Rail focus: Still on track?

Rail travel in the UK is experiencing a golden age - but could the bubble burst? Dave Richardson reports

It might not seem so if you're stuck on an overcrowded commuter train, but we could be enjoying a golden age of rail travel. The problem with golden ages, however, is that they inevitably come to an end.

Business travellers have experienced major quality improvements on many routes, and now have the tools to access lower fares than are available to walk-up passengers, plus a wide range of management information. Add in the drive to cut carbon, congested motorways and congested airports, and it's little wonder that business use of the UK rail network is still growing despite the recession.

But some train operating companies (TOCs) are clearly living beyond their means at a time of falling demand. Having agreed to pay the government large sums of money to run franchises, they now find they can't afford it.

The highest profile casualty so far is National Express East Coast, operator of key business routes from London to Yorkshire, the North East and Scotland.

In July it announced it would give up the franchise by December 2009 or possibly earlier, and now faces a legal battle with the Department for Transport (DfT). The DfT will nationalise the route while seeking a new franchise holder to take over from the end of 2010, and wants to strip National Express of its two other franchises, East Anglia and Essex commuter network c2c.

National Express bid £1.4 billion to run East Coast from December 2007 to March 2015, a sum derided at the time by other, lower bidders including Virgin.

Sir Richard Branson has announced he will bid again to run East Coast alongside the West Coast franchise due to be renewed in 2012, but has called for longer franchise agreements so operators can plan ahead. "The government should re-let this franchise as soon as is possible, and use it as an opportunity to look again at the franchise system and ensure some level of innovation, financial robustness and quality is built in," he says. "We have been the under-bidder on three different occasions, spent £15 million in the process and lost to people who have put in unrealistic bids. This can't be right."

The fear now is that other TOCs could walk away from their franchises, while many others will activate clauses in their contracts to claim more state aid to cope with a decline in business. That could lead to fare increases and service cuts, but not in the short-term.

TOCs could also follow airline practice by charging booking fees or for tickets on departure, collected from ticket machines. They may also start charging for seat reservations (as British Rail did before privatisation) and try to claw back revenue in other ways, all of which could make rail travel less attractive than it is today.

Businesses can insulate themselves against fare increases by booking in advance, through systems operated by Thetrainline and Evolvi.

Thetrainline's Best Fare Finder search tool is particularly useful, but you need a degree of flexibility when travelling to meetings.

Thetrainline director of sales and distribution, Adrian Watts, says: "Our business travel volume is growing at a rate of about 20 per cent a month compared with the first half of 2008, but the average ticket price continues to fall as people book ahead. People are also down-trading to Standard Class, and not surprisingly the banking sector is badly affected.

"Generally, TOCs recognise they need to encourage people to travel in the first place, rather than concentrating on revenue per passenger. But charging for seat reservations could improve the customer experience, as a lot of seats are booked speculatively and not taken up."

Evolvi has experienced similar trends, and is planning system enhancements to make it easier for companies to enforce travel policy. Trade relations director Jonathan Reeve says: "There is a debate going on about unbundling the product, as by airlines. There is some justification for doing that, but I can't see TOCs trying to charge for luggage."

Buyers and TMCs are still very positive about rail travel, but the move away from First Class is marked. PricewaterhouseCoopers now mandates Standard Class rail travel unless there is clear justification for First, such as travelling with a client or finding a very attractive fare.

PwC travel manager Will Hasler says: "If TOCs price themselves out of the market, those who have a choice may not go by rail any more. Some operators have over-provision of First Class - especially Virgin - while a full restaurant car service as on some East Coast trains is not what people want today."

Terry Grainger, HRG director of government contracts, says: "Bookers are being encouraged to move meetings to more convenient times, so that full advantage can be taken of cheaper advance fares.

"Corporate travellers are not unduly concerned over the National Express franchise issue as they know that the government, by whatever means, will have to provide a rail service. But many share the concern that the change of franchise may be used as a means to increase fares."

Nigel Turner, Carlson Wagonlit Travel director of public sector and industry affairs, adds: "Our UK rail sales grew by 13 per cent in the first six months, and I see it continuing to grow as the product becomes more reliable. The best fares need to be bought as far ahead as possible, but you can still make savings booking up to 6pm the previous day. Improvements in ticketing mean you can take advantage of that."

There is another factor driving business travellers to rail - a reduction in air services. The axe has already fallen this year on Bmi's routes from Leeds Bradford International and Durham Tees Valley to Heathrow, and on VLM's Manchester to London City service.

Virgin now claims a rail/air market share of nearly 80 per cent on the Manchester-London route, up from about 33 per cent in 2004 before its new Pendolino trains and higher frequency timetable were introduced. Now it has set its sights on winning more of the Glasgow-London business market, with journey times down to a typical four-and-a-half-hours and planned to reduce to under four hours.

Tony Collins, chief executive officer of Virgin Trains, says: "Rail's market share between Glasgow and London is set to reach double what it was five years ago and we can do much better than that. There is no reason why rail cannot win half of the entire Glasgow market once timings are below four hours. "Overall passenger satisfaction with rail travel remains high, according to watchdog Passenger Focus, which conducts the twice-yearly National Passenger Survey (see chart). The spring survey found an 81 per cent overall satisfaction rate, with individual operator scores from 92 per cent (Heathrow Express) to 75 per cent (London Overground).

The survey is a useful indicator, but companies with small, self-contained networks generally do better than large TOCs having to share the track with other passenger and freight operators.

Virgin scored well in most areas (overall 86 per cent), but satisfaction with punctuality dropped to 79 per cent compared to 82 per cent in the autumn 2008 survey.

Collins adds: "Punctuality is fundamental, and we have not delivered that in recent months because of continuing track problems. We have made clear to Network Rail that this needs to improve. "All TOCs depend on Network Rail to maintain and improve the infrastructure, but public funding for this could be at risk in the cutbacks that are bound to follow the next general election. Plans to build a new high-speed line from central London and Heathrow to Birmingham will be delivered to the government by December, and cross-party agreement will be sought so they are not derailed by a change of parliamentary control. Major funding and planning issues lie ahead, and the earliest it could open would be the 2020s, with possible extensions to the North and Scotland to follow. In the meantime, the government has given the go-ahead for more electric railways. The First Great Western main line from London to Bristol, South Wales and Oxford will be electrified by 2017, and a new Liverpool-Manchester electric rail service could start by 2013 with a best journey time of only 30 minutes. Electrification saves carbon and brings reductions in journey times, but Britain still lags behind most European countries in providing a modern rail network.

Source: Passenger Focus (www.passengerfocus.org.uk)