Deutsche Bahn Bound for the Orient

Deutsche Bahn, facing increasing competition in its home market, is looking to foreign growth to compensate, not just in Europe but in the Middle East as well.
This could be the future: a German high-speed ICE in the Middle East.

The red double-decker bus is as much part of Britain’s capital as the Queen and Big Ben. But one of their most important operators, Arriva, is owned by a very German company: state-owned railway firm Deutsche Bahn.

It is a little-known example of Deutsche Bahn’s foreign activities which are only going to increase in the coming years. Five years ago, Deutsche Bahn bought Arriva, which was founded as a motorcycle shop in 1938 in Sunderland, northern England.

Arriva, which now runs bus and rail services in England and 13 other European countries, has set its sights outside Europe and plans to bid for projects in the Middle East.

The expansion is a response to mounting foreign competition in Deutsche Bahn’s home market, where long-distance bus travel has become popular since a market liberalization in 2013. Ulrich Homburg, Executive board member, Deutsche Bahn

“There is a whole series of projects on the Arabian peninsula that we’re looking at closely,” Ulrich Homburg, Deutsche Bahn’s management board member in charge of passenger services, said in London.

“It’s exciting for us because a completely new transport infrastructure is being built there,” said Mr. Homburg. “There are so many projects that we expect the market to reach a considerable size there soon.”

The expansion is a response to mounting foreign competition in Deutsche Bahn’s home market, where long-distance bus travel has become popular since a market liberalization in 2013. Low-cost domestic air travel is another source of competition, as well as train routes taken over by rival train operators. The company is struggling to meet its financial targets this year.

Recently a large order for five busy services in North Rhine-Westphalia, Germany’s most populous state, went to British competitor National Express. In the spring, National Express had already won a contract to run the entire local train network of the large southern city of Nuremberg, a decision Deutsche Bahn is contesting in court.

The greater the competition domestically, the more attractive foreign markets become. But Deutsche Bahn Chief Executive Rüdiger Grube also plans a restructuring to cut costs and reverse a decline in earnings. The revamp could involve spin-offs, the sale of units and even management changes.

 

Deutsche Bahn 2014 Compared Internationally-01

 

Mr. Homburg and his colleague Karl-Friedrich Rausch, management board member responsible for transport and logistics, may both lose their jobs in a boardroom shakeup, people familiar with the matter have told Handelsblatt.

Against that backdrop, a bit of positive publicity can’t hurt, so it wasn’t surprising that Mr. Homburg joined Arriva Chief Executive David Martin in banging the drum for Arriva in London.

Mr. Martin said: “We’re profitable with Arriva in every country and will increase revenues and profit again in 2015.”

Arriva is applying for a 700 million pound, or €972 million, contract to operate the Northern Rail franchise and has been shortlisted for the next London Overground rail concession from November 2016.

But Mr. Martin will have to keep his hands off another high-prestige contract: the Royal Train, which ferries the Queen and members of her family around the realm. That is run, via a British partner, by another Deutsche Bahn subsidiary: logistics unit DB Schenker.

Carsten Herz is one of the London correspondents for Handelsblatt. To contact the author: [email protected]m