Passenger Rail Franchising – British Experience

Chris Nash and Andrew Smith ITS, University of

ECMT Workshop on Competitive Tendering for Passenger Rail Services Paris, 2006 Passenger Rail Franchising – British Experience

1. Alternative approaches to franchising 2. The Franchising Process 3. Impact on Revenues and Costs 4. Conclusions Rail Privatisation in Britain

• Privatised regulated infrastructure manager • Outright sale of rail freight operators • Franchising of passenger services • Sale of rolling stock leasing companies Alternative Franchising Models Franchising Body Franchise Length Nature of (yrs) competition

OPRAF 7 Minimum subsidy for at least minimum services

SRA 20 Major investment proposals, SPVs

SRA/DfT 7 + 3 Tightly specified service and performance specifications Initial Franchisees

Connex (2) (5)

First (2) Prism (4)

GB Railways Sea Containers

Go Ahead (2) Stagecoach (2)

Laing Virgin (2)

MTL (2) Rail Passenger and Freight Volumes (1979 to 2004/05)

45.0 Post-privatisation period

40.0 Passenger Kilometres

35.0 Post- Hatfield period 30.0

25.0

20.0 Freight (Net) Tonne Kilometres

15.0

10.0

5.0 Billion Passenger Km and Billion Freight Tonne Km Tonne Freight and Billion Billion Passenger Km

0.0

9 0 1 2 3 9 0 1 2 7 8 9 0 1 2 3 7 8 8 8 8 /85 /86 /87 /88 /8 /9 /9 /9 /93 /94 /95 /96 /9 /0 /0 /0 /0 /04 /05 9 9 9 9 9 4 5 6 7 8 9 0 1 2 3 4 5 6/9 7/9 8 9 0 1 2 3 4 1 1 1 1 1 8 8 8 8 8 9 9 9 9 9 9 9 9 9 9 0 0 0 0 0 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 0 0 0 0 0 1 1 1 198 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2

Sources: Transport Trends, 2002 Edition, Department For Transport and National Rail Trends, SRA Subsidies to Passenger Train Operators (including performance incentive payments)

(£m, 1997/8 1998/9 1999/00 2000/1 2001/2 2002/3 2003/4 2003/4 prices)

Total 2,046 1,717 1,470 1,223 1,315 1,273 1,990

Projected 1,994 1,758 1,499 1,323 1,192 984 subsidy from initial bids

Note: projected subsidy levels exclude performance bonuses and penalties and any changes to track access resulting from the 2000 Periodic Review. Source: SRA Annual Reports and Statistical Yearbook Profitability of TOCs 1999/2000 £m % of turnover Inter City Operators 90.8 5.5

Network South East Operators 93.7 4.7

Regional Operators (6.2) (0.4)

Of which (5.1) (2.1) North West Trains Wales and West (12.6) (9.6)

Cardiff Railways (4.9) (18.8) TOCs subject to re-negotiated franchise agreements or cost-plus contracts

Cardiff Railways Sept 2000 – Dec 2003 (cost-plus contract) 2001-2004 (re-negotiated) South Central 2001-2003 (cost-plus contract?) South Eastern 2002-2003 (re-negotiated) Virgin Cross country From 2002 (cost-plus contract) 2001-2011 (re-negotiated) 2001-2003 (cost-plus contract) Trains Northern 2001-2004 (cost-plus contract) North Western 2001-2004 (cost-plus contract) Scotrail 2001-2004 (re-negotiated) WAGN From 2001 (cost-plus contract) Wales & West From 2001 (cost-plus contract) Virgin West Coast From 2002 (cost-plus contract) Outcome of Refranchising

TOC Original Franchisee Outcome of Refranchising Anglia GB Railways NE Chiltern M40 Laing M40 Laing South Central Connex Go Via South Eastern Connex Go Via Great Eastern First NE GNER GNER GNER Great Western First First Merseyrail Arriva* Nedrail Northern Spirit Arriva* Nedrail Scotrail NE First Go Via First Wales-West NE* Arriva

* Having taken over previous incumbent Impact of External Variables on 1990-1998 Rail Demand Growth

London Non London South East

GDP 1.301 (1) 1.196 (1) 1.149 (1)

Car Time 1.043 (4) 1.031 (4) 1.067 (3)

Fuel Cost 1.045 (3) 1.056 (2) 1.049 (5)

Population 1.038 (5) 1.022 (6) 1.055 (4)

Car Ownership 0.975 (6) 0.951 (3) 0.972 (6)

Post 1995 Trend 1.119 (2) 1.033 (5) 1.092 (2)

Total 1.606 1.307 1.440 Growth in TOC Costs

Drivers of TOC cost rises 2003/04 Post-HF (£m, 2003/04 prices) % growth TOC own costs 3,097 47.5%

- Of which, staff costs 1,376 32.7%

- Of which, other costs 1,720 62.0%

Average salary 30,426 14.6%

Headcount 45,236 15.8%

Passenger train km – million 446 6.6%

Passenger km – billion 40.9 6.2% Conclusions

1. High competition for franchises 2. Healthy growth of traffic and revenue 3. Costs have risen 4. Problem of loss making TOCs