A Revolution on the Rails: How Low-Cost Rail Travel Is Challenging the Traditional High-Speed Train
In 2013, Ouigo—the low-cost version of the classic TGV—hit the tracks. Intended to revive interest in rail travel, it also created new competition for the TGV, which was renamed inOui. What impact has this new competitor had on the rail market?
Florent Laroche, Lumière Lyon 2 University ; Patrice Bougette, Université Côte d’Azur and Thierry Blayac, University of Montpellier
Until recently, France’s high-speedrail network was completely unified. Whether painted orange or Atlantic blue, TGV trains offered identical service, managed by a single operator: the SNCF. A major change took place on April 2, 2013: the blue and pink trains branded “Ouigo” were launched at 300 km/h, offering low-cost tickets in exchange for the requirement to arrive at the station early and travel with limited luggage. This launch came at a time when TGV ridership was declining, driven by growing intermodal competition from carpooling (the creation of Blablacar in 2006) and low-cost airlines (EasyJet on domestic routes starting in 2007). The 2015 Macron Law would subsequently open the market to a new low-cost transport alternative: long-distance buses.
Is this a return to third class in all but name, according to Dominique Memmi, director of social sciences research at the CNRS? In any case, Ouigo has been a resounding success, a fact that Alain Krakovitch, head of TGV-Intercités at SNCF Voyageurs, celebrated in June 2024, calling it “a true turning point for French high-speed rail.”
By 2027, the fleet will expand from 38 to 50 trains, he announced during the same press conference, and all cars will be renovated, with the installation of individual power outlets and the introduction of a new design.
In 2017, the inOui brand and the burgundy livery began to be applied to all standard TGV trains. This came with a promise of “more comfort, services, and connectivity”: Wi-Fi, access to newspapers and movies via an onboard platform, and in-seat dining…
The market is now segmented, not to mention the more recent arrival of Trenitalia high-speed trains between Paris, Lyon, and Italy, and Renfe trains between Lyon, Marseille, and Spain. Is it segmented enough to cater to different customer groups? How does inOui compete with Ouigo and other modes of transportation? This was the central question of our recently published research.
How should we interpret this phenomenon?
We examined five routes to and from Paris: Lyon, Bordeaux, Toulouse, Nice, and Brussels. The data covers the period from September 2019 to March 2020, prior to the COVID-19 pandemic and the arrival of foreign high-speed trains on the network, which allows us to isolate our case study from factors that might have skewed the analysis. Nice and Toulouse are only partially connected to Paris by high-speed rail: part of the journey is made on the conventional network, and it is on these routes that competition from air travel is most keenly felt. The train-to-plane split there is roughly fifty-fifty. The data was collected over 13 Tuesdays for bookings made seven days in advance.
Competition in the transportation sector is particularly evident in two areas: ticket prices and train frequency. Regarding prices, since the 1990s, the SNCF has practiced yield management, meaning it attempts to maximize its revenue by varying fares for the same route based on different criteria, such as the purpose of the trip (business/leisure) or the date of booking, for example. The literature shows that this is a particularly effective method in sectors involving high fixed costs and where some form of regulation is in place, such as the rail sector.
Several variables were taken into account and compared with the price per kilometer for first- and second-class travel on TGV inOui trains, as well as their frequency. We thus considered technical variables related to route characteristics such as distance, travel time, or service frequency by mode of transport; variables capturing the degree of competition (calculated, for those in the know, usingthe Herfindahl-Hirschman Index) from Ouigo or other modes of transport, as well as service quality (distance-to-time ratio); and finally, variables related to the socio-economic environment: the proportion of younger travelers (ages 15–29) or older travelers (ages 60–74), and the size and employment rates of destination cities.
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Is competition putting downward pressure on prices, especially in first class?
The analyses reveal several key findings. In first class, distance has a negative effect on the price per kilometer: all else being equal, the greater the distance, the lower the price per kilometer—which was to be expected. The availability of low-cost train options also has a significant negative effect, particularly during off-peak hours, which may seem more surprising for first class. However, these are periods when first class is already cheaper due to yield management practices and the SNCF’s desire to fill as many seats as possible. The company actually has a greater interest in filling a seat at a lower cost than in leaving it empty.
The higher the quality of service, the higher the price: in other words, the fewer stops along the way, the higher the price per kilometer. Similarly, the less competition there is from other modes of transportation, the higher the price. All else being equal, the price also increases with the size of cities, but decreases when the populations of both origin and destination cities are relatively young.
In second class, we see the same effects of distance and the availability of low-cost train options. However, competition from other modes of transportation has no significant effect; this effect shifts to the least-filled class during off-peak periods, namely first class. The unemployment rate is also significant: the higher it is on a given origin-destination route, the lower the price per kilometer. This would suggest that when setting its second-class fares, the SNCF takes into account the socioeconomic characteristics of the populations in the cities it serves. The factors determining price are thus partly common and partly specific to first and second class.
On frequency: substitution or compensation?
As for the frequency of inOui TGVs, it is naturally lower on long-distance routes and when travel times are long. For trips exceeding three hours, fewer trains are offered, which can create an opening for other modes of transportation. Nevertheless, we observe that the frequency of inOui trains increases when the frequency of buses, carpooling, or Ouigo trains also increases in the most dynamic markets. Only low-cost air travel has a significant negative effect on supply. In the former cases, this appears to be a matter of complementarity between modes, particularly when the dominant inOui supply is insufficient to meet the total demand for transportation; with air travel, conversely, a substitution mechanism is observed.
In terms of sociodemographic variables, the frequency of inOui TGVs decreases as city size increases and as the proportion of young people—who are more likely to opt for alternatives—grows. Conversely, it increases as the proportion of seniors rises, reflecting this demographic’s preference for traditional TGVs.
In conclusion, there is limited competition between Ouigo and inOui services, which is largely due to a strategic allocation of trains throughout the day. inOui trains are scheduled primarily during peak periods, which are the most profitable for the SNCF thanks to business travelers who are less price-sensitive, while Ouigo trains are scheduled during off-peak periods, when leisure travelers are more price-sensitive. This system has the advantage of limiting substitution between the two services. While it allows the greatest number of people to travel at a price that suits them, passengers sometimes have to accept less convenient departure times, which spreads demand more evenly throughout the day and fills trains to greater capacity, to the carrier’s benefit.
Florent Laroche, Associate Professor of Economics, Lumière Lyon 2 University ; Patrice Bougette, Professor of Economics, CNRS, GREDEG, Université Côte d’Azur and Thierry Blayac, Professor of Economics, Montpellier Center for Environmental Economics (CEE-M), University of Montpellier
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