European Train Travel: Working on the Railroad

As any of the millions of young people who have roamed the Continent with a pack on their back and Eurail pass in hand can attest, there is something quintessentially European about traveling by train. Or was. European airline deregulation 12 years ago has turned hopping on a plane into a bargain-basement no-brainer. Thanks mostly to the increased competition, improved services and lower prices spawned by regulatory liberalization, air travel in Europe grew at an average annual rate of 4.5% between 1995 and 2005. Over the same period, the total number of miles traveled by all rail passengers chugged along at less than 1% annual average growth.

Now Europe’s railroad industry, for decades dominated by stodgy state-owned monopolies, is ready for a renaissance of its own. A looming round of deregulation is set to spark an industry restructuring, pitting existing state-owned railroads against smaller private upstarts. At the same time, countries including Spain, Italy and France are spending billions of dollars on new high-speed railroads and rolling stock to compete with airlines. All this means one thing for travelers in Europe contemplating a switch from increasingly stressful and time-consuming air travel to more civilized rail: all aboard. (See pictures of Paris.)

The most radical change arrives this December, when European Union regulations will for the first time allow all rail operators to compete with one another for passengers on international routes. The change, which comes four years after similar moves in the freight sector, is designed to open up routes that currently are controlled by state monopolies. For travelers, deregulation will mean lower prices, faster trains and greater convenience — for example, passengers now are usually forced to change to trains run by the incumbent state-owned operator when they cross into another country. Under the new rules, railroads will be able to operate seamlessly across borders and even pick up new passengers outside their home countries en route to their final destination.

By opening up the market, regulators hope to give rail companies room to offer more frequent and diverse services, like special business-class cars. “Our experience has shown that choice is important to travelers, and when you increase the range of choice with new products, services and suppliers, you increase the number of clients who want to explore those new options,” says Mireille Faugère, president of domestic and international passenger services for France’s state rail company, Société Nationale des Chemins de Fer Français (SNCF). “For a company like ours — which derives 20% of its business from international travel — this liberalization is far more an opportunity than a threat.”

Even before deregulation, Europe’s rail industry has been modernizing and expanding. France, which has Europe’s largest high-speed rail network, plans to more than double its track length from 1,200 miles (1,900 km) to 2,500 miles (4,000 km) by 2020. Spain is aiming to leapfrog France as high-speed leader with a $130 billion expansion; when completed in 2020, 90% of all Spaniards will live no more than 31 miles (50 km) from a station served by Alta Velocidad Española (AVE) trains, which have a top speed of 218 m.p.h. (351 km/h). Italy and the Netherlands are also on a track-laying spree. All told, nine E.U. nations operating high-speed rail are set to spend a total of some $200 billion in the next decade to triple their combined track length from 3,100 miles (5,000 km) to 9,300 miles (15,000 km).

This burgeoning of national high-speed networks is allowing trains to challenge airlines on shorter trips even before deregulation comes into force. The Eurostar service — the lucrative 21⁄4-hour route between London and Paris — already controls 70% of the travel market between the two capitals. Opened in 2007, a high-speed rail link between Madrid and Barcelona that cut intercity travel time to 21⁄2 hours has grabbed 50% of that market. Similar effects have been seen in Paris-Lyon, Paris-Brussels and Hamburg-Berlin transport links, where domination by fast trains has led airlines to reduce or drop services altogether. “When travel time is two hours or less, high-speed rail wins 90% market share [against] airplanes,” says SNCF’s Faugère. “It’s little wonder airlines like Air France are considering starting their own high-speed rail services to win some of the business back, something we find quite flattering.”

Still, no one is predicting railroads will put airlines out of business. Railteam, a ticketing consortium of seven leading high-speed rail operators, aims to boost the number of people who now use fast trains for international European travel each year from 15 million to 25 million by 2011. That compares with some 160 million who travel across borders by air in Europe every year, a number that is expected to double by 2020. The railroads’ relatively modest growth expectations are grounded in some harsh economic realities: new high-speed rail lines take years to plan and build as well as billions of dollars in investment. Moreover, Europe’s rail operators are just beginning a chaotic period of industry restructuring and consolidation that usually accompanies deregulation.

In an effort to gain operating efficiencies and to outmaneuver rivals, some of Europe’s main rail operators are already forming partnerships. SNCF, for example, runs a high-speed Paris-Brussels-Amsterdam-Cologne service called Thalys along with Belgian rail operator Société Nationale des Chemins de Fer Belge (SNCB) and Germany’s Deutsche Bahn (DB). DB also uses the French company’s track to operate its high-speed Intercity-Express (ICE) trains between eastern France and Paris. But, despite their cooperation on some routes, DB and SNCF are locking horns over Eurostar. The French have a majority stake in Eurostar, which also includes the Belgians and the U.K.’s London and Continental Railways (LCR). DB has made no secret that it is looking to buy LCR’s 33% stake — which the French also covet, in part to deny DB its dream of extending its routes into the U.K. Meanwhile, the German group has ordered 15 new ICE locomotives with a full range of signaling technology that can be adapted to virtually any rail system in the E.U.

To further complicate matters, new companies are looking to muscle their way onto the tracks. Italian start-up Nuovo Trasporto Viaggiatori (NTV) is set to launch Europe’s first privately operated high-speed service in Italy in 2011, in competition with Italy’s former rail monopoly Trenitalia. Headed by Fiat and Ferrari CEO Luca Cordero di Montezemolo, NTV plans to establish a broad network of high-speed Italian services that dovetail with French routes run by SNCF, which owns 20% of NTV.

Of course, such market tumult ultimately means some railroads may find the going tough. To get an idea of what competition might do to the passenger-train industry, take a look at the freight sector, which was opened up to cross-border rivalries in late 2005. In France, nine new operators that stepped in to take on SNCF’s freight service have captured 11% of the market in just five years. That may not sound like much, but the smaller players are making money while the state-owned giant is not. “What’s significant in this isn’t the element of competition alone, but the more efficient business models new players brought to old markets,” says Alain Bonnafous, a rail expert at Lyon’s Laboratory of Transport Economics. “Better organization and increasing return on investment makes all the difference.”

As railroads begin competing on price and quality of service, the big winners are bound to be passengers. Further deregulation is in store: in 2012, national markets, not just international routes, are slated to be opened to more competition. “Travel as we’ve known it recently is being turned on its head, with larger numbers of people using high-speed rail to avoid the hassles, delays and stress of taking an airplane,” says Mark Smith, a U.K.-based industry expert and founder of rail-travel website seat61.com. “On routes of three hours or less, you get to your destination faster and more comfortably than by air. And which is more glamorous these days: a high-tech Eurostar train with interiors designed by Philippe Starck and Christian Lacroix, or a crammed Ryanair plane that asks you to pay to use the restroom?” Perhaps train travel will become quintessentially European once again.

See pictures of Obama in Europe.

See TIME’s pictures of the week.