Rail 431: ATOC lemmings must stop on the brink of railcard precipice

Train operators seem determined to press the self-destruct button again with their proposed restrictions on the Network Railcard. CHRISTIAN WOLMAR believes the decision reveals the collective lack of vision among ATOC members.

Is there a kamikaze spirit among train companies? Or are they just like lemmings, mindlessly heading towards the abyss because everyone else is? This seems the only possible explanation for the latest self-inflicted public relations disaster by the rail industry, the restrictions the train operating companies want to impose on the use of the Network Railcard.

The Network card is, of course, a legacy of BR’s heyday, introduced in 1986 by Chris Green when he ran Network SouthEast as a way of boosting off-peak travel. It was a great success, attracting more than 500,000 annual sales and greatly increasing the number of passengers using the network for leisure purposes. It generates, according to ATOC, about £70m in ticket sales, with 363,000 cardholders who pay £20 for the card to get a third off travel after 1000 and at weekends. There has been a decline of around 20% in the number of users, not least because the card is not publicised other than through a little leaflet.

The collective brains at ATOC now, however, perceive a problem with the card, partly because it is becoming too popular on some journeys. Some naughty passengers are buying a single ticket in the morning, and then using their card to buy a return in the evening. They are, therefore, using the evening train at peak times while still getting a discount. Others – shock, horror! – are delaying their journey in the morning until after 1000 to be able to benefit from the card. These recalcitrants are, according to ATOC, costing the companies around £5m-£10m and increasing the problems.

So what is the ATOC Mensa members’ solution for this? Apart from at weekends, they want to restrict the use of the card to fares above £10 which effectively rules it out for journeys of under 35 miles.

There are more holes in these arguments than in a shop full of colanders. Let’s take them one by one and slowly so that hopefully the Mensa brains will reconsider their decision.

First, as Philip Benham, Commercial Services Manager of ATOC, has admitted, there is no definite information on what the likely impact on revenue of this decision will be. The estimate of £5m-£10m extra money is a guess and, as he recognised, there is a risk that there will be no financial benefit at all or even a loss.

Secondly, this is a PR disaster all for the sake of a measly few million, a drop in the ocean of the £3.5bn annual ticket sales and clearly not worth the few bob in extra revenue.

Thirdly, it is the morning peak which sees the most overcrowded trains, as everyone scrambles in to be at the office for 0900 or 0930. The evening peak is traditionally spread over a much longer period.

Fourthly, the train operators say the card inhibits the use of other types of promotional tickets, because operators are reluctant to introduce them in case people use them with the card. As Mr Benham puts it, “TOCs have found it difficult to price off-peak travel.” This, however, seems a real no-brainer. Such promotions can be – and some already are – sold on the basis that they cannot be used in conjunction with the card.

Finally, this move does not address the stated problem. Those still entitled to the lower Network Card fares will be able to use the evening peak trains for their return journeys. Those who are not will still crowd on to them, but pay a bit more.

It is probably mistaken to ascribe any subtlety or hidden motive to the ATOC brains but clearly this move will have only one result – the scrapping of the Network Card. With suburban journeys now no longer qualifying, many people will not buy the card, sales of which bring in £7m. The card will only be worthwhile for people using it regularly at weekends and those travelling regularly on journeys of more than 40-50 miles. Certainly I will not bother renewing mine as I am unlikely to make £60-worth of qualifying journeys in a year which is the amount needed to reimburse the £20 cost of the card. It may well be that it would be worth my while, but it is marginal and therefore why should I gamble on wasting part of the £20?

Christian Pratt, railcard manager for ATOC, made a telling point that showed the dearth of collective imagination among the train companies: “It is doubtful,” he admitted, “that any of the railcards would stand the test of introduction now. They happen to work in completing the fare structure and are carefully targeted, but we would probably not introduce them now.” That is a sad admission of operators’ collective lack of vision. So much for the notion that the private companies are more customerfocused and innovative than BR.

It also suggests that ATOC’s decision may be completely wrong and that, as I have argued in the past, it should be expanding the cards and not cutting back on them. It could, for example, have a weekend card or even a national railcard, as they do in many European countries.

Adrian Lyons, head of the Railway Forum, accepts that the TOCs do not look good over this business but offers a more studied defence of the move. He argues that the operators are so desperate for revenue that they do not care about the PR effect because all their costs are rising faster than inflation and subsidy is being cut. Moreover, they are spending a fortune on refranchising.

But then he asks a more interesting question: what are fares for and why are they set at the current levels? As he says: “Since fares can never pay for investment, what role should they play? Should they cover operating costs or do more than that?” He is right to say that the issue is worthy of debate, but it is the kind of long-term strategic question with which our politicians simply refuse to engage.

It is a frequent complaint that in the public sector, decisions are made by committee after lengthy bureaucratic procedures. But this is true in spades about the train companies. This is clearly a decision that is a compromise from a committee, made after much debate, and which satisfies no one.

To its credit, ATOC didn’t try to spin this change as good news for the cardholders. That would have been difficult, of course, but last time when a change was mooted in 1997, which would have simply banned network card ticket holders from the evening trains, there was a wholly unsuccessful attempt to present it as benefiting passengers.

The decision will be finalised at an ATOC meeting on March 25. There are clearly very different views among the companies, ranging from total abolition of the card to making more use of it through a publicity campaign. Let’s hope the lemmings stop on the edge of the precipice.

Franchise payments shown to be a one-way sham

I have always been sceptical about the whole concept of franchising. What, exactly is it supposed to achieve? Better management of services and customer focus? Well, the tale above gives the lie to much of that. The real motive behind the creation of the system was better financial discipline and risk transfer to the private sector.

This has been shown to be a sham on numerous occasions already. When MTL and Prism got into trouble, their franchises were simply transferred to other operators which were given more money. The key rule of financing public services is that the risk cannot be transferred if a) there is an ongoing requirement for government subsidy and b) the service must be maintained at all cost because it provides a vital function.

This has been demonstrated time and again in the rail industry since privatisation, most recently by the latest bizarre deal which gives National Express lots of cash for not walking away from its ScotRail and Central Trains franchises. National Express will pay the SRA an extra £59m for scrapping the existing contracts, and then will receive an extra £115m over the next two years. This suggests a new version of the old expression which should now read ‘robbing Peter to pay Peter’. Phil White, Chief Executive of National Express, explains that this was to give a fresh start and denied the suggestion it was a tax dodge.

There are bits of bizarre arithmetic in the press release. Notably, “to fulfil the undertaking inherited from Prism to invest £20.5m in the c2c franchise, National Express will invest £8m in total on capital improvements on the c2c and WAGN franchises, and to fulfil the outstanding £13.3m of the £25m that National Express undertook to invest across its franchises as part of the Prism acquisition, National Express will pay the SRA £3.5m in cash.” In other words, in SRA speak, £20.5m is worth £8m and £13.3m is really £3.5m. I wonder if my bank manager might consider the same argument?

The explanation for the renegotiation by Richard Bowker is that “it has long been clear that the financial basis for the regional franchises was unworkable, a situation compounded by Hatfield and the foot-and-mouth outbreak which affected tourism revenue.” But the whole idea of franchising was to transfer the risk to the private sector. Foot-and-mouth did cause some downturn and Hatfield cut a year or two of growth, but also saw the train operators receive massive compensation.

All the regional railways franchises have now been renegotiated. This means they are attracting far more subsidy than originally promised and are yet another confirmation of how the original deals were a con as they suggested that government support to the railway could be phased out.

The franchisees took on these contracts on the basis of risk for periods of seven years or more. Mr White says Hatfield imposed unforeseen costs and something had to be done: “We could have cut all services back to the minimum PSR, looked at fares and made other cuts. That would have affected passengers and the SRA is about improving things for passengers.” In other words, National Express had the SRA over a barrel, making offers it couldn’t possibly refuse.

So it’s difficult not to conclude that franchising is a one-way scam. If the companies do well, they pocket the profits; if they do badly, they ask for more, Oliver Twist-style. And, unlike him, they always get it. What betting, Mr Bowker, that when your hair is even greyer in 2010, Chiltern will be coming back to you and saying: “Because of the war in Albania and the outbreak of swine fever, our franchise has now become unworkable and we cannot possibly give you the premium payments agreed in 2002…”

Shares