March 2015 marks a milestone for Britain’s rail industry for two reasons: the start of a new franchise operator on the key East Coast business route, and the delivery of the first of a major fleet of new Super Express trains that will transform the travelling experience on routes where they operate.
The two developments are linked, as Inter City Railways – the new East Coast franchise operator, which is a joint venture between Stagecoach and Virgin – will be one of the operators of the new trains. These will start serving the East Coast route in 2018 and on the Great Western route a year earlier, with manufacturer Hitachi building a new factory in County Durham to produce them (the first trains, which will undergo extensive testing in the UK before the proposed launch, are being imported from Japan).
The new trains promise shorter journey times and increased capacity on these busy routes, and increased energy efficiency. The Great Western routes from London to Bristol and South Wales are being electrified before their introduction, and some of the trains will be bimodal, meaning that diesel engines will take over on non-electrified routes. At present East Coast has to operate ageing diesel high-speed trains on electrified track all the way from London to Edinburgh, so that it can provide direct services on non-electrified routes onwards to Aberdeen and Inverness. The new bimodal trains will also allow it to introduce direct trains to London from cities including Lincoln and Middlesbrough, which lie beyond the electrified network.
Party politics
The new East Coast franchise – with the Virgin/Stagecoach partnership chosen in preference to First Group, and a consortium of Eurostar and French company Keolis – has caused huge controversy. For several years it has been operated successfully by Directly Operated Railways, part of the public sector, after previous operator National Express defaulted on the franchise. The Labour Party argued that East Coast should remain in the public sector, but now the two main business routes are served by the same private companies.
Virgin and Stagecoach (trading under the name Virgin Trains) already operate the Intercity West Coast franchise, with routes from London to the West Midlands, North West, North Wales and Scotland; now, as Inter City Railways, they will operate routes to the East of England, the East Midlands, Yorkshire, the North East and Scotland. Virgin has a 51 per cent share of the West Coast operation and Stagecoach 49 per cent; on East Coast, Stagecoach holds a 90 per cent stake to Virgin’s 10 per cent, but trains will carry Virgin branding.
The new East Coast regime will be welcomed by many business travellers familiar with Virgin Trains, voted rail operator of the year at the Business Travel Awards 2015 and widely seen as setting the bar high in first class with a good working environment, and meals and drinks included. But it is Stagecoach – which also operates East Midlands Trains and South West Trains using its own corporate identity – that takes on most of the commercial risk.
Faster journey times
The new franchise will run until March 2023 and includes a commitment to deliver £2.3 billion in payments to the UK government. Faster journey times will mean regular services from London to Edinburgh in only four hours, and a 50 per cent increase in capacity by 2020 with 12,200 extra seats. While the 65 new Super Express trains would have been delivered whoever won the franchise, the new operator has made other commitments, including a 10 per cent reduction in Anytime fares to London or Stevenage from all stations.
While the Guild of Travel Management Companies (GTMC) queries whether having the two Anglo-Scottish routes in the same hands is healthy, Capita Business Travel and Events feels there could be advantages. Leigh Cowlishaw, its director of supplier partnerships, says: “The ownership mix of Stagecoach and Virgin Rail Group is very different on the two routes but, in terms of customer experience, then the same brand may offer more consistency.
“The new Hitachi trains are most welcome and should offer greater capacity for the changing social profile of the traveller. In mainline Europe, business class facilities are in abundance, and Chiltern Trains’ Business Zone is proof that this approach could be welcomed as an alternative to first class.”
GTMC chief executive Paul Wait adds: “Our recent Voice of the Business Rail Traveller survey revealed that making rail journeys more productive is a priority for business travellers. It’s clear from research findings that the rail industry has changes to make to keep up with the demands of future big spenders. When looking at services provided by rail companies, 80 per cent of under-30s wanted to see free wifi, more power points, better catering, and business lounges both on board trains and in stations. The GTMC therefore supports specific business class seats and an increase in first class carriages on the Super Express trains.”
Andrew Dalton, senior programme manager at Carlson Wagonlit Travel, says having the same operator on these two main routes is “not ideal”, but points out: “The two routes are not really in competition, as the cities they travel to offer very different business propositions. The Super Express trains are great news for travellers and train operators, with upgraded facilities and services, some reduced journey times, and dual-powered units for greater flexibility across the rail network.”
Pressure on airlines
A four-hour journey time between London and Edinburgh will put more pressure on airlines, especially when the train can offer an uninterrupted working environment. Virgin Trains has already shown that it can take market share away from airlines, dominating the London-Manchester corridor and now making steady inroads into airlines’ share on London-Glasgow, where the typical journey time is four-and-a-half hours.
More than three times the number of passengers travelled between London and Glasgow in 2014 than in 2009, and using Civil Aviation Authority figures Virgin now claims a market share of over 20 per cent on this rail route – more than double what it had in 2008. Virgin is also increasing market share on Birmingham-Scotland routes, where the number of passengers grew by a third last year after a major increase in capacity.
Gary Iddon, Virgin Trains’ general manager for Anglo-Scottish services, says: “These figures are a fantastic endorsement of the work we’ve done on the route. We’ve done a lot of work with partner organisations to promote rail travel, and the additional capacity means that we have far more low-priced fares to offer passengers.”
More business travellers would switch to rail on longer routes such as these if they had faster and more reliable wifi, which East Coast is promising. West Coast is already upgrading wifi and the strength of the mobile phone signal, including 4G capability. By this summer all trains on the West Coast route will have wifi upgraded from 3MBPS to 12MBPS (8MBPS on diesel trains used to North Wales and on some Birmingham-Scotland services), while super-fast broadband with speeds of between 80MBPS and 100MBPS is being installed at all 17 stations managed by Virgin – meaning seamless connectivity throughout the journey.
Franchise exclusivity
The GTMC has renewed its appeal for more competition on Britain’s rail network. There is very little competition at present, because the franchise system effectively gives exclusivity to one operator, and where there is, it is usually only where two or more franchises overlap. Examples include York-Aberdeen (East Coast and Cross Country, plus First Trans Pennine Express from York-Newcastle); Preston-Glasgow/Edinburgh (Virgin and First Trans Pennine Express); and Brighton-London (Southern and Thameslink).
Although a few ‘open access’ non-franchised operations also exist, recent developments have cast doubt on whether the government is interested in competition at all. A proposed new operation called Great North Western Railway (GNWR) has been refused permission by the Office of Rail Regulation (ORR) to start services from London to Blackpool by 2017, and to Huddersfield and Leeds by 2018. Meanwhile, existing open-access operator Grand Central will soon face more competition from East Coast.
The ORR turned down GNWR because it would not generate enough new revenue to justify allowing it to compete with the West Coast franchise. “We are naturally disappointed, especially as we reached agreement with Network Rail in May last year that there was sufficient capacity to operate these trains on the West Coast main line and across the Pennines,” says GNWR managing director Ian Yeowart. “That disappointment will be shared by businesses in northern towns and cities, most notably Blackpool and Huddersfield, which would have received new regular direct services to London.”
While Huddersfield remains without a direct link to the capital, Virgin Trains started a daily Blackpool-London peak hours return service in December, and may increase frequency when the Preston-Blackpool route is electrified. Virgin has also started a twice-daily service from Shrewsbury and Telford to London, a route briefly operated by the now defunct open-access operator Wrexham & Shropshire (W&S). Tellingly, W&S was not allowed to compete with Virgin by having its trains serve Birmingham.
Open-access operator Grand Central is putting a brave face on East Coast’s expansion plans. It operates direct trains from Sunderland and Eaglescliffe (near Middlesbrough) to London, routes not currently served by East Coast; and from Bradford to London, where East Coast operates only one daily return service. But Sunderland, Middlesbrough (city centre) and Bradford are all part of Stagecoach/Virgin’s expansion plans, with daily return services from Sunderland and Middlesbrough starting in December (increased to twice daily from 2019), and Bradford-London increased to seven a day also from 2019.
Richard McClean, managing director of Grand Central, says: “Open-access operators have worked hard to create new markets for rail, and evidence clearly shows that this has led to rapid growth on these new routes. Open access has kept down the rise in ticket prices and stimulated competition. We are encouraged to see that Sunderland, Middlesbrough and Bradford may see improved services from the new East Coast franchise, which clearly looks to build on the markets that Grand Central has developed. We are looking forward to seeing the detail of the services proposed, to see how they could fit with existing services provided by us.”
The GTMC’s Paul Wait says: “We have been calling for open access with the support of the business travel community since early 2014, and we strongly supported the proposal put forward by GNWR. The rejection of this proposal has a significant impact on business travellers as the benefits of fairer pricing, connectivity and productivity would be significant.
“The rationale for not allowing competition is that it may reduce the amount that bidders will pay the government to run the West Coast franchise. However, once the outcome of the election is known and firmer transport policies are established, pressure to call for franchise reform and open access will only intensify.”
Evidence that open access works is also provided by Passenger Focus, the watchdog that conducts independent passenger surveys twice a year. The most recent finds that highest level of satisfaction with UK train operators was shared by Grand Central and Heathrow Express, both with 94 per cent, while the poorest performers were commuter operators Southeastern (74 per cent), Southern and Govia Thameslink (both 77 per cent). Overall satisfaction was down from 83 per cent in autumn 2013 to 81 per cent in autumn 2014, with another open-access operator, First Hull Trains, also doing well with 89 per cent.
It’s tempting to see open-access operators as Davids taking on Goliaths, but this is not the case. Grand Central and GNWR are both part of Arriva, which runs the Chiltern, Wales and Cross Country franchises, and is, in turn, owned by German rail operator Deutsche Bahn. Hull Trains is owned by another major transport operator, First Group.