'An Airplane on Wheels': Air France Plans High-Speed Train Business

With fuel costs rising and profit margins on short-haul flights getting thinner and thinner, Air France-KLM and Veolia have announced a joint venture to enter into the high-speed train passenger business by 2010.

"If you can't beat 'em, join 'em," goes the old phrase. And when it comes to the battle in Europe between short-haul flights and high-speed trains, it seems like airline giant Air France-KLM is taking this advice to heart.

The company announced Monday that it would enter into a joint venture with French transportation service-provider Veolia to start providing international high-speed rail service. Planned routes include connections between Paris and Amsterdam, KLM's main hub, and Paris and London beginning in October 2010.

High-speed rail travel in Germany and France is currently dominated by the state-owned SNCF and Deutsche Bahn. On January 1, 2010, however, the EU's railway traffic laws will be liberalized for international traffic. SNCF will retain its monopoly on domestic passenger carriage in France until 2017.

Air France-KLM's decision to enter the rail business is partially driven by rising fuel costs, which have cut away from the already slim profit margins for short-haul flights. Even more significant, however, has been the sharpened competition airlines have been forced to face as railway companies put faster trains and routes into operation, leading large numbers of passengers to choose the train over the plane in their cost-time calculus.

Similar cooperative agreements between airlines and railway companies already exist in a number of European countries. In Germany, for example, Lufthansa passengers can use their airline tickets to reach its Frankfurt hub from nearby cities, such as Stuttgart or Cologne, rather than taking a short flight or having to buy a separate train ticket. But Lufthansa does not have any trains under its own management.

Virgin Air has similar arrangements in Great Britain, but the Virgin Group only has a 51-percent share of its Virgin Trains subsidiary.

In July, Air France-KLM announced that it was in talks with Veolia, Europe's largest private operator of buses and trains and Deutsche Bahn's largest competitor in the domestic market, about a possible collaboration. With Monday's announcement, Veolia officially beats out SNCF and DB, both of whom had at one time discussed similar collaborations with the airline.

As part of the larger plan, Veolia and Air France-KLM have been in discussions with Alstom, the maker of the TGV high-speed trains currently used by the SNCF, about either leasing or purchasing a number of trains to operate this service.

In particular, the companies are interested in the new generation of Alstom trains known as the AGV, which can carry up to 900 passengers at a speed of 360 km/h (224 mph). At such speeds, passengers would be able to commute between Paris's Charles de Gaulle airport and Schiphol airport outside Amsterdam in approximately 1.5 hours.

Over two years ago, Air France-KLM CEO Jean-Cyril Spinetta had already spoken about the companies having high-speed trains one day "in the colors of Air France" and referred to the TGV train as nothing more than "an airplane on wheels."

jtw -- with wire reports

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