State-owned planes and trains wage war over passenger penny

Two state-owned companies, railway operator CFR Calatori and airline Tarom, are going head to head, as both have similar ticket prices for local routes. But while the Tarom management plans to make the national carrier profitable this year,CFR Calatori representatives intend to reorganize the company and invest heavily to get the rail operator back on track.

By Dana Ciuraru

Railway company CFR Calatori and airline Tarom, two state-owned companies, are these days locked in competition.

Railway passenger traffic is increasingly threatened by airlines, which have strengthened their market position by introducing flights to domestic destinations at similar ticket prices to those charged by CFR Calatori. Journeys to cities such as Timisoara, Cluj-Napoca, Iasi and Arad are being hotly contested both by the state railway company and Tarom as well as other airlines.

On domestic routes, the cheapest ticket sold by Tarom is for the route Bucharest-Bacau, which reaches EUR 34, all taxes included, for a return journey, while a Iasi-Bucharest return fare costs approximately EUR 80. Given these prices and the short flight time, the railway option – with a return ticket from the capital to Bacau costing EUR 35 and a journey time of approximately four to five hours – looks less appealing.

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The Cluj-Constanta route is another battleground for the two state-owned firms, as a return flight retails at EUR 78.

Meanwhile, the local market has also become a priority for other airlines, such as Blue Air. “Part of Blue Air’s strategy this year is to consolidate its network of domestic flights. We want to have equally frequent flights to all domestic connections,” said Adrian Ionascu, general manager of Blue Air, which flew 1.7 million passengers last year.

The battle is also being tenaciously fought on the ground, as CFR Calatori has come up with low fares for international routes, such as EUR 30 for Bucharest-Budapest and less than EUR 100 for Bucharest-Vienna.

Tarom hopes profit will take off in 2010

For this year, Tarom is setting its sights high. “We want the company to make a profit, even if it is a minimum one,” says Ruxandra Brutaru, Tarom’s GM. According to her, to achieve this goal, the airline plans to reduce its costs by 15 percent and to axe 80 positions from the current staff of 2,450.

In 2010, Tarom has 17,000 flights scheduled, up 2,000 from the previous year, and expects to carry a total of 2.1 million passengers. “We will not introduce as many new destinations as we did last year, but we’re planning the launch of four flights in November this year. The greater business compared to 2009 will come from increasing the frequency of some flights in the summer schedule,” adds the Tarom GM. In addition, another of the airline’s key objectives in 2010 will be to increase its share of the market from 58.9 to 61 percent.

The Tarom chief has announced that the company also plans to operate more connecting flights.

“Otopeni Airport will increase its capacity in 2011 after which we can become a connections operator. This is why we have a lower number of passengers: we fly point-to-point. All other airlines get more of their traffic from passengers taking connections, which can reach up to 30 to 40 percent. Our main target here is to reach a share of 17 to 18 percent, but we need an infrastructure that allows the transfer of passengers to avoid heavy current flows,” said Brutaru.

CFR Calatori trains its sights on reorganization

“CFR Calatori must restructure the business in general, but especially in terms of staff, as the workforce is inflated in some areas,” said Radu Berceanu, the transportation minister, at the beginning of the year. He added that CFR Calatori needs “a shift of activity” to increase revenues and a greater subsidy, as state subsidies have been cut by half to approximately EUR 145 million.

Moreover, the total value of the investments in rolling stock was less than EUR 100 million last year, according to the foundation document of the state budget, which is five times lower than necessary in this sector. Industry representatives say that in the next ten years, the state should focus on investments in the rail segment, as rolling stock alone requires a significant sum.

“In 2009, the firm acquired two locomotives and 121 cars were upgraded. In total, CFR Calatori investments are less than EUR 100 million. This is insufficient if we want to compare Romania with countries like France, Italy or Spain, in this respect,” says Stefan Roseanu, secretary general of the Railway Industry Association. He adds that the necessary sum is around EUR 500 million a year.

dana.ciuraru@business-review.ro