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Arriva/Northern Final Report: Appendices and Glossary

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Arriva/Northern Final Report: Appendices and Glossary A report on the acquisition by Arriva Rail North Limited of the Northern rail franchise Appendices and glossary Appendix A: Terms of reference and conduct of the inquiry Appendix B: Industry performance Appendix C: Financial performance of the Parties Appendix D: Competition for the award of rail franchises Appendix E: Assessment of overlapping rail services Appendix F: The Parties’ survey of selected bus-rail overlaps Appendix G: Assessment of overlapping bus and rail services Appendix H: Network effects Glossary APPENDIX A Terms of reference and conduct of the inquiry Terms of reference 1. On 20 May 2016 the CMA referred the completed acquisition by Arriva Rail North Limited of the Northern Rail franchise: 1. In exercise of its duty under section 22(1) of the Enterprise Act 2002 (the Act) the Competition and Markets Authority (CMA) believes that it is or may be the case that: (a) a relevant merger situation has been created, in that: (i) the enterprise or enterprises of the Northern Rail franchise (now carried on by or under the control of Arriva Rail North Limited, a wholly owned subsidiary of Arriva plc) have ceased to be distinct from the enterprise or enterprises carried on by or under the control of Arriva plc; and (ii) section 23(1)b of the Act is satisfied; and (b) the creation of that relevant merger situation has resulted, or may be expected to result, in a substantial lessening of competition within a market or markets in the United Kingdom for the supply of public transport services. 2. Therefore, in exercise of its duty under section 22(1) of the Act, the CMA hereby makes a reference to its chair for the constitution of a group under Schedule 4 to the Enterprise and Regulatory Reform Act 2013 in order that the group may investigate and report on the following questions in accordance with section 35(1) of the Act: (a) whether a relevant merger situation has been created; and (b) if so, whether the creation of that situation has resulted, or may be expected to result, in a substantial lessening of competition within any market or markets in the United Kingdom for goods or services. Andrea Coscelli Executive Director, Markets and Mergers Competition and Markets Authority 20 May 2016 A1 Conduct of the inquiry 2. On 20 May 2016, the transaction was referred for an in-depth (phase 2) merger investigation. 3. We published biographies on the members of the inquiry group conducting the inquiry on 23 May 2016, and the administrative timetable for the inquiry on 9 June 2016, with subsequent updates being published as applicable. 4. We sent detailed questionnaires to interested parties and evidence was obtained from these third parties through hearings, other telephone contact, and written requests. Evidence provided to the CMA during phase 1 was also considered in phase 2. Non-confidential versions of the summaries of our hearings with third parties have been published on our webpages. 5. On 14 June 2016, we published an issues statement, setting out the main issues we were likely to consider in this inquiry and inviting comments from the main and third parties. Responses to our issues statement were also published. 6. On 24 June 2016, members of the inquiry group, accompanied by staff, visited the Leeds area to conduct hearings with third parties and visit Arriva’s business operations. 7. We received written evidence from the Parties. A non-confidential version of their main submission is on our webpages. On 4 August 2016, we held a hearing with the Parties. 8. In the course of our inquiry, we sent to the Parties, as well as third parties, some working papers and extracts from those papers for comment. 9. On 9 September 2016, we published on the CMA case page the notice of provisional findings, a summary of provisional findings, our provisional findings and a notice of possible remedies. 10. On 4 October 2016, we held a response hearing with the Parties. 11. A non-confidential version of the final report will be available on the CMA case page. 12. We would like to thank all those who have assisted in our inquiry so far. A2 APPENDIX B Industry performance Introduction 1. This appendix provides background information on the performance of the rail and bus industries, focusing where possible on relevant trends (eg changes in demand and fares) in the geographic areas most relevant to the Merger (ie England/North of England). 2. In relation to rail, the sector is commonly segmented as follows: by nation (England, Wales and Scotland); by franchise (eg Northern Rail, Chiltern Railways); by types of services or routes covered (whether serving long distance, commuter (eg London & South East) or regional routes); or by ticket type (eg regulated/unregulated fares, first or standard class). 3. For buses, data is reported for the following areas: London; metropolitan areas in England (excluding London); non-metropolitan areas in England; Wales and Scotland. Rail industry Demand levels 4. Rail demand is commonly measured through a number of different metrics, including number of passenger journeys, passenger kilometres travelled and revenue generated.1 5. In terms of passenger journeys, the number decreased during the 1960s and 1970s, remained relatively flat during the 1980s, but has been increasing since mid-1990s, achieving +4.0% CAGR since 1995. This is illustrated in the graph below: 1 ORR/NRT (National Rail Trends) data portal, Tables 12.4, 12.5 & 12.8. Other metrics include total timetabled kilometres, train kilometres, and various measurements made on a per-head basis; however, these are not included in this appendix. B1 Figure 1: Number of rail passenger journeys (in millions), 1951 to 2016 Privatisation 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 1951 1953 1955 1957 1959 1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 Source: ORR/NRT data portal, Table 12.5. 6. The time of rail privatisation in 1995 represented an inflection point. All three demand metrics mentioned above increased, although passenger revenue has seen the largest increase over this period, due to an increase in fares, as noted below. In 2016, the number of passenger journeys was 1.7 billion, passengers travelled a total of 64 million kilometres and passenger revenue generated was £9.2 billion. Figure 2: Growth in passenger rail demand in Great Britain during the period 1995 to 2016, indexed to 100 in 1995 300 250 200 150 100 50 0 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 Number of Passenger Journeys Passenger km Passenger Revenue Source: ORR/NRT data portal, Tables 12.4, 12.7 & 12.9. Note: Revenue figures are based on current prices. B2 7. We have also examined the level of growth by rail segment. Growth is similar between the different types of services offered, as is shown in Table 1 below: Table 1: Comparison of % CAGR by service type from 1995 to 2016 Service type Passenger journeys Passenger km Revenue Long distance +4.5% +3.6% +7.1% London & South East +4.1% +4.0% +7.3% Regional* +3.6% +4.2% +6.5% All franchises +4.0% +3.9% +7.1% Source: ORR/NRT data portal, Tables 12.3, 12.6 & 12.8. *The Northern Franchise covers mainly regional routes. 8. In terms of the ticket types in Great Britain, Figure 3 shows that off-peak tickets are the most common type of ticket (by passenger kilometres),2 with a share of approximately 35% in 2016. We have observed growth across all of the major ticket types, although the purchase of advanced tickets has seen the greatest growth: Figure 3: Passenger kilometres (in millions) by ticket type, 2011 to 2016 70 63.8 59.7 62.4 56.8 57.8 0.4 0.2 60 54.1 0.4 0.2 0.5 17.5 0.4 17.4 % CAGR 17.1 50 15.9 16.0 15.3 Other -12.9% 40 12.0 12.1 Season Tickets +2.7% 10.3 10.7 8.6 9.8 30 Advanced +7.1% 11.3 10.1 9.7 10.0 10.5 9.6 Anytime/Peak +3.3% 20 +2.4% Passenger Passenger km (m km) Off-Peak 10 20.2 20.8 21.3 21.5 22.1 22.7 Total % CAGR = +3.4% 0 2011 2012 2013 2014 2015 2016 Source: ORR/NRT data portal, Table 12.4. Fares 9. Rail fares have been increasing steadily since privatisation and at a rate higher than RPI, particularly in more recent years: 2 Equivalent graphs based on the other demand metrics (number of passenger journeys and revenue) are included in Annex 1. B3 Figure 4: Rail fares index as at 1 January in specified year compared with RPI, indexed to 100 in 1995 Average rail fares RPI 250 200 150 100 50 0 Source: ORR/NRT data portal, Table 1.8. Figure 5: Year-on-year change in rail fares index for 1 January between specified years compared with RPI Average rail fares RPI 8% 7% 6% 5% 4% 3% 2% 1% 0% Source: ORR/NRT data portal, Table 1.8. 10. These changes in price are likely to be in large part a result of the existing caps on regulated fares of RPI+X%, which form part of franchised TOCs’ obligations under their franchise agreements.3 11. The rail fares index provides a breakdown for specific types of tickets. There is also information on the different types of services available (eg whether long distance or regional).
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