VR Group will overhaul its operations in an attempt to adapt to increasing competition and secure its future.
The state-owned rail transport operator announced on Friday that it will begin negotiations with its staff over the redundancies of a maximum of 570 people after recording second-quarter losses of 1.9 million euros in its passenger transport services despite having its passenger rail transport monopoly. The losses are largely attributable to its inability to respond to increasing competition.
VR noticed a year ago that even its monopoly position will not be enough to secure its future after Onnibus, a budget-friendly coach operator, forayed into the market and began transporting Finns at a considerable lower cost. Passenger volumes on the long-distance services of VR have decreased by six per cent this year alone.
“The public transport market has changed notably. We may have been a bit too slow,” conceded Mikael Aro, the chief executive at VR.
VR has already lost passengers to the extent that the passenger load factor on some of its routes has decreased to 20 per cent.
Moreover, Onnibus hardly represents the only competitive challenge for VR as the European Union has urged Finland to end the monopoly of VR in passenger rail transport. What can VR Group do to fare better in the future?
Reduce ticket prices
The fate of VR will depend primarily on whether or not it is able to price its services accordingly. The rail transport operator announced on Friday that it will slash its annual costs by 50 million euros to be able to reduce its long-distance ticket prices.
“We rarely use the train because of how expensive the tickets are,” Sanna and Ari Kattelus said after returning from Seinäjoki to Helsinki Central. “The ticket price cuts do sound nice.”
The family also uses a car to visit their grandparents in Seinäjoki. “A bus trip would be too tough with a child: Jaska is only two-and-a-half years old,” explained Sanna Kattelus.
VR recorded an increase of 40 per cent in passenger volumes on the route between Helsinki and Tampere after reducing the average ticket price by 30 per cent as part of a recent price reduction campaign. “It's our objective to lower ticket prices permanently. We can't go on at the old price level,” admitted Aro.
The rail transport operator has refused to shed light on the extent of the price cuts but estimated that its fares are likely to remain higher than those of coach operators.
“It's a big deal for a state-owned institution to lower prices,” Risto Kinnunen said after arriving in Helsinki from Kuopio with his his six-year-old son, Eetu. “Train fares are important, as is the comfortable and stress-free nature of rail travel. I usually drive a car to Helsinki, but I'll definitely take the train if the prices are cut.”
Johanna Rosendahl indicated similarly that she would prefer the train while waiting for her 9.5-euro coach trip to Turku at Kamppi Terminal. “I'd prefer a train but as a student I have to budget things carefully. I'd probably choose the train if the tickets were cheaper,” she said.
Another decisive question is whether or not VR will be able to satisfy its customers while continuing to mull over staff cuts. The state-owned company has over the past six years held over 300 rounds of consultative negotiations and reduced its staff by 4,000 to 8,900.
Commuter services will be unaffected by the round of consultative negotiations announced on Friday.
What the cost-cutting measures will mean for the capital region is that long-distance trains stop at Leppävaara instead of Espoo Central. Passengers will also have to adapt to closures of both ticket offices and low-demand routes.
VR is currently intent on closing 30 routes in October. Many waiting rooms will remain open despite the closures of ticket offices.
The state-owned company will instead invest in developing its digital and mobile services.
A turn for the better is needed urgently
Price cuts would be impossible at the current cost structure of VR.
“We'll place trains with the right capacity, at the right time for the right number of passengers. If only a few passengers use a particular route, the route will be closed. Operating an empty train is very expensive,” pointed out Aro.
VR is looking for a positive change, according to Aro. “We'll be able to lower prices and thereby to attract more customers by reducing costs. That'll generate more revenues and enable us to reduce our prices again,” he said.
A turn for the better is needed urgently as the monopoly position of VR in long-distance rail transport is set to be torn down in 2024 and in short-distance transport in 2021. “You could say as a general observation that rationalising operations is a typical way to prepare for tendering opportunities,” says Jorma Mäntynen, a professor of transportation engineering at the University of Tampere.
He believes the emergence of even a single competitor would remind VR of its mortality.
Jyrki Iivonen, Teemu Luukka, Johanna Mannila, Marja Salomaa – HS
Aleksi Teivainen – HT
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