Train in Pain

Deutsche Bahn Needs New Ideas

  • Why it matters

    Why it matters

    If Deutsche Bahn doesn’t upgrade its offerings to match newcomers on the mobility market it could be fast surpassed by new providers.

  • Facts

    Facts

    • Deutsche Bahn’s CFO, Richard Lutz, is currently acting CEO and likely to take the helm permanently.
    • Former CEO Rüdiger Grube, who had led Deutsche Bahn since 2009, but resigned suddenly late January after clashing with the supervisory board about the extension of his contract.
    • State-owned Deutsche Bahn is a financial liability to taxpayers as it needs to invest €4 billion annually to modernize its network outdated signalling technology and obsolete rolling stock but lacks the cash flow.
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  • Audio

    Audio

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DB Carsharing Flinkster
Deutsche Bahn's “Call a Bike” bicycles in German cities and offers its own rental cars with Flinkster. Source: Wolfgang Kumm/DPA [M].

Richard Lutz, who in a surprise move was named head of Deutsche Bahn, knows what rail travel in Germany truly costs.

For many years the company’s financial chief, he can easily calculate the consequences of calls for an “affordable citizens’ railway,” synchronized timetables between commuter trains and long-distance lines or comprehensive freight transport. Here we’re talking hundreds of millions, or even billions of euros.

Mr. Lutz’s familiarity with the figures distinguishes him from rivals for the top post at Deutsche Bahn, if indeed the shortlist included any competitors in what was a hasty selection process.

Now, the question is whether such financial expertise will help him in day-to-day operations.

The state-owned company has no convincing answers. Up till now, Deutsche Bahn has experimented on the fringes.

If Mr. Lutz is soon named chief executive of Deutsche Bahn as planned, he might actually do what all new bosses do: get the financial skeletons out the closest and rid the company of his predecessor’s burdensome legacies.

That’s no easy task for someone who up to now was in the background. He was involved in many past failed policies and provided the figures for the “Future of the Railway” restructuring program. Today those measures are nothing but window dressing. Deutsche Bahn expected the program to make €700 million but that’s pie in the sky. The ongoing disaster with freight transport is likewise dashing such hopes.

Digitization, restructuring, modernization – those are just buzzwords familiar from former boss Rüdiger Grube. The real challenge for Deutsche Bahn and so for Mr. Lutz is the dramatic upheaval on the mobility market.

The threat comes in the form of new booking platforms which remove ticketing sovereignty from the railway company – as they did for airlines and taxis. And new forms of travel for people and transport for goods will have grave serious consequences for Deutsche Bahn’s business model, one which has stood the test of time for 150 years.

The state-owned company has no answers – at least no convincing ones. Up to now, Deutsche Bahn experimented on the fringes. It provided city bikes with “Call a Bike,” its own rental cars with Flinkster and has developed apps for booking rides to the train station in the countryside. It’s all fine and dandy, but these measures don’t make up a comprehensive strategy.

The company’s unthinking reaction to major transportation changes was evident in its response to rivalry from long-distance buses. First Deutsche Bahn ignored the market that was only liberalized in 2013, then desperately imitated newcomers, only to give up finally in frustration. By then it had wasted millions of euros. These losses led to the cancellation of its national long-distance bus service. But was that a good idea?

Deutsche Bahn has to figure out what it wants: Either it will shrink to become just a railway or build itself up into a national mobility provider with all forms of transportation. If it goes for the latter, a different decision on long-distance buses might have been better. A bus service would have complemented a comprehensive transportation service spanning rail, and roads with bikes, trains and cars. It’s too late for that now.

Deutsche Bahn hasn’t been growing in its core business for a long time.

The biggest challenges lie ahead How would Deutsche Bahn react if a clever start-up, backed by deep-pocketed investors, wanted to bring the Flixbus model onto the rails? Would the state-owned company give up its lucrative long-distance routes without a fight? And what can it do to stop the dramatic decline in freight traffic?

The share of goods conveyed by rail by Deutsche Bahn’s rivals has risen to 40 percent. Combined supply chains from customer to customer are just as important in freight traffic as in passenger transportation today. But apparently only the company’s rivals know this, otherwise they wouldn’t be so successful.

A bit of restructuring here and there won’t get Deutsche Bahn unstuck. On the contrary. If its new boss only tinkers with the symptoms, then start-ups, car companies, logistics firms and financial investors will soon call the shots on the transportation market – and render the proud state-owned company a disappearing act. More than €40 billion, or $43 billion, in revenues and 300,000 employees shouldn’t distract Deutsche Bahn from the fact that in its core business, it hasn’t grown for a long time.

Richard Lutz knows that better than anyone else at the company. His figures show these ominous trends day after day.

But financial acrobatics won’t save the firm. Mr. Lutz needs an idea and one he can sell to the owner. Because without the support of the government, nothing will happen at Deutsche Bahn.

 

To contact the author: fockenbrock@handelsblatt.com.

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