Compete to WinSven Gossel – CEO Trans Metropolitan Amadeus Rail Innovation Forum 2017

13th June, Prague

1. This is our about passenger traffic only2. I may step on a couple of toes here…

My gosh – are you serious?

Plane? Train? Car? Bus?

• when do I depart?

• when do I arrive?

• when do I have to leave home or office?

• how long is the trip vs. how long I stay?

• what is my preference?

• am I able to fly?

• do I need to work while traveling?

• may I miss a football match?

• when am I finished with my meetings?

• can I still see my kids?

• can I use my preferred loyalty cards?

• what is the total, total price?

• how to get to my final destination?

• can I get enough rest during the trip?

• do I have internet access?

• will I arrive on time?

• can I get food and of decent quality?

• I hate airport security!

• do I have access to a rental car?

• or: I need my own car!

• can I combine train and plane travel?

• does it support a multi-stop-trip?

European Market De-Regulation

• Good.

• Bad: ownership structure of incumbents represents conflict of interest • often private operators need to go to court to claim for their granted rights

• but: the smaller the better

• Railway industry appears to be where the airline industry was in 1995

• EU still needs to do a lot of homework

• Market power of incumbents remains too large to really compete against• Private companies mainly in freight and niche markets as of today

• or they are active in government controlled markets

Licencing

• Oh my God.• Granularity of sand? Life fire extinguishing tests?

• NSAs in bigger EU member states need to improve • by dimensions.

• customer focus – except for their experience of no help to newcomers

• capacity – application schedule too long and too complex for smaller players

• bandwidth – their (or ERA’s?) rule shouldn't be to just passively OK the material

• ERA’s executional power too weak to help private competition to rise

• The goal: standardized production rather than building custom equipment

Cost of material• Airlines pay EUR ~300.000 for wet leasing an A320 per month

• 180 legs @ 180 people @ 150+ bucks: around EUR 5M+ revenue• The A320 can fly practically fly to everywhere (up to 6 hours ‘airtime’)

• One new ICE train set costs around EUR 30.000.000 for ~650 people• 2000 people per day yielding EUR 32/leg: around EUR 2M revenue per month• Hardly any leasing or financing option for new-comers

• Although train revenue is less than airline revenue, the material is more expensive and way less fungible• Tons of new airlines but hardly new px rail operators• Private operators usually enter the market with used material

• Only a European product standardization will open-up markets in full

• Also: taxpayer’s check book isn’t too far off at many times

Cost of material

Network Access, Schedules and Tolls• Big players yet to locking-up most of the attractive slots

• airport-like situation with limited regulatory power• often only court decisions will path your way as a newcomer

• Still used to protecting markets from outside competition• Brennero, Eurotunnel, network access exceptions in general• Fee over-charge, long distance tolls influenced by PSO markets

• European Patchwork Rail• Engines being licensed to more than 2 countries practically don’t exist• ECTS doesn't really play (yet?)• Network access should be organized vertically, not regionally

• Even smaller network extensions take sometimes a decade to build

• A change in schedule may still take ages to be published to customers

Shunting is really cost intensive

Sales Channels

• As a newcomer your are just not taken seriously• “if I knew it was about that, I wouldn't have picked up the phone”

• sometimes months in response time or no response at all

• exceptions: rail co-operation partners, public transportation

• Bigger travel agencies are simply not answering your inquiries

• GDS is nice, but is a strong limitation for product differentiators • ICAO legacy turns out to be a barrier for inter-modality products

• AccessRail makes this a business case

• Cost.

• You’ll end up in building your own website – not good

Last: Working Capital

• Financial entry barriers are unreasonably high• EUR 50-100M are difficult to find

• non-standard carriages and build-to-order engines push-up costs

• delivery time and licensing requirements are killing business models

• The Venture Capital and Private Equity market is small• A general issue across all industries in Europe

• A specific issue for transportation as to the market structures

• Main issues: • Government ownership in key market players

• Unhealthy market shares of >90%

Identified mistakes of private operators

• too little working capital

• bad yield management

• too little market research• missing customer focus, addressed markets to small, weak preparation

• product needs to provide real customer value• irregular train schedules

• no integrated product offer

• hardly acceptable co-operation concepts

• emotional start-up concepts aren't necessarily successful

What did WE learn from that experience?

• Doing our homework. And this takes time.

• Rail operation is much more than running some trains• Sales, sales, sales

• Transportation is a commodity - A difference in painting doesn't make a difference.

• We understand our business as an IT service with outsourced production• It is not: a train service with a connected website

• We imagine ourselves using our product from a first customer contact to reaching a destination fully satisfying his expectation • Product image – Reliability – Experience

• The big guys are super tankers. We are designing a speed boat.

Questions?