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BBT March/April 2019 cover
March/April 2019

Rail focus: Fresh developments for the rail industry

Paul Wait, chief executive of the Guild of Travel Management Companies (GTMC), is clearly a keen advocate of rail. His first job in the industry, more than 40 years ago, was writing out rail tickets while working for American Express in Liverpool, and now he is fronting a determined campaign to bring more competition to the British rail network.

When British Rail was privatised nearly 20 years ago, many people assumed there would be meaningful competition. Instead, the train operators franchised by the government were, in most cases, given a monopoly on the routes they operate, a situation which continues today, with a few exceptions where two franchises overlap.

It is possible to travel between some cities over totally separate routes, such as London to Birmingham where Virgin Trains and Chiltern Railways offer a choice.

The GTMC is now calling on the main political parties to commit to more non-franchised open-access operators (train companies not operating under government franchise, but paying for track access and running independently) in their election manifestos, and for anti-competition clauses to be removed from franchising agreements. Existing open-access operators have had to fight hard to get ‘paths’ on the rail network, because many routes are at or near capacity. But Wait says the capacity issue is a red herring. Having taken advice from rail experts, he says extra trains can operate without safety concerns.

“We have seen privatisation, but not deregulation, and the DFT [Department for Transport] has a British Rail mind-set that we need to change,” he says.

“There is strong evidence from passenger surveys that open-access operators Grand Central and First Hull Trains consistently perform better than franchised operators, and competition raises everyone’s game by creating extra demand. Even if there are genuine capacity issues, why not give 15 departure slots to one operator and 15 to another?”

Wait adds: “I am not criticising any of the franchised companies. The Virgin brand was built on competition, so why does there have to be just one operator on major routes? More open-access operators could be allowed right now, which would help solve airport and road congestion, and help the economy to grow.”

Restricted Access

Existing open-access operators are Grand Central and First Hull Trains, which have opened up direct services to London from cities including Sunderland, Bradford and Hull – services that either didn’t exist before or were very limited. Part of their routes overlap with East Coast, but their frequency is restricted and they are not allowed to pick up passengers at some stations dominated by the incumbent operator. Another open-access operator, Wrexham and Shropshire, has already fallen by the wayside, partly because its trains from Wrexham, Telford and Shrewsbury had to take a slow, roundabout route to avoid competing with Virgin by picking up at Wolverhampton and Birmingham.

A survey of 1,000 business travellers conducted by the GTMC found that 74 per cent expressed support for two rail companies competing on the same route. Its open-access report looks at political as well as practical issues. But it notes the DFT’s admission that if franchised operators are not offered exclusivity, they will not be prepared to bid so much for the franchise and the Treasury will suffer.

When asked to comment on the report, a DFT spokesman would say only this: “The Department recognises the role that open-access operators are playing in the rail industry and the service they provide to their passengers. We support a whole network approach, and look forward to reviewing the GTMC’s report in full.”

There is certainly support from MPs for open access, including Conservative Paul Maynard, whose Blackpool North and Cleveleys constituency would welcome direct trains to London that have been missing for many years.

“There are clear benefits for business travellers in terms of cost, connectivity and productivity from open-access operators competing against incumbent franchisees,” he says.

“The ability of open-access operations to provide direct connections for towns that have hitherto not enjoyed these is an example of the innovation that competition on the rail network can deliver.”

A Question of cash

But the cost of mounting a franchise bid or open-access agreement could run into many millions, which is why the existing open-access operators are not independent companies but backed by major transport corporations that also run rail franchises – Grand Central being owned by Arriva, and First Hull Trains by First Group.

Both Grand Central and First Hull Trains score highly for passenger satisfaction, with Grand Central achieving 95 per cent in the latest independent National Rail Passenger Survey. Passengers cited fast journey times, the friendly attitude and helpfulness of staff, free access to wifi, and the extra legroom available as standard on its trains.

Richard McClean, managing director of Grand Central, says: “We make good-value direct travel to London a possibility, particularly as we run much needed services for communities without another direct link to London. A fourth daily service from Bradford was added in December.”

Capacity problems

There is no doubt that the business travel industry would welcome competition, but rail experts warn that there are many hurdles to overcome. Evolvi can book tickets on open access as well as franchised operations, but as trade relations director Jon Reeve says: “Departure slots are one problem, as with airports, and the capacity problem on the West Coast route to Birmingham, the North West and Scotland is one of the arguments in favour of the new HS2 high-speed line.

“There needs to be enough elasticity to allow an open-access operator to put on enough frequency to make money.”

Raj Sachdave, head of rail product for Capita Travel and Events, adds: “Another issue not addressed by the GTMC report is where the extra trains will come from, as acquiring them is a long-term project and the new trains now on order are already committed and funded by the DFT. Open access is not a short-term solution, because of the non-competition clauses in franchise awards.

“If less money is bid for franchises then the DFT will lose out and extra costs will be passed on to the passenger, which is the last thing we would want from more competition. It’s a very tangled web, but the GTMC is right to bring this issue to the table."

Franchise Renewals

Several major franchises are up for renewal in the next couple of years, raising the possibility of new operators and major improvements on some routes. One possibility is less first class and more standard class seating, reportedly being discussed for the Great Western franchise which currently runs until July 2016.

Other major renewals include Virgin Trains’ West Coast route (April 2017), First Trans Pennine Express (February 2016) and Scotrail (November 2014), while the First Capital Connect and Southern networks are to be combined.

But the most contentious renewal is the East Coast route from London to the North East and Scotland, which has been back in public hands since National Express defaulted on its franchise in 2009 because it couldn’t afford premium payments to the DFT. East Coast has done very well in the meantime with a major increase in passengers, including in its revamped first class, and a 91 per cent overall satisfaction rating in the latest passenger survey – 3 per cent higher than the average for long-distance operators. The Labour party has called for East Coast to remain in public hands, or for the DFT’s Directly Operated Railways to be allowed to bid for the franchise. But the re-privatisation is going ahead, and Labour is highlighting the anomaly whereby state-owned foreign rail operators are allowed to bid, but a state-owned British operator cannot.

The shortlisted bidders are First Group, the Stagecoach/Virgin Trains partnership which already runs the West Coast route, and a partnership between French Railways-owned Keolis and minority partner Eurostar. The new franchise is due to start in February 2015 and will probably run for at least eight years, during which time a new fleet of trains will be delivered.

Expensive option

Reducing first class or introducing an intermediate ‘premium economy’ or ‘business class’ could be part of franchise bids, but Capita’s Raj Sachdave says that reconfiguring trains is an expensive option, especially when franchises have several years to run. “More operators are looking at corporate fares, which are bought in standard class but allow automatic upgrade to first class, as with East Coast’s existing Scottish Executive fare,” he says. “This does not break company travel policy and enables train operators to control load factors in first class.”

As the largest travel management company selling rail travel, Capita can now negotiate deals exclusively for its customers. A case in point is a new agreement to offer Virgin Traveller loyalty club membership to first class travellers on Virgin Trains, previously only available when booking through the Virgin Trains website. East Coast’s Rewards scheme can also be used by Capita customers.

Places for People is one of the first organisations to adopt the Virgin loyalty scheme. Procurement manager Lisa Gallacher says: “We value tools that help us to ensure our travellers stick to our travel policy and use our chosen agency, giving us a better view of where and why our employees are travelling. In turn, we can change policies and supplier programmes to save money and keep our travellers secure and happy.”

Train operators whose franchises are running down are not necessarily averse to innovation, however. One example is First Great Western, which has introduced self-print tickets in a pilot scheme with Capita, and has also launched the first fly-rail scheme in conjunction with Singapore Airlines (SIA) and Heathrow Express. Passengers from 11 cities, including Bristol, Cardiff and Plymouth, can now book through to SIA destinations in one transaction at a worthwhile saving – up to £190 travelling from Bristol to Brisbane, for example.

Going mobile

Click Travel has developed its own rail booking platform, but managing director Simon Mclean says mobile ticketing enhancements are held back by the unwillingness of some train operators to invest in the required kit to read mobile devices. “Franchising is a strange beast as long agreements are offered with objectives set at the start, and, because there is no competition, there is no incentive to go beyond these objectives,” he says. “Self-print tickets are also in demand, but train operators in the middle or nearing the end of their franchises have no incentive to do it.

He adds: “It will be interesting to see if any more train operators introduce a business class as an alternative to first class, as Chiltern Railways has done. There is over-provision of first class on some routes while standard class passengers are sometimes forced to stand, but we have introduced a policy tool allowing people to buy first class advance fares when cheaper than the standard class Anytime fare.”

Evolvi has done the same, with trade relations director Jon Reeve saying there has been little take-up of first
class since it “fell off a cliff” during the financial crisis of 2008, when first class travel was all but ruled out by the public sector. Despite a general increase in standard class fares, Evolvi customers are still “buying smarter” with the average transaction value down slightly to about £58 in 2013. Evolvi logged a 17 per cent increase in transactions last year, to 6.7 million.

Buyers would welcome business class, as offered by Chiltern on key business trains between London and Birmingham. Its Business Zone is offered at a modest supplement of £25 each way or £40 return on standard class fares, whereas first class fares can be double or more on other operators. Passengers get wide seats at a table, with free wifi and the opportunity to buy snacks.

Helpful competition

Nicky Bees, travel co-ordinator of Bristol law firm Burges Salmon, says: “Competition would help on the London route as we have no other option but First Great Western. Our policy is not to allow first class unless it helps you be productive at peak times, as in standard class you can have people listening to your conversations or even leaning over your shoulder if they have to stand.

“Our travellers need a guaranteed seat, privacy and wifi, and an intermediate class would be good. We also need to see new ticketing technology introduced to link with the iPhone.”

Angela Smith, travel manager of Carillion, adds: “We don’t allow first class travel unless booked in advance, and you have to book very early to get good savings. I would like to see more standard class seating introduced, and we are reminding people that if they can arrange meetings to start later in the day, they can travel off-peak and make savings.”

Whichever company operates services, it should be recognised that public investment in the rail infrastructure is running at record levels, with £38 billion committed over the next five years and £50 billion earmarked for HS2. Short-term improvements will include fleets of new trains on the Great Western and East Coast routes, and completion of the Crossrail project in London.

But as February's storms proved – washing away the line at Dawlish in Devon, and cutting off all services from Cornwall and Plymouth to the rest of Britain until at least the end of March – Major expenditure on the Victorian infrastructure will need to continue, and could feed through as increased fares. 

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