Rail Traction Company's early development mirrored that of a number of similar players that sought to exploit the potential of the north-south trans-Alpine transit market. RTC focuses purely on providing traction for freight trains, but Francesco Grotti, Sales & Marketing Manager at RTC, believes the company has fulfilled its initial expectations when it was founded by Managing Director Giuseppe Sciarrone and it is now ripe for further expansion, with the domestic market a particular focus.

On May 22 2006 RTC began operating its first entirely domestic flow of intermodal traffic between Nola near Napoli and Milano Segrate, and in September 2007 this was joined by another intermodal service between Nola and the port of Gioia Tauro in Calabria. RTC's entry into the domestic market over the past couple of years is seen by Grotti as a significant breakthrough. 'Barring a few specific historical exceptions, the market had never seen domestic intermodal services hauled by a new railway undertaking'. But the start of RTC's domestic operation has not thus far caused a rush of new entrants to follow suit and apply for operating licences, as has been seen in some other EU member states. 'The domestic market is still a big challenge for us', Grotti acknowledges, 'it has been fairly depressed in recent years.'

Premium service

Pricing will naturally play a major role in determining how far the domestic market opens to competition. Grotti explains that on international flows, rail rates are competitive with road and allow new rail operators to reach break-even point relatively easily. Domestically, the situation is different: road rates are lower than those for international traffic, therefore historically Trenitalia has had to offer cheaper prices to develop the market. 'But at such a level it is impossible for any railway undertaking to cover its costs', he says.

Now the scenario is changing. On the one hand, Trenitalia is revising its pricing policy upwards. On the other, the market appears ready to pay more to receive a better standard of service. So, in specific cases, he says, 'there should be room enough for new entrants to be attractive and competitive, without losing money'.

RTC's medium-term strategy is twofold: to develop its existing international services over the Brenner Pass, and to launch further long distance services within Italy. Grotti explains that 'generally speaking, services running over more than 600 km are required to exploit our means of production. Shorter routes can be competitive, up to around 400 km, if we can perform a full round trip each day with the same locomotive. As an example, we run on average 10 or 11 train pairs each day between Verona and München, a distance of 435 km.'

He believes that more new locomotives will be required as demand increases - 'we cannot use second-hand diesel locomotives', but the high up-front cost of new traction and the relatively long lead times for delivery remain a frustration. Currently, RTC has a fleet of 18 electric locomotives, of which 10 are Siemens Class 189 multi-system units, plus two diesel locomotives. Five of RTC's Class 189s are leased from MRCE Dispolok.

High speed opportunity

It is natural, Grotti believes, that RTC's initial forays into the domestic market have in part been driven by the need to connect terminals in southern and central Italy with the Brenner Pass for onward transit to Austria and Germany. This is reflected in the balance of RTC's trains - around 70% are formed of intermodal traffic.

Yet equally RTC's roots as a trans-?Alpine operator have given it valuable experience of an intensely competitive market. When asked whether market opening will prove beneficial to Italy as a whole, Grotti suggests the Brenner case illustrates 'how all operators can grow when the customer can choose.'

The Brenner corridor offers the kind of intensive and sustained traffic levels that can support a number of rival operators. But economics will always dictate strategy for an open access operator like RTC: reaching break-even point is obviously vital, and this is harder to achieve on a national scale. RTC must make very efficient use of its resources, both in terms of staff and equipment. 'We are highly competitive when we can fully exploit our means of production. Ideally we need a reasonably long-term contract and a regular frequency of trains per week or per month.'

The opening of the Alta Velocità line throughout from Napoli to Milano in 2010 could provide a catalyst for greater competition in the freight sector as better paths become available on the conventional network. 'We are investing now to ensure we are ready for this opportunity', Grotti says.

The recasting of the timetable is sure to prove a stiff test for RFI's planners, who will need to balance greater demand for faster (and probably more numerous) freight paths with a likely increase in regional and suburban passenger services, many of which will connect with the AV network (RG 4.08 p249). But Grotti appears unconcerned. 'We have a good relationship with the pathing department within RFI. We have always got the paths that we have asked for over the Brenner route, although at the start, our domestic flows were not given ideal timings. But that has been amended over time, and we have no complaints - certainly there has been no attempt by RFI to deny us the paths we want. If the capacity is there, then RFI gives it to us.'

SCMT disagreement

A more immediate worry for Grotti is the ongoing dispute between RTC, other new entrants and RFI concerning the implementation of SCMT automatic train protection on Italian main lines. Operators had, for several years, received a significant discount on track access charges as compensation for the lack of ATP, Grotti explains. But with the SCMT installation programme approaching completion, RFI has moved to withdraw the rebate, amounting to a near-doubling of the charges levied on RTC.

In particular, RTC is disputing RFI's decision to claim back the discounts offered to the operator since January 2006, at which time on-board SCMT equipment had not been fitted to its locomotives. Grotti says the outcome will be decided by the courts this summer. 'This is not just a problem for us, it's a problem for all the railway undertakings. It is seriously affecting our balance sheet.'

For smaller open access players such as RTC, the situation is exacerbated by the need to remove locomotives from traffic to fit SCMT equipment, the cost of which Grotti estimates to be €0·5m per locomotive, in addition to the expense and customer service implications of having a reduced operating pool.

Grotti believes the decision to equip the main line network with SCMT was a 'top-down' one in which the operators were not initially involved. There is clearly some frustration that, while SCMT confers many of the advantages of <acronym title="European Train Control System">ETCS</acronym> Level 1, 'it is not exactly the same'. It is also specific to Italy, which brings additional cost implications when it comes to equipping RTC's multi-system locomotives that run into Austria and Germany, which will also ultimately need <acronym title="European Train Control System">ETCS</acronym> to operate along the planned European corridors from the north.

However, one significant consequence of SCMT installation is that it will allow operators to move away from the traditional Italian practice of having two drivers. Grotti recognises that this could bring productivity benefits, but says RTC has still to determine how it will implement what is likely to be a controversial step in the eyes of the trade unions. He suggests this is likely to be less of an issue for a smaller player like RTC, stressing that as a growing business, 'we are working to re-allocate drivers onto the new services that we intend to launch. We want to keep our staff'. He adds that RTC's training school typically trains 15 to 20 new drivers each year.

Nevertheless, there is no firm ?timescale for RTC to implement single-driver operation. 'But in any case, we cannot continue with two drivers if we are also paying twice as much in access charges to RFI.'

Regulatory change

'It is really important that the infrastructure manager is truly independent - not like it is today, even if we have no problems at present with its day-to-day operation,' Grotti replies when asked whether the Italian market would benefit from a visible and powerful economic regulator, independent of FS. Clearly, some progress is being made to create a climate where new entrants can enter the market and thrive.

The regulatory division of the Ministry of Transport 'is there and it is functioning quite well,' Grotti says, but he suggests that with time it may need to be to be given greater powers - 'it has not been properly tested yet'.

Another significant development, welcomed by RTC, is the creation of the Railway Safety Agency, which was inaugurated in Roma on March 27. The organisation, based within the Ministry of Transportation, will take over some key responsibilities such as the definition of the safety rules, the commissioning, testing and approval of rolling stock, and the issuance of safety cases for new entrants. These responsibilities were previously managed by Cesifer, a division of RFI.

Although the agency is not yet fully in operation, RTC hopes that it will make the current approval processes more efficient, to the benefit of the entire industry. The creation of a separate safety and approvals body was a European Commission requirement; 'now the next step we are waiting for is to relieve RFI of its duties for path allocation.'

Grotti is broadly satisfied that many of the conditions are emerging for a competitive market to evolve and meet the challenges that face the industry and the open access players in particular. 'We want to be optimistic, even if this year is probably the most critical in our history.'

RTC's intermodal services over the Brenner Pass are operated in partnership with München-based Lokomotion.

RTC's shareholders

Società di Trasporti su Rotaia 35·3%
DB Schenker 30·0%
Ferrotramviaria 17·7%
SAE 8·5%
Reset 2000 5·0%
Fercam 3·5%

'It is really important that the infrastructure manager is truly independent - not like it is today'

Francesco Grotti Sales & Marketing Manager, Rail Traction Company