A serious post: SilverRail and rail distribution

When online travel, startups, and rail are mentioned in the same sentence I tend to look closer.

Phoenix, Arizona, the Phocuswright conference: the global summit of all online travel industry leaders (but a bit too far from London, this year 😦 ).

Covered by Boot’s Tim here and Stephen here and Elliott here, a new company with a great management roster makes their way on the scene: SilverRail.

Once again (see Wandrian), it’s an American team that’s dreaming of revolutionizing rail distribution. There are two reasons I am saying this:

1. American entrepreneurs tend to dream big and global, kudos for that.

2. Europeans know oh too well the complexity of dealing with national rail providers and would not even think of spending 10 minutes on thinking about it…

Having worked with several rail providers in my previous life, here is why I think global online rail booking from 3rd party distributors is not a slam dunk.

Huge market: true, but let’s dig a bit further.

How much of that turnover actually needs any prebooking at all? On most national railways, you buy a ticket at the station and you board. No need to prebook online, if not just to save the time for queing up. Most commuters hold monthly or yearly passes.

Prebooking is only needed for high-speed train routes like TGV, Eurostar, Thalys, long haul Indian rail, with specific seat assignment. I am missing the data here but my guesstimate is that bookable rail represents less than 20% – in countries like France with a very well developed high speed network, and even less in others. A dominant share of these services is actually used by business travellers through their corporate TMC. Local corporate agents have had rail bookings sytems for ages – maybe not the most optimized, but they exist, they are ubiquitous, there is a huge educated agent base in the country who knows how to use them.

Domestic vs International share

How much of global rail turnover is actually domestic (i.e. within one country) versus international? I am feeling much more versus 90% domestic and 10% international, to be generous. And here is the issue: in their domestic markets, train users don’t have any doubt about who runs their trains. Italians don’t need an intermediary to book Trenitalia. The French don’t need an intermediary to book SNCF (a fact that Expedia brilliantly understood 10 years ago when they entered France through a JV with SNCF). In Belgium, the Walloons use SNCB, and the Flemish go to NS. And who doesn’t know about Indian Railways in India? The brand equity of national rail providers is so deeply rooted, built over decades of national pride, that it takes serious courage to try and shift the masses to something else. Not impossible: but a long and strenous battle. And this is very different from air travel, who was born as an international means of transport from day 1.

Side note: the above does not apply to the UK where given the fragmented operators market, a consolidator role like TheTrainLine makes perfect sense – and it works. This situation could become a reality in the rest of Europe but in a very far future. Even with deregulation, and the ability for all operators to ride trains in other countries, it will take a generation before the French will dare abandoning SNCF for Deutsche Bahn and viceversa.

Standards and system fragmentation

This is an obvious challenge, but maybe the less difficult to solve – you can always solve technical problems. The issue lies in the size of the investment to pull together disparate systems. A famous European GDS has been investing for years and is on a good track. Not only each rail operator have their own proprietary systems, but the fares structures are amazingly different – sometimes driven by political root causes influencing cheap rates for specific citizens (see for example the “Large families card” in France, senior citizen discounts, military discounts, etc). Sometimes these have been implemented at a time where local systems where developed by local developers in their local language. When we integrated API calls with an anonymous German rail provider, we found out the actual API verbs were all in German…

Where do rail operators need distributors?

Building on the brand equity aspect described above, there is one area where providers need distributors: and that’s international clients. For an American visiting Europe, being aware about all these obscure SNCF and DB and NS names is not easy, not to mention being able to book tickets on their direct sites. Yes, there is a need. After all, SNCF has distributed through the GDSs for years. They even have had code shares with airlines, so you’d buy a NYC-Lyon ticket on Delta just to find out the Paris-Lyon segments is a train. But here’s the catch: they don’t distribute all the inventory… (it reminds me of other ongoing full inventory discussions). They might put only high speed rail, only some fare types, only some discount types. The fares might not even be the same as available at the station. And they might even apply some access fees, or booking fees to access their platform – fees that somehow will be billed back to the traveller.

All in all – let’s see what these guys can come up with. The key question is whether this is the right time and they’ll be able to hang on for long enough.