Season 9 - Nicolas’ projects

Episode 8 - To tow or to be towed - that is the question

Nicolas Bargelès — This week, I’m focusing on the final topic I reviewed when I first started at Midnight Trains: traction. We have to decide whether Midnight Trains becomes a railway company that runs its own trains, or whether we use an existing railway company to pull our carriages.

Before I joined the team, Adrien and Romain had planned to subcontract this task. And for good reason - becoming a railway company is not easy. You must obtain two documents — a safety certificate and a license — which certifies that the company can meet its needs and responsibilities. In France, the criteria for obtaining these is having insurance and a share capital of €1.5 million.

However, when I joined the team, I wanted to probe Adrien and Romain’s choice to subcontract, to see whether it was the right one. Despite the difficulties in doing so, becoming a railway company isn’t impossible - in freight, many small structures have already done so. On the French part of its routes, I think being towed by others is the best solution for Midnight Trains. In Switzerland and Italy, we’ll use traction partners. For lines we launch in other countries, we will apply a case by case basis. But in France, where we want to open several lines, more consideration was needed.

The three of us began approaching different freight forwarders. Among them is a company that has been excited about our vision from the beginning. And although there’s been a sense of mutual aid between us, we can’t find a viable economic model that works for both parties. It’s really difficult to convert a safety certificate intended for freight into one for passenger transport.

Our second major discussion is with the freight subsidiary of an historic European operator. We never went as far as to make financial projections, but we came to the conclusion that we should have created a joint venture. It would have carried a certificate of its own, which is of no interest to us, since we would have to put in as many financial, material and human resources as if we were doing things alone, while losing control in terms of governance.

Finally, we struck up a conversation with another historic European passenger transport operator. At this stage, it’s our most serious option. We’re a particularly good fit for its services since, like its counterparts, night trains are a marginal part of its strategy. We’re not seen as competitors, which is lucky. We can’t say more about our discussion at this stage, but we're talking enthusiast to enthusiast, which is always nice.

As these different conversations progress, we’re considering the pros and cons of each scenario. If we choose to subcontract the traction, we’d reduce our initial investment and create a structurally lighter company. However, we’d lose control over many aspects; namely, operational and maintenance, since the entire railway part would be in the hands of a third party. It would amount to outsourcing quite strategic aspects of our service, and fixing up an organisation over the long term (on the scale of a start-up). Finally, this solution could have hidden costs. If, for example, a large company had to train drivers on our rolling stock, it would be forced to train up to fifty, so that they could drive our trains as well as those of other companies.

On the flipside, if we pull our own trains, we’d be more agile and more independent. We will be at the heart of the game, not observers confined to providing a service. We would need to create an operational centre to monitor the circulation of our trains, recruit and train our own drivers and crew chiefs. In addition, we’d have to manage our relationship with our customers, as well as those with the maintenance provider and the station manager (SNCF Gares et Connexions). Finally, we’d need to create a core group of a few people to obtain a safety certificate, and maintain quality, safety and environmental standards. Plus, the fixed costs and risk vs. opportunity is very different depending on whether you open a single line, or several.

Adrien Aumont — At this point in our adventure, we’ve not yet made a final decision on traction. However, thanks to Nicolas' help, we’ve identified the faults of potential partners on the subject. We’ve come to the conclusion that being towed is probably not the best model, but it remains on the table at several levels and for several reasons. However, just imagining that we can do this ourselves is a real game changer.

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