Forecasts from S&P Global Ratings indicate Renfe will see profitability shrink by as much as half over the next two years due to the ongoing liberalization of rail services. The entry of Ouigo from France and Iryo from Italy, both partially state-owned, has sparked a fierce price war that has pushed all three high-speed operators into the red. S&P projects an EBITDA margin for Renfe around 10% to 12% in 2024 and 2025, down from the roughly 20% margin Renfe reported in 2017 and 2018. The agency assigned Renfe a BBB rating with a stable outlook within the investment-grade band, while noting the damage from competition and the transfer of Rodalies responsibilities to the Catalan government as contributing factors to the pressure on earnings [S&P Global Ratings, 2024].
A week ago, Renfe’s publicly owned president, Raül Blanco, acknowledged that the carrier would finish 2023 with losses despite recording a record 552 million passengers, a milestone not seen since 2016. “Margins have been squeezed,” Blanco said, lamenting that when competition was not intense, margins would likely have been higher. During his presentation, he attributed the red figures to Ouigo and Iryo entering Spain’s long-distance passenger market. “We are fighting for every traveler,” he asserted. By mid-August 2023, Adif decided to push the second phase of rail liberalization as interest from multiple operators grew in routes beyond the traditional Madrid-Barcelona corridor and into the Madrid-South, Madrid-East, and Levante regions.
Renfe closed 2023 with over 4 billion euros in revenue and EBITDA near 300 million euros. The results are not new for Renfe; in 2022 the company posted a loss of 108 million euros driven by the omicron variant and reduced demand for travel, coupled with elevated electricity prices caused by the war in Ukraine. The company also ended the year with a net loss of 108.6 million euros, slightly better than the 362 million euros lost in 2021.
Perturbations notwithstanding, S&P notes that Renfe is gradually restoring its operating cash flow and expects a ratio of over 5% of funds from operations to debt, reaching about 355 million euros in 2025 against a net debt of 6.919 billion euros in the same year. The rating agency also observes substantial financial support from the Spanish state, while warning that this backing may pose a vulnerability due to nearly zero margins in public service activities [S&P Global Ratings, 2024].