Size matters for the future of UK train operators

Private train operators have been running for 20 years. The ‘Big Four’ created in 1923 lasted 25 years before government nationalised the railways. The result, BR, disappeared just shy of its fiftieth anniversary.

Within those five decades, it saw reorganisations of which the biggest was a change from geographic management to one organised according to traffic, known as sectorisation. As The Economist once wrote: “Small boys play trains, but grown-ups have a better game; they call it railway reorganisation.”

Privatisation started with 25 train operating companies. Today there are 19 operators, including concessions in London and Liverpool and Govia Thameslink Railway’s management contract. Generally franchises are bigger than they were in the late-1990s. Usually, London termini had a long-distance operator and a suburban one. So Liverpool Street had Anglia Railways and Great Eastern, Paddington had Great Western Trains and Thames Trains. So it was with Euston and King’s Cross while the former Southern Region termini kept their single suburban operator because they had never had long-distance trains.

This changed in the mid-2000s when the Strategic Rail Authority decide to merge operators so that major London stations had one operator. First Great Western (now GWR), for example, formed from Great Western Trains, Thames Trains and the local trains in Devon and Cornwall of Wales and West. It argued that the bigger companies would be more efficient (they’d certainly need fewer managing directors).

There could be competition between the operators. Living in Peterborough, I could catch a West Anglia Great Northern train into King’s Cross or travel with Great North Eastern Railway. WAGN was cheaper and slower than GNER. Travellers from Reading had a choice of operators into Paddington as did Chelmsfordians into Liverpool Street.

From Gatwick Airport you could choose Gatwick Express, South Central or Thameslink. They offered different prices, speed and comfort. Each was keen to attract passengers to its trains. They competed and passengers had a choice. The result was that the line from Gatwick to London was busy with trains, even if the trains were not necessarily busy with passengers.

Today all three services run under the umbrella of Govia Thameslink Railway. Yet, as Chris Gibb’s report into its problems found (RAIL 830), the three still run trains as if they are competing. Gibb recommends withdrawing some services to lighten the load on tracks and give Network Rail more maintenance time.

Yet GTR’s deal with the Department for Transport insists they all run. It seems no-one in the DfT wondered whether a unified operation needed all these competing trains. This might have been an oversight, something that slipped through in a mass of other detail covering one of Britain’s biggest rail operators, but it’s the sort of detail that’s essential to consider when reorganising railways.

Whether or not the excess trains are curtailed depends on what future DfT decides for GTR. It was created to cope with London Bridge station’s rebuilding and Thamelink’s massive upgrade. When these projects finish, there’s a good case for splitting GTR into its component parts, not least because it’s such a big organisation.

If GTR is to be split, there’s little point in reducing services because the future operators will simply add them once more for the same reasons as the original operators unless DfT is clear in the detail that it wants to keep space for NR maintenance.

Keeping such a big operator also has disadvantages. Sheer size makes for very complicated bids. They are expensive and it’s reckoned that a franchise bid could set a company back £5-10 million. If the bid wins, its cost will be dwarfed by the revenue the new operation brings, even if the profits remain very small, typically 3% of turnover.

When Stagecoach leaves South West Trains in August, having lost to First, its revenue will drop by £1 billion per year. Stagecoach’s latest accounts show revenue of £4bn so SWT represents a quarter of that. That’s a large switch!

First, meanwhile, sees that billion added to its 2016/17 revenue of £5.7bn. This makes franchise bidding a high-stakes game. The prize in revenue terms from big franchises is huge. Splitting franchises into smaller operations could make it easier to bid, giving DfT more choice and allowing it to grasp details it might otherwise miss.

Ministers need to decide where their priorities lie. It’s easy to say with passengers but they must go further and decide whether passengers are better served by smaller operators or go for economies of scale.

As always with railways, being efficient in one area doesn’t always mean the overall operation is efficient. Once again, GTR provides a good example. Gibb found that it tightly planned the series of trains a driver would work during a shift (known as a driver’s diagram). Good for payroll but it meant a single train for London might have three drivers at different stages of its journey. This might be efficient but it is also very prone to disruption. Coupled with Network Rail’s unreliable tracks and signals, it contributed greatly to GTR’s poor performance last year. For drivers’ diagrams to work consistently well, every other part of the railway needed to be working well.

With hindsight, and Gibb’s report, it’s easy to suggest that this sort of problem should have been apparent to those assessing Govia’s bid against those from Abellio, First, MTR and Stagecoach. Perhaps with a smaller operation, this sort of problem would be easier to spot?

Countering this smaller-is-better argument is Great Western Railway. It’s having to cope with NR’s late and over-budget electrification scheme that covers inter-city and suburban operations. Where once this might have been two operators, today it is one. That might be just as well because it’s very likely that today’s Thames Trains would have ditched its diesels and ordered electrics for its London-Oxford services. Now there’s no date for NR’s wires to reach Oxford it would have a tricky problem. As a bigger company, GWR has more flexibility to find the best answer.

Wiring is an area in which the DfT must provide clarity. It seems likely that government will opt for heavier, slower, pricey and less efficient bi-mode trains as its default rolling stock rather than getting to grips with NR’s problems. The DfT may be on the brink of saddling the railway with a long-term inefficiencies simply to free itself from a short-term problem.

We could be back in 2007. That November, the DfT’s rail director general replied to a letter from NR and ATOC (today the RDG): “It seems clear that the future energy mix will be biased much more towards renewables and sources other than fossil fuels. This argues in favour of electrification. However, portable energy may change as well. For example, conversion of plant waste into biofuel might change the situation, as might a way of using solar energy directly to split hydrogen from water.”

He later adds: “Self-powered trains are inherently more flexible and although more complex and less reliable in themselves, simplify the railway as a system.” Then he says: “The best way to improve the case for electrification is by reducing costs.” He’s certainly right with that last point.

NR and ATOC had argued that it was “extraordinarily incautious to be spending millions of pounds equipping a railway to run one one type of fossil fuel…only to find that we – as an industry – have bet on the wrong type of fuel”. They also argued that Britain must be one of the few countries in the world to be buying high speed trains that were not electric. This would make UK diesel trains exclusive to Britain and give an unnecessarily high unit cost.

If the DfT decides that bi-mode – electric and diesel together – is the way forward it will be buying trains bespoke to Britain at higher cost than straight electric. It will also be betting that diesel continues to be acceptable and affordable just as many people turn away from the fuel.

Other short-term problems are looming. There’s a real prospect of track renewal gangs being laid off, not because there’s no work but because there’s no money now NR is under annual government spending limits. Without the money, NR is looking to defer renewals which raises the prospect of the railway returning to lumpy and inefficient programmes rather than a consistent stream of work.

Cuts and deferrals will harm NR’s standing with contractors that have put considerable efforts into raising skills for the work NR was promising. July 20’s High Level Output Statement (HLOS) from DfT may provide more certainty but I suspect it be light on detail and focus more on generalities, possibly platitudes, of making Britain’s railway better.

This article first appeared in RAIL 831 on July 19 2017. 

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Philip Haigh

Freelance railway writer, former deputy editor at RAIL magazine - news, views and analysis of today's railway.

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