Abellio in Germany

Market context

The German economy contracted by 0.3% in 2023. High inflation affects private households’ net income as well as their savings and purchasing power.
In an attempt to mitigate the impact of higher prices – especially of energy, food and mobility – the German government has provided various support and stimulus packages. One of the measures was the introduction of a €9 ticket for regional transport. This was valid throughout the country during the summer of 2022 – an initiative that continued from May 2023 in the form of a monthly ticket for €49 (the ‘Deutschlandticket’).
Despite economic weakness, the labour market remained robust in 2023. Demand for labour remains high, due to a lack of qualified workers and general labour market shortages.

‘Deutschlandticket’: 25% more passengers in Germany

Since 1 May 2023, passengers have been able to use the Deutschlandticket on all forms of regional public transport (second class) throughout Germany for €49 a month. This initiative is a follow-up to the successful €9 ticket that was available for three months in the summer of 2022. Since the introduction of the Deutschlandticket, all regional railway companies in Germany have reported a significant increase in passenger numbers. At both WestfalenBahn and Abellio Rail Mitteldeutschland, passenger numbers increased by around 25% on average. On certain routes, passenger numbers even doubled.
The increase in passenger volumes was particularly strong on high-demand routes (e.g. between Hanover and Braunschweig and between Halle and Erfurt). There was also a significant increase in weekend passenger numbers on routes popular among tourists, such as the Emsland line to the North Sea and connections to the Harz mountains or in the Saale valley. On tourist routes, capacity was not always sufficient, meaning that not all bicycles could be taken on board the train. The sharp increase in passenger volumes has led to additional pressure on customer service staff and train guards in particular.
Initial evaluations show that many commuters in central Germany and the WestfalenBahn region have also switched to the train thanks to the Deutschlandticket. In view of the increased passenger numbers in central Germany, Abellio was instructed by the public transport authorities to increase capacity within the STS network. Three additional trains (Alstom’s Talent 3 model) entered service in December 2023. On the Emsland line (WestfalenBahn), additional services with double traction have been running since December 2023 to create more capacity for passengers with bicycles. Additional costs are reimbursed by the public transport authorities.

The German railway market in a nutshell

The German regional market was deregulated in 2003, with responsibility for its organisation falling on the 16 federal states of Germany. Each state has its own approach to managing its regional market for public rail transport. This has led to the creation of 27 regional public transport authorities, all operating their own procurement regimes, with a significant number of potential franchises. There is a constant stream of public calls for tenders on the market.
In Germany, regional public rail transport is subsidised by the state and federal governments. This is in contrast to long-distance public transport (Fernverkehr), which is not subsidised. Abellio has gross contracts with the public transport authorities, which means that Abellio Germany is paid for its services per train-kilometre.
Abellio currently has a 3.4% share of the regional market for public rail transport in Germany, and ranks fourth among the privately owned railway companies in Germany.
In Germany, the rail passenger transport market is dominated by Deutsche Bahn and its regional transport subsidiary DB Regio AG, including Regionalverkehre Start Deutschland GmbH (“Start”). Start aims to win back regional contracts for DB. Deutsche Bahn is also responsible for the railway network and stations with infrastructure divisions DB Netz and DB Station und Service, both part of DB Group.
In 2023, it was decided to merge these two DB Group infrastructure divisions. This resulted in a new infrastructure company called DB InfraGO AG, which has been operating since 1 January 2024. DB InfraGO AG is implementing a comprehensive modernisation programme for both the rail network and stations over the next few years. This includes the renovation and upgrading of high-performance corridors by 2030, a project for which the German government has now made available some €40 billion of additional funding for the period to 2027.

Abellio’s rail franchises in Germany

Abellio currently operates 28 lines in 3 rail franchises in 8 federal states. Abellio Germany’s head office is in Berlin, with regional offices in Halle (ABRM), Bielefeld (WfB) and Neuss (PTS).
In central Germany, Abellio operates the Saale-Thüringen-Südharz (STS) network and the Sachsen-Anhalt diesel (DISA) network through Abellio Rail Mitteldeutschland GmbH. WestfalenBahn GmbH runs the Emsland and Mittelland network in North Rhine-Westphalia and Lower Saxony. In addition, in Germany Abellio owns the cleaning and security services company PTS, located in Neuss, which provides services to various franchises operated by Abellio and other train operators in Germany.

Abellio Rail Mitteldeutschland GmbH

Abellio plays an important role in central Germany. Abellio’s trains have been running on the STS electric network since 2015 and on the DISA network since 2018. Thousands of passengers are able to travel with Abellio in the Harz and Börde regions and as well between the major cities of Erfurt and Magdeburg.

WestfalenBahn GmbH

The company is based in Bielefeld and connects the cities of Braunschweig and Hanover in Lower Saxony with Bielefeld and Rheine in North Rhine-Westphalia. From Münster, there is a direct line via Meppen and Leer to Emden on the North Sea.

Operational performance

In central Germany, the STS franchise entered its ninth year of operation in December 2023. WestfalenBahn has also now been operating the Emsland and Mittelland network for nine years. Both companies have built a strong reputation among both passengers and public transport authorities thanks to their solid operational performance in recent years.
Overall, however, operations were extremely challenging in 2023. The significant intensification of track maintenance and construction work and staff shortages (including at DB Netz) led to a sharp drop in punctuality in 2023 compared with previous years. This decline, as well as an increase in train cancellations, can also be attributed to the limited availability of infrastructure: unmanned signal boxes or short-term closure of sections of track by DB Netz.
On top of that, collective bargaining took place in 2023 between DB and two railway unions, Eisenbahn- und Verkehrsgewerkschaft (EVG) and Gewerkschaft Deutscher Lokführer (GDL). These led to several strikes, which also affected Abellio in Germany. Abellio also conducted collective bargaining with EVG and GDL. Talks with EVG were completed by Abellio in June 2023 and those with GDL in January 2024, without resulting in a strike.

Staff shortages and the need for skilled employees

The German labour market is still very tight. The demand for guards, train drivers and mechanics remains as high as ever. Experienced train drivers are scarce and it is not easy to recruit qualified specialists from other sectors. All players in the sector face the challenge of finding solutions to the growing shortage of skilled workers. The entire rail sector is competing with other sectors for these people, making it increasingly difficult to win them for the railways. The new collective agreement agreed with GDL includes a gradual reduction of the working week from 38 to 35 hours from January 2028. That means recruiting and training even more guards and drivers, in the tight labour market. This will lead to higher costs and possibly more train cancellations.
Infrastructure operator DB InfraGO AG is also increasingly struggling to fill shifts. This has already led Abellio to cancel numerous train services in central Germany, especially at night and in the weekends. 
In 2022, Abellio launched a large-scale branding and recruitment campaign for all operating companies, which was further stepped up in 2023. The aim of that campaign was to position Abellio as an attractive employer in the regions where it operates. Abellio is also explicitly focusing on retaining existing employees. Staff turnover at Abellio was therefore lower than the sector average in 2023. Still, there are many vacancies, due to an involuntary interruption of recruitment during insolvency proceedings. The overall shortage of skilled staff affects us as much as other companies.

Maintenance work

The German rail network is overloaded, with too many trains on certain main axes. Many places also have outdated and poorly maintained infrastructure that urgently needs to be upgraded, expanded and digitised. As a result, we are seeing an increase in maintenance work to get the network back into shape. The resulting bottlenecks in the rail network are leading to widespread delays. Besides the planned construction work to modernise the infrastructure, the closure of a number of routes has also led to additional pressure on the network.

Financial result

In 2023, Abellio Germany reported revenue from operations of €403 million (2022: €253 million, not a fully consolidated year). Abellio Germany’s consolidated underlying operating result in 2023 was €5 million negative excluding an impairment and other incidental items (2022: €2 million negative, not a fully consolidated year). The underlying loss in 2023 is mainly due to the high fine amount of €42 million (2022: €21 million) and general cost increases. Those fines were mainly due to the aforementioned maintenance work and staff shortages, which led to reduced punctuality and increased train cancellations. Most of the fines were beyond Abellio’s control, but Abellio is only compensated for this to a limited extent. Besides the negative impact of fines, higher future staff costs due to the new collective labour agreements (leading to higher wages and increasing staffing needs given the phased transition to a 35-hour working week), the volatile energy market and general cost increases have resulted in a negative outlook over the remaining contract period. The unfavourable developments are not fully compensated under the contracts with the public transport authorities. The expected negative financial impact is therefore reflected in an asset impairment of €121 million in 2023 (2022: €10 million).

In 2022, the restructured German entities were consolidated again after gaining control. PTS has been consolidated since 1 February 2022, WestfalenBahn (WfB) since 1 March 2022 and Abellio Rail Mitteldeutschland (ABRM) since 1 July 2022. This means that the figures for 2023 (the first full year of consolidation) cannot be compared with those for 2022. Abellio GmbH (the former holding company) is not yet consolidated as the insolvency proceedings are ongoing.
The acquisition of control in 2022 resulted in a positive accounting result of €108 million due to acquisition accounting rules, under which assets and liabilities are reassessed. Former shareholder loans and certain the creditor liabilities were released in accordance with agreements made in the insolvency plan. The accounting result achieved in 2022 is recognised as the ‘financial result’. In 2023, after completion of the process, a correction to this result was incorporated with a negative impact of €5 million on the 2023 financial result.

Outlook for 2024

Staff availability, sharply rising labour and energy costs and infrastructure maintenance work are also going to have a major impact on operational and financial performance in 2024 and subsequent years. In 2023, an asset impairment of €121 million has already been recognised for this purpose. Abellio is continuing its recruitment campaign and aims to have enough staff in 2024. In addition, Abellio is targeting a smooth transfer of the DISA network to the new carrier, Start, in December 2024. All DISA employees can join Start without changing their employment contract. Nevertheless, the upcoming transfer may have a negative impact on staff turnover and performance in the final year of operations.

Given the significant investments in expansion and upgrade projects and in the digitalisation of railway infrastructure, many constraints have to be taken into account. In the period to 2030, 40 sections will be extended in phases to create a high-performance network with a total of 9,000 kilometres of track. Part of this includes the replacement of obsolete switches, track sections and viaducts. This will lead to months of track section closures in almost all German regions, affecting millions of commuters. According to the German government, this general modernisation is a prerequisite for the envisaged ‘Deutschlandtakt’, a plan that should lead to better-coordinated connections between major cities by 2030. Passenger transport should double over that period.

The German government and the federal states have agreed to continue offering the Deutschlandticket in 2024. Besides the Deutschland ticket and the expected increase in passenger numbers, funding for regional public transport (the ‘regionalisation fund’) has been increased by €1 billion a year.

Regarding Abellio’s business activities, the strategy currently is to optimise the existing contracted services while also seizing opportunities that fit in well with existing business activities and can offer synergistic benefits. The restructuring of the German operations (including former German holding company Abellio GmbH) is expected to be fully completed by the end of 2024. At that time, the DISA contract will also have been terminated and transferred to Start under the restructuring plan.