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"Hard facts produced in favour of open access operation
A determined effort to restore investor confidence in passenger rail operations is taking place as a result of actions being taken to restart the franchising process and encourage greater competition from open access operators.
Ideas that there was any value in retaining the East Coast franchise in public ownership have been dropped ad elsewhere franchise competitions will be speeded up to stimulate investor interest and secure the productivity gains identified in the McNulty report.
At the same time an influential think tank, the Centre for Policy Studies, a Government leaning lobby group has produced a report Rail’s second chance that analyses the beneficial effects of competition and has provided statistical data to back up this view.
Given the maturity of the privatised structure, clear trends have emerged that relate to operations conducted in a monopoly environment and those where market forces have been allowed to be part of the questions.
The strongest area of comparison is between freight and passenger operators where in the former sector there is ease of access to the market with new entrants emerging on a regular basis and also business failures where the product strategy does not win sufficient market presence to be viable.
For passenger operations the presence of open access operator on the East Coast Main Line has made comparisons possible between markets where there is competition and those where customers have no alternative to the monopoly franchised operator.
There is no shame in start-ups that are unsuccessful in reality they represent healthy market conditions where promoters can try things that may or may not succeed. Even in BR days this approach was followed as it was possible to introduce experimental services that if unsuccessful could be withdrawn without the need to go through the statutory closure process.
Without the the re-opening of the line that serves Bathgate would not have been possible and the subsequent development of a through route between the West of Scotland and Edinburgh following the restoration of services between Airdrie and Bathgate would not have occurred. A less successful initiative was the provision of local services in the Derby area where patronage was poor.
In the fledgling open access passenger sector there has been the failure of the Wrexham and Shropshire initiative where passenger numbers built up too slowly to justify the continued support of DB Regio.
The monopoly characterises of the track access agreement held by Virgin for West Coast stations such as Coventry and Wolverhampton had the effect of preventing a viable service that would have benefited communities such as Telford and Wrexham. At least the passenger usage information available on the route has now encouraged Virgin o apply the run services between Shrewsbury and London with the crucial difference of a revenue contribution from intermediate stations.
There is also assurance from the Office Of Rail Regulation who is responsible for the content of track access agreements that such ‘railopolies’, a term used by the Centre for Policy Studies, will not be allowed again but that is not to say that a friendly face is being turned towards competition.
So what of the comparisons where competition exists? Three headline statistics have been extracted from the data on ticket sales and revenue on the East Coast Main line between 2007 and 2012, a period let’s not forget that has seen as economic recession that is now worse than occurred in the 1930’s.
Passenger journeys have increased by 42% as compared to 27%, with revenue growing by 57% compared to 48% and fares that have risen at a lower rate than where there is no choice of operator.
It does no harm to remind ourselves that the two open access operators concerned have recorded passenger satisfaction levels of 96% and 95% which is above any of the franchised long distance TOCs.
The fares data is striking as in the last five years the average yield on journeys between London and Edinburgh and King’s Cross but the judgement was made that these would be primarily abstractive and the application was therefore rejected by the ORR.
The evidence at York suggests that despite the presence of a new entrant the franchised operator has also experienced market growth and given that Directly Operated Railways who run the franchise were able to make a premium payment of £178 million last years this hardly suggest any loss in the value of business. This is a greater sum than either Virgin or First Great Western paid where a ‘railopoly’ applies on core routes.
The Centre for Policy Studies concludes that the taxpayer faces little risk from open access operators as being fully independent commercial operations they receive no subsidy and are not able to transfer risk to the Government, which occurs in the event of franchise contract failures."
Rail also profiled the findings of the report in the same issue.
For more from Rail magazine, visit the website.
Watch our short animation of the benefits of on-rail open access competition: