The begging bowl beckons

There is a massive game of poker going on between the train operators and the government and so far neither is playing their hand very well. The operators are clearly in disarray. While ATOC’s insistence that they did not beg for more money when they went to see Geoff Hoon last week, it is clear that at some stage they will have to ask to renegotiate the contracts. Keith Ludeman, the boss of Go Ahead and a former chairman of ATOC, made this clear when he broke ranks just before Xmas by stating publicly that the franchise contracts were negotiable. That was not a message his fellow operators wanted conveyed, nor one ministers were prepared to hear. 

The plot has thickened further with the news that Mike Mitchell, the civil servant responsible for the railways, told a select committee that there were several franchisees in difficulty.  Although he claimed he could not name them in public – he did so in camera – because the information would affect the share price, since there are very few operators then it does not take a wizard in share dealing to downgrade the value of all five major operators.

The train operators, too, have rather given the game by producing a strategy paper, leaked last week to The Guardian, which says, as any fool could guess, that passenger numbers are set to fall over the next year. Add this to the statements from Ludeman and Mitchell, and it clear that the begging bowl is going to come out at some point in the near future. Then what? The government has said it will not negotiate although it is obvious that if several franchisees threatened to throw in the towel, it would have no choice.

From the rather unwise utterances from both sides, it is clear that neither side know how to play this game. Before doing an Oliver Twist number, they should know that we have been here before. As I mention in Fire and Steam in March 1867, after what is probably now the third worst banking crisis in history (after 1929 and 2008), a group of illustrious railway companies, led astonishingly by the arch Tory Sir Daniel Gooch of the Great Western Railway, who had hitherto rejected any hint of government interference in the railways, knocked on Disraeli’s door at No 10 begging to be bailed out. The great man turned them down. It is highly likely they will get the same response today.

  • Chris Sharp

    Have we now reached the ultimate test of the franchising system?

    In the past when things got tough a franchise just handed back the keys, but now all the players have several irons in the fire so can’t afford to give up an a failing one and then loose the profitable ones.

    So which way will it go? Will the franchising system work and private enterprise shoulder the loses through of the next couple of years or will the whole system collapse as running a railway turns out to be a lot less profitable than all those subsidy profiles predicted!

  • RapidAssistant

    My money is going on them being able to renegotiate; keeping the profitable franchises but the Govt temporarily taking control of the loss making ones – which no private company is going to touch with a barge pole in the current financial climate. There is no way the Treasury is going to add to its growing pile of liabilites with all the bank bail outs and so forth if it doesn’t need to.

    As I said in the other thread – despite the problems I still think we are a long, long way from the end game which I suspect most people in this country would prefer – complete renationalisation and the recreation of a single, vertically integrated organisation to run the railways.

  • Dan

    I agree with Rapid on this – relates to Christian’s point about the govt not understanding private sector’ too.

    However, if demand for services falls, then it is only sensible that certain services are cut back (esp train length in prev high demand commuter areas), if not possibly frequency. This is what BR would have done is it not?

    But the point is this should be in rtn for lower payments from govt – not same payments to operators for less service!

    This of course makes the decision not to keep a state run franchise (like SE trains) on the govt books all the more silly – since that could now step in and operate others the private sector did not want. However, private operators should be ‘punished’ if they throw in the towel – just as they would have been rewarded had the times been good – the point about it is that the shareholders can not have it both ways – it seems they want to cut services, cut staff, AND get more subsidy – as soem would say “they must be ‘avving a larff!”

  • Dan

    And on a related matter – if times are tough and passengers more scarce – could we see a reversal of the trend to restrict walk on ticket availability please/ EG getting rid of First Capital Connect evening peak restrictions for Cheap Day Rtns – and move the times of Saver (aka Off Peak) boarding times back to the sort of times BR managed to make available if you want to get out of London on an Inter City TOC?

    If the TOCs want to renegotiate with Dft then surely DfT could start by askign them for some passenger friendly concessions…

    Unrelated but linked how come it is that we never see the smaller operators facing these problems? Chiltern and Merseyrail are quite low profile – maybe their owners should get some more franchises if the ‘subsidy junkies’ are weened off their addictions?

  • RapidAssistant

    And while we’re at it (not that I want to re-ignite the whole debate about the validity of Advance tickets), how about reducing walk-on, Open fares to more rational levels as well, which the long distance operators might find will not only increase revenue in the long run but will repair their tarnished reputation and would go some way in reversing the fallacy that the train is completely uncompetitive in price terms with air travel – FGW for a kick-off (with Virgin and NXEC not far behind).

    After all, in the days of BR I seem to recall Super Advance and Apex tickets being just as cheap as some of the so-called cheap fares nowadays, and even if you did get on the wrong train all you had to pay was a surcharge.

    Dan – is it a co-incidence that you quote Merseyrail and Chiltern – the two most vertically integrated franchises on the network, which just happen to be the ones we don’t hear very much bad press on.

    On the other hand I could say plenty of bad things about ScotRail (also run by First, funnily enough) which you guys down south probably don’t hear much about.

  • James Strachan

    The problem is the cost of Network Rail.

    Three times the annual cost of Railtrack and the old BR infrastructure teams.

    As explained by Roger Ford in Modern Railways and occassionally hinted at by Christian Wolmar.

    The railways could very well without this overhead.

  • Dan

    Yes, but James presumably Network Rail costs more ‘cos they are actually doing some work on the lines? Railtrack’s priority was largely turning stations into better shopping malls (I must say Railtrack did some nice work in this regard – restoring Brighton and a few others – and some nice small projects too) – but that is not the same as fixing up running lines etc. No doubt they do spend more inefficiently than BR though.

    You make a good point Rapid – I’d not really thought of those 2 franchises in that context – food for thought. Yes, I’m not too familiar with Scotrail’s woes (although when holidaying in the Highlands by rail the service has been good – but that is a very small sample and of course not representative).

    Mind you we can see what the ‘private sector’ can deliver – the other day in this region East Midlands Parkway station was opened. This was promised as part of the franchise bid of the first private operator of the Midland Mainline – so we’re talking back in 1995. 13 years to build a station on easily accessible land!! It just beggars belief. Providing such stations near M-Ways is a bit of a ‘no brainer’ if you want to give people good transport options. I seem to recall GNER promising a few on the east coast – what happened to that – a franchise commitment broken I presume?

    However, I’ve learned that parking charges at EM Parkway are to be £9 per day – this may work for people using the station to travel to London once in a while – but it’s certainly not attractive to people who wish to use it commute into the nearby EM towns and cities. Seems way too pricey to me.

  • RapidAssistant

    Looking at the rail recruitment websites reveals a few interesting observations – the big consultancy firms that do a lot of rail work for NR – Atkins, Frazer-Nash, Westinghouse Signal, so on and so forth. The salaries (particularly for management positions) being offered are pretty substantial, sometimes even on a par with the North Sea oil/gas industry – probably the highest paying engineering sector in the country. Now I know I might get torn to pieces by some readers who work in the industry but surely these high wages are being passed onto Network Rail in the form of high costs, and contributing to a lot of the “gold plating” that’s evident in renewals and improvement works. Again – I suspect a lot of ex-BR engineering people left Railtrack and now work as consultants and are charging Network Rail dearly.

    On the ScotRail issue Dan yes – we too have these silly (and pointless) “meet the manager” sessions that First seem to love on its other franchises, and they enjoy taking the credit for infrastructure improvements that were really the brainchild of the Scottish Executive. But a lot of the problems experienced elsewhere in the UK are here as well – peak time trains too short, high fare rises and then making sure that they get their pound of flesh by enforcing silly rules on off-peak tickets (assuming that all passengers are fare dodgers and refusing to sell said tickets on the train).

  • Allan Hedley

    Is’nt it time now that the government started to take the keys back from those operators who come up to them for a re-negotioation of their franchise.

    I was anti-privatisation from the start, and I do think now is the time for re-nationlisation to be considered big time.

  • Michael Weinberg

    In tough times TOC’s should be making their product more attractive, but they’re doing the opposite!
    Fare increases, at a time when individual spending power is reducing:

    ‘refurbishment’ of rolling stock which in effect means cramming more people into already uncomfortable coaches:

    withdrawal and downgrading of catering facilities:

    reduction in through services in an attempt to beat the airlines:

    more ticket barriers that make our railways appear less and less integrated into the life of the Nation, unlike on the Continent where a rail station seeems so much more part of the fabric of society.

    This way of organising a rail system does not work: but it’s taken a recession to brutally underline the shortcomings, and if any good results, it will be the banishment of people like Dr. Mitchell, and Mr Ludeman from taking any part in the running of Britain’s railway!

  • Dan

    You are very right Michael – interesting, as this is a typical way monopoly service providers behave (and indeed ‘public’ services – new methods to ration demand to reduce costs, rather than expand their market by ruthless competition with the alternatives – car/plane etc) which just blows the lie that the private sector have brought anything of much use to the railway from a passengers point of view!

  • Christian Wolmar

    Yes, v good point Michael and Dan.If this were a real entrepreneurial business, then they would be trying to improve things to retain market share. It is why the whole franchise concept is ill thought through.

  • Paul O

    Just want to throw one in on the last three comments 10, 11, 12. I was thinking about this today and apart from franchising concept being at fault how much of this can also be attributed to fact that many of the TOCs have fallen back on using old BR managers. For example, Virgin who came onto scene with new non BR ideas and new non BR management found themsleves floundering in the abilty to actually run a timetable to extent that the Brian Barrets went for an early bath and the old BR Big Beasts like Chris Green were tempted back with pay packets they had previously only dreamt of. What I am driving at is that though their abilty to make trains run is not disputed here, they are old state industry minded and maybe have an old state industry funding model in their head when it comes to getting extra money into the till. It’s just a thought to throw into the equation because if we are talking about comercial flair, customer service and pr, the TOCs are decades, no sorry Centuries, behind the supermarkets when it come to these things and yet they are private companies, so why? I don’t know how much this is a factor becuase in many ways the old state owned BR was in many ways much better at marketing rail. Bring back Jimmy Saville all is forgiven.

    Paul O

  • RapidAssistant

    Paul – just had first hand experience of this; I’ve got a few Glasgow-London trips planned for April, and I thought I was being smart by hitting the 12-week booking window on the nose. Guess what – hardly an Advance ticket to be seen. And for those which are still available on Virgin, it’s alarming how much they have gone up by. I’ve got to the stage now where I’ve been forced to take out a Virgin credit card just to get a 10% discount to try and counteract the fares increase.

    Sure, I am travelling on a Friday morning, but I used to be able to get the cheapest Advance ticket no problem if I hit the booking window. Now they are as rare as hen’s teeth – and that’s with a much higher frequency of service as well.

    I read with interest Tony Collins’ response to Christian’s comments in the most recent issue of RAIL….I’m afraid his deluded view that the empty seats on his trains will fill up are a figment of his imagination if this is the pricing policy. As others have said in earlier discussions, Virgin seem to be obsessed with London-North West and are forgetting about everywhere else.

  • Dan

    Yes, one would have thought Friday MORNING would be somewhat off peak – after all you have to take the day off to use it – not like friday PM or early eve. Although I note many people on the trains seem to be students etc and I recall as a student I could often skip a friday (I used to get off Thurs nights to get a Blue (or was it White?) Saver fare back in BR days!

    Paul O – that’s food for thought, but you’d think they would still have people (eg marketing people) who would be saying – “we’ve got this great idea on pricing to fill the empty seats” – and these people will not be old BR types I would think. I guess the problem is they are not real businesses – if they were they would look to borrow to invest in a better product to increase sales (credit crunch permitting – but they should be pretty immune to that as essentially the service is underwitten by govt so borrowing money to improve a train interior for example is low risk borrowing) – so this is all back to the franchise system which does not deliver what it should.

  • RapidAssistant

    Did anyone watch the Great British Kitchen Nightmare on C4 last Friday night? – even Gordon Ramsay said he was cutting prices in his restuarant to get the punters in……

  • Michael Weinberg

    In reply to Paul I would just point out that Chiltern Railways, one of the most efficient and expanding train companies was run by Adrian Shooter, an old BR manager, who I believe is still part of the organisation.
    Also the new open-access operators fighting to get onto the railway, and who are putting the wind up the TOC’s are often run by ex BR managers.
    Try the new Wrexham & Shropshire line and look at their refurbished coaches, compared with, say, First Great Western!
    Management in the old BR was actually quite good, but they had to deal with a fiercely antagonistic Govt. and lack of financial support which would have made them drool under today’s largess.

  • Paul O

    OK guys good points and I go with what Dan says in 15 about Franchising model being broken and what Michael says about Chiltern in 17, – It’s also worth considering that Chiltern is for variuos reasons much more in control of its destiny than other TOCs and is also now owned by DB and so effectively its state ownded, As is Wrexham & Shropshire.

    Just to clarify, I threw this into the ring to get us talking, I think generally we are all pro rail on here and sometimes that can stifle the debate, I don’t post these ideas for the sake of an argument more so that we can explore the subject, look at it from different perspectives and hopefully gain something from the discussion. which I think we have done here.

    My own experience of old BR management comes from working on the footplate and in the later years of BR, post 1982 strike, the trains ran on a shoestring budget that was good value for the tax payer compared with today but the staff morale was poor and the relationship between BR management and footplate staff was equally very poor, in fact the two were so poor its hard to overstate just how poor they were. You can tolerate that to a certain extent if its a job where you just go home, but to work on the railway properly, it has to be a way of life.

    I don’t know what its like today as luckily I escaped and post privatisation I became a “customer”. From the outside looking in tough it seems that the drivers are now well paid and generally happy and the customers are even more outraged and in dispute with the management than ASLEF ever was.

    Finally Michael, I used to enjoy your postcard from America column in Rail Professional, what happened? Why did you stop writing it?

    Paul O

Shares