How will the new franchise agreements for UK railways affect business travel? Dave Richardson investigates
THE DECISION TO AWARD THE prestige West Coast rail franchise to First Group from December has proved highly controversial, with incumbent Virgin Trains and rail union RMT warning that it will lead to reduced onboard services and higher fares. Certainly, it has put the spotlight on the whole franchising system,which Sir Richard Branson believes is so flawed that it is “extremely unlikely” Virgin will bid for a franchise ever again.
First Group is believed to have bid 20 per cent more than Virgin to retain the franchise. But there will have to be cuts, including probable abolition of the onboardshop in favour of a trolley service. Whether Virgin’s renowned service of free hot meals and drinks to first class passengers will be retained is also highly questionable, but the good news is that there will be a 15 per cent reduction instandard class anytime fares within two years and new services to Blackpool (2013) and Telford, Shrewsbury and Bolton (2016).
It would have seemed right and just for Virgin to have its franchise renewed, as it has increased passengers from 13.5 million a year when the route was sold off in 1997 to 30 million last year. It has also come top among long-distance operators in quarterly satisfaction surveys by watchdog Passenger Focus.
Sir Richard fears a repeat of what happened on the East Coast routewith two franchise holders – GNER and National Express – pulling out because they could not afford the premium payments to the government. That route iscurrently back in public ownership, or, as the RMT puts it, leaving the public sector to “pick up the pieces”.
The Department for Transport (DfT) lays down very specific rules and requirements for franchise bidders, weighing up the interests of passengerswith value-for-money for the taxpayer, who still subsidises most operators. A DfT spokesman categorically denies that franchises go to the highest bidder, explaining: “When bids come in they are assigned a code so that when we assess them, we don’t know whose bid we are assessing. Even the minister doesn’t know until the process is complete.”
Business travellers have a vested interest in who runs franchises and how they are chosen, especially on main intercity routes as operated by Virgin. The government is now offering longer franchises to encourage train operators to invest, and two more major routes are up for grabs in the next 18 months, with several others to follow (see panel, p88). The Great Western franchise, currently run by First Group, will be awarded for 15 years from July 2013, while in December next year a new operator of East Coast will take over with a 12-year deal.
MASSIVE INVESTMENT
Renewal of major franchises comes, despite the recession, at a time of massive investment in the rail network – claimed by David Cameron to be “the biggest modernisation of railways since the Victorian era”. About £9 billion will be spent by 2019, mainly on further electrification, including the Great Western route from London to Bristol/Swansea (as well as a direct link to Heathrow); and the Midland route from London to Sheffield. The east-west Crossrail scheme under central London is under construction, while the new HS2 high-speed route from London to Birmingham will not open until 2026 and is not part of the £9 billion. The taxpayer will fund most of these schemes, as fares across the board will rise by Retail Prices Index (RPI)+3 per cent in 2013 and 2014, returning to RPI+1 per cent in 2015. The greater efficiency of electric trains, with 600 new carriages coming on-line from 2017, will also help.
So what do business travellers and their managers want from the rail network of the future? Punctuality is not now a major problem, with quarterly surveys showing a high level of satisfaction, but value-for-money is a growing concern. Buyers also want to see the ticketing process streamlined, with better onboard services and better information when things go wrong.
Capita Business Travel is one of the leading TMCs for rail, and is working on a manifesto for the rail industry to address the challenges that all operators have in common. Head of rail product, Raj Sachdave, says now that the booking process works well, the debate has moved on to ticketing and adding value to fares. “It is good to see a requirement for smart card ticketing to be built into new franchise specifications, but the minimum required to fulfil thesespecifications is very low,” he says, adding: “With advance booking now well established, corporates are focusing on other elements of cost in the rail journey. They would like to claw things back, such as station car parking, use of wifi on board trains, and food and beverage purchases.”
Capita Business Travel’s Interactive Campaign Manager – which includes benefits such as discounted food and beverage in some rail purchases – has proved a success. Sachdave urges train operators to be more innovative, as with East Coast’s Scottish Executive Package that includes parking, and Chiltern’s Business Zone on selected London-Birmingham trains.
Tony Berry, HRG director of industry and fare distribution, adds: “Business travellers want fast, frequent and on-time services, better stations and better onboard services, and the £9 billion set aside for infrastructure improvements will help enormously. Improvements to ticketing are high on the list as we need to move away from paper tickets, and people are used to mobile technology when travelling by air. Booking confirmations should flow through to a smartphone, which can then be used to access ticket barriers.”
BIG CHALLENGES
Thetrainline.com is at theforefront of technological innovation, but sales and distribution director Adrian Watts says the rail industry faces a big challenge getting ready for smart technology. Smart cards or smart phones will not just help passengers, he says, but also help trainoperators predict and cope with patterns of demand. “Moves to new ticket fulfilment methods will be a major requirement of new franchises, and better yield management will follow,” he says. “We are also looking at delivering season tickets as this is part of the ‘smart’ process, and we already have a number of corporate accounts issuing season tickets on paper.”
Supplier of reservations technology to travel management companies (TMCs) Evolvi is less enthusiastic about ticketing developments and the time taken to introduce them. Evolvi sales director Jon Reeve says reliability and punctuality of trains, and space to work efficiently, are business travellers’ main requirements. “Corporates do see rail as an expensive option, and want to see a recognition from train operators that they value their loyalty,” he says. “For example, people would like to purchase a ticket that includes car parking rather than pay separately and reclaim on expenses. They may want other ticketing methods, but at what cost? There needs to be a national strategy for developing this, but the problem is that train operators have different agendas.”
If you ask buyers what they most want to see from train operators, a wide range of issues will be raised – and value-for-money is one of them. Mike Green, BBC procurement manager, logistics, says: “We would like to see more competitive fares to encourage staff to travel by rail, as this would help towards reducing CO2. Advance fares for six, four or two hours before travel would create more opportunities for BBC staff to purchase fairly-priced tickets. Mobile ticketing and e-tickets should be standard across the rail network.”
Will Hasler, travel manager of PricewaterhouseCoopers, says: “More competition between train operators would be fantastic, and we are now encouraging staff to try Chiltern Trains between Birmingham and London as an alternative to Virgin, as you can pay a high fare and still don’t get a seat on peak Virgin services.
“All the investment has to be paid for, but where is the tipping point when it comes to increasing fares? You wouldn’t want to drive into London, but on some routes trains are absolutely crammed.”
Without doubt, the rail routes receiving major investment will see much better services within a few years – but fares will continue to rise. The business traveller’s best chance of getting value-for-money is to travel off-peak and book in advance, but that will require a culture change at many organisations.