COPING WITH CHANGE
As the PAC pointed out in February, the DfT’s greatest challenge is managing the complex interdependencies that arise from simultaneously letting new franchises while juggling the impacts of unprecedented levels of investment in electrification, stations, trains, and re-opened and new lines.
This would be difficult enough if everything went according to a clear plan, but added strain and cost are imposed on the franchising process by infrastructure work timetable slippages by Network Rail.
For example, wires were due to reach Oxford in 2016. The date is now 2020, so the cascade of Class 165/166 Turbos that were due to supplement West Country services is delayed. The impact on revenue projections by losing years of the ‘sparks’ effect and new trains is obvious. Equally the costs attached to converting 21 Class 801 EMUs for Great Western Railway to bi-mode operation instead of electric only is a very costly consequence of delay.
From the rolling stock owning companies’ point of view, franchising can produce suboptimal decisions. The owners have long-term plans as to where their trains are best suited, and they want fleets of sufficient size to build up expertise and to have enough substitutes when a failure occurs. Consolidation of fleets can be compromised by parallel franchise bids. As part of the process, a bidder is assessed on its unconditional lease agreements or prospective new build deals. Having made an offer to a prospective franchisee, a ROSCO has to wait for the outcome of the competition before it is able to offer those trains unconditionally to another bidder for a different franchise. That may influence a prospective franchisee into committing to new trains.
Of course, new trains are likely to be cheaper to run and more attractive to passengers. And ministers love new trains! But it may lead to assets being unemployed and a suboptimal balance between older, refurbished and new trains. It also makes steady order streams for manufacturers hard to devise. ScotRail is cited as an example of good practice in placing steady orders for new trains while recognising that refurbished HSTs will provide a much improved offer on its non-electrified inter-city routes.
All these changes are internal to the industry. The Laidlaw Review of the West Coast franchising failure described fluctuations in national GDP as the “key exogenous variable”, and Brown also saw “exposure of many franchises to macro-economic factors” as a major theme in his review. It is ironic that this attention has been paid to the impact of the wider economy on TOCs at the moment when we have found that passenger figures no longer track national economic fluctuations in the way they once did.
Much more fundamental to the franchising process is the impossibility of knowing what the Government will do to tip the playing field, yet the Government’s part in adjusting exogenous variables has been widely ignored. Although the fortunes of TOCs are no longer so closely tied to the economic cycle, they are significantly influenced by fuel costs for their principal competition - coaches and cars.
It all looked rather different at the start of privatisation. The 1994 Royal Commission into Environmental Pollution proposed that the price of motor fuel be doubled within a decade and that the use of cars in urban areas be halved.
The Fuel Price Escalator was introduced by John Major’s Conservative administration - setting a 3% per annum increase over inflation, increased to 5% later in the year and to 6% in 1997 by the Blair government. The last rise was in March 1999, before Gordon Brown abandoned the idea in the wake of the fuel protests of 2000. Increases were usually deferred, and 2016 was the sixth year of a freeze on fuel duty even though the overall trend of fuel prices has been on a sharp downward trajectory since summer 2012.
It has been a criticism of franchising that mid-term changes are too difficult to implement, so significant improvements often have to wait for the next renewal. An example is the ten Sustainable Development Principles devised by the RSSB, which former Rail Minister Claire Perry said would be prerequisites of future franchise competitions.
Some have been critical of RSSB straying beyond its safety concerns, but Reeve thinks it is “appropriate to have sustainability objectives for procurement. These measures are as like as not self-funding, reduce energy consumption, improve waste management, and reduce operating costs. Environmental credentials are part of the railway’s marketing proposition both to consumers and politicians deciding on the allocation of resources.”
CONCESSIONS VS FRANCHISING
The pioneer of the alternative concession model was Merseyrail Electrics in 2003, with a 25-year award following the DfT’s delegation of franchising authority to Merseytravel the previous year. Its Managing Director Jan Chaudhry ascribes much of its success to having the client on the doorstep, allowing a close working relationship and quick responses. Equally, the long time frame allows Merseyrail to “make a lot of business cases that you can’t with a short one”.
Merseyrail’s concession (jointly managed by Serco and Abellio) works well - it topped the National Rail Passenger Survey in January 2016 with a 93% satisfaction score, 15 points above the national average. Since its 2003 start there have been major improvements to stations, and two refurbishment programmes to its near 40-year-old trains have increased reliability. Passenger numbers have risen from 27 million to 34 million.
There is no sense of the concessionary model being a straitjacket - Merseytravel’s rail ambitions are enthusiastically supported, and the local dimensions of client and operator make community engagement both more important and easier to engender. “It’s in the DNA of the company to be involved in Merseyside rather than just paying lip service as a franchise commitment,” says Chaudhry.
In response to the often-voiced criticism regarding the tailing-off of drive and performance towards the end of a franchise, or of the risk of inertia in a long one, Chaudhry has imposed some catalysts - new trains, smart ticketing and taking over station management from NR.
The creation of the London Overground concession by Ken Livingstone in 2007 helped to transform some Cinderella services such as the West London Line. LOROL, a 50/50 joint-venture company between DB and Hong Kong’s MTR Corporation, is the train operating company responsible for running the London Overground network under a concession agreement with Transport for London. DB’s interest is managed by Arriva, the division responsible for regional passenger transport outside Germany.
LOROL was awarded a seven-year concession in 2007, and in 2015 it was enlarged by the addition of the West Anglia services to Enfield Town, Cheshunt and Chingford. A two-year contract extension means the company will deliver services until later this year. In March 2016 TfL announced its intention to award the next Overground concession, which begins on November 13 2016, to Arriva.
