In December 2016, Locomore made a triumphant entry onto the German market as the world’s first crowdfunded railway company, eager to provide eco-friendly access between Berlin and Stuttgart.

The new service was welcomed with optimism, even glee, by some: it personified the story of the underdog, a people-powered project focused on sustainability, promising to take on the country’s biggest rail company, Deutsche Bahn (DB), which currently operates a monopoly made up of 40,000 trains running daily across the 33,300km-long rail network.

But now only six months later, Locomore has filed for insolvency, announcing that its financial reserves have been exhausted due to slower than expected growth in both passenger numbers and revenues per passenger.

Its short stint on the German passenger rail market was branded by the Alliance of Rail New Entrants (ALLRAIL) as “an unwelcome reminder of the difficult climate for rail new entrants”.

Its struggles were indeed in keeping with those of many similar rail start-ups that came and failed before, after established operators put multiple administrative, operational and information barriers in their way, as well as cutting off access to their sales facilities.

Blocking new entrants from the rail market

“Deutsche Bahn has a great timetable information system, and if you’re not in there, you have such a tremendous barrier to reach customers,” says Dr Erich Forster, WESTbahn CEO and president of the ALLRAIL association.

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By GlobalData

ALLRAIL was established in March in Brussels and brings together non-incumbent companies from the freight and passenger rail market. Its main purpose is to highlight the many barriers faced by new entrants and lobby for a more competitive rail sector by challenging the status quo.

The first and biggest hurdle for start-ups is getting their brand out there in the public domain and positioning themselves as a competitor. While in other transport sectors, such as air travel, passengers are accustomed to shopping around and comparing prices and distributors on their intended routes, rail travel is markedly different: often, the first and most obvious option that comes up is automatically chosen by the passenger.

For a newcomer with limited reach, funds and no known trademark, establishing the new brand is, therefore, incredibly difficult.

“All newcomers need to make up their own distribution channels, they have to take very high costs to implement these solutions and this is a very big barrier,” Dr Forster explains. “All the basic costs to run the full distribution system on the market can kill some of the business plans. Established distribution systems have the big advantage that everyone knows of them.

This challenge is doubled by the refusal of established rail operators to integrate and sell tickets for new services via their channels.

“In general, today, there is no obligation on the incumbents to introduce newcomers in the distribution system,” Dr Forster says.

In an interview with Germany’s Pro-Rail Alliance, taken just three months before the company filed for insolvency, Locomore CEO Derek Ladewig addressed the ongoing dispute with DB and said the operator “strictly refuses to offer our tickets at the railway stations”. ALLRAIL believes this played a crucial role in its demise.

A stream of losers

Locomore is the fourth rail start-up in recent years to try and fail in entering the long-distance German passenger market.

The first to challenge DB’s monopoly was Interconnex, a French company which operated the first private, long-distance train in Germany on the Leipzig-Berlin-Rostock route. Launched in 2002, it aimed to “change Deutsche Bahn’s customers to the Interconnex trains”, but ceased operating after 12 years due to insufficient funds. According to the company, a mix between ever-decreasing passenger numbers, constantly increasing track fees and new competition from long-distance buses led to its demise.

This was then followed by the Vogtlandexpress, one of the very few private railways to operate between 2005 and 2012 on the German network. Over the years, economic shortages forced it to progressively pare back its services until it was completely replaced by a fleet of buses taking over the Plauen-Berlin route.

“There is no obligation on the incumbents to introduce newcomers in the distribution system.”

One surviving service is the Hamburg Köln Express (HKX), a Cologne-based open access company founded in 2009 that operates regular services between Hamburg-Altona and Cologne at lower fares than DB.

In 2015, HKX entered a ticket acceptance agreement with DB, which was cut short after only one and a half years, due to what was deemed “non-compatible systems”. Last year, HKX announced it will only run trains on weekends, due to “a lack of demand for weekday connections”.

One success story comes from WESTbahn in Austria.

WESTbahn went to court and succeeded to get integrated into the Austrian timetable information system of the incumbent, ÖBB. In May this year, Trainline became the first independent retailer to integrate Westbahn tickets into its booking system, which will allow passengers to combine Westbahn tickets with those of other rail operators.

The long-term popularity of rail is at risk

According to the European Commission’s 2013 assessment, 94% of all rail passenger-kilometres in the EU – represented by countries such as Germany, Italy, Sweden and the UK – are still strongholds of national incumbents.

The effects of this phenomenon are ultimately felt by the passengers, who end up bearing higher ticket prices on a market starved of options.

“As long as you have no competition, you run the risk that the whole railway sector has higher fares and it comes in on a weaker position in comparison to private cars,” Dr Forster says. “In the future, full information and full distribution integration needs to become a passenger right, enforced by regulation. Without that, there is so much possibility to hide newcomers or to make travelling more expensive for customers, only because they don’t know what options are out there.”

“Full information and full distribution integration needs to become a passenger right.”

At present, the European Commission’s Fourth Railway Package – a set of six legislative texts that aim to remove existent barriers and create a single European rail area – has at its heart the increased liberalisation of the rail market.

Its technical pillar, adopted by the European Parliament and the Council in April 2016, is designed to boost the competitiveness of the railway sector by reducing “the large number of remaining national rules, which create a risk of insufficient transparency and disguised discrimination of new operators”.

In the coming months, ALLRAIL is committed to pushing forward with passenger rights and infrastructure fees regulation.

“Our next step is very clear: we want to work on passenger rights regulation, because there will be an adoption of this regulation in the next month,” Dr Forster says. “It’s necessary to address the fact that distributing information about start-ups, especially via the incumbent channels, is a passenger right.

“This is one of the best chances to ensure fast and positive development in the sector. The more offer customers have, the easier you can attract people to opt for rail travel.”