Being the first in the world to open the high-speed rail market to competition, Italy has become the most advanced European country in terms of railway market liberalisation, making it an international case study. Italy’s first high-speed rail operator, Nuovo Trasporto Viaggiatori (NTV), known as Italo, has developed at a dizzying pace over the last 12 years, serving as a pinnacle example of a successful “Made in Italy” product. What’s more, it has altered the transportation industry across the country, playing a major role in the massive increase of high-speed passengers in Italy, which has risen 80 percent in the last five years.
Italo was founded entirely by natives of Italy, a country that has long been famous for many things including its history and its food culture, but not its transportation. Not, that is, until Italo came along. Four men— Diego Della Valle, Gianni Punzo, Giuseppe Sciarrone and Luca di Montezemolo entered a monopolistic sector, where the odds were completely against them, and managed not only to succeed, but also to reshape the entire transportation market in Italy and beyond.
Luca Cordero Di Montezemolo is one of Italy’s most prominent business figures. After serving as chairmen for world famous Italian car brands Ferrari and FIAT, as well as Italian flag carrier Alitalia – all before becoming a founding member of Italo – he has certainly made an impact on some of the country’s most world-renowned products. In fact, leading some of Italy’s top domestic companies has earned him the nickname “Mr. Made in Italy.” He said that Italo is no exception when it comes to notable Italian-created business concepts.
“Italo is a fantastic entrepreneurship story because it’s the first high-speed private train company, not only in Italy, or Europe, but in the world.” He admitted that at first it was not easy, given the only competitor was the monopolistic state-owned company that ruled unchallenged for more than a century. He pointed out that from the very beginning, Italo’s approach put great emphasis on presenting very modern trains with excellent service and ardent customer satisfaction. Secondly, the company projected that high-speed trains would be the future transport choice of Italy and Europe, and they were right. Italy’s railway market opening beat the sector liberalisation enacted by the European Union by several years, as all EU countries will be mandated to open their railway markets starting next year.
The company has done so well since its launch in 2006 that it recently accepted a newsworthy offer from the US-based Global Infrastructure Partners (GIP), the world’s largest infrastructure fund. Initially, the company was planning to sell up to 40% of its capital in an initial public offering (IPO), but it was approached by industrial heavyweight GIP to buy the company outright. With $1.94 billion in equity value and an enterprise value of $2.4 billion, as well as an option for current shareholders (the majority of whom are Italian) to reinvest up to 25% of the proceeds from the sale, the lucrative buyout was a choice the founding members could not refuse.
The timing of this collaboration, transpiring in early February right before Italian parliamentary elections, “means that there is confidence– not only in the company of Italo– but also in the future of the country,” said Montezemolo.
Most important in the news of this sale is that nothing about Italo’s winning business model will be altered as a result. “We have a three-year business plan until the end of 2020 with a lot of initiatives, a lot of growth. Of course new routes,” Montezemolo said. He added that while the business model will remain intact, the sale “means the possibility to increase the number of trains. So there are really big opportunities only in Italy to grow directly and indirectly.” Montezemolo says that in the long-term, GIP, which manages assets worth nearly $40 billion euros, could become a contributor in the improvement of infrastructure throughout the country, not just with Italo.
When it comes to the model of competition that Italo has put forth, Montezemolo has few doubts: “All my work experience has been with competition, so opening up to more competition is the future. It means better quality, lower prices, more possibility for new start-ups, new activities for young people.” And there’s certainly room for improving competition in the transportation sector, including local and regional systems. It’s a European problem, he explained, because in countries like Spain, France, or Germany transportation is still monopolised by state-owned companies. As Italo has always kept its main focus on safety, speed, and providing high-quality services at a competitive price, its business model is already being exported around the world. It was implemented in Korea in 2015 and there are current plans to replicate it in France and Spain.
The opening of a high-speed train market in Italy led to a number of encouraging trends in the transportation sector: “Italians, and not only Italians, have truly discovered the way to travel by train […] because if you want to go to Florence in one hour, you’ll be in the centre of the town. […] so sometimes it’s more like a subway service.” Montezemolo highlighted. These perks have been noticed by consumers, as seen in Italo’s steady market growth every year since its inception, a doubling of its shares of passengers, and a 40% decrease in ticket prices. It also dramatically improved the quality of service of Italo’s competitors. Operating in 19 different stations throughout Italy, 13 million passengers rode Italo trains in 2017, which is one-third of the high-speed market. Meanwhile, state-owned company Trenitalia has also ramped up its capacity by a third with Italo’s high-speed competitor Frecciarossa. In short, the market is blooming thanks to the pioneering efforts of four Italians that knew that train travel would be the next big thing in Italy, in Europe, and now across the world.
Today Italy is one of the five export giants worldwide, making “Made in Italy” a powerful label driving exports in food, furniture, fashion, and cars all over the world. However, Montezemolo said that the concept is about more than just the quality of products, “Made in Italy” is also “the capability of the entrepreneurs, and something in the blood of Italians in terms of inventiveness, creativity, attention to details and capability to manage brands.” In Mr. Montezemolo’s opinion, this stems from a tradition, a unique relationship between the entrepreneur, his or her employees, the product, and finally the clients. “It’s a culture…“Made in Italy” means a lot of passion.” Passion indeed is what is seen in the creation of Italo, a company that broke the mould in the railway transportation sector around the world. Its founders, its employees, and its customers have enough passion for the brand to keep it going for years to come.