Growth and Prosperity How Franchising Helped Transform the Railway Into a British Success Story
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Growth and prosperity How franchising helped transform the railway into a British success story ATOC.ORG JULY 2013 2 Foreword by Tim O’Toole What follows in this report is a straightforward, almost modest, description of the unprecedented growth and stunning improvements in the British rail system since rail franchising was introduced in the mid-1990s. The facts are beyond dispute: partnership; and have chosen to keep investing in rail. • Record numbers of passengers, reversing a downward trend, with the The franchising model in Britain, like longest sustained growth in history the rest of the industry, has evolved since its introduction and the railway’s • Significant improvements in transformation continues, most recently performance and punctuality scores, through the creation of the Rail Delivery and frequencies between major cities Tim O’Toole is CEO Group (RDG). Franchising in the context of FirstGroup plc • Improvements in safety and passenger of greater co-ordination among the train and RDG chairman approval ratings operating companies, freight operating companies and Network Rail is the next How did this happen? How do policy logical step for the industry as it evolves to makers distinguish causation from the next stage of capability. correlation? Systems, all systems, inevitably become This report, based on data collated and more complex in order to achieve greater analysed by KPMG, provides important capability and productivity. Franchising’s evidence to demonstrate the essential role diversity of operators has yielded the franchising and private sector operators innovation that has led to growth to have played in the success of the past 20 which a single state operator would never years. This original research underlines the aspire. The RDG represents the industry’s significant contribution rail franchising has determination to preserve that record made in reversing the industry’s fortunes, of achievement while offsetting the delivering exceptional journey growth and industry’s necessary complexity. substantial passenger benefits. Our next stage of development will ensure At the heart of this success story lies a that the interests of passengers, and not clear determination by train operators to contractual relations, drive everything use their skill and creativity – born of the we do. By working in partnership with flexibility of the private sector – to innovate Government, Network Rail and the rest of and meet passengers’ expectations; and by the industry, franchised train companies will successive Governments, working through continue to strive for a bigger and better Network Rail, to invest unprecedented railway, not simply because encouraging sums in our national rail infrastructure. more people to travel by rail is good for our business, but because it is vital for the future As this research makes clear, neither of the economy and the country. element would have created this growth without the other. Conservative, Labour In so doing, operators will help to and Coalition Governments have believed equip Britain with a railway fit for the 3 in the franchising model and our industry decades to come. 4 Foreword by Sir David Higgins The railway has seen a decade of unprecedented growth. Compared with just 10 years ago, there are a million more trains and half a billion more passengers every year. And this growth is set to continue. We forecast that, by 2020, another 400 million rail journeys will be made. This phenomenal growth is driven by a and the role they have played in attracting multitude of factors. Social and economic passengers to the railway. changes within Britain have a big role to play. As more jobs are located in city As an industry, it is our responsibility to centres but people’s homes are in suburbs, understand this wide range of different or even different towns, commuting has drivers of growth and how they all interact increased markedly. with one another. This understanding is vital to inform our strategic planning of Sir David Higgins The growing role of communications how the rail network and rail services is Chief Executive technology in our everyday lives also need to grow and evolve in the future. of Network Rail means that people have wider social and RDG deputy chairman networks and are more likely to travel What is clear is that maintaining a strong to visit friends and family who don’t live focus on whole-life, whole-system nearby. Alongside these changes to the management and development of the way people live and work, the cost of network is critical to ensuring the continued fuel, running a car and road congestion success of the railway. Whether we are all impact on the number of people who working alongside franchise operators, travel by rail. concessionaires, open access operators or freight operators isn’t the key issue. The key There is no question that train operators issue is that we work collaboratively with all have also played a key role in making rail operators to deliver outstanding value for an attractive way to travel. The industry’s rail users and taxpayers. separation of infrastructure provider and train operator has allowed operators The industry has come a long way in to focus on passenger needs and recent years but we need to build on preferences, to make significant strides what we have achieved. 2020 and forward in understanding their markets its 400 million extra journeys is only and to tailor the services they offer. seven years away. This is a time for us to work together, to consolidate the This research makes an important understanding and experience we have contribution in highlighting the passenger gained and build a better railway for a benefits that operators have delivered better Britain. 5 Executive Summary The story of the railway in Britain over the • The achievements on revenues and train past 20 years is a story of success. A strong company-controlled costs has increased partnership between the public and private the money flowing back to Government sectors has delivered for passengers, to reinvest in rail by £1.3 billion, from taxpayers and the country as a whole. £400 million in 1997-98 to £1.7 billion in 2011-12 Significant investment and an industry focused on attracting more rail users are • Operating margins are on average generating passenger growth unseen for around 3% of turnover more than 80 years. This is generating record levels of revenue to pay for more and Passenger growth has outperformed better services, in turn creating a virtuous key external demand factors, gaining circle by encouraging greater rail use. market share and outstripping other European railways: Crucial to this success was the introduction in the mid-1990s of competition between • Journey numbers have increased by private train companies to win franchises 73%, with the growth rate more than to run passenger services. This report, doubling since the last years of British based on an analysis of rail data by KPMG1, Rail (BR) provides powerful evidence that franchising • Train journeys have grown twice as fast is a key ingredient in the industry’s recent as the growth in GDP while rail and 2 success in three key areas . car usage costs have broadly mirrored Operators are generating more each other revenues, helping to reduce public • Passenger growth in Britain has been subsidies and sustain investment while greater than in France, Germany and earning modest operating margins: the Netherlands • Passenger revenue has risen by Growing numbers of rail users have £3.2 billion, with 96% of the increase been registering record levels of coming from passenger growth and 4% satisfaction, while the network is from fares changes (see Fig A) managed more intensively and the • Passenger journeys per train operator average price per mile paid by passengers employee have increased by 37%, an has remained almost flat: improvement in staff productivity • On a railway effectively the same size that has helped to contain the cost of as 15 years ago, there are now 4,000 train operations more services a day, a 20% increase 1 Most of the data is publicly available and comes from 3 Throughout the report, Government refers in most established industry sources including the Office of Rail cases to funders which include the UK Government, the Regulation, Passenger Focus and the Rail Industry Monitor devolved Governments in Scotland and Wales, Transport for London and other devolved bodies 2 Unless stated, comparisons cited in the Executive Summary refer to the period from 1997-98 to 2011-12 6 and monetary figures are in 2012 prices • Over 500 million more journeys are In contracting private companies to operate described as satisfactory or good by trains, Government has devised a winning passengers since the National Passenger formula where competition injects new Survey was launched in 1999, while ideas and skills to enhance services, attract punctuality is at a near-record high more passengers and keep costs down. It is a model that will deliver further improvements • The overall average price paid per in rail services, and that other countries are passenger mile has risen in real terms keen to learn from and emulate. from 19.6p to 20.4p4, with a wide choice of fares, including some of the lowest in Europe Figure A THE VAST MAJORITY OF THE £3.2BN INCREASE IN passeNGER REVENUE HAS COME from passeNGER growth 4% 96% FROM FARE FROM HIGHER CHANGES PASSENGER NUMBERS £3.2bn 4 This provides an average indicator of all the different fares bought by passengers, including Season Tickets, Advance and Off-Peak 7 Passenger rail – a success story The Railways Act of 1993 resulted Sixteen franchised train companies, two in a move away from a nationalised concessions and two main open-access industry to a privately-run and publicly- operators now run passenger rail services accountable railway.