Results of strategic projects and plans for 2014

As of March 1st 2013, the Company launched a dynamic pricing system.

The dynamic pricing and profitability management system was launched in Q1 2013. At the end of the reporting period, the scope of the project included 118 long-distance services operating on 14 flow-type routes, amounting to 21% of the total volume of trains in the schedule for long-distance passenger rail services for 2013/2014.

Following the launch of this project, revenue growth from transport services-related activity from March to December 2013 reached 4.4%, that is 4.1% above the network-wide trend. In absolute figures, growth against the previous year’s figures stands at RUB 1,204.9 million; this includes RUB 498.4 million from transport services and RUB 706.5 million from support services. In the future, it is intended to roll out the project over the entire network.

In addition, against an overall decline in national rail mobility, trains already included in the dynamic pricing system indicate a greater stability in the transport services volume: the drop in passenger flow on train services in the dynamic pricing system reached 2.9%, while train services still using the traditional pricing system indicated a fall of 4.5%.

In 2013, 346,184 customers were registered in the RZD-Bonus scheme; 22,811 of them had earned enough points to receive free bonus scheme award tickets and 8,538 had applied to receive a bonus. In total, 475,000 passengers have registered since the project was launched (July 1st 2012).

In 2013, over 1,200,000 journeys were made by participants in the bonus scheme. On average, each scheme member completed 5.8 journeys over the year.

The share of members actively participating in the scheme now represents 59% of the total number of members registered in the RZD-Bonus scheme in 2013.

Key events in 2013 under the development drive for the RZD-Bonus loyalty scheme included the launch of a joint co-branding project with VTB24 Bank (CJSC) and the VISA international payment system. In 2013, 100,768 joint VTB-24-RZD cards were issued, of which 6,448 were issued to current loyalty scheme members.

The processing of free bonus scheme award tickets is now possible on the JSC RZD company website.

By the end of the year, merger had been achieved with the loyalty scheme of the JSC RZD Sapsan high-speed trains; the RZD-Bonus scheme then became the loyalty scheme for the entire Russian Railways holding.

Under the RZD-Bonus scheme, as of 22 October 2013, an initiative for passengers frequently travelling on JSC FPC branded trains with day season ticket passes — ‘The Daily Traveller’s Club’ — was launched. Participants are provided with a club membership card, which in addition to accumulating points under the loyalty scheme, also entitles the passenger to a number of additional offers and benefits.

The loyalty scheme will be expanded as the number of services available and partner-companies increase.

In January 2013, the JSC FPC subsidiary company JSC FPC-Logistics started its operations in the provision of freight and mail transport services

JSC FPC-Logistics’ strategic objective is to attain a 10% share of the baggage and freight transport services market, which equates to the departure of 20 rail cars every day.

JSC FPC-Logistics’ objectives for the medium term include:

• Development of ready-made logistics solutions and additional support services,
• Expansion of the company’s customer base and fostering customer loyalty towards the company,
• Development and introduction of new technology to improve the efficiency of the company’s internal processes, between the company’s various divisions and departments and between the company and contractors.

JSC FPC-Logistics is currently one of the largest owners of its own fleet of freight carriages.

The amount of baggage and freight transported by JSC FPC-Logistics, based on 2013 results, amounted to over 20,000 tonnes (31% of the total amount of freight transported by JSC FPC).

During the reporting year, JSC FPC-Logistics managed to achieve a regular freight departure schedule on the most popular routes as part of the fast and mail-freight trains. By the end of 2013, a 16% market share of the fast trains segment had been achieved by JSC FPC-Logistics.

By 2013 year-end, the company held a 3.9% market share, in line with approved business-plan parameters.

In June 2013, new rail carriage baggage and freight transport technology was introduced for the first time and was also incorporated onto long-distance services and in the train № 15/16, Moscow-Murmansk, with the prospect of being gradually extended over the entire network.

The essence of this new technology consists of the transport of baggage directly in a separate compartment of a passenger train, and does not include the baggage transport technology used in the baggage compartments.

From June 1 through to December 2013, the transport of 71 pieces of baggage was processed using this new technology and 45 passengers made use of the service.

As of March 1 2014, this technology for the transport of baggage in a separate compartment was introduced in all JSC FPC trains operating on domestic routes.

To improve the efficiency of passenger services rolling stock in 2013, the company minimised the scale of output of scheduled repairs on rolling stock due to a peak in passenger transport services (July-September 2013).

Due to the projected 11% rail carriage deficit by 2016 (of all the 2,338 carriages in the regulated segment, the deficit will stand at 21% and in the deregulated segment at —7%) and the risk of failing to reach projected passenger turnover for 2016, the company has started to develop a centralised control system for its rail carriage fleet to increase the amount the passenger rail carriages are in use, from the current 7 hours/day to 17 hours/day. Therefore, implementing the existing volume of transport services will be achieved by relying on a smaller carriage fleet.

During the reporting year, the mileage of the rail car fleet in operation increased by 2.3%; the volume of rail carriage use against the previous year’s level was up by 0.3%.

A review of luxury rail car services

Food services on long-distance trains, in addition to the dining cars, were primarily provided in the luxury-class rail carriages, until March 2013.

As of March 1 2013, several JSC FPC trains that had previously included luxury-class rail carriages, were incorporated into the scope of the revenue management system.

On these trains, food provision in all the carriages was included in the cost of the train fare. As a result, the number of luxury-class carriages decreased by 21% — from 576 to 455.

The number of JSC FPC company trains with food services currently in the dynamic pricing system has increased to 20, and the average number of food portions stands at 8,000 a day on average.

Should there be particular demand for the provision of this type of support service, the company is proposing not to use luxury-class rail carriages.

In future, JSC FPC plans to automate the process of food selection on the JSC Russian Railways website, when passengers purchase their tickets.

Additional JSC FPC trains

JSC FPC branded trains account for 17% of the total number of trains in the 2013/2014 schedule. In 2013, 11 further train-pairs were certified into the ‘company’ branded category.

In 2013, 21.9 million passengers travelled using JSC FPC branded trains, a figure of 97% against the previous year; use of capacity was down 4.2% against the previous year’s figure at 68.4%, and income from travel services increased by 5% on the previous year’s figure to RUB 43,408.3 million.

All newly acquired train carriages have now been incorporated into JSC FPC branded trains.

November 1st 2013 saw the maiden departure of the first Duplex double-decker train Moscow — Adler. During the reporting year, 50 double-decker carriages were acquired for this (3 trains of 15 carriages, 5 carriages as reserve).

During Q4 2013 train services carried 94,612 passengers, 44% more than the figure for the same period in 2012, when the train consisted of single-storey carriages. The average distance travelled was 1,022 km. Use of train capacity amounted to 53% with a train of 12 carriages, on average, (1 sleeper carriage and 11 compartment-type carriages) and a seating capacity of 6,952. The profit from running this train service amounted to RUB 9.9 million, a profitability figure of 7%.

Under JSC FPC’s investment budget, it is planned to acquire a further 65 double-decker carriages.

Using trains consisting of double-decker carriages will enable the number of train-pair carriages to be reduced twofold, releasing one route ‘window’ in each direction, which can then be used only during periods of increased passenger traffic.

This line-up of double-decker carriages will be expanded in the future to include double-decker seated carriages and double-decker vehicle transportation carriages.

Replacement of second-class sleeper carriages with seated carriages on short-haul routes

In the future, the company proposes to use seated carriages on those routes with a journey time of less than 6 hours and which operate during the day.

Seated carriages and multiple-unit trains have greater capacity and are cheaper to run (do not necessarily require a conductor, no bedding etc).

At the moment, however, the use of second-class sleeper carriages on short-haul daytime routes (less than 6 hours journey time) is economically justified, based on existing tariff policy.

Replacing second-class sleeper carriages for seated carriages will be feasible as the company’s rail fleet is updated and renewed and a sufficient number of seated carriages have been acquired.

A pre-requisite for the successful implementation of this project is to continue to work on developing the use of daytime trains on short-haul routes. In addition to rescheduling the operation of trains onto a day-based timetable and replacing the current rolling stock with seated carriages, the company is implementing measures to increase both the speed and the frequency of train services.

During the reporting year, the implementation of these measures company-wide showed significant results in the development of the train services segment operating on short-haul routes during the day. On train № 5/6 Petrozavodsk — St. Petersburg, for example, passenger throughput increased four-fold and on train № 153/154 Nizhny Novgorod — Moscow, passenger throughput was up 1.6 times.

In the 2014/2015 schedule the company plans to:

• Expand the conversion of accelerated daytime trains on the following routes: Nizhny Novgorod — Kirov, Kazan — Izhevsk, Krasnodar —Adler and Rostov — Krasnodar;
• Increase the number of daytime train-pairs on existing routes: Moscow — Bryansk, Moscow — Voronezh and Moscow — Nizhny Novgorod;
• Acquire 2 trains of 33 carriages with a centralised power supply for some of the routes listed above;
• Lease Lastochka (Desiro) rolling stock which was used on daytime routes during the period of organising the transport of guests and participants of the Sochi 2014 Olympics.

Improving sales, branding and advertising channels

The objective of this project is to actively develop electronic sales and passenger information channels and to increase ticket sales.

The share of e-ticket sales for long-distance train services in 2013 increased by 6 p.p. against the figure for the previous year to 19% (over 22.6 million seats); this includes sales using the self-service transaction terminals through which over 1.5 million seats were sold 39% higher than the figure for 2012 (1.07 million seats).

In 2013, the following promotions were introduced to increase electronic sales and service channels:

• As of 24 January 2013, a smartphone app was released with iOS and Android operating systems, enabling rail tickets to be purchased over the Internet;
• In May 2013, the portal for purchasing e-tickets on the www.rzd.ru. was fully revamped to make it more user-friendly. An English version of the service was also launched;
• As of 1st December 2013, an e-registration service was launched on all JSC FPC routes and trains (registration to be completed 1 hour before the train leaves at the station of departure);
• As of 4 June 2013, an e-registration service was introduced on train services with Ukraine on train № 1/2 Moscow — Kiev and № 29/30 Moscow — Simferopol;
• As of 1st July 2013, an e-registration service was introduced on train № 69/70 Saratov — Berlin (including the non-stop services from St. Petersburg — Berlin, Novosibirsk — Berlin, Adler — Berlin and Chelyabinsk — Berlin);
• As of October 2013, an e-registration service on trains № 17/18 Moscow — Nice and № 23/24 Moscow — Berlin — Paris is being made available to passengers at any point along the entire route before the train leaves the station where the passenger boarded the train.

In addition to developing e-sales, the company is actively encouraging the public to purchase tickets through electronic sales channels:

• Marketing promotions were run on the www.rzd.ru website and via the JSC FPC self-service transaction terminals throughout 2013, providing discounts on tickets purchased using electronic sales channels for long-distance train services;
• The company conducted a specialised advertising campaign, encouraging the purchase of tickets in addition to just at railway ticket offices. As of June 2013 a QR-code is being displayed on all advertising and ticket slips, thereby allowing customers to transfer quickly to the site;
• In September 2013, on the www.rzd.ru website and in stations in Moscow, an informative video-clip was displayed that provided a brief description of the main elements of how to register, pay for and return tickets as well as e-registration guidelines;
• In November 2013, a major federal advertising campaign was conducted in conjunction with the company MasterCard to promote e-ticket sales.

The intensive development of sales via bank card payments was facilitated by allocating a substantial Visa and MasterCard payments system under a separate ‘Rail Services’ category.

The company’s management believes that reduced levels of JSC FPC subsidies may complicate the decision of the state’s objectives and may even lead to reduced transport mobility in the regulated segment, but this should not restrict business development and threaten the company’s financial stability.

As part of the strategic project to improve the JSC FPC route network and under commission from Russia’s Prime Minister, D.A. Medvedev, this, after a working meeting on the development of the Moscow transport hub on January 11 2013, JSC FPC and JSC Russian Railways prepared a draft plan to develop and introduce subsidies for long-distance passenger services (hereafter referred to as the Plan). The plan was approved by A.V. Dvorkovich, the Deputy Prime Minister of the Russian Federation (6 August 2013 № 4696p-P9).

To accelerate this process, JSC FPC developed technical specifications during the first six months of 2013, regarding the development of proposals to improve the company’s transport and technical and engineering standards and to establish and implement long-term subsidies for long-distance passenger rail services with the assistance of independent professionals.

An integral part of the project included working on improving the existing subsidies system for passenger rail services. From 2010, JSC FPC has been actively involved in the preparation and approval, with the relevant federal executive authorities, of a draft law ‘On the organisation of regular passenger rail services in the Russian Federation and Amendments to Certain Legislative Acts of the Russian Federation’; this should form the framework for putting the state order system for long-distance passenger rail services into practice.

The aforementioned Plan to develop and introduce a system for the long-term subsidy of long-distance passenger rail services using various modes of transport is provided for by the following measures:

• A comprehensive analysis of the long-distance passenger transport market for rail, air and road transport;
• Development of a methodological basis for a long-term subsidies system, for long-distance transport using various modes of transport;
• Development of a register and specifications for subsidised passenger transport routes using various modes of transport;
• Development of an integrated financial and economic model of subsidised transport routes using various modes of transport to ensure the most efficient use of budgetary funds;
• A comprehensive assessment of the social and economic consequences and the regulatory impact of a long-term subsidies system, and determination of behavioural conditions for participants in the process of passenger transport services.

The RF Ministry of Economic Development and Trade will serve as a platform for collaboration and regular discussion concerning the Plan’s progress.

The company’s drive to improve the route network is ongoing; this also includes reviewing the train routes to accelerate services by reducing the number of stops at stations with a low level of passenger throughput. Reducing stops and increasing route speed will enable a number of trains to be transferred into the company ‘branded’ category. On remote routes where very few trains pass through each day, in difficult terrain where road surfaces are poor or even non-existent and where it would be difficult or even impossible to substitute trains with buses even for short distances, this type of study is not underway.

In line with the programme to improve the route speed for passenger train services (hereafter referred to as the Programme), routes that cover the European part of the Russian Federation (including the staging of large-scale sports and political events — the Sochi Olympic Games in 2014 and the Football World Cup in 2018) have been earmarked as priority routes for improving speed.

In the 2013/2014 train traffic schedule for long-distance services, operating on the JSC RZD infrastructure, 234 trains were accelerated, including 100 trains that gained acceleration of over 1 hour.

45 trains were transferred into the ‘express’ category. The share of express trains against the train traffic schedule for the previous year has increased by 9%.

On the Black Sea Coastal and the Caucasus Mineralnye Vody routes, 34 trains were accelerated.

The results of accelerating the movement of long-distance train services has meant that some night trains have transferred to being operated during the day, which has in turn attracted additional passengers. In the future, the second-class sleeper carriages on these routes will be replaced with seated carriages.

By the end of 2013, the growth of route speed for long-distance trains as a whole across the network, increased by 1.5% and the rise in the number of passengers that were transported on JSC FPC trains accelerated in 2013, reached 1.6%.

A pre-requisite for the successful establishment of an efficient combined transport system, involving JSC FPC, is the organisation and development of schemes for an integrated regional transport service, based on new inter-regional accelerated transport services. Schemes such as these have been in company development since 2011, when for the first time an integrated transport service scheme for three regions — Tambov, Lipetsk and Voronezh — was drawn up on the basis of train № 45/46 from Moscow-Voronezh. The scheme includes the agreed arrival and departure times for suburban train services along the following routes: Liski — Voronezh, Elets — Lipetsk — Gryazi and Zherdevka — Gryazi as well as bus services.

The organisation and development of an integrated regional transport service scheme using new inter-regional accelerated transport services involves implementing the following measures:

• Train acceleration;
• Identifying convenient arrival and departure times for passengers;
• Organising passenger transport along the train route by bus from large settlements and communities;
• Adjusting the bus and suburban rail timetable to optimise transport times to the train;
• Organising the sale of tickets for buses and suburban trains participating in the integrated passenger service in selected regions.

Similar integrated regional service schemes have been organised and are developing with the development of daytime train timetables on the following routes: Moscow — Smolensk, Moscow — Bryansk, Moscow — Yaroslavl, St. Petersburg — Pskov, St. Petersburg-Petrozavodsk and Valuyki — Stariy Oskol.

The organisation of joint ticket sales for the different forms of transport is currently underway in the company’s service centres.

In the future, it is planned to move to single travel document technology for intermodal transport using several forms of transport.

The company has designed and developed a JSC FPC products and services matrix, with the aim of enhancing business profitability, by improving perception of the company’s product; the objective of this is to progressively ensure uniform quality products and services and their clear differentiation.

On the basis of the JSC FPC existing rail fleet, the approved matrix envisages establishing four key groups (classes) of long-distance passenger trains: JSC FPC ‘branded’ class, non JSC FPC ‘branded’ class and ‘International’ and ‘Tourist’ class; each segment will be divided into sub-groups.

The main criteria for these segments can be outlined as follows:

• Provision of additional services;
• Convenient timetable;
• Speed;
• Age of rolling stock;
• Eco-friendly toilet facilities and air conditioning;
• A uniform rail carriage fleet assigned to a particular group (sub-group) of trains.

In this scenario, should one or several specifications change (for example, if the carriage’s service life has exceeded 12 years), rolling stock will then be redistributed between groups, in line with existing status.

The introduction of a new product line and the compilation of an inventory of current rolling stock and their grouping, according to the new product segments specifications, is envisaged to further develop this project.

A project office will be established and the development of the company’s project management system will be continued, including staff training in project management theory and practice, to enhance the company’s efficiency in implementing strategic projects.