Discount train travel builds customer base

Italo (nick-named the 'Ferrari train') was founded in 2012 as a high-speed, low-fare direct competitor to Trenitalia, Italy's state-controlled railway system. The combination of low fares and speedy, comfortable travel has attracted millions of loyal passengers and given Italo a profit margin of more than 30%.

Some of these customers used to ride Trenitalia's trains and some used to fly Ryanair and Easyjet between Rome and Milan. Now Italo is adding more trains and extending its coverage to new destinations as its discount pricing structure has helped it grow to the second-largest train system in Italy.

Four price levels allow passengers to choose the value they're willing to pay for. Italo even has a frequent-rider loyalty reward scheme and a cobranded American Express credit card that offers upgrades and other benefits.

Watch for discount train travel to become more of a competitive challenge for railway systems and no-frills airlines in other European nations, as well.

Update on the Ferrari Train

Nuovo Trasporto Viaggiatori launched its Italo "Ferrari Train" high-speed rail service in 2012. The company competes with Trenitalia, the Italian state-owned railway, for passengers who want speedy, comfortable transport between major Italian cities.

NTV's stylish, modern trains introduced competition into an industry unaccustomed to rivalry. The company's long-term marketing goal is to carry 9 million passengers per year and capture as much as 25% of the market for high-speed rail service inside Italy.

However, NTV's Italo has not done as well as it had hoped in the first two years of operation. First, the European economy hasn't fully recovered from recession, which means fewer passengers in general and more intense competition for those who are willing to pay for high-speed train service. Second, NTV reportedly says that Trenitalia has set its prices at an unfairly low level. Third, Trenitalia is reportedly raising its operating network fees and the new, higher costs will further erode NTV's profit margins.

Although NTV is attracting passengers, it has lost about €156m in its initial two years of operation, and is looking at layoffs to cut costs. Achieving its market-share goal and becoming profitable will be extremely difficult unless NTV can overcome these challenges.

This post updates the case study about NTV Italo in chapter 7 of my Essential Guide to Marketing Planning.

High-stakes competition: The Ferrari Train vs Trenitalia

Until April 2012, travelers who wanted to ride high-speed trains from city to city inside Italy had only one choice: Trenitalia, the state-owned rail system (left).





Then Nuovo Trasporto Viaggiatori, a startup headed by Ferrari's chairman Luca Cordero di Montezemolo, began service with its own sleek, stylish high-speed Italo trains and other upscale amenities (right). The company is very 21st century, even managing its planning and scheduling data in the cloud.

Competition has been intense in a market that was once a monopoly for Trenitalia. Millions of euros are at stake in this battle for passengers and market share.

Now NVT has complained that Trenitalia is using its dominant market position to make things difficult for the startup. Italy's antitrust regulator is currently investigating whether Trenitalia has obstructed NVT's access to the railway infrastructure, charged unfairly high fees for access, blocked access to train station advertising opportunities and charged NVT higher fees for advertising in stations, among other charges. No decision is expected for months.