Martin Ferguson asks Virgin Trains director Graham Leech about shrinking public sector travel budgets, agency bonding and the future of high-speed rail.
BBT: What impact might government cuts on capital expenditure have on the rail sector?
GL: I am not familiar with any statement saying capital expenditure will be hit, although it is a possibility. I would expect the government to prioritise investment in capital expenditure. If you look at the growth in demand for rail travel then there will be a need for continued investment to provide extra capacity. There are reviews to look at how the provision of transport can be more efficient, but I don't expect that to affect rail.
BBT: Cutbacks mean less people will be travelling on public sector business. How are you preparing for this?
GL: We're seeing it already - and it isn't a surprise. Even before announcements were made about changes to travel policy in government departments we had already anticipated that this was likely to be the case. It was clear there was going to be pressure on public finance and government departments would have to find ways of saving money. We want to work with those departments and we still think that travelling around the country is very important for people working in government. They still have a need to do it, and I believe rail is still the best way of doing it. We accept they are in a position where they have to save money, but we would want to keep working as their partner to keep them travelling but in a way that is affordable.
BBT: Are business travellers in the UK continuing to choose the train over domestic air travel?
GL: It is a continuing shift to rail. The biggest change in the last five years has been between London to Manchester, as you probably know. If you look at the total travel between London and Manchester, 75 per cent is by rail and 25 per cent by air. Before we introduced the Pendolino services our share was only about a third. Obviously the further on you go the slower the growth is. There are businesses that do still fly and our aim is still to encourage them to travel by rail instead. The biggest changes now are happening on London to Glasgow. When the new timetable was introduced in 2008 the journey time was cut and we now have some services that take only four hours and 10 minutes. The more frequent services with all the facilities on board, such as the ability to work with wifi, means it has become a viable option to travel on business by rail. We are almost up to a 20 per cent [share] on Glasgow now - before the timetable change it was less than 10 per cent - and we believe there is more potential.
BBT: Following the revised commission rates and the requirement for TMCs selling rail tickets to have a bond, do you think it is fair that companies will have to absorb likely increases in rail fares?
GL: My understanding is that it won't make a difference to the cost [of a ticket]. Even before this new requirement was made by ATOC [the Association of Train Operating Companies] for bonding the majority of licensed travel agents selling rail were already bonded. More than 75 per cent of the sales made through agents were bonded and more than half of the TMCs were already bonded. Obviously the reason for having a bond is to provide some protection to the train operating companies because without it, if a travel agent does go under, the monies which it is holding would be lost to us. It has been a requirement since 2003 for all new agents to be bonded, but obviously this is affecting some of the existing agents.
BBT: And what about the TARIF (Travel Agency Reserve Insurance Fund) proposal?
GL: If the TARIF proposal went through in the form that is envisaged then the additional cost involved in that would be about 35p per return rail ticket, and that's on an average ticket valued at about £75 through a travel agency. So yes there is some increase and if it [the cost] were passed onto clients it would be pretty small scale. We don't think there would be any justification in saying just because of this change, there's a need for a large increase in the prices that are paid by businesses that are buying through agents.
BBT: Are you optimistic about the future of high-speed rail? And what role do you see Virgin Trains playing in its development?
GL: We have a franchise that runs out in 2012 and we are preparing to rebid7when the franchise comes up. High speed is beyond that [timescale]. But I think one of the core concerns that we have is that the investment doesn't all go on high speed at the expense of the existing railway. I think the two can live quite happily alongside each other. And high speed will create more capacity along the existing line, but we can't risk all the investment and focus on high speed. But I think a high-speed line will be needed and I do think there will be a high-speed link built in Britain. I think there is now a consensus among the political parties that it is needed. But clearly it is in the long term; even if the work started as quickly as it could there still wouldn't be a high-speed link between London and Birmingham or London and Manchester until about 2025.
BBT: What improvements to your product can business travellers expect to see and will free wifi ever be available in the Standard carriages?
GL: You could potentially have free wifi in Standard. It would be fair to say that our main focus over the last year has been protecting [our most recent] investment. We spent a lot of money on improving the timetable in December 2008, linked to having faster trains and more frequent services, and we invested in improving the First Class lounge at Euston, rebuilding the ticket office at Euston, putting wifi on the trains and other things besides. So we had a big package of improvements. As we've gone through the recession our concern has been to maintain those benefits. We will be looking at further improvement into the next franchise. So for the next year or so we'd expect the service to be as it is.
BBT: Are there plans to work closer with Eurostar?
GL: We do a lot with Eurostar on the leisure side. We've not done as much with them in the business market, but we are talking with them about, for example, what we could offer from Birmingham - there is a potentially good market for people travelling from Milton Keynes and the Midlands down through to Paris.
- Graham Leech has been executive director, commercial, of Virgin Trains since 2004. He has overseen the growth of the West Coast business, building on the introduction of the Pendolino service. After joining Virgin in 1997, he introduced the first yield-management system in the UK domestic rail industry and was instrumental in setting up thetrainline.com. Previously Graham spent seven years in several commercial roles at Eurostar (UK), latterly as head of brands, where he led development of the marketing strategy and played a key role in the launch of passenger services through the Channel Tunnel.