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For Business, Corporate Travel & Meeting Buyers & Arrangers

Rail: Back on track?

Rail tracks

Despite major investment, rail franchises are failing and fares keep rising

When considering how we view our railways, Lewis Carroll’s Through the Looking Glass comes to mind as the White Queen tells Alice: “The rule is jam tomorrow and jam yesterday – but never jam today.”

Britain’s railways do indeed have a glorious past – after all, the British invented them – and the future is equally bright if we are to believe the Rail Delivery Group, cheerleaders for the privatised railway. Not only does it claim that the highest average fare rise for years is still below inflation, but that the private sector will spend nearly £14 billion on new trains by 2021.

Try telling that to a (literally) hard-pressed commuter paying thousands of pounds a year for the privilege of being unable to get a seat and having to stand in a crowded carriage. Or – a scenario witnessed recently on Great Western – a passenger who had just bought a first class ticket only to find a much shorter than usual train with all 16 first class seats occupied.

We love to knock our railways, and our experience of commuting may well put us off even considering the train for a longer distance business trip. Add in regular strikes and the government having to step in after Virgin Trains East Coast (VTEC) got into trouble, at a likely cost to the taxpayer of well over £1 billion, and you can see why rail is a highly emotive subject.

But let’s look at the good news first. Many routes, especially in northern England and Scotland, will see much improved services over the next couple of years, with free wifi becoming standard. Transpennine Express is introducing new trains on routes between the north-west and north-east of England and Scotland offering comfort and a working environment comparable with any larger operator, while Greater Anglia and Northern also have major fleets of new trains on order.

Major rail projects
Adding in other major projects, such as the Elizabeth Line (Crossrail) – the new east-west route through central London starting operation in December – and we have plenty of jam coming. The disappointment is that few of these projects (Elizabeth Line excepted) will lead to worthwhile reductions in journey time, as that would require massive investment in infrastructure by taxpayer-funded Network Rail.

Great Western is a case in point, and evidence of a disconnect between public and private sectors. Electrification of its London-Bristol/South Wales routes is badly behind schedule and over budget, with the wires not yet reaching beyond Didcot in Oxfordshire and no dates announced for them to reach Oxford, Bristol and Swansea.

Great Western says its new bimodal (electric/diesel) Intercity Express Trains will cut London-Bristol journey times by 17 minutes and London-Swansea by 14 minutes from next January, but under diesel power they are not as fast as the 40-year-old trains they replace. But at least there will be more capacity: these new trains and the all-electric trains operating stopping services in the Thames Valley will deliver 9,000 extra seats per day into London Paddington.

Intercity 125 trains released by Great Western will be operating on main routes within Scotland from May, offering more seats and much greater comfort. Scot Rail is also introducing new electric trains on key routes, including Glasgow-Edinburgh. Meanwhile, Caledonian Sleeper will phase in new trains from October with en suite cabins for the first time on overnight services to London.

Overall perceptions of the rail network are important according to Jon Bolger, whose Travel Equilibrium consultancy looks at how rail fits into a company’s entire travel spend. The key, he says, is to deliver “win win” benefits to the train operator, the traveller and the corporate.

“Commuters’ view of rail is obviously very different to that of business users who don’t travel every day,” he says. “People often can’t see where all the investment is going, but as with the foundations of a house, it’s something essential but not seen.

“Train operators want to fill off-peak services, and it would bring down companies’ costs if meetings were scheduled between 11am and 3pm to use off-peak trains. The major train operators take an increasingly commercial approach, and if you have a considerable spend on rail, it’s worth sitting down with them to explore the options.”

Businesses can sometimes negotiate upgrades to first class, or deals to include station car parking, and lounge access or free wifi for standard class passengers. “It’s got to be a two-way thing,” says Bolger. “Don’t treat rail in isolation but look at total journey time and costs compared to flying or driving. Getting people on to off-peak trains gives them a better experience.”

Will Hasler, chairman of the ITM’s Industry Affairs Group, says that the slow development of mobile ticketing is one of the main frustrations of business travellers.

“Fares remain overly complicated, and although operators, including Crosscountry and Virgin, are now making advance fares available on the day of travel, they are not usually cheap,” he adds. “There are still too many first class carriages, although the availability of advance first class tickets is generally good.

“The question is can rail attract new customers, and statistics suggest that the volume of rail passengers is still going up, possibly because more are travelling off-peak. Rail remains very popular despite its main detractors.”

More business travellers could switch from air to rail next year when the new East Coast operator introduces a fleet of ‘Azuma’ electric and bimodal trains built in the UK by Hitachi, which is also building Great Western’s new fleet. Significant journey time reductions are possible over a long route such as London-Edinburgh (nearly 400 miles), and a four-hour journey time will become standard in 2019 shaving around 30 minutes off today’s timings.

Competitive rail fares
However, Paul Dear, HRG director of supplier and industry affairs, cautions that rail fares must be competitive to persuade business travellers to switch from air, despite the carbon savings and much better productivity offered by rail.

“Airlines don’t have the same constraints as train operators, whose fares rise each year according to government policy,” he says. “There is always a line where the price of rail travel becomes unacceptable, and modal shift stops when company policy says you have to fly.”

The availability of advance fares on the day of travel is a welcome move, as most operators restrict these to purchase the previous day. VTEC, before its financial woes became known, reckoned that customers buying advance tickets on the day would typically save 35 per cent by choosing an advance fare rather than a walk-up Anytime or off-peak single fare, and advance fares include a seat reservation.

Commercial director Suzanne Donnelly says: “Customers who are not able to plan their journeys days or weeks in advance have told us that having these cheaper fares in place is a huge benefit, and is making rail travel cheaper than travelling by road or air.”

Examples of on-the-day advance fares are £55 from Edinburgh to London and £44 from Newcastle or Durham, but as with all advance fares they are subject to availability.

Franchises in trouble
VTEC – which is 90 per cent owned by Stagecoach and 10 per cent by Virgin – is attracting controversy after Stagecoach revealed a £200 million loss since taking over in 2015. The government had to step in to avoid services potentially coming to a halt and the franchise is due to end within weeks.

VTEC committed to paying £3.3 billion to the government by 2023, but it is now expected to pay around £1.7 billion. Accusations of a government bail-out have come from both sides of the political spectrum.

Transport secretary Chris Grayling said in a House of Commons statement in February: “Given the imminent financial pressure the existing franchise is under, I am taking action now to protect passengers.

“The problem is that Stagecoach got its numbers wrong. It overbid and is now paying a price. To anyone who thinks that the nearly £200 million that Stagecoach will lose is insignificant, let me put it into some context. The combined profit of every single train operator in the country was only £271 million last year. The loss equates to over 20 per cent of Stagecoach’s total market value.”

This is the third time that a train operator has pulled out of its commitments on the East Coast route, leading to accusations that the franchising system is broken.

The government now plans “long-term regional partnerships” on some routes with the East Coast Partnership involving the public sector and a private partner under a single brand and management from 2020. Further protests can be expected if that private partner is one of the current incumbents.

It also plans to encourage smaller train operators, and will split up the problematic Thameslink, Southern and Great Northern franchise in 2021. But whoever holds a particular franchise is probably not of prime concern to business travellers, says Johan Persson, director of account management for American Express Global Business Travel.

“It’s less about the franchise and more about the actions they take,” he says. “Was the recent bail-out right? No. But was it necessary? Unfortunately, yes. Franchises bid for the work – that’s good, as it creates a competitive landscape. However, liberties are taken on what can be delivered.

“A franchise may not be able to deliver on its commitment so there needs to be a back-up plan, and this is where the government should step in to ensure there is minimal impact to the end user.”

Despite huge investment in the railway, Persson says the basics of good punctuality and reliability often fall short.

“There are major infrastructure projects underway, but once completed, these investments will only just have brought rail standards up to what is expected,” he says. “While improvements will encourage greater use of rail, even further investment is required before the rail network exceeds expectations and increased passenger fares can be justified.”

HRG’s Paul Dear adds: “Whether trains turn up on time, whether you can get a seat and have reliable wifi are the key factors for business travellers. The average ticket price may be reducing because of online booking tools, but a significant group of our customers can’t plan ahead and have no choice but pay full fares.”

Kate Wimpeney, chief operating officer of Redfern Travel, says: “The improvements that matter most are things that would enable people to be productive while travelling, like reliable wifi and enough space to work comfortably. Better lounges and facilities at stations when not travelling first class would also be a big benefit to all.

“New trains will benefit business travellers with a better layout, more space and access to wifi, as well as plug sockets. The investment by Transpennine Express, especially on the Leeds-Manchester route where there will soon be up to six trains an hour, will help business travellers no end.

“But it would be very interesting to see more competition on the main routes. Train operators tend to have a monopoly, so value for money is always questionable.”

Adrian Parkes, CEO of the GTMC, says: “When opting to travel by rail, business travellers place a great deal of consideration on cost, productivity and connectivity. For rail travel to remain relevant to today’s corporate community it must continue to excel in these areas – all of which require continued investment and development.

“Many regard electrification as a significant step change in terms of improving efficiency. Ongoing investment in the infrastructure is key to achieving this, and we hope that current projects continue without delay, which will only result in frustration for business travellers and the potential economic growth opportunities.

“The government’s strategic vision for rail announced at the end of last year was a positive step forward in delivering this increase in competition, as smaller operators will now have the chance to bid for franchises. More operators will also have the chance to engage in the tender process, and we hope this trend towards greater competition will continue,” says Parkes.

It may still seem like a case of jam tomorrow, but the alternatives may well be traffic jams or jams at airport security. If the government and rail industry can deliver all the improvements planned, we may just get a 21st century railway.

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