to-doortransport• Increasing pro-rail but also anti-flightand anti-car policies, including:(1) tax relief/reduction or increase,(2) limiting flight routes (in France),and (3) shifting infrastructure budgets
to rail• Dependent on underlying technologicalplatform with which players cancollect, share, and interpret customer
data as well as a homogeneous
payment scheme• Main enabler of achieving modal shift
to rail

35

Fossil fuelbans

• Limitations on traditional fossil fuels
and combustion engines will expedite
transition to alternative fuels andexpansion of electrified tracks• While exceptions for cargo and logistics(especially for long-distance rural andheavy loads) will remain, passenger
travel will continue without diesel fuel38

Industry
consolidation

36

Infrastructure/operations unbundling• Some markets will see trend to
separate and unbundle infrastructure
operations from transport operators to
break up conglomerates (as done in the
UK and planned for Germany starting
2024 onward)• Goals: (1) improve efficiency of track
network and (2) ease access for various
operators, in turn increasing
competition

39

European railstandardization• Consolidation of component
manufacturers, OEMs, and operators(especially niche players with low
market share) to support increasing
investments into technology andfulfill sustainability requirements• Standardization to ensureinteroperability and compatibility ofrail systems across Europe, including
tracks, signaling, operations, safety,
and energy efficiency — mostprominently ETCS

• Both vertical and horizontal
integrations likely• Developed by EU and International
Union of Railways to integrate
European railway system acrossEurope until 2050

41

Open accessliberalization• Further liberalization of railway markets(as seen in Europe), enabling increasing
competition (through open access orfranchise models)• Introduction of new business models
and players, thus improving customer
experiences as well as decreasing prices

44

Cybersecurity

42

Global railstandardization• Break up domestic rail specifications
relating to: (1) physical characteristics(rail spacing), (2) electricalcharacteristics, (3) control systems,and (4) safety standards (fire standards,
braking distance)• Allowing increased interoperabilityof rolling stock and cross-border
travel and decreasing production
and construction costs (due tostandardization and synergies)

45

Capability retention& expansion• Higher risk and exposure tovulnerabilities due to automation,
digitalization, and connectivity,
especially in transition from legacy
to new ecosystems• Increasing difficulty in hiring, retaining,and expanding talent due tooverarching skills shortage but alsochanging employee expectations
toward workplace• Market players will need to undergo aparadigm shift from safe-by-design tosafe-and-secure-by-design to protect
themselves from cyberattacks;
regulators will impose high standards
for infrastructure and operations
considered part of national security• Set up dedicated talent acquisition andrecruitment plans, investing in internal
educational and training facilities,
and increasing attractiveness andcompetitiveness of jobs across theboard (from maintenance engineers
to train drivers)

ARTHUR D. LITTLE

11

R E P O R T: R A I L 2 0 4 0

3. THE GENERAL MARKETE N V I R O N M E N T F O R R A I LW AYSERVICES
Two major uncertainties affect the general growth

When rail is the most efficient transport

dynamic for railway transport: overall mobility

offer (city center to center with high-speed

growth and the share of rail in the modal split.

services of under four hours), its market

1. The growth of overall mobility depends on
macroeconomic factors:- Uncertainties about the evolution ofhousehold consumption in a context ofinflation will directly affect leisure mobility.

- Uncertainties about the evolution of growthin the eurozone will have a direct impact on
business mobility.

- The growth of inland freight volumes is

directly linked to economic growth, andthe implementation of new logic for more
local logistics and nearshoring affects thegrowth of inland freight volumes.

2. The share of rail in the modal split depends

on several factors related to the ecologicaltransition:- Travelers. This refers to a modal shift torail at the individual level and willingness
to consider the ecological impact intheir choice of transport. In 2020, it wasestimated that two-thirds of Europeans
took ecological impact into account, but
only 5% have considered it during their lasttrip, according to the 2020 Kantar mobility
study. The evolution of this figure, whichreflects the actual ability of users to movefrom desire to an actual change of travel
preferences, is an important uncertainty
that will affect the share of rail.

- Authorities. Pro-rail transport policy

in a carbon-neutral context (concrete
regulatory decisions such as banning
short-haul air travel) and public investment(in infrastructure and rolling stock) are two
essential pillars that favor rail. But market
share gains for rail are hard to achieve.

12

share is often very high (for example, 60%
on Paris-Milan and 65% on Paris-Lyon). But
this is not sufficient. To gain a strong modal
share, rail must also progress in areas where
it is less relevant today:- Long distance and very long distancewith the building of new high speedlines, the development of multi-modal
with rail-air and railroad facilitations,the setting up of cross-border corridors,
and the development of longer andlonger train services, including thereturn of night trains.

- Short distance with increasing
density of regional networks.

- Connections and multimodality fromroutes outside city center to city centerroutes.

- Public investments and policies todevelop medium-term rail freight flows.

- Operators. In addition to public authorities,
rail operators have a role in proposing

breakthrough offers to the positioning of rail:- Ecological positioning by strengthening
sustainability levers (e.g., removalof diesel locomotives, battery traintechnology, hydrogen, purchase or
direct production of green energy).

- Improving price attractiveness by

reducing operating and maintenancecosts: low-cost model (e.g., Lumo, Ouigo,
Avlo) and new technologies lowering costs(automation, predictive maintenance).

ARTHUR D. LITTLE- Proposing new business models adapted

I M P R O V E D I N T E G R AT I O N
WITH URBAN MASSTR ANSIT SOLUTIONSINCREASES THE
AT T R A C T I V E N E S S
OF THE SHAREDMOBILIT Y SYSTEM

to new markets such as the very long
distance (positioning startups like

Midnight Trains and European Sleeper)and regional high-speed transport (e.g., Le
Train, Kevin Speed).
Improved integration with urban mass transit
solutions (metro, tramways, buses) as well as
new mobility solutions (active, shared, andmicromobility modes to complement masstransit for the first and last miles) increases theattractiveness of the shared mobility system

Two competing scenarios of rail demandas an alternative to individual car travel by
default. This physical integration can be further
enhanced through Mobility-as-a-Service (MaaS)
as explained in the ADL Report “How to Realize

growth are possible:
1. Stagnation (low case) with mobility growth

the Promise of Mobility-as-as-Service.”of +0.5% per year (CAGR 2019–2040, Europe, in

These efforts to increase attractiveness foryear (CAGR 2019–2040, Europe, millions tkm).

millions pkm) and freight growth of +1.0% pertravelers will have positive effects on volume.
This growth impulse must be supplemented byefforts to increase and improve the physical

2. Economic growth scenario (high case)with mobility growth of +1.5% per year (CAGR
2019–2040, Europe, in millions pkm) and freightcapacity (infrastructure and vehicles), which

growth of +2.0% per year (CAGR 2019–2040,

is one of the main bottlenecks in many rail

Europe, millions tkm).

systems (see Figure 2).

Figure 2. Evolution of mobility and European rail traffic,
2010–2040
Figure 2. Evolution of mobility and European rail traffic, 2010–2040
European passenger transport trends

European freight transport trends

2010–2040, Europe, m pkm

Other transport

Rail

2010–2040, Europe, m tkm

CAGR 2019-40
8.221

0.5%

Other transport

Rail

CAGR 2019-40
3.650

1.5%

0.4%

1.3%

5.645

93.2%

0.9%

1.5%

1.6%

3.7%

75,0%
90.0%

5.247

2.0%

2.968

6.667
6.013

1.0%

2.408
2.238

2.139

2.194

81.7%

81.0%

82.3%

82.3%

18.3%

19.0%

17.7%

396
(17.7%)

2010

2015

2019

2020

80,0%

92.0%
93.2%

93.0%

4.446
94.9%

6.8%

6.8%

7.0%

2010

2015

2019

227
(5.1%)
2020

534(8.0%)

822(10.0%)

1.1%

3.2%

CAGR
CAGR
2040
2040
Low case High case Low case High case594
(20.0%)

912(25.0%)

CAGR
CAGR
2040
2040
Low case High case Low case High case

Source: Arthur D. Little, Eurostat

Source: Arthur D. Little, Eurostat

13

R E P O R T: R A I L 2 0 4 0

ALL EUROPEANC O U N T R I E S H AV E
MAJOR AMBITIONSTO DEVELOP R AIL FOR
F R E I G H T T R A N S P O R T,
PA S S E N G E R T R A N S P O R T,
OR BOTH

Economic growth scenario (high case):- The tripling or quadrupling of rail by 2035–

2040 to serve the massive and rapid ecologicaltransition in a context of growing mobility.

- A growth in mobility that remains supported
by a buoyant economic context, with rail’s

market share rising to 10% (passenger) and 25%(freight), driven by public investments and theswitch of users and innovations brought by the
ecosystem.
All European countries have major ambitions

What would this mean?

to develop rail for freight transport, passenger
transport, or both (see Figure 3). There are

Stagnation (low case):

numerous investment plans, whether for the- Slow progress in a constrained economic

current network, the development of new lines,
or to support operators.

context and in a slower ecological transition.

- Mobility growth around 0.5% per year
constrained by stagflation.

- A market share of 8% for passenger rail and

20% for freight limited by road/air habits andlimited investments in rail infrastructure.

Figure 3. Evolution of European rail modal shares — 2016 vs.
2040
Figure 3. Evolution of European rail modal shares — 2019 vs. 2040
European freight transport trends

European passenger transport trends
2019 vs. 2040, rail modal share %2019 vs. 2040, rail modal share %

2040

31

7

15

13

12
8

15

10

9

10

7

15

12

10

10

9

7

6

25

25

25

23

12

10

10

35 34
30 30
24

20

19

18

France

10

15

Spain

15

40

40

15

12

9

Source: Arthur D. Little, Eurostat

14

Source: Arthur D. Little, Eurostat

Switzerland

SwedenPolandAustria

Italy

Germany

Belgium

EU - 28 countries

UK

Switzerland

SwedenPolandAustria

Italy

FranceSpain

Germany

Belgium

EU - 28 countries

5

UK

2019

22
20

ARTHUR D. LITTLE

15

R E P O R T: R A I L 2 0 4 0

4. MARKET SCENARIOS BY COUNTRY

In this section, we assess current national rail

1. Variations in transport market regulations.

market systems of regulations and operations

France and Germany are highly regulated,and develop a scheme that organizes thesewhereas the US and UK have looser regulations.

dimensions into a comprehensive framework.

2. Rail’s modal attractiveness. In some markets,

Leaders and key stakeholders of railway
companies and systems may use this framework
to evaluate their current positioning andmodal attractiveness of rail is seen as very
favorable, while other markets show stronger
customer preferences for other mobility types,

readjust their strategic direction if needed.

like aviation or private car.
Table 2 specifies the sub-criteria that define

A N OV ERV I EW O F
T HE S CEN AR I O CAN VAS

transport market regulations and rail’s modal
attractiveness.

Railways typically serve a national market, withcountry-specific characteristics. They can be
described by two main criteria:

Table 2. Sub-criteria for transport market regulation & rail's
modal attractiveness
Table 2. Sub-criteria for transport market regulation and rail’s modal attractiveness
TRANSPORT MARKET REGULATION

RAIL’S MODAL ATTRACTIVENESS

Transport market regulation can be defined within the rail system and outside
the rail system. Within the system, the following six criteria are relevant:Rail’s modal attractiveness can be measured by modal share of rail (2019 vs. 2040)
and the profitability of individual players. The primary characteristics defining
these KPIs are:–Privatization of individual value chain elements (parts of infrastructureor specific route operations)–Market entry & accessibility for third parties–––

Customer satisfaction (qualitative, based on key indicators such asaccessibility, punctuality, perceived quality of service, cleanliness ofrolling stock)

Pricing influence by regulator (subsidized flat rate tickets, track charges)–

Sustainability (carbon footprint, energy efficiency, circularity)

Operational influence by regulator:–

Service offering (connectivity, availability, intermodal service)–

Pricing (competitiveness of pricing in comparison to other modesof travel/transportation)–

Pricing influence by regulator (subsidized flat rate tickets, track charges)

–
–

–
–

Operational procedures (coal train prioritization, timetable-related
infrastructure planning)
Offering specs (operations during COVID-19, geographic necessities
in the offering, the need for integration)
Influencing construction planning & procedures (speeding up
planning-approval procedures)

Financing (modernization, renovation, replacement, or extension)

Outside the system, we talk about regulating alternative modes oftransportation, particularly in the following four areas:–

Aviation: limitations (ban national flights), taxes, fees, slots, operations–

Cars & trucks: highway tolls, taxes, speed limits, subsidies for e-mobility,
technical regulation–

Public transport & long-distance buses: taxes, subsidies–

Inland water transport: taxes, subsidies

Additionally, the regulatory interplay between the different modes(intermodality & interfaces) must be considered.
Source:Arthur
D. Little
Source:Arthur
D. Little

16

ARTHUR D. LITTLE

We have identified four different market types(see Figure 4), based on these two dimensions:transport market regulation and rail modal
attractiveness:

E VERY COUNTRY’S R AILMARKET HAS UNIQUE
CHAR AC TERISTIC S

1. Quasi-monopoly. Markets are dominated byan incumbent and a few competitors. A typicalexample is Germany, where Deutsche Bahn AG

It is important to note that all quadrants haveoperates the infrastructure and dominates thetheir pros and cons, and it is not necessarily

market for both long-distance and regional

better to move from left to right or bottom

travel.

to top. Every quadrant is a potential target,
depending on the point of view (e.g., operator,

2. Oligopoly. Markets feature a small groupof strong players. The Netherlands provides
a typical example, where only a few otherplayers have significant market shares besides
Nederlandse Spoorwegen (NS).

customer, regulator) and the overall maturityof the transport system within the market.
Every country’s rail market has uniquecharacteristics and corresponding national
macroeconomic factors. Individual assessments

3. Easy access. Markets follow a strict
liberalization policy with weak or weakening

were conducted to create thorough reports

incumbents. Typical examples are the US

for each market. We selected and examined

and UK; the UK has embarked on a course

eight markets, taking a deep look at marketof regrouping various railway players into

regulation, the attractiveness of rail, and theGreat British Railways (GBR).

strategic direction that each market is following
to further develop its systems.

4. Competitive access. Markets are highly
attractive and allow true competition. At
present, none of the global railway markets
qualify for this category.

Figure 4. Current (2023) vs. future (2040) positioning ofrailway markets
Figure 4. Current (2023) vs. future (2040) positioning of railway markets

Quasi-monopoly

OligopolyHigh(higher barriers
to entry)

Austria

Europeansweet spot

Belgium
FranceTransport market
regulation

Germany
Italy
Japan

Moderate(lower barriers
to entry)

Spain
UK

Easy accessModerate

Competitive accessRail’s modal
attractiveness

US

High

Source: Arthur D. Little

17
Source: Arthur D. Little

R E P O R T: R A I L 2 0 4 0FranceFrance’s passenger rail market is Europe’s second
largest after Germany; its freight rail market is thethird largest after Germany and Poland. Thanks
to rail market liberalization, freight transport’s
12% EBITDA margin in 2022 was better, relative toother European countries. The margin of B2C longdistance passenger activity back to pre-COVID
levels, with a 2022 EBITDA margin of 17%, up from
15% in 2019. The 2022 margin demonstrates the
profitability potential of the French long-distancemarket. In 2022, the EBITDA margin for B2G(business to government) regional train activity
was 6%, down from 7% in 2019. It is worth notingthat the steep toll increases announced by SNCF
Réseau for 2023 and 2024 are likely to seriously
impact profitability of all activities.
Development prospects will remain important
over the next 10-15 years, thanks to ambitions
to double passenger and freight traffic.
Reaching this goal will necessitate a significant
increase in the modal share of rail, from 10%
in 2019 to 15% in 2040 for passenger transportand from 10% to 23% for freight. Debates areunderway over public policy pertaining to rail
financing. Policy issues include funding tobuild new high-speed lines, developing regional
train networks around 10 of France’s major
cities, investing in modernizing the network,and generating public support for freight rail
development.
In terms of competition, France’s freightmarket was privatized in 2004 with two major
consequences: SNCF, the state-owned nationalrail company, now represents only about 70%
of market share, of which approximately 20% isthrough SNCF subsidiaries and 50% is throughFret SNCF. This share will fall by at least a further
10 pts by 2024, in response to the demands of theEuropean Competition Authority. The value chain
has been strongly divided from developmentof rolling stock companies (ROSCOs) anddevelopment of maintenance for third parties.
The French passenger market opened up tocompetition for open access operators on
high-speed long-distance routes in 2021
and by tender on regional transport. Several
competitors have entered or are currently
entering the market, including Trenitalia
and Renfe. Over the long term, SNCF could
lose between 10%-15% of its market share tocompetition in both regional and long-distancetransport. The value chain is also changing:

18

LISEA wants to offer maintenance capacity,
Getlink wants to set up a ROSCO to focus oncross-channel rolling stock, and the Caisse
des Dépôts is considering a ROSCO for regionalrolling stock. SNCF may be able to monetize
some of these activities in the future.
In summary, France’s market is attractive
because it is growing (up 3% per year on
passengers, assuming the market doubles by
2040, and up 6% per year on freight, assuming
the market triples by 2040). The market has
significant potential to improve profitability(the cost weight of tolls and rolling stock arestill high in France), and regulation is decreasing
as the market opens in either open access or via
tender. These conditions offer opportunities toforeign rail operators (Renfe, Trenitalia), startups (Le Train, Kevin Speed), and private equity(PE) firms investing in rail assets (CDPQ, DWS).
The expected growth in traffic should also allow
SNCF to grow its national market by expanding
its high-speed low-cost service Ouigo,
defending its regional trains’ market share,
and launching new activities in the value chain.
UK
Thanks to the UK’s commitment to reachnet zero by 2050, the modal share of rail will
increase substantially from 2022 levels forboth passenger and freight traffic. Increased
regulations on carbon emissions and urban air
quality will support the modal shift to rail.
Rail travel offers a more sustainable option
than traveling by car or plane. A rise inpassengers transported by rail is anticipated,as conventionally fueled vehicles are graduallyphased out and more sustainable transportmodes gain popularity. In 2019, there was a 3%
increase of passengers using rail transportation;by 2040, rail passenger traffic is projected toincrease by 50% due to more environmentallyconscious customers. Following the opening of
London’s Elizabeth line, billions of dollars havebeen invested in High Speed 2 (HS2) and theTranspennine Route Upgrade (TRU), which will
increase passenger capacity and free up former
passenger capacity for increased freight flows.
Great progress has already been made towardgreening the UK’s rail network. To date, 42% of
the network is electrified, and a combinationof battery and clean fuels will eliminate alldiesel rolling stock at the remote ends of theARTHUR D. LITTLE

network. By 2040, we expect to see 100% railelectrification. The rail sector, which suffered
fragmentation during the mid-1990s, is being
restored by a unified, innovative national
railway offering increasing levels of customer
experience, driven by private sector operatorsof regional contracts.

INVESTMENTS AND
FUNDING FOR THE
R A I L W AY S E C T O R
H AV E I N C R E A S E D
S I G N I F I C A N T LY

Several large passenger operators, including
National Express and NS, have left the market.
By 2040, it is expected that the network willremain state-owned, with multiple private sector
organizations operating under tightly specified
contracts to deliver high-quality passenger
services. The freight sector remains dominatedby four private sector operators who actively
compete to deliver freight transport services toOver the past five years, rail freight transport
has remained stable with an 18.7% modal splitof transport modes. Passenger rail peaked at
9.3% in 2019 (dropping to 6.3% in 2020, primarily
due to the increase in motorized individualtransport). This share is increasing again(primarily due to improved options for affordable

support other sectors of the UK economy.

ticketing, such as subsidized monthly tickets,

Data from the UK’s national regulator reveals

but not as quickly as the absolute numbers

the country has maintained its position as
the safest global railway, with passengersatisfaction levels similar to other consumer
sectors. Post-pandemic, the sector transitioned
from a system designed to carry large volumesof weekday season ticket holders to urban
centers into one where a similar service isprovided seven days per week, removing
historical distinctions between commuting

and increasing sustainability consciousness)because of parallel increases in other modaltransportation.
Even though the German market was partiallyopened to competition through its reformin 1994, it is still highly concentrated. The
country’s market is dominated by the federally
owned Deutsche Bahn (DB), which controls
the entire infrastructure and the majority

and leisure travel.

of personal transport (from subsidiaries

The investment in UK rolling stock design,

picture, however, differs for long distance anddevelopment, and manufacturing, which beganearlier in this decade, created a world-classtrain-supply industry. The country is the test bed
for new rolling stock, prior to launching global
exports to exploit the UK’s proximity to the EU
and negotiate free-trade deals with major rail
markets. In 2019, the total income for the UK rail
industry was £21 billion (roughly US $27 billion),
an increase of 0.5% from the previous year. Should
this continue to increase steadily, by 2040 we will
see a 9% increase in income with passenger rail as
the largest contributor.
Germany
Germany is the largest railway market in Europe,with over 100 million pkm in 2019, and 38,394 kmof tracks. While the COVID-19 pandemic severely
impacted the railway system (down 50% in longdistance pkm, 40% in regional and local rail pkm,
and 4% tkm in freight), it has recovered well,with more than 10% CAGR in the last two years,
which is expected to stay stable until 2027. The
modal split does not yet fully showcase thisdevelopment.

DB Long-Distance and DB Regional). Thisregional distance. For long-distance travel, DB
Fernverkehr has held a stable 98% monopolistic
market share. For regional travel, DB Regio has
been losing market share in recent years, now
holding at 60%. For freight transport, DB Cargoholds an even smaller market share (45%).
The goal of the German government is to double
the number of rail customers and increase
the modal split of rail freight to 25% by 2030.
To achieve this goal, the German railway
system will undergo significant changes.
Foremost, a new setup and steering logic forthe infrastructure division will be launched
beginning in 2024. There will be a paradigm
shift from profit orientation to common welfare
orientation, which will further foster fairness
and competition in the market with regard toaccess to infrastructure and fair pricing.
Investments and funding for the railway sector
have increased significantly due to increasing
road congestion, changes in customer
preferences, and environmental pressure.
In Germany, the per capita investment in rail has

19

R E P O R T: R A I L 2 0 4 0

lagged for years, never placing in the top 10 for
European investment. In 2021, this changed witha year-on-year investment increase of 40% (€124
EUR per capita, now ranking eighth). In upcoming
years, investment amounts will increase evenfurther. In 2022, for the first time ever, theGerman government invested more money in

OVERCOMINGBOT TLENECKS ANDI M P R O V I N G L A S T- M I L E
CONNECTIONS ARE
NECESSITIES

railway than road transport (€8.9 billion EUR
versus €8.3 billion EUR), which foreshadowed
the prioritization shift for the coming decades.
Thanks to public preferences, we expect thistrend to continue regardless of the politicalparty in charge. The increase and modernizationof infrastructure (e.g., increasing the number ofelectrified tracks from 53% to 75% by 2030, fully
rolling out the European Train Control System[ETCS] by 2035, and improving capacity andmodernization of stations) are primary concerns.
As global best practices prove, the real shift
toward a modal split only happens if regulation
works on both sides: increasing attractivenessof rail while decreasing the attractivenessof individual modes of transport. This can beaccomplished by decreasing road lanes andparking spaces in cities and increasing therelative tax burden, which can include raisingvehicle taxes, implementing intercity tolling,
and imposing strict emission class regulations
and limitations.
We see two clear paths for the German market:
a push for more competition in the rail system
and an increase in modal attractiveness. Thus,
we expect a modal share of 15% for passenger

The Italian railway market is highly
concentrated, even if its degree of openness
to competition is among the most advanced inEurope; in fact, once it has implemented therelevant EU regulations, any railway company
in Italy can freely operate domestic passenger
services. Out of 20,000 km of rail infrastructure,
only about 16,000 km are managed directly by
RFI as of 31 December 2021, while about 3,000
km, of which about 1,500 km are interconnectedwith the national infrastructure, are managed byother private or public entities.
For rail passenger transport, the service isdivided into local public transport (LPT) andlong-distance transport. Italy’s long-distance
options are managed by four railway companies:
1. Trenitalia, which provides the majority ofnational and international service.
2. Italo, which operates a national premium
service.
3. Trenord long distance, which provides
international service.

transport until 2040. The shift in absolute

4. SNCF, which operates international services.

terms will seem rather small compared to

Most long-distance services are provided on theother markets because of the country’s uniquestarting point, but the impact by the relativechange will be undeniable.

high-speed rail network, which, in the years prior
to 2020, recorded an increase in volume and arise in the frequency of services. The remaining
national offer has not undergone major changes

Italy

in the quantity of trains, but rather in the

The structure of the Italian national railway

used. The international market is also stable.

network is characterized by a separationcommercial stops planned and the rolling stock

between railway infrastructure management

For rail freight transport, the market share ofand railway service performance, whichrail cargo in Italy is 13%, below the European

corresponds to the corporate separation withinaverage of 19%-20%. It is clear that if Italy wants

Ferrovie dello Stato Italiane S.p.A. (FS Italiane)

to reach the 30% threshold by 2030, as required

and between state-owned Rete Ferroviaria

by the EU, it will need to push goods toward

Italiana (RFI) and Trenitalia.

the railways by making freight trains morecompetitive. Overcoming bottlenecks, like thoseat the Alpine passes, and improving last-mileconnections between the railway network andthe ports, which can hinder a full development,
are necessities.

20

ARTHUR D. LITTLE

We see two clear trends for the Italiandecline in public transport, and the rail’s 2019

railway market over the next decade: greater

share in the modal split of 12.9% could notcommitments to sustainability and a modal

be maintained. However, in 2021 the rail had

shift toward high-speed travel. In Italy, thegradually returned to its regular schedule, andliberalization of the high-speed market has

as a result, passenger numbers also climbed

led to a significant increase in passengers,

back up to 218.7 million, an increase of nearly

especially on the Milan-Rome route. Italo began

14% compared to 2020’s 192.2 million.

operating in April 2012 and its competition
with Le Frecce, Trenitalia’s high-speed service,
led to a significant price reduction, which also
affected air travel. In fact, traveling by train
became more convenient economically, withcomparable timescales to air travel. Thus, we
saw high-speed travel go from 36% in 2008
to 58% in 2012 and to 73% in 2016. Conversely,
air travel dropped from 50% in 2008 to 32% in2012 and 18% in 2016. This trend will probably
continue during the next decade, and we seehigh market opportunity for high-speed railsystem development, particularly in Italy’s

The economic recovery was noticeable in
the freight sector, where the 2021 indicators
showed positive developments primarily due
to the easing of COVID-related restrictions
that affected the economy. Though the shareof rail transport remained stable throughout
the pandemic (roughly 30%), both volume andtransport performance (net tkm, gross tkm)
did not reach pre-COVID levels until 2021.
The Austrian passenger and rail freight market isdominated by ÖBB, the federally owned railway

south.

company. While ÖBB’s market share in passenger

To meet decarbonization goals, FS Italianemonopoly, its biggest competitor, WESTbahn,intends to become carbon neutral by 2040,
with respect both to the energy it buys andthe energy produced by the group’s companies,
including the energy used to power both rail androad vehicles and energy used in fixed facilities(e.g., workshops, stations, offices, tunnels,

transport is 86%, representing a quasioperates on Austria’s most profitable route(Vienna-Linz-Salzburg-Innsbruck) andrecently expanded its services to Munich. Thissignificantly increases price pressure. Railfreight transport in Austria is more fragmented
than passenger transport. ÖBB’s subsidiaryroads).

Rail Cargo Austria has a market share of 62.7%,

Hydrogen-innovation projects are gaining

share of less than 6%. Competition is most

momentum for decarbonizing fleets of trains

pronounced on the Brenner and western axes,

currently powered by diesel in order to makewhere companies outside the ÖBB Group alreadytravel greener within the 28% of the national

have a market share of above 50%.

territory not yet electrified. FS Italiane andgas transport group Snam will set up a working
group to evaluate possible pilot projects
involving the replacement of fossil fuels withhydrogen. One objective of this collaboration
is to create infrastructures to rapidly convert
diesel-powered trains to hydrogen and thus
acquire technological leadership that can becapitalized on at the international level.
Austria
Austria’s rail market plays an exceptionally
important role in the mobility mix relative to
its European neighbors, with a modal split shareof 9.1% in 2020. Only Switzerland (15.5%) has ahigher share, while other EU countries such as
the Czech Republic (7.8%), France (7.8%), andGermany (6.3%) are significantly behind. The
COVID-19 pandemic resulted in a significant

while the smaller providers each have a market

To achieve Austria’s climate goals, thegovernment is aiming for a 43% share of public
transport (e.g., train, bus, tram) by 2040. To
attain this, rail will have to double its share in
the modal split. An equally ambitious target
has been set for freight transport, aiming fora 40% share of all rail transport by 2040. The
measures are, on the one hand, necessitating
substantial investments in infrastructure and,on the other hand, increasing the attractivenessof the railway by implementing new policies.
The Austrian government guaranteed a €19
billion EUR investment (roughly US $21 billion) ina modern rail network between 2023 and 2028
and introduced a new nationwide travel ticket(KlimaTicket or “climate ticket”) to promote
public transport. However, according to experts,
meeting the 2040 target is questionable since
the rail network will reach its limits by 2030,

21

R E P O R T: R A I L 2 0 4 0even if expansion measures are implemented.
Increased frequency, new trains, and enhanced
automation are not expected to sufficiently
address capacity constraints.
In closing, we see three main challenges for

BELGIUM’S FEDERAL
GOVERNMENT IS CLE AR
A B O U T I T S L O N G -T E R M
AMBITIONS

Austria’s railway system:
1. The attractiveness of the southern line mustbe further increased, which has already been
initiated with the start of the construction of
the Semmering Base Tunnel and the Koralm
Tunnel. The travel time is not competitive
enough to be a viable alternative for cars andtrucks.

freight via rail from the ports of Antwerp and
Zeebrugge to other European destinations. The
total rail modal share in Belgium for freight is
10.5%. COVID-19 led to a 20% decrease in demandin April 2020, but it is expected to recover fully
this year. Between 2020–2025, the rail freight

2. Capacity constraints need to be addressed,

market is expected to grow by 3.2% per year,

and infrastructure projects need to be

driven by intermodal transport and linked to a

expanded and accelerated to achieve therise in container throughput at relevant ports,

ambitious goals for 2040. The deciding

including Antwerp and Zeebrugge.

factor will be how the political sentimenton decarbonizing transport evolves.
3. To compete with new players in the future,
the focus must be on intermodal transport(passenger and freight) and offering a real
end-to-end journey.
Belgium
Belgium has one of the densest national rail
networks in the world (15 billion pkm in 2019and 4,000 km of tracks). The network is primarily
used for passenger transport. In 2018, passenger
trains accounted for 86.9% of train kilometers

SNCB’s freight business was privatized in 2011
after several years of financial difficulties.
In 2016 and 2017, growth rebounded when thecompany underwent rebranding as Lineas. Now,
12 railway undertakings are active in the Belgianrail freight market. Lineas is the incumbent
and has around a 67% market share. Its market
share decreased again in recent years due tohigh competition. Its main competitors are CFL
cargo, an incumbent in Luxembourg with a 10%
market share; Railtraxx, a subsidiary of SNCF
with a 7% market share; and Crossrail Benelux,
a subsidiary of Swiss BLS Cargo AG with a 5%

traveled.

market share.

A breakdown of passenger transport in

In its Railway Vision 2040, Belgium’s federal

Belgium shows that 97.9% of pkm traveled isnational transport and 2.1% is internationaltransport. The total share of rail in passenger
transport was 8.4% in 2019. The modal share ofnational transport has been stable since 2012.
Internationally, the share increased overall
from 2012–2019, but it collapsed in 2020, with
only 3.3 train kilometers compared to 6.0 train
kilometers in 2019, a drop of 44.6%. Until 2020,
only the international passenger transport
segment faced effective competition. The
COVID-19 crisis allowed SNCB to strengthen
its market share (98%) because it maintained
its offer and international rail transport fell
sharply.

22

Belgium has a strategic position to transport

government is clear about its long-term
ambitions: by 2040, the modal share of trains
should increase from its current 8% to 15% ofdomestic passenger transport, and by 2030,
the freight volume should double. In concreteterms, this means smoother, more reliable,
and numerous connections; the identificationof Brussels as an international hub connected
to European capitals; the upgrading of freight
infrastructure, but also a strengtheningof supply (a train every 15 minutes in major
cities and every 30 minutes on the rest of
the network); and better accessibility or even,attractive, and simplified pricing.

ARTHUR D. LITTLE

Spain
Spain has a well-developed railway system,with over 4,500 trains running daily and a totalof 15,200 km of track. The state-owned railway
company Renfe dominates the passenger
segment, which operates both high-speed andregional trains. Infrastructure is managed by thestate-owned Administrador de Infraestructuras
Ferroviarias (ADIF), which manages 80% of all
tracks, of which two-thirds are electrified.
With 3,200 km, Spain’s high-speed network is
the second largest in the world after China.
Since 2021, interest has grown in liberalizing
the country’s railway system, mainly to increase
traffic on its high-speed network. A 2018 reportfrom the National Commission for Markets andCompetition (CNMC) indicated that 76% of the
network’s capacity is virtually inactive.
ADIF, the network manager, opened three routes
in 2021 (Madrid-Barcelona, Madrid-Valencia, andMadrid-Málaga) to new operators under threedifferent traffic packages. SNCF was awarded
one package and operates in Spain under
the low-cost brand Ouigo. Trenitalia and Ilsa
(under the brand Iryo) were awarded the second
package and public operator Renfe the third, as
it required more resources for significant traffic.
As of 2021, Renfe retained a market share of 64%
in these lines, showing that Spanish policy did
not want to kill the national operator.
Opening the market to competition led to theintroduction of train equipment from threedifferent manufacturers: Talgo (Renfe), Alstom(Ouigo SNCF), and Hitachi Rail (Ilsa/Trenitalia).
Spain became the first country to have trainsfrom such a wide variety of manufacturers.
This model of liberalization is atypical; it isconditioned by the three traffic packages. Whilethe historical operator is still the market leader,and ADIF, the infrastructure manager, is a stateowned company.
Before switching to the standard gauge in 1992,
Spanish rail infrastructure was built with anassortment of gauges, primarily the Iberiangauge, which was interoperable with Portugal
but not the rest of Europe. As a result, eventoday, large portions of track still cannot belinked to the rest of Europe. Rectifying this is a

In 2019, the railway sector in Spain transported
over 500 million passengers and 34 million tons offreight. COVID-19 had a huge impact on the railway
sector. In Q4 2020, there were 81 million fewer railpassengers than in Q4 2019 (down 49%). In longdistance travel, the decrease was even greater
due to precautionary measures, as non-essential
trips were discouraged. In fact, in Q4 2020, Spain
was ranked fifth among European countries withthe largest decrease in pkm (-65%).
Spain’s rail freight traffic had showed a steadydecline since the year 2000 (pre-liberalization)
when it peaked at 12 million net tkm. This decline
was accentuated by the COVID-19 pandemic,
dropping 10% in 2020. However, in 2021, therecovery resulted in 9.7 million net tkm, close
to 2019 levels.
Comparing a quarter in one year to the samequarter in another year can yield morerecovery-related data. For example, in Q3 2022,
the railway sector in Spain transported around
128 million passengers, less than the 140 million
from Q3 2019. In Q3 2022, 5.5 million tons offreight were transported in Spain, which wasless than the 6.1 million tons of freight fromthe same quarter in 2019. Spain’s railway sector
hasn’t yet fully recovered from the pandemic.
The Spanish government set ambitious goals
to increase the use of rail transportation. Its
main objective is to increase the share of rail inland freight transport from 5% to 10% by 2030
and to raise passenger transport from 7% to20%. Achieving this goal is expected througha combination of infrastructure investments,
improvements to existing rail lines, and thedevelopment of high-speed rail networks. The
Freight 30 bill has set aside €8 billion EUR(US $8.7 billion) for these undertakings. There
are several long-term priorities, including the
expansion of rail freight transport in northwest
Spain, with a target to triple its current numbersof 7 million tons annually.
In addition, the ongoing expansion of the highspeed train network is important, with new lines
being built and existing lines being upgraded. The
Renfa AVE, Avlo, Ouigo, and Iryo lines will benefit
from the creation of 10 new routes from thecurrent 24, for an increase of approximately 40%.

major endeavor that is currently being tackled.

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In addition, €900 million EUR (approximately
US $977 million) will be provided to support
operators with the installation of the European
Rail Traffic Management System (ERTMS) topurchase and renew wagons and locomotives
and to construct, adapt, and improve the rail
network and terminals. To meet the goal ofC U R R E N T R A I L W AY S
I N J A PA N A R E
M O S T LY M A N A G E D
A N D O P E R AT E D B Y
P R I VAT E C O M PA N I E S

ensuring decarbonization, Spain has been
investing in electric and hybrid trains. Targets
have been set to only source new trains and run
100% electric trains, creating an opportunity
for investment and improvement.
In conclusion, Spain’s market offers great
opportunities. The projected revenue for2025 from intercity passenger rail transportin Spain will reach approximately €2.7 million
EUR (approximately US $3 million), whereas
for the freight transport is estimated to reacharound €344 million EUR (approximately US$375 million). The government has set clear
objectives for the next several years, which will
make this market more profitable overall. These
objectives focus on two main purposes: (1) toincrease rail use for transportation passengers(20%) and freight (10%) and (2) to embrace
the inclination toward decarbonization byincreasing the production of electric tracks,
aiming to reduce emissions by 7 million tonsof CO2 by 2030. The Spanish high-speed andlong-distance segments also offer significant
potential. There is ample existing rail and moreis under construction. This segment can be very
appealing for investors.
Japan
Japan’s railway is one of the country’s
most fundamental social infrastructures,
which determines people’s way of living andcharacterizes its cities. The national averageof railway share in all traffic is approximately
17%, which is even higher in central Tokyo, witha 50% share. The country’s densely developedrail network provides people with frequent andreliable transportation for commuting and daily
life activities. Travel time by train from themetropolitan center and the distance from thetrain station nearby define the value of land.
Social and living functions are centered aroundtrain stations, forming the structure of the city.

From a historical perspective, the railway
network has been developed through a close
collaboration between public and private
sectors since Japan’s first railway started
operating in 1872. Although the government
initiated the development of long-distancerailroads, the leading force of the development
soon shifted to newly established privatecompanies, due to the government’s financial
difficulties from civil wars during the early
Meiji era in the 1880s. Even after long-distancerails were nationalized, rails serving urban andinterurban routes were mostly developed byprivate companies. Those private rail companies
evolved early, as conglomerates with diversified
businesses were formed to get a foothold in city
development, city management, housing andland development, real estate management,
department stores, hotels, and so on.
The Japanese National Railways (JNR), which
operated long-distance and regional lines, wasprivatized in 1987 and split into six regional
passenger rail companies and one freight
service company. Thus, current railways inJapan, with the exception of some local
third-sector lines, are mostly managed andoperated by private companies. Its rail service
operations are still highly regulated in terms ofsafety requirements, pricing, and opening andabandoning routes, as they are closely linked topeople’s quality of life and social survivorship.
Although Japan’s railways benefited fromits densely populated demographics and thesociety’s heavy reliance on rail transportation,
the trends of declining population and more
motorization in rural areas have created revenue
problems for Japan Railways (JR) and local
district railway companies. According to a 2019
survey by the Ministry of Land, Infrastructure,
Transport and Tourism (MLIT), 79% of Japan’s 95
regional railway companies were suffering fromfinancial deficits.

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ARTHUR D. LITTLE

Furthermore, COVID-19 accelerated flexible

Furthermore, some leading railway companies areworking styles that do not require commuting.

aspiring to bold transformations of themselves. By

This fundamental social change has led toleveraging a wide range of assets and operationalrail companies experiencing severe declines

capabilities, which have been developed throughin revenue and therefore profits. On the otherintegrated management of rail infrastructure

hand, expectations and social pressure on

and operations as well as historically diversified

rail transportation are still high. The aging

transportation-related peripheral services, thepopulation has highlighted the issue ofcompanies aspire to expand their roles to wider

transportation access for the elderly, especiallysocial infrastructure management, including vitalin rural areas. In addition, social and politicalservices such as energy, water, security, wellness,

support for decarbonization has shed light on

and financial services. In a decade or two, railway

the ecological value of rail transportation. Thus,

companies may evolve into fundamental social

railways in Japan are transforming in two ways:

platform providers that undertake comprehensive

as a modal infrastructure with redesigned andsocial functions that form the foundation ofredefined regional mobility functions for an

people’s lives.

enhanced value with economic rationality and as
a management body with established diversified
income sources that are less dependent on train
fare revenue.
Given the recent challenges, major railway
companies in Japan aspire to establish their
new roles in society. As fundamental mobility
service providers, they seek to transform theirrail service into integrated regional mobility
solutions, combining multimodal transport thataugments networks with value enhancementof points of interest and destinations. In the
pursuit of these mobility service innovations,some railway companies have started to build across-industry service ecosystem by bringing inother mobility providers as well as destination
service providers, technology developers,
and entities that can assist. One notable
example, JR East, established the Mobility
Innovation Consortium (MIC), comprising over
120 companies and academic institutions. MIC
advocates for a future mobility vision, which
includes not only a new mobility concept but
also serves to enrich people’s lives in regions
and cities.
The government also supports railway
companies’ pursuit of regional mobility
transformation. In January 2023, MLIT declaredthat the government’s efforts to redesign
regional public transports is one of the mostimportant agendas of the year. Within these
efforts, budgetary support for regionaltransportation is expected to be reinforced,
while collaboration among various stakeholders

SUMMARIZ ING MARKETDE VE LOP ME NT SCE NARIOS
Going through our case studies and reflecting
on national developments in light of the market
scenario canvas helped us derive three insightsthat capture the overall development of the
global railway system:
1. There is an overall and long-term trend ofrailway systems that started as national
state-owned companies to standardize
the individual ecosystems across national
borders. Europe in particular has seen a strong
push to harmonize regulation, especiallywith respect to liberalization, safety,
interoperability, sustainability, technology(e.g., through ETCS, usage of the standard
gauge), and sales (e.g., through cross-national
ticketing). At the same time, significant partsof the infrastructure have aged and requirerenovation, modernization, replacement,
or extension in order to fully function today
and into the future. The increased volume
and traffic on existing infrastructure haveexponentially grown in complexity and raise
the potential for incidents. A wide applicationof incident management, particularly around
punctuality and safety (see ADL’s Viewpoint“Comprehensive Machine-Augmented
Assurance”), has been used to minimize theeffect on customers, but the infrastructure
systems still show large deficits.

in the region is encouraged.

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2. We see the efforts of railway companies

a different trajectory. Japan and the US are twolevels, and improve quality, driven by growing

good examples. Japan, with its already strong

customer expectations that grew from theservice level, will aim to further perfect both

discovery of railway systems as natural

infrastructure and customer offerings. The US

backbones for integrated mobility systems.

lies at the other end of the spectrum, having

In addition, the openness and transparency

work to do in both regulation and attractiveness.

of railway services are continuously increasing.
3. With regards to the market scenario canvas,
we envision all European railway systems
gravitating toward a sweet spot. This sweet
spot, found in the lower right quadrant of
Figure 4, is characterized by more liberalizationand higher service attractiveness. Drivenby early 1990s European railway reform, thecommon role model for railway organizationis characterized by more standardization andharmonization (e.g., ETCS), modernization of
the infrastructure (i.e., networks and stations),sustainability initiatives, and greater but faircompetition between national and private
operators across borders, based on national
infrastructure that is accessible to all.

26

Single markets, on the other hand, will move on

to expand services, provide higher service

Overall, these developments send a goodmessage to rail customers because they signal
larger, differentiated product offerings andprices, as well as higher overall quality levels.
This provides a push for intermodality andintegration of mobility solutions through theprogressive setup of MaaS ecosystems, leading
to increased accessibility as well as increased
sustainability. To fulfill these demands, railway
companies will also invest heavily in employee
capabilities and increase their staff retention
efforts.

ARTHUR D. LITTLE

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5 . I M P L I C AT I O N S F O R C E O A G E N D A S

The insights we collected from different
rail systems lead us to expect that railway
management strategies and management
agendas will have dedicated and explicit
policies that respond to the issues below. The
questions differ and depend on the individual
or organization’s role within the ecosystem(e.g., public authority, OEM, supplier, operator,
infrastructure provider, private and public

THE TRADITIONALS T R AT E G Y O F G A I N I N G
A COMPETITIVEA D VA N TA G E O V E R
O T H E R P L AY E R S
WILL BE REPL ACED

investors, other private and public mobility
solution providers, enterprises, and citizens).
Standardization- Regulation. How can key points of railway
regulation, such as equipment and vehicle
certification, be further streamlined?

- Technology and innovation. What is on mytechnological roadmap?

- Technology for the network (digital twins,
telemetry).

- Technology for maintenance (inspection

on the move, remote telemetry, visual androbotic rail automation).

- Technology for rolling stock (train

automation, smart and agile rolling stock,-hydrogen).
Technology for distribution (MaaS,
customization).

Harmonization. Which efforts should beundertaken to further eliminate national
approaches and “dialects” for a common
infrastructure technology (ETCS) and rollingstock technology (interoperability)?

- Sales. How can ticketing systems beharmonized and simplified? How canticketing-related transparency be improved?

Integration- What are the new paradigms and operating
models to integrate railway backbone andcore services with adjacent mobility service
offerings, which include on-demand services,taxi services, micro-mobility, luggage services,and so on.

- How can we collaborate with potential key
partners like airports and bus operators to

configure a truly intermodal service platform?
Liberalization and service attractiveness- The traditional strategy of gaining acompetitive advantage over other players will
be replaced by a competitive access approach
to fair and cooperative ecosystem play:- How can a railway company become a real
ecosystem partner?

- What are the rail company’s priorities andpositioning in terms of the business model?

- Expanding services depends on demand
evolution (long-distance, regional,
freight) and profitability.

- Customer experience adaptations
should consider individualization
and/or mass compatibility.

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ARTHUR D. LITTLE- Consider breakthrough business models
to gain in competitiveness (low-cost,

asset-light businesses and code-sharing
trains).

- Consider developing markets in new-

countries.

What are the appropriate organization,
operating model, and shareholder- Cross-border expansion and renewed

focus on mergers and acquisitions andmobility diversification.

- Outsourcing unprofitable maintenance
operations.

- Opportunities for diversification fromMaaS and hydrogen production anddistribution.

structures?

- Long-term, foreseeable financing.
- Evaluating pros and cons andanticipating regulatory requirements
for integration and disintegration.

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NOTES

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