Annual report Market conditions and operating environment
Economic instability in Finland and increasing competition made the year a challenging period for all business sectors in terms of net sales. Even though the decrease in net sales was also reflected in weaker profitability, efficiency improvements helped VR Group to keep its operating profit at reasonable levels. The weak exchange rate of the rouble continued to affect business operations in the Russian markets.
For VR Passenger Services, the market situation in Finland remained difficult on account of the overall economic situation and the increasingly aggressive price competition in domestic long-distance traffic. The opening of coach traffic to competition has caused a substantial fall in price levels in long-distance passenger services. VR reacted to the price competition in domestic long-distance traffic and in express coach services. Lower ticket prices resulted in an upturn in passenger volumes, especially on the most important routes. However, they also caused a decline in net sales. Net sales in passenger services to Russia continued to fall. However, at the end of the year, there was an upturn in the number of passengers using the Allegro trains.
The opening of rail passenger services to competition and the related EU legislation will have an impact on the operations of VR Group. Competition should also be viewed from a wider perspective because in passenger traffic, trains are already in competition with other forms of public transport and private motoring. According to market surveys, the number of passengers is affected by factors such as consumer and travel habits, regional distribution of the population, developments in the infrastructure and transport services for different forms of transport, and the eco-friendliness of different forms of transport. Pricing is the main factor influencing the demand for services, but speed, comfort, punctuality and the smoothness and ease of the overall travel process also play a role.
The Finnish Transport Agency is responsible for the condition of Finland's state-owned rail network and its development. The smoothness of daily train operations and the ability of rail services to compete with other forms of transport greatly depend on the condition of the rail network infrastructure. Government spending on the construction and maintenance of the rail network has a major impact on the smooth operation of passenger and freight services and on their punctuality. It also affects the infrastructure engineering business. About 90 per cent of the Finnish rail network is single track and some of the track sections are in poor condition. This makes rail traffic sensitive to disruptions and affects the smoothness and comfort of rail travel.
