At Deutsche Bahn’s (DB) meeting of the Supervisory Board of Deutsche Bahn AG, the Management Board presented an overarching program to turn the DB Group around over the coming three years. The turnaround is of a structural nature and will focus on three key areas: infrastructure, rail operations and profitability. The objective is to restore sufficient capacity to DB’s rail business by 2027; to considerably improve the customer experience by offering higher on-time rates, greater reliability and fewer service disruptions; and to secure DB’s financial viability.
“The Management Board presented its turnaround program today in response to a request made by the Supervisory Board at its strategy meeting in June,” said Supervisory Board Chairman Werner Gatzer. “We were clear that the DB Group needed to be put back on track, with a turnaround in infrastructure and operations and a recovery in financial health. The Supervisory Board expects the details of the program to be fleshed out in the upcoming budgeting and medium-term planning process and presented to us at our December meeting. We will be monitoring implementation progress going forward.”
Several key performance indicators have been identified to track the success of DB’s turnaround program. They include the number of infrastructure-related delays, which DB intends to cut by 20% despite high levels of construction work. In operations, on-time rates in long distance transport are slated to return to 75–80% in the coming three years. And DB intends to boost earnings before interest and taxes (EBIT) in its core business to EUR 2 billion by 2027.
“Our Strong Rail strategy has been our compass since 2019,” said DB CEO Richard Lutz. “We have faced a range of crises over the past five years, and our strategy has been very effective in helping us navigate them. But we have to be clear that the condition of our infrastructure is much worse and more fault-prone than we anticipated in 2019. We can see the impact of this both in the quality and stability of the rail service we offer, and in our earning power. Additionally, a number of crises over the past few years have led to massive cost increases. S3, our turnaround program, will set our focus for the next three years on stabilizing the rail system and making major improvements to the customer experience. We will simultaneously restructure our infrastructure, rail operations and profitability. This will give us a stable foundation from which to facilitate further growth in line with Strong Rail and do our part to help the German government achieve its transport and climate policy objectives.”
Demand for climate-friendly mobility has risen steadily, and the German government has adopted plans for record investment and has worked with DB to establish InfraGO, a public service infrastructure company. At the same time, however, poor operating quality and DB’s problematic financial situation are jeopardizing the Group’s growth targets. The reasons for these issues include infrastructure that is too old and too fault-prone, and has too little capacity.
Additionally, external shocks such as the Covid-19 pandemic, the war in Ukraine, high price increases in the value chain and a lack of skilled workers have also had a negative impact. S3 (the “S” stands for Sanierung, the German word for turnaround), which will chart DB’s course over the next three years, aims to return DB to its Strong Rail objectives, which themselves are in line with the German government’s long-term transport policy objectives: doubling rail passenger volumes, raising rail’s market share in freight transport to 25% and implementing a series of steps to establish the Deutschlandtakt, a Germany-wide integrated regular-interval timetable.
Infrastructure: Focus on a rapid turnaround
In DB’s infrastructure segment, the focus in the coming three years will be on a rapid turnaround of existing installations and equipment. As announced, this will include the complete overhaul of rail lines totaling 1,500 kilometers by 2027, a process which began with the successful launch of the Riedbahn line overhaul between Frankfurt and Mannheim. Additionally, DB will replace fault-prone installations and equipment throughout its infrastructure, which will considerably lower the number of areas where speed restrictions are necessary.
There will be a 20% reduction in lost units, which occur whenever a train accumulates a delay of more than 90 seconds between two measuring points. Additionally, a rapid-acting program will replace 200 old, fault-prone interlockings. Small and medium-scale measures, of which there will be roughly 200 by 2027, will also offer a noticeable increase in capacity. And DB will continue to move forward with the rail station modernization program it previously announced. A total of 100 stations are slated for modernization each year.
Additionally, within the framework of current federal appropriations in place through 2027, DB will work with the German government to continue high-priority projects from the German requirements plan (for upgrades and new rail construction) and the field of digitalization, and take all the measures necessary to continue implementing turnaround and modernization programs in 2028 and beyond without any delays.
Operations: New approaches to construction
A turnaround in infrastructure will be an essential factor for DB in improving quality and stability in rail operations. Timetable stabilization will also be a top priority. To this end, DB will transform its entire construction and maintenance system using an approach known as construction cycles. The goal is to build slots for construction work into the timetable from the start and then assign any actual construction work that becomes necessary to those built-in slots.
This is the opposite of how things are done today, where existing timetables have to be adjusted whenever the need for construction work arises. In just the first few weeks after launching this approach in the second half of the year, DB was able to complete some 80% of its maintenance work within the set slots. A comparable solution is also planned for capital expenditure projects, but this will not be fully rolled out until 2027 for regulatory reasons. These measures will considerably reduce the number of trains affected by construction work.
DB will also be focusing its operational turnaround on selected measures to relieve congestion at the five most important hubs in its German network: Berlin, Hamburg, Cologne, Frankfurt and Munich. Rapid-acting operational measures, such as changes in passenger guidance, will be implemented to boost operational excellence. Excess complexity in DB’s operational solutions will need to be eliminated, especially in regional and local transport. Over the medium and long term, a new approach to capacity utilization at Germany’s rail hubs will be necessary as demand outpaces infrastructure upgrades. Local transport operators will need to be involved in developing this new approach.
DB will also improve the quality and availability of its rolling stock. The goal is to lower the number of defects that impact punctuality. These measures will progressively lift rail punctuality, with long distance transport returning to on-time rates of 75-80% in three years. Additionally, to improve the customer experience on its trains, DB will focus on reducing defects that result in inconveniences for passengers, such as broken coffee machines or out-of-service lavatories.
DB also plans to implement key digitalization initiatives for rolling stock, timetable design and operations between now and 2027. Over the coming three years, DB will equip the majority of its trains with real-time condition monitoring software, which will improve fleet management and maintenance. And a new and powerful software will help prepare consistent, conflict-free timetables and automate the design of timetables that take construction work windows into account.
DB Financial situation
DB’s aging, fault-prone, congested infrastructure has a massive impact on operations and thus Group-wide profitability. That is why a turnaround in infrastructure and operations will be essential if DB is to lift its earnings in the coming three years. Additionally, a number of measures will be implemented to organize the DB Group more efficiently. In terms of financials, DB has set itself the target of generating EUR 2 billion in EBIT in its core business by 2027. Additionally, redemption coverage – the ratio of operating cash flow to adjusted net financial debt – will increase to 12% in three years. DB will lower its personnel expense ratio from today’s 52% to 50%. It will also reduce budgeted capital expenditure ramp-up in its transport segments in particular.
DB will lower staffing levels in its core business in two phases over the coming years. Between now and 2027, the focus will be on reducing administrative, sales and indirect operational staff. Layoffs are not planned; job security policies still apply in full. DB will use a variety of tools, including natural employee turnover, the intra-Group job market and voluntary phased retirement.
Simultaneously, DB will ensure that it has the staff necessary to run effective rail operations, which is why many operational departments will continue to hire new staff at record levels. DB’s much-needed financial turnaround must go hand in hand with its turnaround in infrastructure and rail operations, which is necessary for structural reasons. Measures to turn DB around financially will cover its entire core business, which includes infrastructure, internal service providers and corporate departments. DB’s business units that are active in the market are of particular importance.
DB Long Distance
To meet rising demand, DB Long Distance has done extensive work in recent years to expand and modernize its fleet. Never before has so much been invested in staff, rolling stock and maintenance depots. DB Long Distance will continue to expand its service. To this end, it plans to use attractive offerings (including services for corporate customers) to generate profitable growth. Additional service will be offered where demand is particularly high, for example on international connections.
Resources will continue to be allocated outside Germany’s major cities as well, with a greater focus on areas where passenger benefit is greatest. This will increase train capacity utilization. Additionally, DB Long Distance plans to improve its financial performance by lowering capital expenditure on its fleet and depots. This includes introducing digital and automated applications to enable selected long distance depots to handle more trains in less time. DB Long Distance will also deploy more trains overall by improving processes and interfaces and reducing reserve levels and train turnaround times, among other things.
DB Regio
DB Regio’s attractive offering in recent years has lifted patronage back to pre-pandemic levels, with on-time rates consistently above 90%. Regio Road also went through a turnaround process and has bid successfully for a number of additional contracts since then. DB Regio is focusing in particular on using operational and digital means to facilitate integrated daily mobility solutions.
To further improve business and financial viability in regional and local rail passenger transport in particular, DB Regio intends to make its workforce and rolling stock more robust. A newly designed portfolio strategy is focused on connections of strategic relevance with quantifiable operational risks and stable returns. DB Regio intends to keep its market share steady at a high level of approximately 60%. At DB Regio Road, the aim is to gain additional transport business, make operational improvements – with integrated mobility solutions and the like – in transport contracts, and cut structural costs, with the objective of returning to profitable business in 2025.
DB Cargo
DB Cargo is already in the midst of an extensive transformation process aimed at ensuring a competitive business model for the future. It will launch a new customer- and sector-oriented structure in January 2025. The pooling and clear allocation of resources, and a focus on high levels of individual responsibility and profit and loss accountability, will enable teams at DB Cargo to focus more on customer needs.
This business-focused responsibility, coupled with an approach that is more typical of small and medium-sized companies, will secure profitability long-term. Personnel capacity, administrative structures and staff deployment conditions will reflect what is typical in the broader industry.
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