Privatising profits and socialising losses: The effects of liberalisation on the incumbent high-speed rail operator in Spain

Abstract

This paper investigates the destiny of high-speed rail (HSR) operations as rail liberalisation challenges the cross-subsidy single rail operators established between profitable and non-profitable routes when they monopolised the whole HSR network. When an incumbent HSR operator has to share the cake with newcomers, the resulting decline in revenues and profits may limit the effectiveness of the relevant cross-subsidies. We analyse such scenarios through the case of Spain, in which the state-owned incumbent rail company, Renfe, faces increasing competition in its more lucrative HSR corridors. Scenarios suggest that with only a 30 % drop in ticket sales in the northeastern HSR corridor, the financial balance of Renfe's HSR commercial operations becomes negative. This means that beyond the profits made by new entrants in one or two specific corridors, the outcomes for non-profitable corridors will be quite different: public authorities will have to cover losses and/or Renfe will have to increase ticket prices and/or the frequencies of HSR services will have to be cut. Travellers on the most profitable HSR routes will enjoy greater frequency of services and lower fares, while those on other HSR routes could experience less frequency and higher fares. In geographical terms, rail liberalisation applied to HSR operations may thus have very heterogeneous effects and reinforce spatial inequalities between regions.