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Rail renaissance

Air travel has taken a bit of a beating of late, but train travel is on the up. Dave Richardson looks at what deals buyers can expect in the coming year

The only growth area in the whole of business travel, it seems, is rail - leading some corporates to question whether they should be asking hard-pressed train operators for a better deal. But deals are hard to come by, and the cost of booking rail is set to rise this year.

Figures from the Guild of Travel Management Companies (GTMC) for the third quarter of 2009 show a 15 per cent increase in rail transactions, while air transactions dropped by 15 per cent, hotels by 11 per cent and car rental by 17 per cent. The increase is driven by more business travellers switching to rail due to changing travel policies and the green agenda, and wider adoption of self-booking tools (SBTs) making rail a simple transaction.

Booking 'smart' - buying cheaper advance tickets rather than 'anytime' full fares, and avoiding peak hours where possible - has driven down the cost dramatically. But costs are now set to rise, as the Association of Train Operating Companies (ATOC) plans to cut the commission it pays to travel management companies (TMCs) from the current rate of five per cent, meaning increased transaction fees for corporates. TMCs may also face ATOC demands to provide a bond, after a couple of TMC failures cost ATOC money.

Evolvi, whose rail booking system is used by most TMCs, has an interesting perspective on the whole issue if only as an observer. But as an online retailer it will also need to recoup the cost of commission cuts, as will its rival, thetrainline.com.

Evolvi managing director, Ken Cameron, says: "Evolvi's average ticket value has gone down by 15 per cent over the last 12 months, as business customers 'buy smart' and trade down from First to Standard Class. That's good for corporates, but now they face increased costs. TMCs do a lot for their fi ve per cent, including all the management information."

Commission cuts would save money for train operators, who are feeling the pinch in the recession. Standard Class is still heavily used on many long distance routes, but First Class and commuter travel are down. National Express had to give up its East Coast franchise in November as it couldn't afford the premium payments it had promised the government, and many operators are receiving increased subsidies.

First Class loadings are generally very poor, and some operators must be regretting having so many First Class seats. Virgin's Pendolino trains operating out of London Euston have four First Class carriages and five Standard Class, with a high-frequency timetable, including three trains an hour to/from Birmingham and Manchester. "You might think this is a good time for train operators to develop corporate relationships, but most don't have enough of the right people [to pursue it]," says Cameron. "At present they offer only 'soft' incentives, such as meal vouchers or lounge access on Standard tickets, rather than discounts. They argue that they already offer plenty of low fares, as through Evolvi."

HRG (Hogg Robinson Group) director of government contracts, Terry Grainger, expects the commission cut to come in one per cent stages, probably starting in June, until it reaches zero - as happened with airlines a few years ago. "There'll be short-term pain, but it's a fait accompli," he says. "What concerns me is that train operators - who still earn nine per cent commission when selling each other's tickets - will start targeting more direct sales from businesses, without any transaction fees."

But HRG has better news about the 'big two' for business travel: the now government-owned East Coast, which will remain in public ownership until at least 2011 when the franchise will be re-let; and Virgin Trains.

"They are both looking at promotional marketing to business travellers, especially when travelling to and from Glasgow and Edinburgh," says Grainger. "East Coast will offer a First Class package that won't be marketed as First Class on self booking tools, allowing people to circumvent travel policies. East Coast, in particular, is keen to get into a healthier financial position before the franchise is re-let."

As Carlson Wagonlit Travel figures show, rail now dominates London-north of England business travel, with air services being cut back. But will it ever compete to Glasgow and Edinburgh, even if the journey time is cut from the present best of four hours and 30 minutes?

Its figures for October show that rail took a 73 per cent share against airlines on the core London-Manchester route, nearly 98 per cent on London-Leeds (BMI has pulled out) and 68 per cent on London-Newcastle. But rail's share to Scotland was only in single figures.

CWT director of public sector and industry affairs, Nigel Turner, says: "We are now handling more rail business than air, partly because corporates want to concentrate their rail spend through one supplier. But as commission goes down, it will mean increased costs.

"When people realise going by rail makes them more productive, they might try longer routes, including Scotland. Virgin now offers an airline-style product, and I expect it to chip away at airlines' share to Glasgow as journey times come down towards four hours." Virgin and East Coast, in particular, have made great strides, with Virgin including free hot or cold food for First Class passengers on a new menu introduced last autumn. Both offer free wifi for First Class passengers, and access to First Class lounges at many stations.

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But other long-distance operators - such as East Midlands Trains, First Great Western and CrossCountry - lag behind in many respects. Frequency, however, has been increased by most long-distance operators, with East Midlands now offering twice-hourly services from London St Pancras to Sheffield and Nottingham.

Corporates are generally supportive, even if long distance operators don't offer comparable services.

Another grievance is that train operators, unlike the rest of the travel industry, seem unwilling to engage with them directly. Beverley Warner, senior procurement manager of Royal Mail Group, says: "We have held meetings with East Coast and East Midlands Trains, who want people to convert from air or car but won't give volume discounts. But air fares are coming down, and as fuel prices appear to have peaked, fewer people are switching from cars. We look at the end-to-end cost of the journey - including parking and meals - but executive packages are not widely available.

"The rail industry as a whole needs to get a handle on how to deal with corporates, and offer incentives. But when franchises are short-term, there's no incentive for operators to invest in these relationships."

Will Hasler, travel manager of PricewaterhouseCoopers, adds: "East Midlands and First Great Western offer a poor service in First Class, but at least it's roomy and quiet to do some work. Virgin First Class is a real business facility, but each train has four First Class carriages that are mainly empty."

Ticketing

SBTs and ticket machines - whether at stations or on a corporate's premises - make booking rail easy, but some frustrations remain. Warner says confusion about cancellation charges means many people still buy a more expensive open ticket, while Hasler is concerned about the cumbersome refunds procedure. But improvements to ticketing are on the way, and the process will become more like airline booking.

Despite the proliferation of ticket machines, many corporates would like to see e-ticketing adopted by the rail industry - whether by a bar code on a document printed in the office or at home, or sent to a mobile phone. These developments will be rolled out by thetrainline.com this year, but require significant investment by train operators to equip electronic gates and on-board inspectors with bar code reading technology. Smart card ticketing - as with the Oyster Card in London - is also coming, but mainly on commuter routes. Thetrainline. com director of sales and distribution, Adrian Watts, says: "Apart from convenience, the extra data we can collect electronically will be very useful to corporates and help them with the CSR [corporate social responsibility] issue. When someone buys an open ticket you don't know which trains it is used on - soon, the travel manager will know exactly."

Evolvi is more cautious about e-ticketing, pointing out that many TMCs still send out tickets by post. It has 1,400 ticket machines installed, mainly in corporates' premises, and has had access to the national ticket-on-departure network since July with 12 per cent of customers using this facility. "E-ticketing has gone quiet, as train operators have put investment in bar code reading on hold during the recession," says Evolvi's Ken Cameron. "Print-at-home or in the office is being tested by some train operating companies, but mainly on low-priced advance tickets. It has limitations, such as not being possible on cross- London journeys."

Technology's onward march on to mobile phones has also benefited thetrainline.com, whose new iPhone app is the third most popular free download available. Travellers get instant access to train times and journey planning functions, with links through to thetrainline.com's site to purchase tickets. Other useful information includes maps, taxi firm and station details, and a station search function.

Train operators

All operators are battling recession and falling passenger numbers, and others may be have to follow National Express, which defaulted on its East Coast franchise. It had promised to pay the government £1.4 billion during the course of the franchise, National Express having replaced GNER which was also forced to give up its franchise. Temporarily under government control, will it be third time lucky for East Coast when it is put out to franchise again, probably in 2011? Many commentators feel the franchising process, like rail privatisation as a whole, is deeply flawed. Franchises seem to be awarded to the highest bidder, who may not live up to its promises.

The irony is that while paying hundreds of millions to the government, many train operators are benefiting from huge subsidies coming the other way, simply because they are missing revenue targets because of the recession.

FirstGroup, one of the biggest franchise holders, expected to receive £140 million in subsidies by the end of 2008. First Great Western would get £120 million despite agreeing to pay the government more than £1 billion over a 10-year period. Whether an incoming Conservative government would try to undo the money-go-round that John Major's administration created remains to be seen, but in the meantime it's business as usual for East Coast, except for top management, which has been replaced. The operation carries on much as under National Express (including business packages), but seat reservation charges are being scrapped and First Class service tweaked.

But speculation is growing that when the franchise is re-let, East Coast will be trimmed back to Edinburgh and no longer serve Glasgow, Aberdeen and Inverness. Virgin Trains continues with the high frequency timetable introduced a year ago, recently extending wifi to its Birmingham-Glasgow/Edinburgh service. Virgin recorded its best ever train performance October with 93.4 per cent of trains arriving on time (defined by the rail industry as within 10 minutes of schedule).

Thoughts are now turning to renewal of its franchise, due in 2012, and potential rival bidders. Since taking over the West Coast franchise in 1997, Virgin has increased passenger numbers from 13.6 million to 22.5 million a year, replacing the entire train fleet, and now runs over 50 per cent more trains on weekdays. Sir Richard Branson wants train operators to be allowed to invest in stations, which they are not at present. The government has announced a £50 million station improvement fund for Network Rail to improve crumbling infrastructure.

Recession means this is not a time for major service improvements, with a few exceptions. Grand Central, an 'open access' operator that started a new service from the north east to London two years ago, plans a new route in May linking Bradford and Halifax with the capital.

Most operators - but not Grand Central - implemented their annual increase in published fares this month, usually by a few percentage points.

Regulated fares including season tickets actually drop by 0.4 per cent as they are linked to inflation.

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JOURNEY REPORT: VIRGIN TRAINS

Business took me from London to Carlisle one Tuesday in October, returning the following day. I timed my journeys to have breakfast on the way out and dinner (with new menus) on my way back.

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Seating is 2+1 in First Class - some at tables and some airline-style. Wifi access is provided throughout the train and a power point at each seat, but at 09.30 my thoughts (and sense of smell!) were on a late breakfast. This proved to be as good as ever, with plump Cumberland sausage, bacon, free range eggs and potato rosti, served on china with steel cutlery - something airlines can't match. Milton Keynes flashed by before I had finished, the 125 mph cruising speed being achieved in the London suburbs.

I didn't try the wifi (although other passengers were using it happily), but found the carriage an acceptable working environment with good mobile reception - something Virgin has tried hard to improve. First stop was Warrington, and a snack was offered before arrival in Carlisle on time at 12.45.

Having missed lunch during a busy following day, I was looking forward to dinner when I joined the 15.49 to Euston. The meal duly arrived about 17.30, with a choice of pie and mash, curried winter vegetables and rice, or salad rolls. I chose the short-crust pie which was absolutely delicious and reassuringly stodgy - thanks goodness no calorie count was mentioned. After cheesecake and a couple of glasses of very passable Chilean Cabernet Sauvignon, I gave up all thoughts or work and dozed on to London where arrival was 10 minutes early at 1903.

London-Carlisle is not a prime business route, although towns in the north west attract plenty of business traffic and Glasgow (the trains' destination or starting point) is now a viable route by rail. First Class on my return trip was about half full, but outward the First Class load was pitiful. All I can say is that people are missing something - both trips were excellent, with great food and the opportunity to work and relax.
Dave Richardson

  • The walk-up First Class return fare on London-Carlisle was £399, but by advance booking on Evolvi or thetrainline.com, this can come down to £146.50. First Class fares include all meals and drinks