Factors limiting revenue

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TheWalrus

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Do things such as poor infrastructure and rail regulation prevent TOCs making money, and as a result pay less in premiums/require more subsidy?

For example, LM wanted to extend their Crewe services to Liverpool and divert a Birmingham to Liverpool service to Preston. However the ORR? Prevented this and therefore may have prevented LM making more money. If this had been allowed to go ahead, would this have reduced LM's dependency on revenue support?

An example related to infrastructure could be the Salisbury to Exeter line. The long single track sections reduce paths and increase journey times. If this was doubled enough to provide a half-hourly London Waterloo-Exeter service would SWT make more money and therefore pay higher premiums to the DfT?

In conclusion if we allowed TOCs to run services they want to run commercially could this overall reduce the total amount of subsidy to rail operators?
 
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455driver

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Those services would just have extracted revenue from existing services, so another TOC would have made less money/needed more subsidy, ORCATs raid is the term.

If the SWT route were double tracked would the doubling of the service (to half hourly) cover the increased costs of providing more trains, track access and wages or would it fall short on revenue and need more subsidy despite carrying more passengers. The increased costs have to be covered before any extra profit is made!
 
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HH

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If the SWT route were double tracked would the doubling of the service (to half hourly) cover the increased costs of providing more trains, track access and wages or would it fall short on revenue and need more subsidy despite carrying more passengers. The increased costs have to be covered before any extra profit is made!

This illustrates the problem of making big changes. The answer is "Nobody knows". Relatively minor changes are covered by PDFH, but major changes don't usually have anything you can compare with.

This is why the "business case" for HS2 is a load of tosh. Any amount of assumed increase in train travel could be wildly exaggerated, or it could be significantly understated.

What I can say is that investment in public transport in London has seen massive increases in traffic. I can't think of a single scheme that hasn't exceeded expectations in the last 20 years.

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Do things such as poor infrastructure and rail regulation prevent TOCs making money, and as a result pay less in premiums/require more subsidy?

There's lots of answers to this. Clearly improved infrastructure will mean improved service, whether through increased volume, faster services or simply more reliability. All of these are known to increase revenue.

TOCs either give or receive payments from the government for running a franchise. That is affected by the revenue received, BUT it's not so simple that an increase in revenue = an increase in payment to the government.

Generally speaking what decides the level of payment is decided when the franchise competition is run. There is a process known as 'Change' which can be triggered when there is significant change to the parameters of the franchise. This would almost certainly happen in future "Control Periods" because all plans for the current CP should be known at the time of bidding.

And it's a lot more complex than that.
 
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TheWalrus

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What I mean is if a TOC wants to increase a service frequency which will increase revenue, but they can't due to limited infrastructure, if the investment was made then they would eventually be able to make more profit?
 

ag51ruk

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Those services would just have extracted revenue from existing services, so another TOC would have made less money/needed more subsidy, ORCATs raid

Crewe - Warrington - Wigan - Preston is only hourly at present, with some long connection times at Crewe for certain journeys (e.g. Preston - Stoke means a 50 minute wait). An extra service every hour would be more likely to grow the market than abstract revenue in the longer term
 

NSEFAN

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TheWalrus said:
In conclusion if we allowed TOCs to run services they want to run commercially could this overall reduce the total amount of subsidy to rail operators?
That was one of the promises of privatisation, that TOCs would be able to compete and innovate, however franchises have in general been short, monopolistic and prescriptive such that TOCs don't do very much outside of day-to-day operations. There have been some exceptions like Chiltern Railways but changes are still made under the watchful eye of the DfT.

Currently a lot of routes are running close to capacity (especially in London & Southeast) so TOCs running more services doesn't tend to happen without a lot of juggling to make them fit. New infrastructure is a long-term investment and projects such as redoubling from Exeter-Salisbury aren't really the kind of thing that SWT could just do on a whim, for example. It would require a long laborious process of planning and consultations with the DfT and NR.
 

TheWalrus

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That was one of the promises of privatisation, that TOCs would be able to compete and innovate, however franchises have in general been short, monopolistic and prescriptive such that TOCs don't do very much outside of day-to-day operations. There have been some exceptions like Chiltern Railways but changes are still made under the watchful eye of the DfT.

Currently a lot of routes are running close to capacity (especially in London & Southeast) so TOCs running more services doesn't tend to happen without a lot of juggling to make them fit. New infrastructure is a long-term investment and projects such as redoubling from Exeter-Salisbury aren't really the kind of thing that SWT could just do on a whim, for example. It would require a long laborious process of planning and consultations with the DfT and NR.

The reality is privatisation hasn't given us this and the DfT dictates to TOCs what they do with little room for manoevre.

I know infrastructure projects are expensive but in the long run could they pay back and start making more money?

In regards to having more operators doing similar flows, (ie LM and VT doing Crewe-Preston), yes it would be an ORCRATS raid but would increase frequency which increases passengers an also creates more competition and therefore lower prices and better quality of service, also increasing passenger numbers.
 

NSEFAN

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TheWalrus said:
The reality is privatisation hasn't given us this and the DfT dictates to TOCs what they do with little room for manoevre.

I know infrastructure projects are expensive but in the long run could they pay back and start making more money?
Infrastructure improvements do indeed pay for themselves in the long-term, but there's only limited money and everyone wants their local railway line to be upgraded, so projects need to be prioritised. At the moment NR's big projects are starting to go wildly out of control with their budgets, so this may increase delay to other projects in the funding queue.

TheWalrus said:
In regards to having more operators doing similar flows, (ie LM and VT doing Crewe-Preston), yes it would be an ORCRATS raid but would increase frequency which increases passengers an also creates more competition and therefore lower prices and better quality of service, also increasing passenger numbers.
The DfT would not let a franchise start reducing payments to the treasury if at all possible. Allowing competition and driving prices down may put a risk on that premium if it all goes pear shaped. This shouldn't because of high demand for transport in this country, but it's still a risk if an open-access operator comes in and starts syphoning off revenue from Any Permitted fares! This is why the DfT only lets upgrades and new services happen that it approves of, and we tend to see service upgrades happen as part of agreed franchise commitments.
 

Muzer

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The reality is privatisation hasn't given us this and the DfT dictates to TOCs what they do with little room for manoevre.

I know infrastructure projects are expensive but in the long run could they pay back and start making more money?

They do pay back in the long term — but that long term, with the possible exception of Chiltern, is simply not long enough for the timescale of a TOC contract. Would you fund a project that would pay back in 10 years, if you knew that in 5 years there is a significant chance of you no longer receiving the benefits? So the funding has to come from somewhere else — Network Rail/the DfT/private companies/open access operators.
 

HH

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What I mean is if a TOC wants to increase a service frequency which will increase revenue, but they can't due to limited infrastructure, if the investment was made then they would eventually be able to make more profit?

The infrastructure is Network Rail's. Generally projects need to get their backing to get into the work package for the next Control Period. Sometimes DfT makes money available for quick wins and you do have the case of Chiltern - however that is the only franchise of its type. Generally payback is too long for TOCs to fund major infrastructure projects given the relatively short nature of current franchises.
 

Bald Rick

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Not forgetting that the Chiltern projects since Evergreen 2 are not paying back within the franchise term, and have required special agreements / obligations on future franchisees to keep paying for the upgrades.
 

edwin_m

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Basically railway infrastructure enhancements are very long term projects and may never pay back in strict financial terms. There ought to be a payback if the benefits to society are considered (this is the basis of the famous BCR) but this doesn't come back as money. Instead, the benefit is in terms of journey time saving, reduced accidents, CO2 etc. If it is big enough it means government is justified in subsidising the railway more through capital or ongoing payments to obtain it. The other big test is of course affordability, effectively whether the government chooses to make the money available.

While many infrastructure schemes will bring in more passengers, it would clearly be wrong if this resulted in the franchise making excess profits. This may theoretically happen if an enhancement comes in part way through the franchise, although as noted above few enhancements are this sort of money-spinner. At franchise renewal time the enhanced service will be included in the specification so bidders will need to include it in their bid price which is subject to competition.
 
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