New Entry in the ItalianHigh Speed Rail Market

29

Discussion Paper 2013 • 29
Fabio Croccolo
and Alessandro Violi

Ministry of Infrastructure and Transport,
Italy

New Entry in the ItalianHigh-Speed Market

Discussion Paper No. 2013-29

Prepared for the Roundtable on
The Economics of Investment in High-Speed Rail
(18-19 December 2013, New Delhi, India)

Fabio CROCCOLO
Ministry of Infrastructure and Transport
Italy

December 2013

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NEW ENTRY IN THE ITALIAN HIGH-SPEED RAIL MARKETNEW ENTRY IN THE ITALIAN HIGH-SPEED RAIL MARKET

Introduction
The purpose of this presentation is to examine a specific rail transport sector, namely
high-speed (HS) rail, in Italy.
This analysis will cover the main features of the Italian HS system by studying aspects
such as: the legislative framework, infrastructure, services, traffic data and market
shares, in addition to regulatory matters.
The European context
In the early 1990s (Directive 91/440/EEC), the European Union launched athoroughgoing programme to reform the rail sector, a programme which was notable forits socio-economic repercussions and for its economic and environmental sustainability
aspects. The end result, which was initially to be reached by harmonising the various
national systems and liberalising international transport at European level, was graduallyrefined until it achieved the declared aim of creating a single European rail space and an
integrated, safe and interoperable market.
That target was to be achieved by constructing new lines, particularly high-speed lines,
aimed at making rail travel genuinely competitive in relation to road and air transport
over distances up to 700 km and beyond.
The HS network (speed ≥ 250 km/h – max. speed today 360 km/h with an operating
speed of 300 km/h, in the near future 400 km/h with an operating speed of 350 km/h) is
now the pride and joy of the European and Italian rail system.
Italian infrastructure
The Italian high-speed network was planned with a view to linking the most densely
populated and highly productive areas of Italy, a country whose geographicalconfiguration is long and narrow. Thus, the initial concept was to develop a Y-shaped
system between Rome (with southern extensions towards Naples and Salerno) and Milanand Venice (via Florence and Bologna), capped by an east-west transverse line between
Venice and Turin (via Padua, Verona, Brescia and Milan).
The Italian high-speed line currently in operation therefore connects the cities of: TurinMilan-Bologna-Florence-Rome-Naples-Salerno, with additional operational sectors
between Milan and Treviglio and between Padua and Mestre (dark blue line on themap).
Although the Padua-Bologna and Verona-Bologna sections (both shown in light blueon the map and to the north of Bologna) are not yet HS lines, they have been fully
upgraded ready for integration into the high-speed network.

Fabio CROCCOLO — Discussion Paper 2013-29 — © OECD/ITF 20133

NEW ENTRY IN THE ITALIAN HIGH-SPEED RAIL MARKETThe network described above extends to about 1 000 km and has completed the project
which was launched with the opening, in 1977, of the first section of the Rome-Florence
Direttissima line.
The following sections of the HS network will shortly be completed:

Key:

–

about 200 km between Treviglio and Padua (via Verona) (orange line on
the map, to the east of Milan);–additional lines – some new and some already in existence are being gradually
upgraded with a view to integration with the rest of the HS/HC (high-capacity)
system – along the transalpine pass routes connecting with the rest ofEurope and on the Italian Mezzogiorno network, notably between Naples andBari, Salerno and Reggio Calabria, and in Sicily between Palermo, Catania andMessina, and the Terzo Valico dei Giovi Milan-Genoa route (orange line on the
map to the south of Milan).

Anversa – Antwerp; Lione – Lyons; Parigi – Paris; Marsiglia – Marseilles; Lubiana – Ljubljana

The high-speed rail infrastructure is also integrated into the old conventional network inorder to maximise potential rail traffic more effectively.
The conventional rail network in Italy consists of around 16 500 km of other lines andhubs, whereas regional interoperable and interconnected infrastructures amount toaround 2 000 km.

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NEW ENTRY IN THE ITALIAN HIGH-SPEED RAIL MARKET

Key:

Rail Map of Italy
Basic network – commercial sections
Complementary network – secondary lines
Complementary network – low-traffic lines
Complementary network – shuttle services
Hub lines

Technical characteristics of HS lines
HS lines are constructed according to the most advanced infrastructural and technologicalstandards in order to provide the best possible services in terms of safety, speed andinteroperability with the principal existing railway lines and with the European HS
network.

Innovative technological equipment of special importance developed by and/or
adopted by the Italian HS system include the European Railways Traffic
Management System (ERTMS), the HS-compatible control-command system
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NEW ENTRY IN THE ITALIAN HIGH-SPEED RAIL MARKET(SCC-AV), the mobile radiotelephony system GSM-R and the 25 kV AC electrictraction supply system.
The principal technical characteristics of the new infrastructure are as follows:
Mixed(passengers and freight)

Traffic typeOperating speed/max.

300 km/h/360 km/h

Minimum radius of curvature

5 450 mMaximum cant18%

Maximum axle load

25 t

Track bed width

13.6 mDistance between track centres

4.5-5 mNatural tunnel section

82 m2

Supply new lines

25 kV AC 50 Hz

Supply urban sections

3 kV DCKey features of the HS network
Based on Italian experience, some key factors to consider when planning andconstructing an HS network are:
Major infrastructure projects, which facilitate the construction of an increasingly highperformance network.

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NEW ENTRY IN THE ITALIAN HIGH-SPEED RAIL MARKET

Distances: HS rail is competitive up to a
distance of 1 000 km provided that it is notinterrupted by too many stops, otherwise
optimal distances fall to between 500 and
700 km depending on the forecast operating
speed. The latter factor is crucial for a proper
cost-benefit analysis, a higher forecast
operating speed implies significantly higher
deployment costs.
Population: it becomes essential to connect
the most populous and important cities in the
country in order to justify the investment andachieve satisfactory socio-economic returns.
ERTMS – ETCS: these are the interoperable European standards in terms of rail
infrastructure and on-board control-command and signalling (CCS) chosen by theEuropean Union for the European high-speed network: they allow totally safe movementof high-speed trains, eliminating the possibility of disasters associated with human error(like the recent unfortunate one in Europe).

Capacity: this is normally measured by the number of trains that can circulate on thereference infrastructure in the chosen unit of time; however, the two main variables
which are capable of increasing the value are the technical characteristics of the CCS
system used and the type of traffic (specialisation of lines and types of service, especiallyin urban hubs).
Tolls: are payable on the entire network, but, of course, those on the HS network arehigher and in part designed to compensate the infrastructure operator for the lower
returns deriving from the reduced toll on the conventional networks. Italian Decree

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NEW ENTRY IN THE ITALIAN HIGH-SPEED RAIL MARKET

No. 43T/2000 lays down the method of calculation. At any rate, this toll tends to cover
only the direct and indirect costs of operating and maintaining theinfrastructure.
Railway stations: a fundamental link in the network which makes
it possible to increase the efficiency of the HS system, improve
hub transit and increase the attractiveness and profitability of therail network by integrating it with local urban public transport
networks, the most highly populated areas and the commercial
areas of cities.
Trains
The rolling stock currently used on the HS lines in Italy is a new, interoperable design(standards are: kV 25 AC and kV 3 CC, ERTMS 2.3.D, minimum 7 coaches, operating
speed 350 km/h). In line with this ongoing development of rolling stock, initiated with
the Settebello and Pendolino trains and continuing up to the models currently operating(Bombardier ETR “Le Frecce” and Alstom AVS ITALO), we have now arrived at the new
ETR 1000 commissioned by Trenitalia SpA, part of the Ferrovie dello Stato Italiane (FSI)
group. The ETR 1000 is being built by Ansaldo-Breda and Bombardier in their facilities at
Savona, Italy; it is designed to operate at a speed of 350 km/h and is currently in thetesting phase.
Trenitalia SpA, part of the Ferrovie dello Stato Italiane group, and the “Frecce”
trains
The trains operated by Trenitalia SpA, as part of the Ferrovie dello Stato Italiane group,
are currently of three types known as “Freccia”, each with a different cruising speed,
destination and frequency.

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NEW ENTRY IN THE ITALIAN HIGH-SPEED RAIL MARKETThe premium, dedicated HS services are operated by trains from the Frecciarossa andFrecciaargento fleet whose frequency and journey times are set out below:

Frecciabianca trains, on the other hand, are used on all other main lines not dedicated tohigh-speed trains.
The table below sets out the principal productivity indicators for Trenitalia for 2012 andthe first half of 2013:
Description
No. of trains

2012(full year)2013(1 January – 30 June)over 60 000

over 32 000

Train-kms

over 30 000 000

over 16 000 000

Passengers carriedover 10 000 000

over 5 500 000

Nuovo Trasporto Viaggiatori (NTV) and the Italo trains
The new high-speed service operated by the company NTV with its ITALO trains cameinto operation on 28 April 2012 purely on the Naples-Rome-Florence-Bologna-Milanroute.
The Italo trains suddenly put their services on the market in competition with theincumbent operator, Trenitalia.
As the fleet came into service, the number of daily journeys increased. NTV was initiallypredicting that full operational mode would be achieved with the next change oftimetable on 15 December 2013.

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NEW ENTRY IN THE ITALIAN HIGH-SPEED RAIL MARKET

However, the market for NTV, and HS rail in general (as stated above), has grown fasterthan predicted, and it reached 50 journeys per day by 30 March 2013, in other words
earlier than scheduled by the company itself.
Since their launch, the Italo services have developed as shown in the following chart interms of delivery of rolling stock and number of journeys offered in the ramp-up phase:

Key: 28 Apr., 12 May, 26 May, 30 June, 1 Aug., 26 Aug., 3 Oct., 27 Oct., 9 Dec., 12 Jan., 2 Feb., 30 Mar.

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NEW ENTRY IN THE ITALIAN HIGH-SPEED RAIL MARKET

Italo trains now link 10 Italian cities and 14 stations (Venice, Bologna, Rome and Milan
each have two stations).

The principal productivity indicators for NTV for 2012 and the first half of 2013 are given
below:
Description

2012(28 April to 31 December)

No. of trains

2013(1 January to 30 June)

6 488

8 682

Train-kms

4 197 661

5 692 764

Passengers carried

2 051 705

3 154 823

The high-speed system and the modal split
The numbers given above demonstrate that, despite the unfavourable economic climate
and the economic crisis, which have, in general terms, held back transportation, highspeed trains have managed to increase the number of passengers carried.
The new competitor on the market has not had the effect of eroding the number ofpassengers carried by the incumbent but has generated supplementary traffic, thanks toa general reduction in fares, a better standard of services and an increased offer in termsof frequency and number of stations served.
In other words, rail has shown that it can compete successfully with road and airtransport and even with conventional passenger rail services over medium- to longdistance high-traffic routes. It appears that there is also a willingness, especially in thefirst-class business and leisure sectors, to pay relatively high prices, with a resulting low
elasticity of demand in relation to the tariffs needed to cover costs, even though there isa general shrinking of the relationship between first- and economy-class passengers.
In terms of the overall split of transport demand, it is estimated that, between 2009 (theyear that the HS network and modern HS services were launched in Italy) and 2012, theFabio CROCCOLO — Discussion Paper 2013-29 — © OECD/ITF 201311

NEW ENTRY IN THE ITALIAN HIGH-SPEED RAIL MARKET

modal share of HS rail increased from 39% (transfer of Inter-City and Pendolino
customers to the new HS Frecce services then offered by the sole rail operator Trenitalia)
to 54%, whereas the road share fell from 28% to 21% and the air share from 26% to
21%.
On the Rome-Milan route in particular, the increase in the modal shift is even moremarked, both because the distance between the two major centres is ideal (about
700 km) and because the traffic is predominantly business traffic, where speed,frequency and service quality are key factors of its success. On this route, until 2008 (theyear prior to the launch of the HS network and modern HS services in Italy) the modal
share of air travel was not only dominant but also greater than the shares of all otherforms of transport available to users.
Today, however, the modal share of HS rail has rapidly overturned the figures, despite
the fact that the number of travellers between the two Italian cities has increased only
slightly.
It is worth noting that the market share of rail transport has increased from 36% in 2008
(without modern HS services) to 65% for the first half of 2013, and this has beenaccompanied by a sharp fall in the modal share of air transport from 45% to 26%.

This last share, which some commentators believe can go no lower, is however, in ourview, likely to fall even further. There are important developments in the pipeline which
are capable of tipping the scales even more. For example, there is the forthcoming
upgrade of the HS network (which should bring operating speeds over the whole network
up to 300 km/h), the completion of the new underground station in Florence (which will
cut journey time by about 15 minutes due to removal of the need to reverse) andTrenitalia’s new interoperable ETR 1000.
Investment in high-speed rail is also having knock-on effects for the conventional
network, either because it frees up sections which are useful for commuter or goods
traffic, or because the greater speed equivalence thereby obtained increases available
capacity. However, it is essential also to invest appropriately in urban hubs (a sector inwhich Italy is a world leader, not least because of the difficulties of crossing historicallyand culturally important cities).

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NEW ENTRY IN THE ITALIAN HIGH-SPEED RAIL MARKET

It is the ability of high-speed trains to connect city centres that is creating new demandand new possibilities for work-related travel, including return journeys, due to reduced
time frames and the resultant creation of macro residential areas as a result of increased
regional integration (known as long-distance commuting: the HS network and trains in
Italy have been dubbed “Italy’s metro” because of their success in the first few years ofoperation), and because of increased tourism as a result of attracting visitors away fromother modes of transport.
Rail system regulation
The high-speed rail system, which connects all the largest and most important Italian
cities, is based on:–interoperability, safety and advanced technology;–

reduced travel times (high operating speed);–passenger service quality in stations and on board;–environmentally sustainable development.

Italian experience shows, however, that the best results can be obtained only byliberalising competition on the market. Indeed, competition has brought the following
benefits:

reduction of minimum prices (-30%);

improved offer quality and better returns;diversification of the services offered;increased number of stations served (also in urban areas);increased frequency;enhancement of the image of both competitors.

Unexpectedly – although not entirely – competition has not led to a loss of market shareon the part of the incumbent but to a broadening of its passenger base, to the extent
that it is genuinely possible to talk about market expansion.
Clearly, that expansion does not appear to have made significant inroads into the returnsof the transport companies, resulting from the lowering of basic prices; rather, it has hada meaningful economic impact in terms of increasing the efficiency of both players, whohave undertaken to produce more and better with limited resources.
Conversely, there has been a marked improvement in the financial situation of the
network operator, given that fees for access to the HS infrastructure will amount to over
EUR 300 million in 2013, as well as increased benefits for users.
However, development of this nature requires a regulatory framework which is geared toa liberalised market and an independent and powerful – but more importantly
authoritative – regulator which can seamlessly oversee the process of growth and faircompetition between the players.

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