2020 REVIEW The impact of the coronavirus on the rail transport industry
For many business sectors, particularly the tourism and hospitality industries, the coronavirus pandemic has presented immense challenges to revenues and profitability. Rail transport has also been affected, but not necessarily as negatively.
Over the last 12 months, the coronavirus pandemic has impacted industries around the world, but almost none more so than the travel/tourism and hospitality sectors. Both air and ocean travel, as well as hotel stays, are down dramatically.
Since the pandemic first spread, entire airlines have gone out of business, while others have shut down routes, canceled flights, and offered extreme incentives to a meager remainder of passengers who have been hesitant at best to travel. Worldwide, as of October 2020, passenger air travel was down 46 % year-over-year on average, while in some countries, such as Italy, drop-offs were as high as 98 % year-over-year. In the first half of 2020, passenger numbers were down 1.2 billion globally from 2019, including a 90 % decline in Europe for the second quarter.
Cruise lines also have seen drastic drops in passenger numbers in the wake of early disastrous publicity about the Ruby Princess, Diamond Princess, and Grand Princess passenger ships, on which 49 fatalities and 1,686 coronavirus infections occurred. At least 40 cruise ships have reported cases of the virus, and the world’s three largest cruise lines (Carnival, Royal Caribbean, and Norwegian) reported a 65 % falloff in business for the first three quarters of 2020.
Hotels and tourist destinations have suffered even greater losses as leisure and seasonal travelers have opted to postpone or forgo trips, fearing possible infection at the ends of their journeys or even en route. The American Hotel and Lodging Association (AHLA) reports that as of November 2020, 71% of hotels will not be able to survive without government assistance, and one-third of hotels may be forced to declare bankruptcy and/or be sold by the end of 2020.
Long-distance train travel has also fallen
In August 2020, American long-distance rail operator Amtrak reported a 45 % drop in monthly ridership year-over-year compared to 2019, falling to 16.2 million riders from 29.3 million in 2019, the business’ best and most profitable year in its history. German rail operator Deutsche Bahn (DB) reported a 43 % drop in long-distance passengers for the first half of 2020. Similar drops have been reported elsewhere in the world, but amidst the downturn, there have also been some bright spots.
According to a research report from the Union Bank of Switzerland (UBS) in April 2020, some governments are considering using funds meant for clean air and environmental sustainability to apply toward helping to rescue their hard-hit travel/tourism and hospitality industries. This may be unsurprising since the pandemic has had the unintended effect of producing cleaner air due to less travel, especially as regards automobiles, as greater numbers of workers have been working from home. The oft-touted goal of “net-zero” emissions by the year 2050 for many countries therefore appears to be closer to reach than ever, likely stimulating some nations to consider reallocating environmental funds. Both governments and travelers appear to be taking the environment into account to a greater degree when making travel and transport-related decisions.
Opportunities for long-distance rail
This environmental interest may also extend to the expansion of high-speed rail projects in Europe and China that are worth more than EUR100 billion and RMB800 billion, respectively. Expenditures on these projects would generate incremental demand for new rail equipment that could increase both train speeds and schedule density. UBS estimated that such projects could also result in a decrease of global air traffic growth from 5.1 % to 4.6 % per year from 2018 to 2028, resulting in the elimination of 196 planes from fleets worldwide. Carbon emissions from airplanes could then be reduced by 3.4 million t of CO2 per year.
Dr. Roger Tyers, an environmental sociologist from the UK’s University of Southampton, traveled from the UK to China by train last year. The one-way trip took him two weeks and 21 train connections across nine countries. The total cost of the passage was GBP2,000, compared to a cost of GBP700 to fly, but the carbon emissions of Tyer’s trains were 90 % lower than that of an airplane making the same journey.
According to UBS’ calculations, European high-speed rail market opportunity could grow to EUR11 billion in 2022—3.5 times its value in 2016, and significantly above the EUR5.9 billion forecast of the Union of European Railway Industries (UNIFE) trade group for next year. This could also mean up to 800 more high-speed trains operating in Europe over the next decade.
Increased interest in rail travel
Additionally, UBS found in a survey of 1,000 European and Chinese travelers that leisure travelers would tolerate travel times of five to six hours or even longer on a train, while business travelers would accept four hours—an improvement from a previous generally accepted consensus of two to three hours.
“Rail holidays have been, over the last five years, one of the fastest-growing of all the different 300 to 400 different categories of travel on [our website],” says Justin Francis, the CEO of travel booking firm Responsible Travel. “Rail holidays have been in the top three in terms of fastest-growing. We think that trend will most likely accelerate.”
Francis believes that rail travel may take business away from cruise lines, which, as noted above, have suffered dramatic losses of business.
“We think that the market will disperse into other sectors,” Francis says. “So we think that overland rail will replace a lot of cruises, and we think that would be a good thing for enjoyment, but also from a sustainability perspective.”
There is also a perception that, due to lower passenger density in seating that the risk of exposure to COVID-19 on a train is less than that of a plane.
Areas for possible improvement
In China, high-speed rail during the pandemic has taken more travelers off the roads than out of the skies, but this could change in the future. Service and journey frequency have been found to be key drivers of demand for long-distance train routes, and UBS has suggested that competition can be a critical impetus for improvement in these areas.
But one area where trains still need to improve is in ticket prices, even if existing routes compete convenience-wise with air routes. “The trouble is that the economics of taking trains for medium distances across Europe is just much higher,” notes railway historian and transport journalist Christian Wolmar. “So not only is there a time cost in that [journeys are] slower, but [they are] likely to be more expensive.”
“I went to Romania this year. And to get to Romania, I would have had to take six trains and it would have taken me 40 hours. That’s just not feasible,” Wolmar says. “[But] on some common routes—like Barcelona-Madrid or Paris-Lyon—once you’ve got the high-speed trains, it wipes out the aviation market. But there are not many such routes, and there’s an awful lot of point-to-point kind of aviation that will take you to places very fast. So unless you have a whole host of policies that are encouraging people to shift from plane to rail, I don’t think you can. But there is some potential there.”
There’s also the question of amenities. The above-mentioned Dr. Tyers, who traveled from the UK to China by rail, noted that “The further east I went, the more basic the [train] services got. The final step was the Trans-Mongolian train to get me to China. Fortunately, the scenery was very beautiful; but the train itself was like a historical artifact. Then things kind of flipped completely because when I was in China and taking the high-speed trains, they are probably the nicest trains I’ve taken anywhere in the world. Very modern, extremely fast. It’s almost like an airplane experience.”
“We have recently conducted an online survey among travelers that used a Eurail or Interrail Pass in 2018 or 2019 to measure the impact of COVID-19 on them,” says Eurail general manager Carlo Boselli. “Travelling by train with a rail pass was seen as the best option for the largest group of respondents, who indicated that they would prefer it for future travels when compared to cars, buses/coaches, and planes.”
“Additionally, when asked to rank the different modes of transport based on how comfortable travelers would be to use them as soon as travel will be possible again, 82 % of respondents chose [the] train as the most or second-most comfortable method of transport to use.”
Some industry observers have suggested a revival of overnight trains. Many such services were cut due to the prevalence of low-cost airlines in the late 1990s and early 2000s, but some are making a comeback due to increasing demand. Passenger numbers on the night trains of Austrian rail operator Österreichische Bundesbahnen (ÖBB) doubled from 700,000 to 1.4 million in 2017 after it took over routes from Germany’s DB. Swedish operator Statens Järnvägar (SJ) reported that night train ticket sales for 2020 rivaled those of 2019, despite the ongoing pandemic.
Commuter, regional, and urban train service have also taken a large hit
While long-distance rail travel may be somewhat of a bright spot in the industry, commuter, regional, and urban rail service have seen large losses in ridership due to many business’ employees working from home during the pandemic.
In New York City, the Long Island Railroad (LIRR) has seen a drop of 75 % in passenger numbers for commuter trains in 2020, contributing to a USD12 billion budget deficit for the region’s Metropolitan Transportation Authority (MTA). In November, London’s main transport company Transport for London (TfL) received a secondary GBP1.8 billion bailout from the British government after an earlier GBP1.6 billion bailout earlier in the year due to fare income that’s said to have “dried up,” in the wake of a 66 % drop in passenger numbers on subways compared to pre-pandemic levels. Worryingly, some 85 % of New York City employees surveyed by office leasing firm CBRE have said they would like to continue working from home at least two or three days per week even after the pandemic ends.
The post-pandemic outlook
“As has been the case in China, domestic tourism will be the first to benefit post-COVID-19. Regional travel then looks like the next beneficiary as [passengers] look to travel to neighboring destinations rather than further afield,” says GlobalData tourism and travel analyst Johanna Bonhill-Smith. “In the short-term, rail travel will likely experience an upturn as travelers venture domestically and to neighboring destinations once restrictions are lifted. A boom in rail travel may be possible as this offers a ‘middle ground’ between expensive flights and slow travel by sea. Looking to the long-term, however, once efficient measures are put in place, it is likely that air travel will resume, causing pent-up demand amongst certain age groups.”
Some analysts are predicting that air travel won’t recover to pre-pandemic levels until 2023 at the earliest. Despite some airlines receiving state aid, funds for carrier Air France came with the strict condition that the airline could not compete with trains whose journeys lasted 2.5 hours or less. Air France was also ordered to cut its emissions by 50 % by 2024. Environmental groups have argued that such conditions should apply to all airlines receiving state funds.
The next decade was already going to be a tough one for airlines as the EU had mandated all member states to commit to a target 40 % cut in greenhouse gas emissions from 1990 levels by 2030. Additionally, the global International Civil Aviation Organization’s (ICAO) Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) protocol specifies that worldwide aviation CO2 emissions do not exceed 2020 levels.
Air transport could see higher taxes
Tax increases on airlines have been seen by some as a way governments could recoup funds spent on handling the coronavirus pandemic. While there is a relatively low air passenger duty (APD) in the EU, there is no value-added tax (VAT) charged on international flight tickets, nor is aircraft fuel currently taxed.
“I do think in the longer term, when governments are looking at eye-watering amounts of debt they’re going to owe over the next few years to pay back the costs incurred during COVID-19, we might see them having a long hard look at aviation and saying: ‘If we tax aviation just a little bit more, we could raise billions’,” suggests the University of Southampton’s Roger Tyers. “That would be a game-changer to really reduce those flights that could be done by train and to invest in really good train services.”
The European Year of Rail
Perhaps it’s no surprise, then, that the European Commission has dubbed 2021 “The European Year of Rail.” As part of the Commission’s European Green Deal initiative, a series of promotions have been designed to market rail as a low-carbon-emission form of transport. Simultaneously, the Commission’s recent Fourth Railway Package legislation effectively creates a single market for rail transport in the EU, allowing train operators greater freedom to provide services across EU member states. The resulting increase in competition will likely boost the number of trains in operation and spur future drops in ticket prices.