Deutsche Bahn successfully implements SME campaign

It is barely 10 years since local passenger transport in Germany was frequently likened to an ‘ugly duckling’, not only by the general public, but also by the company itself.

The image of local passenger services was summed up with attributes such as ‘too expensive, too inflexible, not particularly comfortable and not lucrative’. Now that we have long since crossed the threshold to a new millennium, that attitude has changed radically. Although local rail services may not have evolved into a ‘magnificent swan’ throughout the country, unmistakeable progress has nevertheless been made in the quality of our services since regionalisation and the concomitant increase in competition.

Deutsche Bahn has played a crucial role in shaping that process and has successfully defended its position as the leading provider of local transport services in the German market. Deutsche Bahn’s target has always been to offer local rail services, not only in conurbation areas or on selected lucrative routes, but also safeguarding the long term future of railway lines in rural areas by ensuring efficient operations and simultaneously raising the attractiveness of local rail transport in such regions.

In order to achieve that objective, Deutsche Bahn launched its own SME campaign in the year 2000. The central target of the campaign is an internal structural reform aimed at creating powerful regional organisational units, which are located under the umbrella of the DB Group, but operate directly in the market in the same way as medium-sized enterprises.

For the first step, approximately 9,000 kilometres of rail network run by secondary railways were arranged into 40 separate networks. Low-cost technologies and ways of reducing costs for these networks were then investigated, as well as suitable organisational structures for secondary railways and the potential for implementation. At the same time, a study was conducted on whether and how it would be possible to inter-link infrastructure and operations in regionally operating corporate units, but still conform to the statutory regulations in force in Germany, which prescribe accounting and organisational separation of infrastructure and operations.

Finally, with effect from 1st January 2002 and in consultation with the Federal Ministry of Transport, four regional organisational units were established under the umbrella of Deutsche Bahn: the individual RegioNetz units are Kurhessenbahn (KHB), Oberweissbacher Berg- and Schwarzatalbahn (OBS), SüdostBayernBahn (SOB) and Erzgebirgsbahn (EGB), in which infrastructure and operations are inter-linked on a local level.

On the basis of long term transport contracts, the four RegioNetz units provide a total annual transport volume of approximately 10 million train-kilometres. The use of the approximately 1,000 kilometre long rail network, stations and stopping points are governed by appropriate individual lease contracts in each case. This means that one party has overall responsibility for the adequate provision of infrastructure and for handling rail transport. The individual RegioNetz units are authorised to make their own decisions on investments, rolling stock deployment, marketing and timetable configuration, in consultation with the parties that order the transport services. The local teams are vested with the necessary powers of decision and, of course, have the necessary know-how.

Management of these decentralised RegioNetz units in terms of traffic organisation is the responsibility of DB RegioNetz Verkehrs GmbH, while DB RegioNetz Infrastruktur GmbH is responsible for organisation of the infrastructure and stations. Predominant characteristics of both these companies (which have the legal form of a ‘GmbH’ – a private limited liability company) are their lean holding structures, with a total workforce of just 18. The companies are domiciled in Frankfurt am Main.

The use of command/control systems which are suitable for secondary lines, flexible deployment of rolling stock, optimised operating programmes and effective deployment of human resources all help to optimise transport in the RegioNetz areas. Joint investments in track network and security installations by Deutsche Bahn, Federal and Land governments over the coming years will gradually lead to further improvements in the infrastructure in the individual RegioNetz areas. A sum of approximately €100 million has already been invested over the past few years.

The typical structures of a medium-sized enterprise are, of course, not a guarantee of success in their own right. After three years of systematic work within these structures, however, the RegioNetz concept can now justly be described as a model for success – in two respects, as these units are not only financially successful, but also earn the railway top marks in the fields of customer satisfaction and punctuality. What are the reasons for these results?

Apart from the close interlinking of operations and infrastructure in connection with the necessary freedom of scope to make management decisions under the umbrella of Deutsche Bahn, I believe that this success can be attributed to three essential factors: the quality of the transport product offered, the consistent introduction of innovations and, last but not least, the human capital – in other words, the employees.

The following examples illustrate the above claim. The RegioNetz units employ just over 1,000 employees. The working processes are strictly geared to regional and local requirements. Minimum overheads and consequently direct lines of decision, as well as multifunctional personnel deployment enable railway operations to be run at less cost in the regions concerned.
Despite the need for rationalisation, which of course also affects the workforce, recent employee surveys reveal that almost 80 per cent of the employees are happy or even very happy to work for the RegioNetz units. In my opinion, the ‘give them a free rein’ principle – in other words, shifting the powers of decision to the responsible local employees – plays a central part in achieving such a high level of staff motivation.

This principle is further supported by open and regular communication at all levels – right through to communication between management and works council. This means that the employees are kept informed not only about the business performance of RegioNetz as a whole, but also about their own career prospects. A further clear indication of staff satisfaction is the comparatively low sickness ratio, of just three per cent on an annual average, at the RegioNetz units.

Moreover, local marketing cooperation agreements with transport companies or local councils, special services in response to individual occasions, reductions in journey time, new rolling stock, a consistently high degree of punctuality as well as the reactivation of certain line segments and the introduction of new stopping points have led to a substantial improvement in the attractiveness of local rail passenger transport in the individual regions concerned. This in turn has led to a significant increase in passenger figures and ticket revenues. In terms of passenger-kilometres alone – and this is a key indicator for the transport volume provided – a significant improvement of around 20 per cent has been achieved since the launch of RegioNetz. This productivity increase is based on the quality improvements described above and was achieved without any increase in transport performance.

Another central advantage of the RegioNetz structure is that the units can work according to the rules and regulations of non-Federal railways (‘VDV’ regulations) if necessary. Operations management of each unit is supervised by the local chief transport manager. This enables the use of alternative, innovative technologies, for example in the case of train radio or signalling, which in turn leads to lower costs. Since they were founded in 2002, the RegioNetz units have achieved reconstruction effects for the Deutsche Bahn Group which are equivalent to a value of €40 million, so that each individual unit has clearly surpassed the figures stipulated in the original business plans.

In view of the obvious success of the RegioNetz units, we are frequently asked whether and to what extent a further roll-out of the RegioNetz model would be conceivable for Deutsche Bahn? Anything is, of course, conceivable in principle, but it has to make sense. The success of the RegioNetz idea was and still is based on its SME structures. If these advantages are to continue to be effectively exploited in future, the scope for growth is limited. I believe that that limit would be eight to 10 RegioNetz units at most. After that, the model would no longer be manageable in its present form, so that we would inevitably have to switch to new structures. Moreover, each of the individual RegioNetz units differs substantially in terms of line length, number of employees and even customer groups, so that it would not be possible to simply transfer any given model to another company on a 1:1 basis.

A quick comparison of the existing RegioNetz units makes this clear: the smallest RegioNetz unit – Oberweissbacher Berg- and Schwarzatalbahn, or OBS – is located in the Federal Land of Thuringia. It has a staff of 28 and operates no fewer than three different train systems on just 29 kilometres of railway line. The OBS network includes the 25 kilometre Rottenbach-Katzhütte Schwarzatalbahn line, which went into operation in 1900 and operates class 641 modern diesel railcars, the Oberweissbacher Bergbahn, inaugurated in 1923, which operates the 1.4 kilometre long Obstfelderschmiede-Lichtenhain funicular railway, which is classified as an ancient monument, and the 2.6 kilometre electrified flat line between Lichtenhain and Cursdorf. This funicular railway was the first in Germany to be completely refurbished for use by disabled passengers, a process which was completed in March 2004.

Because of the railway’s scenic location in the picturesque Schwarza Valley in the heart of Thuringia, OBS passengers are almost exclusively tourists. The OBS attracted some 200,000 visitors in 2003, making the funicular railway the second-largest tourist attraction in Thuringia, second only to the famous Wartburg castle with Martin Luther’s study. A crucial factor for this success was a marketing concept which was tailored specifically to the requirements of the OBS, and presented the OBS not only as an attractive railway with a pronounced tourist character, but also as an important factor for the regional economy.
It was not least the determination of the Oberweissbacher Berg- and Schwarzatalbahn to preserve this important technical monument in combination with modern elements that led the Association of German Rail Customers to award OBS its cultural prize for the preservation and upkeep of heritage sites last year.

The counterpart to the smallest RegioNetz is SüdostBayernBahn (SOB), which has a workforce of 510, operates 4.9 million train-kilometres per annum, has sole responsibility for 445 kilometres of track and 77 stations or stopping points, and also runs its own 14 ticket outlets. Around 26,000 passengers travel with the 250 SüdostBayernBahn trains every day, making SOB the largest of the four RegioNetz units.

SüdostBayernBahn has its registered office in Mühldorf am Inn, from which radial railway lines run to Munich, Landshut, Passau, Simbach, Altötting, Burghausen, Freilassing, Traunstein and Rosenheim. The lines from Wasserburg am Inn to Ebersberg and from Traunstein to Waging also belong to the SOB rail network. Trains run by SüdostBayernBahn in this region are typically class VT 628 railcars or hauled by diesel locomotives. Double-deck coaches are also used on the Mühldorf-Munich line, which carries a high number of commuters.

Over the next few years, the SOB is planning comprehensive investments to boost its attractiveness. By the year 2008, for instance, some €140 million is to be spent on improving infrastructure with the assistance of funding from the Federal and Bavarian governments. Since the company first went into operation on 1st January 2002, almost €5 million has already been invested in the purchase of rolling stock.

The oldest RegioNetz is Kurhessenbahn (KHB), with registered office in Kassel. Even before it was officially founded on 1st January 2002, the KHB was tested for one year as a pilot project for other RegioNetz models. Kurhessenbahn now operates four lines in North and Central Hesse. Some 130 trains carrying 6,600 passengers are in daily operation between Brilon Wald, Korbach and Kassel, and between Marburg, Frankenberg and Erndtebrück.

The leased rail network covers 245 kilometres and 46 stations or stopping points. The annual transport volume of Kurhessenbahn amounts to approximately 1.9 million train-kilometres. Apart from Kurhessenbahn itself, other railways also run local passenger and freight services on the Kurhessenbahn network.

Over the medium and long term, Kurhessenbahn plans to raise its passenger volume by around 25 per cent compared with the 2001 figure. To achieve this target, the company intends, amongst others, to continue to improve its transport product range, track modernisation, the construction of new stopping points and connection of the Kurhessenbahn rail network to the Kellerwald national park by reactivating the Korbach-Frankenberg line.

Over the past few years, approximately €27 million has already been invested in comprehensive refurbishment of the track and modernisation of the command/control technology, as well as roughly €15 million in renovation of the rolling stock. Nine class VT 646 vehicles and 12 VT 628 vehicles currently run on the Kurhessenbahn network.

Finally, Erzgebirgsbahn (EGB) is another RegioNetz unit located in the New Federal Laender. Erzgebirgsbahn is domiciled in Chemnitz, in the Free State of Saxony. With a staff of 266, Erzgebirgsbahn handles an annual transport volume of 2.1 million train-kilometres and is simultaneously responsible for maintaining 217 kilometres of leased track and 68 stopping points.

In the course of the EU enlargement to the east, Erzgebirgsbahn has increased its cross-border services to the Czech Republic in cooperation with CD – the Czech railway – especially at the weekends. The Saturday and Sunday services from Chemnitz to Chomutov and from Zwickau to Karlovy Vary have achieved a consistently high load factor of roughly 85 per cent.
The complete rehabilitation of the Chemnitz-Aue and Chemnitz-Flöha-Olbernhau lines also resulted in a substantial reduction in journey time on these routes. Erzgebirgsbahn expects a significant, sustained increase in passenger volumes following the reinstatement of these lines in the 2004/2005 timetable.

This brief outline of the four RegioNetz units already indicates the different characters of each of the individual units. I am confident that we shall continue to operate such networks on a moderate scale in future, and a further RegioNetz unit is in fact due to be launched in 2006. The necessary negotiations with the representatives of the participating Laender are currently in progress.

The future will bring yet another new aspect to our RegioNetz operations: in the role of a mega-agency under the umbrella of Deutsche Bahn, we are going to take over ticket sales in the region of Eastern Bavaria. Almost 70 employees will join the ranks of the RegioNetz team to contribute their expertise in this sector. Deutsche Bahn is running this pilot project to test whether and under what circumstances SME structures could successfully be applied to the sales sector in order to boost the quality of customer service, optimise economic efficiency and safeguard staffed ticket sales in rural areas. It goes without saying that the RegioNetz units are determined to succeed in this venture, too, as the next step in their corporate history.

Finally, I would like to draw the following conclusion, which I consider to be a highly salient point: on implementation of the RegioNetz model, Deutsche Bahn has shown that it can respond flexibly and successfully to the challenges of the competitive market in Germany. The past few years have proved that the strict orientation towards regional structures has been the correct decision, both in conurbation and rural areas. And that, not least, is one of the reasons why Deutsche Bahn has succeeded in defending its position as the leading provider of local transport services in Germany.