Rail 915: So what were franchises for?

So what were they for? The question ‘what is franchising for?’ which I have been asking for the past couple of decades never got a proper answer. That’s because right from the start it was a flawed model, trying to make a business out of service that operates at a loss and therefore requires subsidy.

It is this requirement of continued funding that put off Mrs Thatcher from privatising the railways and that, ultimately, has killed off franchising.   The problems with the franchising concept were inherent in its history. The way the industry was privatised in the mid-1990s – and remember I bear the scars, as the transport correspondent of The Independent at the time and Rail columnist since 1995 – meant that what has happened this year was inevitable: the franchising system was never robust enough to survive a major external event that caused a collapse in revenues.

Indeed, the surprise is that it has lasted so long. There have been a series of other crises. Right from the start, a cloud hung over the franchising process. As John Nelson, who was the BR man in charge of breaking up Network South East’s franchises, reports in his book, Losing Track, all three of the early contests – South West Trains, Great Western and London, Tilbury & Southend – were the subject of controversy. Stagecoach at one point threatened to pull out of the South West Trains deal because the company was concerned that the rival management buy-out team was receiving preferential treatment while on the other two franchises, the in-house teams were initially set to win but ultimately were disbarred. The LTS team was guilty of bigging up revenue figures through a scam involving sales being recorded at Upminster rather than Fenchurch St. while on Great Western the managers failed to get sufficient financial guarantees. At this stage, the whole process could have collapsed had it not been for the skills of people like British Rail managers like Nelson who ensured that it stayed on course even though they believed that breaking up the railway was the wrong structure. The period of BR just before privatisation was its best, with a structure that served both commercial and social aims, and will be the subject of my next book.

As a result, all 25 franchises were let by the Office of Passenger Rail Franchising by the time Labour, which had secretly colluded in the final deals,  took office in May 1997. While it was an impressive achievement to finalise all those contracts, the signs of imminent difficulties were apparent right from the start. Apart from what became known as the ‘bus bandits’ – Stagecoach, Arriva, FirstGroup, National Express, Go Ahead etc – there was little outside interest. The notion that major FTSE 100 companies like BA or electricity providers would expand their portfolios by encompassing a rail franchise proved to be mistaken. Virgin, Connex and Sea Containers were the only successful outsiders at the first stage along with Prism, created by a group of bus managers, which won four franchises.

There were numerous crises, with several of the early players such as MTL and Prism, who, in the later stages, had overbid, quickly having to be folded into existing operators. Some companies, notably Stagecoach, made superprofits on the basis that they had bid modestly and passenger numbers rose more quickly than expected. In efforts to rein back on these gains which were politically embarrassing, the contracts became more and more complex, and interference from the Department of Transport became ever more intense. The Strategic Rail Authority (SRA), dubbed ‘R’ in this column as it was neither strategic nor had any authority, came and went and we ended up with the worst of all worlds, the process being controlled by a meddling, interfering Department which gave us the InterCity Express train, the most expensive and convoluted rail procurement process ever.

The franchising system just survived the financial crisis of 2008, thanks to some generous deals arranged by the Department and the relative speed of the recovery of rail passenger numbers.  Another crisis arose over the bidding process in which FirstGroup beat off competition from the incumbent Virgin/Stagecoach for the West Coast . The latter’s subsequent appeal was successful and the fiasco led to one of the numerous reviews which have taken place over the years into franchising but like all the previous ones, it was constrained by the inherent assumption that the franchising model was fundamentally sound.

That changed with the recent, unpublished, Williams Review, whose preliminary conclusion was that the franchising model was dead. History will be rewritten in that I’m sure the demise of franchising will be blamed on Covid-19 but the truth is that, as Williams realised, the model was dead already. It was killed off by its own contradictions, the issues that were never resolved such as: What length should a franchise be, since short term ones do not give sufficient time for planning, while if they are too long term then it is very difficult to assess how the market will behave? If you pass on all the revenue risk, the very basis of the concept, then how do you stop companies walking away when things go awry? How do you increase the number of competitors when one of the requirements is experience? How do you ensure that companies which have lost the franchise keep providing a good service?

And so on. One by one, the big players pulled out or fell by the wayside, some like Connex in disgrace, others like National Express because they could not see how to make a profit with increasing government interference and finally, Virgin and Stagecoach who were unwilling to take on what they considered to be unreasonable risks on pension. Meanwhile, the sole British owned survivor, FirstGroup, was teetering on the edge, having made poor investments in the US. Given the propensity to overbid, it was likely that more and more franchises would go the way of East Coast which proved to be the charnel house of franchising as it saw successive failures.

So we were left with foreign state-owned railways as the main providers, a crazy contradiction given that companies owned by the British government were not allowed to hold franchises. Brexit added a modicum of uncertainty to the French, Italian, German and Dutch companies involved and probably meant that future franchises would have a paucity of bidders. Covid-19 merely administered the coup de grâce to a corpse.

For this columnist, it has been an entertaining ride, with the franchise story always providing good copy. However, for passengers the results have been mixed. There have been several terrible franchises such as the two run by the structurally incompetent Connex, Go-Via’s Thameslink with its awful trains and neglected air, and Virgin West Coast which despite the impressive increase in passenger numbers, had horrible cramped rolling stock that stank throughout the whole of its tenure. Many of the bus bandits were clearly in it for the short term while FirstGroup milked Great Western with little regard for passenger needs. There were others that were more successful, notably the various incumbents on the East Coast and East Midlands, and TransPennine which, though, should not have been carved out of the Northern franchises.

However, little of what they did was responsible for the huge increase in passenger numbers over the years, nor, overall, was their performance better than that of British Rail – the best may have been slightly better, and vice versa, but the lack of a clear aim undermined the whole process. So the next Wolmar question is: ‘…  – answers on an email please.

 

 

Ticket please?

 

I have taken about a dozen return journeys since lockdown eased on services provided by a variety of TOCs – Great Western, Southern, Thameslink, South Western, Anglia – and none of these trips have I been asked to show a ticket on board. On several occasions, it would have been quite possible to make the journey without paying.

Annoyed by a bunch of youths who were using First Class on a Thameslink train as a noisy playground, I tweeted out that the railway had become a free service and that many people were beginning to realise that. The response was interesting. Several people agreed with me, with their own experiences matching mind. Others, notably those who had travelled on TransPennine, East Midlands and LNER, said that they had been subjected to ticket checks on board. A South Western conductor informed me that he was checking and selling tickets but interestingly told me that some guards were not ‘commercially-trained’ and therefore were not able to check tickets, something I had not realised. On several journeys on SWR, admittedly at weekends, have not seen a single on board inspector.

Several respondents suggested, quite possibly accurately, that with the franchise system effectively turned into management contracts, with no revenue risk to the operators, there was less incentive for the companies to bother about revenue protection. Therefore, it is imperative that when the new ‘emergency recovery measures agreements’ emerge, there must be strict controls on ensuring that companies make strenuous efforts to collect revenue. The present hotchpotch of policies by different operating companies is not a viable policy in the long term.