Growing niche market offers profitable opportunities
The luxury train market has a high profile, but it requires a bespoke service from railway management and staff. So what are the benefits for the train operators and their host railways?
NEXT YEAR's launch of the Tangula Express services from Beijing to Lhasa and Lijiang is the latest manifestation of a growing trend in railway operations around the world — the dedicated luxury train.
There are few major railways which do not host privately-owned luxury or charter trains in some form. These range from top-of-the-market rolling hotels such as the Royal Scotsman in the UK, or the Calgary-based Royal Canadian Pacific to simpler day excursions operated with former Pullman cars which fill a gap left by the withdrawal of most railways from the spot charter market.
Due to begin in spring 2008 the Tangula Express will operate on the Chinese Railways network under the management of Kempinski Hotels. Whilst the majority of today's luxury trains are promoted and marketed privately, most are operated under contract by their host railways. Elsewhere, some railways have ventured into the luxury market themselves, notably the Palace on Wheels and Deccan Odyssey run by Indian Railways in conjunction with the country's regional tourist authorities.
As trains that have to be dovetailed into the daily timetable, luxury trains and tourist charters inevitably require additional resources from the infrastructure provider or host operator. But many also generate a bigger income than the simple track access fee, perhaps from providing traction and crews, or maintenance of rolling stock. There are also unquantifiable benefits, such as giving the rail business a higher public profile or a perception of quality.
There are probably as many permutations of relationship between promoter, operator and infrastructure provider as there are luxury train operations. This article looks at the experiences of three of the leading companies offering bespoke trains, which provide a good cross-section of the range.
Longest in the field is Venice Simplon-Orient-Express Ltd, which began operating between London, Paris and Venezia in 1982. VSOE Chief Executive Nick Varian identifies three distinct types of operation:
- Day excursion. The simplest and most universally applicable is the out-and-back day trip. This is exemplified by VSOE's British Pullman and Northern Belle trains in the UK and the Hiram Bingham in Peru. Some trips incorporate an event or tourist destination; others simply give their passengers an opportunity to enjoy a three-course meal while watching the world go past the window.
- Great journeys. These take a particularly scenic or 'romantic' section of railway as the basis for a longer journey, with overnight accommodation provided on the train or in an hotel. Sleeping car services include the revamped Ghan and Indian Pacific in Australia and the shorter Orient Express routes in continental Europe. By contrast, the Rocky Mountaineer trains in British Columbia use hotels in Kamloops and Quesnel.
- Trains as a cruise. The ultimate luxury trains are effectively a re-invention of the maritime cruise, enabling their passengers to explore a country while enjoying the scenery. This makes the rail journey inherently more interesting than a cruise. The train is used as a mobile hotel, allowing the guests to reach remote places, perhaps in conjunction with a road excursion from a station. The increasing homogenisation of world cities, and port cities in particular, is giving trains an edge over cruises. Good examples of this approach include the VSOE's Eastern & Oriental, GW Travel's Golden Eagle Trans-Siberian Express launched in April 2007, the Deccan Odyssey and Rovos Rail cruises in South Africa.
Varian also divides the operating side of the luxury train business into three categories: infrastructure; train operations — traction, rolling stock and maintenance; and hotel services — the passenger-facing elements.
The progenitor and inspiration for private train operations, Georges Nagelmackers, who inaugurated the original Orient Express in 1883, set a pattern that has proved remarkably durable. He provided the train, and paid the host railways for a 'hook-and-pull' operation encompassing the provision of train paths, traction and operating services.
Looking at today's market, it is only in Peru that a private train operator has assumed responsibility for the provision of infrastructure. In partnership with Peruvian companies, Orient-Express Hotels holds a long-term concession from the state to operate two lines from Cuzco, to Machu Picchu and Puno, known as PeruRail. The concession agreement allowed 100% of the track access charges in the early years to be spent on bringing the infrastructure up to standard, later moving to a structure of stepped payments.
Operating in many different countries, VSOE has gained a wide experience of dealing with infrastructure providers, straddling the post-privatisation structure in Britain and the accounting separation of infrastructure and operations introduced elsewhere in the European Union countries. Varian recalls that considerable patience was needed to convince the Thai railway authorities of the feasibility of the Eastern & Oriental, which eventually required a change in the law.
Different tactics were required for old state monopolies in Europe where there were no commercial incentives to strike a deal, he says. 'I developed a new business technique, called begging, to overcome the reluctance of railway managers to take on something that would mean more work for them! Today a much more commercial attitude prevails, and having established an economic platform, we know what we can afford to pay.'
The President & CEO of Rocky Mountaineer Vacations, Peter Armstrong, says the main difficulty in Canada was overcoming the residual resistance of the freight railways to host passenger operations, a legacy of pre-VIA Rail days when Canadian National and Canadian Pacific had been obliged to run passenger trains at a loss. 'They were also concerned that I didn't come from a railway background, but I told them they would have to educate us in a lot of things, and they have! Squeezing us on to intensively used freight lines isn't always easy, but providing we leave and arrive at specified times and can slow down at scenic places for “Kodak moments”, we're flexible on point-to-point timings and they can manoeuvre freight trains around us.'
Varian highlights the benefits of the partnership developed with Malayan Railway for the E&O, where VSOE pays KTMB the marginal economic cost of using the railway, plus the operating charges for drivers and train planning, and a marginal contribution to the infrastructure for the paths used. 'On top of the marginal cost, we pay them a proportion of our profit. Because their success is subject to ours, there is a strong incentive to correct any faults or problems.'
Invariably private train companies specify and provide the rolling stock for their services. But who maintains it and who supplies the locomotives varies according to circumstance. It soon became apparent to VSOE that its fleet of historic carriages called for such specialist skills that it was better to develop in-house resources for maintenance — both above and below the solebar — or to use specialist contractors. In Britain all maintenance work must be validated by a Vehicle Acceptance Body, after which Network Rail accepts what has been signed off. In continental Europe, SNCF provides the regulatory control for VSOE's fleet.
Peter Armstrong thinks the RMV carriages are probably the most over-inspected units in Canada. 'Besides daily inspections by CP and CN, the Rail Safety Branch monitors our equipment and maintenance regime at least once a month, and we never know when they're coming. Our staff at the depot in Kamloops know the cars inside out, and technicians ride on the trains to feed back information about any defect and what work needs to be done. If we contracted out, I don't think we'd get that reliability or sense of ownership. The staff are proud of our cars and bring their kids down to see where they work.'
Unusually RMV also decided to buy its own locomotives and it now has a fleet of nine diesel locomotives in the company's own livery, although the drivers naturally are CN or CP crews. This decision was taken to remove any anxiety over the rostering of locomotives and to take responsibility for their reliability.
This area is the main forte of the private companies, providing a level of customer service to match the high standards expected of luxury operations. It is a labour-intensive business: GW Travel's Golden Eagle Trans-Siberian Express has more than 60 staff on board the 21 car train, drawn from a Russian Railways depot which also supplies crews for VIPs and foreign visitors. For its own operations, RMV has to supply 2?800 freshly-cooked à la carte meals each day.
In the 19 years since RMV began operations, Peter Armstrong believes standards of service have risen around the world, so passengers expect more. 'Guest service is the cornerstone of our business so it's important that we recruit employees who have extensive experience in providing spectacular guest service, rather than someone who is simply looking for a summer job. Training is a passion for us, as we constantly try to improve.
Varian stresses the almost vocational aspects of working on VSOE's trains. 'We've had a very good team from the beginning, and we have a very low turnover. Staff feel proud of their train and become emotionally involved in the theatrical aspects of service.'
Although often a core business for their operators, luxury trains are never going to represent more than a small proportion of turnover for the host railways. Tim Littler, President of GW Travel, says the US$7m a year he pays to Russian Railways 'doesn't even amount to a rounding error in their accounts'.
Littler believes the value to RZD in hosting the Golden Eagle has to be seen in wider terms of prestige for the railway and the country. It may be an intangible and unquantifiable benefit, but these trains help to retain the romance of ?train travel and bolster its image. Staff, too, feel a sense of pride working with such trains.
Hard-nosed accountants may be sceptical about goodwill that cannot be measured, but it would be unrealistic to ignore the commercial advantage of the 'soft' perception of rail travel as an experience superior to air or road. At a time when security concerns and airport delays are seriously impacting on the perceived quality of air travel and congestion makes road journeys a time-wasting ordeal, rail travel is gradually winning back market share. Business and leisure travellers are increasingly in search of the qualities that these trains represent. Varian observes that after the E&O began running between Singapore and Bangkok, ridership of the ordinary service trains went up by 20%.
Good prospects for growth
Because the high prices charged for journeys on luxury trains make them — in many cases — a once-in-a-lifetime experience, up to 80% of passengers each year are new travellers. This calls for a sustained and long-term marketing effort. Publicity also relies heavily on word of mouth as the services become more established.
'We have to make sure that every aspect of the experience matches the scenery outside', says Peter Armstrong. 'Although the Asian market will become big, we don't want to go for volume; it wears out the equipment and staff, and we still want to be a tourist icon in 50 years.'
In some countries, the prospects for future luxury train operations rely on the support of the government's tourism-promotion arm, aligned with the perception by the railway administration of the value of such trains, in terms of marginal income and prestige. However, it seems that these bodies seldom talk to one another.
Though climate change is encouraging greater use of rail for leisure as well as business, Varian sees this as a double-edged sword. The difficulty of finding clear paths in an increasingly congested timetable may mean that — without a corresponding increase in capacity — more people travelling by train may push the private operators off busy routes.
With novelty still a key marketing factor, all three operators are looking for opportunities to expand. According to Tim Littler, a survey among cruise ship passengers suggested that almost half of the 6 million people per year who spend an average of $500 a night for such trips would be happy to take a train cruise. If only 2% of them did so, today's luxury trains would be swamped. ¦
- CAPTION: ABOVE: GW Travel's Golden Eagle Trans-Siberian Express was launched by HRH The Duke of Kent earlier this year
- CAPTION: P495: VSOE's Eastern & Oriental train between Singapore and Bangkok operates under a profit-sharing agreement with Malaysia's KTMB
- CAPTION: VSOE subsidiary Peru Rail is the only luxury train operator to take over the provision and maintenance of railway infrastructure under a long-term concession
- CAPTION: Rocky Mountaineer Vacations uses lineside hotels for its overnight stops, and specialises in high quality dining aboard its trains
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