High fares - The issue that won't go away

[yorksrob]

In light of the recent renationalisation of South Western Railway, the BBC have published an interesting article interviewing passengers which suggests that high fares are a major concern of passengers and potential passengers.

The article touches on many issues visited by this forum such as cheaper walk on fares on the Continent.

It suggests to me that the policy of renationalisation will fail in the eyes of voters if there aren't real improvements in value for money for the farepayer.

Labour cannot promise cheaper rail fares under renationalisation

Transport Secretary says she will "strain every sinew" so customers get value for money as SWR brought back into public hands.

www.bbc.co.uk

People who had travelled to the seaside town on England's south coast this weekend told the BBC that cheaper fares should be at the heart of renationalistion.

Lauren, one of a group of four who came down from Leicester, said: "If we're not going to have any price reductions, it is not going to benefit the consumers.

"I just don't know what the point of it is."
[End Quote]

 

[800001]

In light of the recent renationalisation of South Western Railway, the BBC have published an interesting article interviewing passengers which suggests that high fares are a major concern of passengers and potential passengers.

The article touches on many issues visited by this forum such as cheaper walk on fares on the Continent.

It suggests to me that the policy of renationalisation will fail in the eyes of voters if there aren't real improvements in value for money for the farepayer.

Labour cannot promise cheaper rail fares under renationalisation

Transport Secretary says she will "strain every sinew" so customers get value for money as SWR brought back into public hands.

www.bbc.co.uk

Not sure how cheaper fares will appear. All GBR will do is mean less subsidy from Government surely?

 

[yorksrob]

Not sure how cheaper fares will appear. All GBR will do is mean less subsidy from Government surely?

That's the issue.

However, the renationalisation of the railway is a flagship policy of the Labour government, so they have an interest in it being seen to work by voters. The easiest way for that is to make fares seem more affordable.

If I were the government, as a first I'd scrap inflationary fares changes that are clearly bad for passengers - such as the LNER abolition of off-peak fares.

But I'd also be looking for a quick win that could be pointed to. Things such as a national railcard available to all, or making Fridays all off peak could be done relatively quickly and easily.

 

[6Gman]

For people to notice any difference fares would have to fall significantly (say 30% plus).

Unless there's to be a higher level of subsidy then that would require a 30%+ increase in passenger volumes. *

Is the railway able to handle such an increase?



* There are small savings to be made by removing shareholder benefits but I suspect that will quickly be cancelled out by harmonisation of staff terms and conditions.

 

[styles]

Unless you nationalise the ROSCOs and some other private parts of the railway, you're not going to reclaim significant amounts of fares. The proportion of fares which land up as TOC profits are like 3%. Even if you reclaimed 100% of that 3% and gave it back to passengers, nobody would really notice.

Realistically, under current policy, not much will change without either a massive shake-up of ticketing (and let's be honest, this will get messed up), or a shift in attitude and policy to increase subsidies to decrease fares.

 

[anothertyke]

That's the issue.

However, the renationalisation of the railway is a flagship policy of the Labour government, so they have an interest in it being seen to work by voters. The easiest way for that is to make fares seem more affordable.

If I were the government, as a first I'd scrap inflationary fares changes that are clearly bad for passengers - such as the LNER abolition of off-peak fares.

But I'd also be looking for a quick win that could be pointed to. Things such as a national railcard available to all, or making Fridays all off peak could be done relatively quickly and easily.

Or another option would be to say that the expected gain in cost efficiencies due to GBR is x per cent per annum and to commit to ploughing that back via some combination of fares and service quality improvements. I guess it varies a lot, but in some parts of the country the first priority is that the trains should run and the second is that they should run on time.

 

[yorksrob]

Or another option would be to say that the expected gain in cost efficiencies due to GBR is x per cent per annum and to commit to ploughing that back via some combination of fares and service quality improvements. I guess it varies a lot, but in some parts of the country the first priority is that the trains should run and the second is that they should run on time.

I suppose there's also an element of whether someone is a current passenger or someone who has been deterred from travelling by higher fares

The Government seems to be saying that they want the service improvement. I do think that they need to look at value for money for passengers as well for the policy to truly succeed.

For people to notice any difference fares would have to fall significantly (say 30% plus).

Unless there's to be a higher level of subsidy then that would require a 30%+ increase in passenger volumes. *

Is the railway able to handle such an increase?



* There are small savings to be made by removing shareholder benefits but I suspect that will quickly be cancelled out by harmonisation of staff terms and conditions.

That is the sort of reduction that railcards provide !

Unless you nationalise the ROSCOs and some other private parts of the railway, you're not going to reclaim significant amounts of fares. The proportion of fares which land up as TOC profits are like 3%. Even if you reclaimed 100% of that 3% and gave it back to passengers, nobody would really notice.

Realistically, under current policy, not much will change without either a massive shake-up of ticketing (and let's be honest, this will get messed up), or a shift in attitude and policy to increase subsidies to decrease fares.

Indeed. I think a poster on another thread posted that given that the level of subsidy we have already, the additional subsidy provide some sort of a fares reduction would be quite small in comparison.

 

[800001]

Unless somehow the railway in GBR can save £1.5 billion per annum or more, there will be no lowering of fares.

All GBR will do is lower the subsidy that ultimately, us, the taxpayer pays.

Labour have set them selves up to fail with everything they say about GBR

 

[Jan Mayen]

Hiw much would fares need to increase by to eliminate operating subsidy? (Assuming the number of passengers and distance travelled remained the same, which i appreciate they won't)

 

[Andyh82]

Unless somehow the railway in GBR can save £1.5 billion per annum or more, there will be no lowering of fares.

All GBR will do is lower the subsidy that ultimately, us, the taxpayer pays.

Labour have set them selves up to fail with everything they say about GBR

Labour in opposition along with the unions have probably shot them selves in the foot as you say

Everytime there was a comment by Labour or by the unions, they always talked about ‘fat cat bosses from multi national foreign companies creaming off massive profits’

Therefore the lay person on the street thinks that if these ‘massive profits’ are removed, money is available to lower fares?

 

[JonathanH]

The opposite question is where could fares be reduced such that ridership would increase by a sufficient amount so as to offset additional subsidy requirements and there would be sufficient capacity to enable that?

 

[anothertyke]

Hiw much would fares need to increase by to eliminate operating subsidy? (Assuming the number of passengers and distance travelled remained the same, which i appreciate they won't)

In ballpark terms they would need to double. But isn't the general consensus that current fare levels are not far off revenue maximising? The issue is more what cost efficiencies can actually be delivered. You've got to make the dividend before you can spend it. R Reeves hasn't got any money.

 

[Sonic1234]

Therefore the lay person on the street thinks that if these ‘massive profits’ are removed, money is available to lower fares?

This, exactly. The man on the street would never consider subsidy, they see high fares and crowded trains and think the railway is some sort of extortion racket, and if only the bosses/TOCs would accept a good salary rather than mega bucks and bathing in gold then we could have low fares.

Fares have been practically rising faster than the regulated fare increase. For years the message was book in advance for cheap fares, but Advances aren't what they used to be. LNERs often exceed the (obsolete, unless you go from Finsbury Park) Super Off Peak price, GWRs barely save any money over a walk up ticket and Southern have been messing around with availability and tiers - even if you are willing to book months in advance.

 

[yorksrob]

I think the question is more, how do our neighbours on the continent seem to manage to have affordable fares - do they have higher subsidies than us, in which case we need to ask ourselves as a nation whether affordable train services are actually worth paying for as a social good. Alternatively, if they have a good, affordable service with lower fares, what are we doing wrong.

Labour in opposition along with the unions have probably shot them selves in the foot as you say

Everytime there was a comment by Labour or by the unions, they always talked about ‘fat cat bosses from multi national foreign companies creaming off massive profits’

Therefore the lay person on the street thinks that if these ‘massive profits’ are removed, money is available to lower fares?

Ultimately even a three percent take in profit (I think that was roughly what the privatised railway companies were making) is a substantial proportion of turnover. The question is whether passengers will feel the benefit of that in their train services and fares (or if the treasury will take it as a reduction in subsidy).

I'm old enough to have been against the 1990's privatisation and have found the railway to be far more easier to use and reliable this year than under the previous Government, so I want this policy to succeed.

I do feel that Gmt needs to give something to passengers in terms of fares for the policy to reach its potential.

 

[Falcon1200]

Selling tickets I was often met with the horrified expression 'how much?' when the fare was requested. I ceased to be a booking clerk in 1984.... Complaints about the cost of rail travel are nothing new.

Wouldn't we all like lower prices, not just for rail travel but for other things too, in my case model trains, progressive rock CDs and takeway curries. But the cost of providing the service or product has to come from somewhere. If anyone thinks nationalisation will lead to lower fares, they will be disappointed.

have found the railway to be far more easier to use and reliable this year than under the previous Government

I can't say I've noticed any difference! What has the Labour Government done to make the railway more reliable?

 

[JonathanH]

What has the Labour Government done to make the railway more reliable?

Settled the pay dispute, and made promises about a more reliable future railway.

 

[yorksrob]

Selling tickets I was often met with the horrified expression 'how much?' when the fare was requested. I ceased to be a booking clerk in 1984.... Complaints about the cost of rail travel are nothing new.

Wouldn't we all like lower prices, not just for rail travel but for other things too, in my case model trains, progressive rock CDs and takeway curries. But the cost of providing the service or product has to come from somewhere. If anyone thinks nationalisation will lead to lower fares, they will be disappointed.



I can't say I've noticed any difference! What has the Labour Government done to make the railway more reliable?

Not having a strike every other Saturday has made my life much easier and cheaper.

The point about rail fares is a pertinent one, but the Government has set out its stall on Nationalisation. I believe it will need to give the fare paying public something that they can point to, to make it a success.

 

[Falcon1200]

Settled the pay dispute, and made promises about a more reliable future railway.

Yes, that's a good point (living in Scotland the pay disputes 'down south' didn't affect me much!)

 

[Bletchleyite]

For people to notice any difference fares would have to fall significantly (say 30% plus).

It's interesting you mention 30%, as that is roughly the increase that the LNER "trial" has caused on same day fares.

 

[Tetchytyke]

Everytime there was a comment by Labour or by the unions, they always talked about ‘fat cat bosses from multi national foreign companies creaming off massive profits’

Therefore the lay person on the street thinks that if these ‘massive profits’ are removed, money is available to lower fares?

The problem is that the profits were both obscene (especially when calculated as the Return On Capital Employed- ROCE- rather than simply on turnover) but, at the same time, were only a relatively small part of the overall costs of the railway. That said, 3%-5% is the regulated fares rise this year…

The other problem is that the real price-gouging in the cost of engineering and in the ROSCOs is largely hidden, and will remain in place even after the TOCs are nationalised.

I think the question is more, how do our neighbours on the continent seem to manage to have affordable fares

In Germany they did it by kicking ongoing maintenance into the long grass. We’re seeing the real effects of it in the last year or two but it isn’t a new thing- Berlin had huge problems on their S-Bahn in 2009 and 2011 due to corner cutting.

 

[mrmartin]

To me the real "issue" isn't so much (super) off peak fares, they "seem" expensive to a layperson but usually are not terrible value for trips in and out of big cities by the time you consider parking and time recovered not driving. CrossCountry seems to be the exception here where I always feel they offer poor value.

The real problem to me is Anytime fares on (especially) long distance routes (which IIRC are unregulated for the most part). I feel these could come down substantially with not a huge drop in revenue - especially given 90%+ on these trains must be using cheaper advances, and even then load factors seem very poor. It would also improve the passenger experience significantly where the first (super) off peak train is absolutely rammed and the previous ones are not busy at all, which is extremely frustrating for passengers to see.

I suspect you could even go as far as removing anytime tickets entirely and only having super off peak/off peak only on long distance services for significantly less than £1bn/yr. I suspect it would pay for itself overall in economic benefits as people could do longer commutes (especially in hybrid roles) and it would generate more tax revenue from the increased salaries people would get.

The drawback would probably be significant overcrowding, but I feel a lot of that happens already.

 

[Richardr]

The problem is that the profits were both obscene (especially when calculated as the Return On Capital Employed- ROCE- rather than simply on turnover) but, at the same time, were only a relatively small part of the overall costs of the railway. That said, 3%-5% is the regulated fares rise this year…

Return on Capital Employed [ROCE] is of course a totally misleading and irrelevant matrix for train operating companies [and franchise holders previously]. They have never had the capital employed - the ROSCOs own the trains and Network Rail the infrastructure, and they at best just rent these [or are now paid to operate them]. They would never have any significant capital, and so of course such a number would be claimed as "obscene" by those of a certain political bent, but totally meaningless to most people.

 

[styles]

In ballpark terms they would need to double. But isn't the general consensus that current fare levels are not far off revenue maximising? The issue is more what cost efficiencies can actually be delivered. You've got to make the dividend before you can spend it. R Reeves hasn't got any money.

I suppose this is the main opportunity with nationalising the TOCs - being able to make cost savings.

TOC costs, according to ORR, are roughly evenly split across 4 categories - staff, rolling stock, access charges and performance regime payments, and 'other' costs.

On staff - Labour are hardly going to try and rewrite the terms and conditions for 'coal face' workers like drivers and guards, as the unions would rinse them. We know driver only operation requires a massive infrastructure investment. Realistically unless they restructure management and make redundancies, with staff costs being huge parts of spending, that's going to be tough.

On rolling stock - well unless you nationalise the ROSCOs or cap their leasing fees, that's not set to change. You could start a nationalised ROSCO, or even have TOCs own rather than lease their stock, but this'll take a long time to transition.

On access charges - well sure, you indirectly control both the operators and Network Rail, so you could reduce this to £0, but it would mean less revenue for Network Rail, the shortfall for which will be funded by the taxpayers, so you're not going to save any money this way.

On other - In theory when you consolidated multiple companies into a smaller number of larger companies, you save money on admin, HR, finance, IT, etc. Achieving that scale of change whereby these systems and teams are shared between previously disconnected operating companies is possible, but will they do it?

Otherwise, what we're recovering is the 3% profit TOCs make on average. Which is great, every little helps, but the general public aren't going to be swooned by a £108 fare coming down to £104.76

 

[Falcon1200]

Mick Whelan of ASLEF, speaking last night on the BBC News, said that an advantage of nationalisation will be harmonising terms and conditions. Regarding rates of pay, where these (for the same role or grade) vary between TOCs, will GBR harmonise;

All staff on the lowest applicable rate - No!
All staff on a mid-level rate - Acceptable to the employer (ie the Government) but not Unions, or those staff who would lose out.
All staff on the highest applicable rate - Acceptable (very much so) to Unions and staff who would gain, but not to the employer.

Not sure what solution there will be without somehow increasing (even more) the cost of running the railway. And that won't help fares come down!

 

[talldave]

It suggests to me that the policy of renationalisation will fail in the eyes of voters if there aren't real improvements in value for money for the farepayer.

It's probably indicative of people not knowing what they were voting for. Although Labour casually added to the confusion by starting off doing things that weren't in their manifesto at all.

That said, anyone who believes anything a politician says is a fool. Whether it's energy prices, food prices, Covid or rail ticket prices - it's all lies. And if they do announce an improvement in something it's usually facilitated by changing the measurement criteria.

 

[Watershed]

Return on Capital Employed [ROCE] is of course a totally misleading and irrelevant matrix for train operating companies [and franchise holders previously]. They have never had the capital employed - the ROSCOs own the trains and Network Rail the infrastructure, and they at best just rent these [or are now paid to operate them]. They would never have any significant capital, and so of course such a number would be claimed as "obscene" by those of a certain political bent, but totally meaningless to most people.

It's not misleading or irrelevant at all - capital employed broadly speaking reflects the risk that the owning groups are taking. 3% of revenue/costs is a very substantial profit margin when considering the fact that nowadays the arrangements are pure management contracts with no revenue risk.

Such profit margins were perhaps more acceptable in the days when TOCs did take revenue risk, since they could be on the hook for millions of pounds of franchise payments regardless of actual revenues.

 

[Tetchytyke]

Return on Capital Employed [ROCE] is of course a totally misleading and irrelevant matrix for train operating companies [and franchise holders previously]. They have never had the capital employed

The justification for privatisation was for private investment into the railways. That never happened, as we see with the ROCE. Far from it being misleading, it actually highlights the fundamental problem with privatisation- huge sums of money leaving the industry in exchange for very little.

Of course “huge” sums are relatively small compared to the “gargantuan” overall cost, but that is not really the point either.

3% of revenue/costs is a very substantial profit margin when considering the fact that nowadays the arrangements are pure management contracts with no revenue risk.

Franchising is often the worst of both worlds. Huge sums of money paid to private shareholders but you don’t even get private sector innovation (much as the value of that concept is over-inflated) in exchange. Franchising really is the very definition of buying a dog then barking yourself.

I’d rather us go back to proper privatisation than have the situation we have now.

On staff - Labour are hardly going to try and rewrite the terms and conditions for 'coal face' workers like drivers and guards, as the unions would rinse them

Wage inflation in the industry is a direct consequence of privatisation, though. The TOCs and FOCs came to understand that poaching drivers from other TOCs was cheaper than training their own, so that is exactly what they did.

This is why there is now such a wide disparity in T&Cs, and why harmonisation is going to be difficult.

But having one railway employer makes harmonisation easier in one key way: the unions can’t play one TOC off against another. Like it or lump it comes into play.

 

[island]

Settled the pay dispute,

At the cost of a stonking 14.25% pay increase

and made promises about a more reliable future railway.

which it is unclear they can deliver.

 

[Watershed]

But having one railway employer makes harmonisation easier in one key way: the unions can’t play one TOC off against another. Like it or lump it comes into play.

Unfortunately (from Westminster's perspective) there will always still be FOCs and TOCs controlled by other devolved/local governments that have separate pay deals, which will continue to drive wage inflation and concessions on terms and conditions. It only takes a small proportion of drivers to leave one operator for another for there to be a big problem running the service; similarly, with guards being safety critical at most TOCs, they can stop the job through industrial action.

It's only countries like Ireland, which have a single operating entity, that can truly maximise the benefits of being a monopsony.

 

[Tetchytyke]

perspective) there will always still be FOCs and TOCs controlled by other devolved/local governments that drive wage inflation

The FOCs, yes, they will continue to be an issue. Every time Freightliner expanded their operations in Leeds there was then a driver shortage at Northern.