Rail focus: Class struggle

After gaining ground on air travel post-crunch, Dave Richardson discovers that the rail industry has problems of its own to deal with

When now-retired MP Sir Nicholas Winterton described Standard Class rail travellers as a "different type of people" a few months ago, the media had a field day.

He wanted to hang on to the perk of First Class travel from his constituency in Macclesfield, Cheshire, to the big Smoke - but at a time when MPs' expenses had become a subject of scandal.

MPs haven't yet been banned from travelling First Class but are strongly advised to be frugal, whereas many business travellers especially in the public sector must now grin and bear Standard Class as a matter of policy.

Sir Nicholas's main gripe - noisy children - is just one of the realities of the new age of austerity. Others include noisy adults (yes, even in so-called 'quiet carriages'), cramped seating, no space to work, no access to station lounges, no free wi-fi, possibly no power point, no view out of the window, queues for the buffet and over-crowding.

And yet, by booking in advance through systems such as thetrainline.com and Evolvi, it's sometimes possible to travel First Class for less than the cost of the walk-up fare. To get the bargains, you need to be flexible and re-plan meetings for the middle of the day, and the inconvenience of that might be outweighed by productivity gains on the move.

Terry Grainger, director of government contracts at HRG, says: "Most organisations are not even considering a return to First Class travel at present, and I doubt whether this will ever change for the public sector.

"Train operators are looking at all sorts of ways to get people back into First Class, but a lot of self booking tools will simply not allow that. In the public sector, you don't want to be seen coming out of a First Class carriage in any circumstances.

Organisations are putting in freedom-of-information requests about who travels First Class, and it's become a witch-hunt." This is a massive problem for train operators reliant on long distance business travel, who run fixed-formation trains with what now appears a huge over-provision of First Class, and a Standard Class so full that you often have to stand.

They may have to cut back, although Nigel Turner, Carlson Wagonlit Travel (CWT) director of public sector and industry affairs, hopes they will adopt an airline style Premium Economy model.

"The move away from First Class is a long-term trend, but business use of rail is continuing to grow as organisations move people off airlines and out of company cars," he says. "At the same time, more organisations want to manage their rail spend rather than having people buy tickets at stations.

"Operators will have to react. they have thought about a Mid-Class product but have to revisit that idea now, with some Standard carriages reserved for passengers paying higher fares."

PriceWaterhouseCoopers' travel manager, Will Hasler, has imposed a Standard class-only policy for nearly two years - but with get-out clauses, such as when you need to discuss business with an important client. "the case for rail is proven on journeys of up to three hours, and it can stand an increase in costs," he says. "If we want to see more investment in rail at a time of government cut-backs, that has to be paid for.

"But corporations want to see that cost shared by leisure travellers. If fares suddenly increased by £50 they might think twice about going by rail."

How government spending cuts will affect rail should become clearer in the autumn spending review, with the £8 billion due to be invested in the rail network over the next four years at risk. A decision on whether to proceed with the Intercity express Programme - new trains to replace ageing high-speed trains on key routes - will be made in October.

Michael Roberts, chief executive of the Association of train Operating companies (ATOC), says: "It's deeply frustrating that this project has cost the Department for transport over £20 million in consultancy fees, and has so far failed to produce a single train."

Electrification projects and the proposed new high speed line from London to Birmingham are also at risk of being delayed or scrapped, but overcrowding due to shorter or fewer trains is more of a threat in the immediate future.

By switching their people to rail and centralising their rail spend, many organisations have been able to cut costs, cut carbon and achieve a more productive travelling environment. the latest National Passenger Survey by rail watchdog Focus shows that a record 83 per cent of passengers are satisfied with their journey, but all this could be put at risk in the tough times ahead.

Cutting commission

The move towards centralising rail spend and booking in advance to achieve savings is becoming all the more important now that the underlying costs of rail travel are increasing.

A cut in commission and a new financial bonding requirement imposed by ATOC has a direct effect on travel management companies (TMCs), which must be passed on to their customers. Organisations not using TMCs are also affected if they use online retailers such as thetrainline.com, as they too have seen commission cut.

On July 25 2010 ATOC cut commission from 5 per cent to 4 per cent for providing a financial bond - itself a major cost - and to 3 per cent for unbonded TMCs. From march 2011 bonding will be compulsory, and the expectation is that commission will continue to fall by 1 per cent a year until, like most airlines, rail operators pay nothing at all.

Evolvi, one of the main booking system used by TMCs, investigated whether it could provide bonding arrangements itself but did not go ahead. It did however introduce ATOC to the brokers behind the travel Agency Reserve Insurance Fund (TARIF), introduced by ATOC to protect it from TMC failures.

Evolvi managing director Ken Cameron says: "commission cut is a short-sighted approach to who deliver exceptional benefit for train operators at relatively low cost. We have already seen some relinquish their rail licences, and would anticipate a greater number doing likewise in March.

"Reserve fund is welcome, but we are concerned that many licence holders will find the cost of entry less attractive in the early stages than getting a conventional bond."

At the same time that businesses are paying higher fees to book rail, fares are continuing to rise with another tranche of increases coming in January.

"Will rail become more expensive for the end user? Yes," says Cameron. "train operators will see revenues decline, and if they are empowered to increase fares beyond near-inflationary levels, this will discourage rail travel and possibly see the car become a more viable option. that is not helping our already congested road network and is definitely a backward step in tackling climate change. but if train operators react positively to the economic situation, then the damage can be limited."

HRG group commercial director, Stewart Harvey, agrees that corporates face a "double whammy" in a scenario which compares unfavourably with airlines.

"Corporates face increased fees and increased rail fares, but airlines are adopting lower fares to compete," he says. "clients don't see the same trade-off with rail, and on routes like London-Manchester, corporate air fares are close to full-price fares by rail."

A more upbeat assessment comes from thetrainline.com, which saw a 17 per cent increase in transaction volume in the year to march followed by a 19 per cent increase from April to June. but at the same time the average transaction value of business fares fell by 10 per cent, demonstrating that big savings can be made.

Thetrainline.com's sales and distribution director Adrian Watts says: "New business wins are coming in, and our new business website helps drive conversion rates and identifies the lowest fares more easily. the improved layout actually makes it harder to book more expensive fares.

"Inevitably our fees had to increase after the commission cut, but the increase is lost in the extra savings our customers are making." Watts says that business travel is returning to rail, except for the public sector, even in First class. "There is a lot of growth left in the market but there must be more use made of off-peak trains," he adds. "will be more investment by train operators as this will be part of their franchise agreements, and I am very optimistic for the future."

A new entrant, RailGo (a sister company to Fcm travel Solutions within the Flight centre group), is now targeting businesses, offering a wide range of value-added services. It uses Evolvi's system, while Evolvi concentrates on TMCs.

RailGo business development director Nathan cousins quotes ATOCfigures suggesting that about half the total business rail market is not yet 'managed', but booked ad hoc.

"key is added-value services like policy compliance and being able to locate your travellers at all times and show duty of care," he says. "We have signed over £1.7m-worth of business in less than 12 months, but if a company wants a completely free service, I tell it to book directly online."