Train travel boom • Higher infrastructure expenses squeeze profits

The boom in regional, local and long-distance transport continues. Demand for travel on trains operated by Deutsche Bahn (DB) continued to grow in the first half of 2023 – by double digits. The Germany Ticket bolstered this trend with some 11 million local public transport subscriptions sold sector-wide in the first two months the ticket was available. Volume sold in rail passenger transport in Germany saw even higher growth than passenger numbers in comparison with the first six months of 2022 – which translates into more kilometers traveled by passengers in climate-friendly rail transport. DB-Long Distance even set a record in volume sold.

Despite the difficult framework, with ongoing inflation and falling freight rates on international freight markets, DB Group as a whole again generated an operating profit (adjusted EBIT) which totaled EUR 331 million in the first half of 2023. However, operating profit was over EUR 500 million (around 62%) lower than in the first six months of 2022, due in part to DB's higher expenses up front for improvements to the infrastructure. DB Group's adjusted revenues totaled roughly EUR 25 billion in the first half of 2023 (compared with roughly EUR 28 billion in the same period of 2022).

"We aren't even close to tapping the full potential for demand," said Dr. Richard Lutz, Chairman of the Management Board and CEO, in Berlin. "That is good news for DB and for the climate." He added: "The support for rail shows us that continuing to invest in more climate-friendly rail transport is crucial, even in challenging times. At the same time, we are committed to increasing our profitability."
 

Improvements to the rail network are key, says CEO Lutz

In addition to the general increase in costs and DB's much higher expenses for the rail network, changes in the Group's operating profit compared with the first half of 2022 were largely due to industry-wide normalization of freight rates in air and ocean freight. As expected, this global development affected DB's logistics subsidiary, DB Schenker. "Even though freight rates in air and ocean freight are normalizing, DB Schenker generated a significant operating profit of EUR 626 million in the first half of the year," Lutz said.

The logistics subsidiary's positive contribution to DB Group's bottom line was nearly three times higher than before the pandemic. In 2022, DB Schenker generated the largest profit in its history, due in part to freight charges, which were extremely high throughout the world at that time.

All units involved in rail operations in Europe (the Integrated Rail System), DB's core business, increased their revenues in the first half of 2023, in some cases considerably. Growing demand for passenger service contributed to these increases. More than 808 million passengers took regional trains in Germany in the first half of 2023 – around 11.5% more than in the first six months of 2022. More than 68 million passengers took DB's long distance trains in the same period, which was an increase of 9 million, or 15.4%.

The increase is evident especially in volume sold, which also takes the length of journeys into account and is measured in passenger kilometers. At roughly 21.7 billion passenger kilometers, DB Long-Distance far exceeded performance in the first half of 2022 (18.3 billion passenger kilometers) and surpassed the previous half-year record, which it set in 2019. DB Long-Distance improved its operating profit in the first six months of 2023 by more than EUR 130 million.

DB's rail freight business unit, DB Cargo, continued to make losses. Negative effects included the deteriorated competitive environment for rail freight transport, much higher electricity prices compared with fuel prices, and a less dynamic market. On the whole, the Integrated Rail System posted an operating loss of EUR 339 million in the first six months of 2023. Much higher expenses at DB Netze Track for infrastructure improvements were the biggest factor.

Volume produced in the rail network remained very high in the first half of 2023, at some 558 million train-path kilometers. It was down slightly, by 0.9%, compared with the first half of 2022.

Construction and modernization efforts are at record levels throughout Germany, which caused punctuality in long distance rail transport to fall to 68.7% in the first half of 2023 (down from 69.6% in the first half of 2022). "Although we are asking a lot of all stakeholders at the moment, the infrastructure is the key to sustainable improvements for our customers," Lutz said.
 

Becoming more productive in all areas, says CFO Holle

DB spent considerable funds up front in the infrastructure in the first half of 2023 including much more on maintenance. "Despite the difficult financial situation, we greatly increased our spendings for a better infrastructure. This will be a one-time injection until the higher funding from the Federal Government that has been announced takes effect next year," said Dr. Levin Holle, CFO.

DB increased its net capital expenditures from its own funds by 13.1% to EUR 3.1 billion in the first six months of 2023, the most ever invested in the first half of a year. Gross capital expenditures by DB and the German Government were up 16.7% to EUR 6.3 billion, which is also a record. More than 90% of all funding has continued to go toward rail operations in Germany, including for tracks, stations and new trains.

"We need to be more productive and more efficient in all areas to secure our investments in the future," Holle said. Additional expenses need to be offset with higher productivity and higher income, he added.

Holle noted conditions that had deteriorated for DB in 2023, such as lower global freight rates, higher interest rates and continued inflation. He said that expenses will also increase as a result of upcoming collective bargaining agreements.

DB Group expects these factors to lead to a significant operating loss for the full year, as it noted back in March. However, the operating loss is now expected to be lower, at slightly less than EUR 1 billion. The Group's revenues are likely to be around EUR 51 billion. All predictions depend on further developments and are subject to a high level of uncertainty.
 

All the H1 2023 figures are available online at www.db.de/zb as part of DB's interim integrated report.