City AM: Full privatisation

[physics34]

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No it doesn't. The East Coast has always made money, and that money is artificially high at the moment due to the government putting back the replacement of the rolling stock. East Coast proves nothing.

Well you have a point there, but fares are still too high

 

[HH]

Well you have a point there, but fares are still too high

LOL. I'd like fares to be lower as well; I think the government idea of forcing passengers to foot more of the bill is misguided, but I can't see any party suggesting that fares should be lowered...

 

[Greenback]

LOL. I'd like fares to be lower as well; I think the government idea of forcing passengers to foot more of the bill is misguided, but I can't see any party suggesting that fares should be lowered...

They may suggest it, they may even claim they have a way of doing it in the run up to the election, but I'd be surprised if they were actually able to do it.

 

[HH]

They may suggest it, they may even claim they have a way of doing it in the run up to the election, but I'd be surprised if they were actually able to do it.

Yes, because the only ways to do it are to up support or reduce the service, and the latter would be political suicide. I'd like to see the former, but in the current climate it's not going to happen. Austerity (at least for us hoi polloi) is the in thing. Unless you have a glamorous project of course...

 

[Greenback]

Yes, because the only ways to do it are to up support or reduce the service, and the latter would be political suicide. I'd like to see the former, but in the current climate it's not going to happen. Austerity (at least for us hoi polloi) is the in thing. Unless you have a glamorous project of course...

Yes, exactly. I wonder if, politically, rail is still seen as being used by those who are relatively well off, whereas the poorest in society use the bus?

I think that this is a very south east centred view, but that seems to be way rail fares are viewed - the market will bear higher fares so despite the hand wringing and agonising in public, nothing will ever really happen.

Labour seemed to think that the likes of Easyjet had opened up air travel for the working class. There may be an element of truth in this, but behind their support for low cost airlines lay an implication that trains were more for the middle and higher echelons of society.

 

[HSTEd]

I'm flabbergasted by this. My first response is to say, "I should damn well hope so" - the airlines had been doing it for some time. I'd say that this was definite proof that BR was behind the curve. Is there any proof that this early form of yield management actually produced results (i.e. that where it was tried there were increases in the market sectors it was aimed at)?

But in any case this is not an answer to the "huge external influences"; it's internal for a start

No it doesn't. The East Coast has always made money, and that money is artificially high at the moment due to the government putting back the replacement of the rolling stock. East Coast proves nothing..

Firstly airlines did not really adopt yield management till the mid to late eighties. It is totally impractical to do what we would call yield management without a computerised ticket and reservation system. Considering Advanced Purchase EXcursion (APEX) tickets appeared with sectorisation in the late 80s it can be said that BR was actually ahead of the curve, but nothing must interfere with he'staid BR' narrative - no-one else in Europe was really doing it at the time.
The East Coast franchise haemorrhages money and always has - it is merely concealed by the subsidy being paid indirectly to NR. Only DOR having no profit allows the current situation.

 

[ac6000cw]

Getting back to what is the key point in the piece for me: NR's ever-burgeoning debt. It's like the Pension situation - a giant Ponzi scheme that cannot end well. Government needs to face up to the fact that it has to bite the bullet on this.

I agree.

The current railway is very lucky that it isn't being squeezed really hard to cut costs like most of the rest of the public (and private) sector, but it will happen.....Having investment plans means nothing if the Treasury won't approve the borrowing to fund it (as happened all the time with BR - when 'Black Wednesday' happened in 1992, BR was simply told that there was no money for anything other than already committed contracts with the private sector e.g. Networker EMUs - time for deferred maintenance etc....)

 

[edwin_m]

Don't say that in the presence of a right-wing free marketeer - if they had their way they would shut the whole network, or at least the parts that didn't stand on their own feet and make money.

And thereby close down their beloved city of London, home of free market financial wizardry and totally reliant on public investment and subsidy for transport links. City AM would probably shut down too.

 

[Bantamzen]

And thereby close down their beloved city of London, home of free market financial wizardry and totally reliant on public investment and subsidy for transport links. City AM would probably shut down too.

There are plenty of free marketeers that wouldn't think that far ahead, and if they did it would probably be along the lines of "Hey if London grinds to a halt, we could always sell it to the Fracking companies...."

It's been articulated far better than I could by others, but it's just a fact of life that the railways simply cannot as a whole make a profit. Railways need continuous & ever increasing investment in them, especially as capacities and speeds continue to increase. If we really can't live without private sector involvement, and I honestly believe we can, then something like the public sector taking back the ROSCOs & their stock has to be a step in the right direction. Then at least means (well hopefully) that decisions on & orders for new stock can be better balanced meaning that more of the same stock can be ordered, allowing easier movement of stock across the network as required & pushing down procurement & maintenance costs in the long run.

The TOCs could then be left to tender for more longer term franchises, and deal with the day to day running of those services, ticket sales & station maintenance & retail opportunities. Of course all this would have to go hand in hand with better integration with other modes of public transport as part of the deal, but given that quite a few TOCs are owned / part owned by companies with interests in other modes this surely can't be the most difficult thing to achieve....?

 

[HH]

If we really can't live without private sector involvement, and I honestly believe we can, then something like the public sector taking back the ROSCOs & their stock has to be a step in the right direction.

There's no good reason to increase the public debt still further. IMO the problem is the ROSCOs, who were given far too sweet a deal by Major; but the answer is to allow the wider markets access. Unfortunately DfT is making that harder by wanting to move away from S54 undertakings. Non-ROSCO finance sources don't want to be left with an asset they don't understand after 7-10 years, but guarantee 25 years of payment and they will offer very attractive rates.

 

[HSTEd]

Those rates will still give them rather better return than government bonds - so its just corporate welfare with the public sector taking the risks and the private sector taking the money.
People always assume a simplistic relationship between the public debt and the public finances.

ROSCOs with better than bond returns may reduce the public debt in the short term but they increase it in the long term because you degrade the public finances overall - taking up money that would have paid back the purchase debt as well as other debt.

 

[yorksrob]

I'm flabbergasted by this. My first response is to say, "I should damn well hope so" - the airlines had been doing it for some time. I'd say that this was definite proof that BR was behind the curve. Is there any proof that this early form of yield management actually produced results (i.e. that where it was tried there were increases in the market sectors it was aimed at)?

But in any case this is not an answer to the "huge external influences"; it's internal for a start!

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No it doesn't. The East Coast has always made money, and that money is artificially high at the moment due to the government putting back the replacement of the rolling stock. East Coast proves nothing.

Getting back to what is the key point in the piece for me: NR's ever-burgeoning debt. It's like the Pension situation - a giant Ponzi scheme that cannot end well. Government needs to face up to the fact that it has to bite the bullet on this.

I don't see why you're flabbergasted. If anything, BR was ahead of the curve compared to other railways, and as others have mentioned, this is a "science" that even the airlines didn't perfect until relatively recently.

With regard to East Coast, as with many routes, sometimes it will be profitable, other times it won't. The railway has to run all of the time, so running it on a pure profitability basis simply wouldn't work.

 

[HH]

Those rates will still give them rather better return than government bonds - so its just corporate welfare with the public sector taking the risks and the private sector taking the money.

Because they getter a better return than UK government bonds means that it is bad? For who? The more debt the government takes on increases the chances of having the UK's credit rating lowered, and if your rating goes down then the cost of financing your debt goes up (just ask Greece etc.). The government doesn't want to get debt off its books solely for hoodwinking the public; there are solid economic reasons too.

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I don't see why you're flabbergasted. If anything, BR was ahead of the curve compared to other railways, and as others have mentioned, this is a "science" that even the airlines didn't perfect until relatively recently.

If BR was ahead of the curve then where was the additional business? It's no use having some sort of idea if you don't know how to market or develop it.

I refer to the Select Committee on Transport Sixth Report (not a body known for giving rail an easy ride), and particularly clause 87:

The most striking change in the fares structure since the privatisation of British Rail has been the rise of advance purchase fares, primarily on long-distance routes. Advance purchase fares, sometimes known as apex fares, have to be booked a certain period prior to travel, and are normally sold with a seat reservation for a particular departure. The booking is non-flexible, and usually non-refundable. Pricing is non-transparent and based on quotas for individual departures so passengers usually have to book very far ahead of travel in order to obtain the cheapest fares. This system is similar to the model used by no-frills airlines. On some long distance routes such as London - Manchester, advance purchase fares now account for more than 10% of tickets sold, and train operators appear confident that they can further increase growth in the advance fares market.

That was in 2006. I think it's rather more than 10% these days.

PS If you think that airlines have perfected yield management, then you are sadly mistaken.

 

[carriageline]

Well, as of next month Network Rail moves into the public sector, with their 3?billion pound debt becomes a goverment debt. How much do people think will effect the future investments? Of course, the government need to be seen to reducing debt and public spending, so what could come of this?


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[HSTEd]

Because they getter a better return than UK government bonds means that it is bad? For who?

For the state, for me and for taxpayers generally -it means that I am paying for the profits of investment funds who are taking absolutely no risks.

The more debt the government takes on increases the chances of having the UK's credit rating lowered, and if your rating goes down then the cost of financing your debt goes up (just ask Greece etc.).

And yet Japan, which has over two hundred percent of GDP in public debt has bond yields almost as low as ours (in fact I believe they are lower).
Taking on a ten billion pound debt and taking on the repayments of a ten billion pound debt you can't get out of are basically the same thing (even if the debt is not technically yours).
Do you really think the credit reference agencies just look at the debts?
They look at the overall fiscal position.

The government doesn't want to get debt off its books solely for hoodwinking the public; there are solid economic reasons too.

Which are? The reduction of the public debt at any cost has now become a fetish that must be serviced at all costs.
And before anyone rants about bond vigilantes considering only a few percent of the public debt must be reissued in any one year they are unable to hold us over a barrel like they did to Greece.
The only thing that matters is to allow the Chancellor to stand up and say that borrowing has gone down - to hell with the long term consequences for the economy.

If BR was ahead of the curve then where was the additional business? It's no use having some sort of idea if you don't know how to market or develop it.

Because the state must be smashed!
InterCity - who pioneered the use of yield management outside the airline industry (and even beat some airlines in adopting it - it only really started in 1985 after all) only came into existence around ~1988.
BR was effectively gone by 1995.
That is not really long enough to get people used to the idea of advanced purchase tickets - you wouldn't expect to see major take off for a decade or more, which is precisely what we saw.

 

[David Barrett]

Don't forget that the first step into yield management probably was the abandonment of scale fares and the use of selective pricing adopted, if memory serves me well, in 1967; the thinking then being to charge the highest price considered that which the user would tolerate. It goes back much longer than being posted about here.

 

[al.currie93]

If BR was ahead of the curve then where was the additional business? It's no use having some sort of idea if you don't know how to market or develop it.

I refer to the Select Committee on Transport Sixth Report (not a body known for giving rail an easy ride), and particularly clause 87:



That was in 2006. I think it's rather more than 10% these days.

PS If you think that airlines have perfected yield management, then you are sadly mistaken.

The mass availablility of computers and something called the internet has also sprung up since privatisation, and probably had a far more drasic effect on advance ticket sales... I personally doubt that privatisation has had anything to do with it...

 

[HSTEd]

In hindsight BR would likely have saved money if it had backed a Minitel esque service out of its own budget.

But I bet the Treasury would have loved that.

 

[Deerfold]

The mass availablility of computers and something called the internet has also sprung up since privatisation, and probably had a far more drasic effect on advance ticket sales... I personally doubt that privatisation has had anything to do with it...

Indeed. I do know I made a trip to London in 1991 on a ticket that was only valid on the 0500 or 0600 trains from Leeds on a Saturday that I would not have made it it had been full fare. £14 a couple of weeks in advance (With R/C) was low enough to attract me though.

 

[Abpj17]

My understanding is that government budgeting doesn't work like that. It might be a little different for agencies a step or two away. For central government, money received from taxes to pay for operating expenses is kept entirely separately from income from e.g. fees, taxes etc. So you can get odd situations where you can't invest in order to make savings.

 

[Gareth Marston]

I think it may be April 1. There are significant external influences certainly, but what are the huge ones that started before privatisation? And what plans did BR have for using those influences to increase patronage?

Population growth, London labour market coming out of the Lawson/thatcher recession, planning law changes favouring developing brown field sites in regional cities, the collapse of the roads to prosperity agenda.
BR had no plans that were going to come to fruition as firstly Government cancelled all their investment plans when the recession bit and secondly any investment plans as the country came out of recession were cancelled and the money diverted into paying lawyers and consultants to privatise BR. All done by Govt that believed in the free market but controlled what BR did preventing them any freedom.
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I do wish people would stop trying to make the railway profitable. It can't be done. Most railways struggled to make any money even when there was no real competition. And any profits usually came from freight, especially outside the London area.

The network as a whole certainly wasn't making money in the 1930's, when competition from road transport really started to bite.

As I always point out when these types of threads come along the railway was used by Government as an unpaid tool of macroeconomic policy between the first Railway and Canal Traffic Act in 1854 and their repeal by the 1963 Transport Act. The railways had no real commercial freedom in the so called misty eyed golden age of the Big 4, if the original journalist had done any research he would have realised that the Big 4 spent the 1930's campaigning for a "square deal" so they could compete commercially in a changing world.

 

[yorksrob]

If BR was ahead of the curve then where was the additional business? It's no use having some sort of idea if you don't know how to market or develop it.

I refer to the Select Committee on Transport Sixth Report (not a body known for giving rail an easy ride), and particularly clause 87:



That was in 2006. I think it's rather more than 10% these days.

PS If you think that airlines have perfected yield management, then you are sadly mistaken.

That would be the increase in passenger usage between the early 1980's and the early 1990's recession.

As for external influences, most of them were there, as now, albeit to a lesser extent. The move away from manufacturing to city centre service employment in the regions, increasing road congestion, and most importantly long periods of economic boom. However, it is true that something has changed recently since the recent crisis, possibly due to franchisees not being forced to cut back.

As for airlines, I'm not an expert on the subject. you're the one who said they'd been doing it for years.

 

[Carlisle]

I don't see why that has to be the case. Germany and France have extensive systems and have never undergone a "Beeching". .

I think France did actually carry out quite a number of closures of both standard and narrow gauge lines mainly in the 1950s and 60s but I don't know about Germany

 

[Olaf]

I fully agree; the sooner the railways are fully privatised the better - we will then be able to manage the services and reduce costs.

 

[nw1]

Oh I don;t know. If we reduced the rail network to the size this report suggested I'm sure you could fully privatize it without subsidy

http://www.railwaysarchive.co.uk/documents/DoT_Serpell001.pdf

Have a look at Options A, B C2 and C3 in particular (page 69 onwards) and see what nearly happened!

Funny to think that the Uckfield Branch, subject of so many discussions on other threads here would have been one of the very few lines to survive under option B which would have seen no services at all to Exeter, Plymouth or anywhere in Wales apart from Newport and Cardiff

How did this guy become a "Sir"? Oh wait... who was prime minister in 1983...?

Utter, utter madness - leaving the entire West Country without a train service. This report is a perfect example of the danger of letting bean counters loose on public services. We can only be grateful that these lunatic options were never followed through by a government that was doubtless sympathetic to them.

 

[Abpj17]

It's worse, Nick, he claimed credit for recruiting Beeching himself....he was, however, made a sir long before thatcher - she can't take the blame for that. The civil service job he had is one of those where you almost automatically get a knighthood. I was ready to point out that it may not be the fault of the bean counters, but instead flow from the questions that they are asked. To be fair, the question asked seemed to specifically have been how to reduce costs given it was making a £240mn loss a year. (Which goes back to the point as to whether the railways need to make a financial loss in order to provide a benefit to society)

http://www.theguardian.com/uk/2008/aug/11/transport

 

[johnnychips]

I fully agree; the sooner the railways are fully privatised the better - we will then be able to manage the services and reduce costs.

And when everything cocks up, the state will have to bail it out like we did with the banks.

 

[Olaf]

And when everything cocks up, the state will have to bail it out like we did with the banks.

Well it was the last Government that caused the banking problem through changes to the legislation removing. The Civil Service makes more than enough cock-ups with the exist arrangements but you can not sack, penalise, nor prosecute them for their infractions.

 

[Carlisle]

How did this guy become a "Sir"? Oh wait... who was prime minister in 1983...?

Utter, utter madness - leaving the entire West Country without a train service. This report is a perfect example of the danger of letting bean counters loose on public services. We can only be grateful that these lunatic options were never followed through by a government that was doubtless sympathetic to them.

There can't have been too much support in the end for it at the time cos the Hastings,Norwich,Ayr,Bedford,Weymouth,Solent ,Fen and ECML routes etc were all electrified fairly soon afterwards

 

[HH]

Population growth, London labour market coming out of the Lawson/thatcher recession, planning law changes favouring developing brown field sites in regional cities, the collapse of the roads to prosperity agenda.

Evidence is needed that these factors have favoured rail since privatisation. But let's de-bunk the first for you. Population growth in France has been slightly higher than the UK over the time period and yet the state-run french railway has not enjoyed the success of its UK counterpart. Moreover the population has only grown significantly over the last 10 years, which fails to explain the rail growth post-privatisation compared to what preceded it.

BR had no plans that were going to come to fruition as firstly Government cancelled all their investment plans when the recession bit and secondly any investment plans as the country came out of recession were cancelled and the money diverted into paying lawyers and consultants to privatise BR. All done by Govt that believed in the free market but controlled what BR did preventing them any freedom.

And there you have a very good reason for not bringing it back into public ownership.