SJ wins traffic from air and road

Sweden’s state railway has won market share from airlines and buses. But it is not resting on its laurels, SJ Chief Executive Jan Forsberg told Global Railway Review in an interview.

Running passenger railways in Sweden is not an easy business. With a population of just nine million and some very difficult topography, parts of this country are far from ideal for railways. Aircraft can fly over the difficult terrain, and there is stiff competition from luxury express coaches and cars on the roads. And yet SJ (Swedish State Railways) has managed to win business from these rival modes in recent years. Traffic volumes in the inter-city rail sector were up 12% in the first six months of 2006, an impressive turnaround considering that four years ago SJ was close to bankruptcy.

How has this trick been pulled off? ‘We have refurbished our inter-city trains and improved the services on board; we have enhanced the marketing of the services and improved the punctuality’ explains Jan Forsberg, SJ’s Chief Executive.

The refurbishment programme on SJ’s fleet of X2000 tilting inter-city trains is drawing to a close and will be finished by the end of the year. There are 43 trains in the fleet: 35 are undergoing the full refurbishment, while the other eight trains need only cosmetic changes to standardise the fleet. These eight trains were refurbished recently for the Linx service between Stockholm and the Norwegian capital, Oslo, which has now been withdrawn. It was very difficult to compete against the airlines with daytime trains on this topographically challenging route and the rail offering between the two capitals is now restricted to sleeper services only.

The standard of on-board service has been dramatically improved. ‘We used to have high prices and quite lousy quality – unsurprisingly, few used the food service’ says Mr. Forsberg. ‘Our business idea was to turn this on its head, and have outstanding quality with low prices.’

The bistro area of the trains was brightened up during the refurbishment of the trains. ‘It is now something close to a pub in layout: you can stand at a table, you can sit and relax on one of the red sofas, or you can enjoy a meal at a table’ says Mr. Forsberg. One of Sweden’s most famous chefs, Fredrik Ericsson, has created a new menu for the X2000s, while Mats Hanzon, a feted wine connoisseur, has advised on the wine list. At the same time, prices were trimmed to appeal to budget-conscious travellers: meals are free in first class, so it was the second class passengers who had to be won over.

The effort has paid off. On-board sales of food and drink are up by a third and the food service now just about breaks even compared to a large loss in the past. But perhaps more importantly, the better service has improved rail’s standing in the battle with other modes. ‘People look at their experience on board as well as comparing journey times, so the improved on-board service works to our advantage when passengers compare the different modes of transport’ says Mr. Forsberg.

Pricing revamp

The ticket structure has been overhauled and increased emphasis put on internet sales. ‘Our new ticket system is a bit like that of Ryanair: we have lower fares the further in advance you book, with the prices varying as the booking position changes’ explains Jan Forsberg.

Of course Ryanair and the other recently-started airlines have the advantage of low overheads by having virtually all their booking on-line.

The railway is in a different position and Mr. Forsberg is not anticipating the death of the station booking office just yet, though he says that internet booking is growing in importance. ‘About half our total sales are now through self-distribution channels, such as the internet, ticket machines on station concourses and so on. But there will always be a need for some manual ticket sales: for example many of our business customers have complex requirements and book car rentals, hotels and so on at the same time as they book rail tickets.’ He says the ceiling for self-distributed tickets on the railway will be about two thirds of the total, compared to the 90%-plus of the budget airlines.

Operational improvement

SJ has long been looking at ways of improving journey times. It was hoped that the 200km/h top speed of the X2000s could be increased to 220km/h, but a study showed that the costs of achieving this would be high and not worth the expenditure. Instead, other ways of cutting travel times are being exploited.

On SJ’s most important inter-city route, that from the capital Stockholm to Gothenburg, the journey time was reduced to 2hr 45min in January 2006. This was largely achieved by cutting out stops. The move has reduced the rail journey time to a quarter hour below the psychologically important three hour barrier where rail starts to score against air. SJ has made an agreement with the rail infrastructure authority, Banverket, to ensure that inter-city trains get priority in pathing on this route and are not held up by other trains.

All this has paid off, with rail showing a 22% increase in patronage on the Stockholm-Gothenburg route in the year to July 2006. ‘This is more than organic growth and shows that we are winning market share from the airlines and long-distance coaches in this very competitive market’ says Mr. Forsberg. ‘Many of the passengers on this route are business people, with a very good yield for us. We are well satisfied with what we have achieved in this sector so far.’

Sleeper services

While daytime inter-city services are a core activity for SJ, overnight services are a more difficult sector. These trains serve politically sensitive areas in the north of Sweden, as well as cross-border services to other countries. They are a very small part of SJ’s turnover, but as a loss maker their operation has to be closely scrutinised.

Last year, SJ proposed ending sleeper services on the Stockholm to Berlin route, and met a barrage of criticism. The proposal was subsequently withdrawn and the service is still operating.

‘Our strategy for the sleepers is to try and keep up passenger numbers by making an enjoyable journey experience, with extras such as on-board entertainment’ says Mr. Forsberg.

Competition for franchises

SJ is protected from on-rail competition in the inter-city sector, as the government argues that rail already faces enough competition from other modes of transport. In the regional and commuter area, though, it is a different story, with much of this market captive to rail. Accordingly, there is competition for the ground here, with regional authorities able to put rail services in their areas out to tender.

SJ competes for these franchises against private companies such as Arriva of Britain and Veolia (the former Connex) of France, but also against other state railways such as DSB from Denmark and NSB of Norway. The franchised sector accounts for more than a quarter of SJ’s turnover, so it is an important part of the company’s business. ‘Our strategy is to try to convince the regional authorities that they will have some benefits from using SJ, as we can combine operation of their local lines with that of the total network with valuable synergies’ says Mr. Forsberg.

As a big state-owned company SJ has national agreements with staff that may prevent the sort of flexible working arrangements that more nimble private sector competitors may be able to exploit. But the SJ Chief Executive argues that the state railway is still able to put together a package based on price, quality of service and attractive staffing levels that will appeal to the regional tendering authorities. The acid test of this will come next year, when a fresh round of franchises come up for competition.

New double-deckers

A fleet of 43 new double-deck X40 electric trains is being built for SJ by Alstom. In a mix of two-and three-car formation (16×2-car, 27×3-car), the 200km/h units are intended for journeys of up to two hours in duration. ‘The idea is to reduce journey times and improve comfort levels for the passenger’ says Mr. Forsberg. Deliveries are almost complete, with only about four trains outstanding, but unfortunately experience with the early units in the order has been mixed. ‘We have had some technical problems with the doors and air conditioning, and we have been working with Alstom to solve these problems’ says Mr. Forsberg. ‘We are intending to relaunch the new trains at the beginning of next year when the problems have been solved.’

Meanwhile, the board of SJ has recently decided to spend money on refurbishing the fleet of electric locomotives and coaches. A competitive tender process will take place to decide on a contractor to undertake the work on the coaches. The contract will extend to about 200 coaches for refurbishment and 100 locomotives for repainting.

The coaches refurbishment, coupled with the X2000 refurbishment and the double-decker X40 fleet introduction, means SJ will have an up-to-date fleet of either new or recently-refurbished trains. While this will help the railway to keep a competitive edge for the next few years, SJ is not being complacent. ‘Next year we begin a project to search for a new generation of high speed train which will replace the X2000s’ says Jan Forsberg. ‘We anticipate that the new train will have a top speed of between 250 and 300km/h and we expect to start introducing it around 2015.’