PHASE 2 REPORT EVIDENCE OF REVENUE GENERATION AND ABSTRACTION FROM HISTORICAL OPEN-ACCESS ENTRY AND EXPANSION Prepared for Office of Rail and Road Date 7 January 2016 REDACTED TABLE OF CONTENTS 1 EXECUTIVE SUMMARY ............................................................................................................. 3 1.1 Purpose .................................................................................................................................... 3 1.2 Review of previous work ......................................................................................................... 3 1.3 Approach ................................................................................................................................. 3 1.4 Investigation of explanatory factors ........................................................................................ 4 1.5 Direct demand modelling ........................................................................................................ 4 1.6 Generation and abstraction identified .................................................................................... 4 2 PURPOSE OF STUDY ................................................................................................................. 6 2.1 Study Aims ............................................................................................................................... 6 2.2 Background to Open Access Operators ................................................................................... 6 2.3 The Five Stage Test .................................................................................................................. 7 3 REVIEW OF PREVIOUS WORK .................................................................................................. 9 3.1 AECOM study ........................................................................................................................... 9 3.2 MVA ......................................................................................................................................... 9 4 METHODOLOGY ..................................................................................................................... 10 4.1 Summary ................................................................................................................................ 10 4.2 Identifying the quantum of generation and abstraction ....................................................... 10 4.3 Explaining the quantum of generation and abstraction ....................................................... 13 4.4 Direct Demand Modelling ..................................................................................................... 15 5 LIMITATIONS .......................................................................................................................... 17 5.1 Summary ................................................................................................................................ 17 5.2 Treatment of fares modelling ................................................................................................ 17 5.3 LENNON Data Issues .............................................................................................................. 19 6 RESULTS ................................................................................................................................. 22 6.1 Summary ................................................................................................................................ 22 6.2 Use of MOIRA ........................................................................................................................ 22 6.3 A revenue forecasting model ................................................................................................ 24 6.4 Including the impact of TOC-specific tickets ......................................................................... 26 6.5 Performance against actuals ................................................................................................. 27 6.6 Direct demand model – performance against actuals .......................................................... 33 6.7 Sources of error ..................................................................................................................... 36 7 CONCLUSIONS & RECOMENDATIONS FOR FURTHER ANALYSIS ........................................... 39 7.1 Conclusions ............................................................................................................................ 39 7.2 Recommendations for further analysis ................................................................................. 40 Evidence of revenue generation and abstraction from historical open-access entry and expansion 1 Office of Rail and Road 8 APPENDIX 1 – REVENUE MODEL DEVELOPMENT .................................................................. 41 8.1 Revenue model development ............................................................................................... 41 8.2 Differential Fares ................................................................................................................... 46 9 APPENDIX 2 – INVESTIGATION OF POTENTIAL EXPLANATORY FACTORS .............................. 51 9.1 On board offer ....................................................................................................................... 51 9.2 Rolling stock quality ............................................................................................................... 52 9.3 Lagged effects ........................................................................................................................ 53 9.4 Station quality........................................................................................................................ 61 9.5 NRPS as an indicator of service quality ................................................................................. 62 9.6 Marketing/branding effectiveness ........................................................................................ 67 10 APPENDIX 3 – DIRECT DEMAND MODELLING ....................................................................... 69 10.1 Approach ............................................................................................................................... 69 10.2 Processed Inputs.................................................................................................................... 70 10.3 Model Parameters and Processes ......................................................................................... 73 10.4 Results ................................................................................................................................... 76 11 APPENDIX 4 – FARES METHODOLOGY SENSITIVITY TESTS .................................................... 79 11.1 Introduction ........................................................................................................................... 79 11.2 Results ................................................................................................................................... 80 11.3 Conclusions ............................................................................................................................ 85 LeighFisher Limited This document has been prepared by a division, subsidiary or affiliate of LeighFisher Limited (together “LeighFisher”) in its professional capacity as consultants in accordance with the terms 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