This thread is about lowering costs. Putting more people on trains doesn't lower costs, it increases them. It might lower the unit cost, but that only benefits if you see an increase in revenue. I'm not saying that every TOC has got it right, but generally speaking TOCs have lowered fares where they think that it would be revenue generative - hence the growth of Advance Purchase tickets.
There's some interesting information in the TSC's Rail 2020 report. Firstly let's look at the TOC profitability: for the 3 years examined (2009-2011) the biggest single profit in any year was Virgin 2009 with £67.5m; the biggest loss was Chiltern with £57.1m in 2011. In 2011 two other TOCs (XC & EMT) made large losses (£30m & £34m) respectively, while £30+m profits were made by Virgin £34.3m, SWT £47.5m, and Northern £35.2m. Total is only £91m in 2011. A gnat's bite on the overall cost increase (more below).
On subsidies the biggest by far is ScotRail (£305.0m in 2011) followed by ATW (£136.8m), with large subsidies also to Southeastern, Northern & Merseyrail. Over £100m premiums were paid by SWT, Virgin, FCC & FGW. Note that once NR route subsidies are taken into account (not shown in this report) only FCC is not subsidised at all. ScotRail must be enormous. Southeastern is probably down to HS1.
There is also an interesting comparison with BR in real terms. The key elements of this are:
* Growth is responsible for £2.3bn growth in revenue and £1.7bn growth in cost (more on this below).
* Fare increases are responsible for only £0.3bn growth - this is largely because in the initial franchises fares rose at RPI-1%.
* Rolling Stock Costs increased by £0.5bn - I quote: "Since BRB days, the financial structure has completely changed, and new capital investment in rolling stock no longer drops through immediately to the cash requirement. There has also been substantial expansion in the size of the fleet to support growth, and a significant improvement in the average age. McNulty estimates that rolling stock charges per passenger-km have been pretty static since 1996 and assuming this is true since 1989, this would explain an increase in costs of some £0.5bn."
* Cost of the NR RAB has risen by £1.5bn - again I quote: "Since privatisation, new infrastructure capital expenditure (including the substantial quantity of enhancements) and renewals have been financed through borrowing and has been added to the Regulatory Asset Base (RAB) on which a regulated rate of return is allowed to enable Network Rail to meet its borrowing costs. At the time of privatisation, the RAB was very low (under £5bn), and has now grown to £42bn. The allowed return on the RAB amounted (after technical adjustments) to £1.5bn in 09/10 and is effectively a new item since BR days, mostly reflecting the substantial expenditure on investments (enhancements, and renewals) in recent years, all of which were artificially low (or zero) at the end of the BR era."
In other words the main increase in costs is either from growth, changes in funding, or increases in capital expenditure (following a period of neglect). The bit they pick on is the £1.7bn growth increase; their viewpoint is that this is too large because unit costs should have fallen while they have in fact stayed the same. The first point I'd make here is that even if the unit costs came down, how much could be saved? Is it really £3.5bn?
The other question is how good is their assumption that the unit cost of growth should be lower than existing? Let's examine the elements of that cost:
* Cost of running the trains (power, maintenance, traincrew)
* Cost of maintaining the infrastructure
* Cost of Customer Service (e.g. ticket sales, information, security)
* Overheads
Let's take the first. According to their own statistics, train cost increases are in line with increased train miles; and this should be largely expected of the cost of running the extra trains too. I think there should be some savings due to there being an element of strengthening, but these have been partly eaten up by increases in materials and wage rates and decreased labour efficiency (including shorter hours). Another big hit has been in the cost of power. It seems that both McNulty and the TSC ignore how far this has been over inflation during the period. Finally the newer rolling stock is more expensive to maintain, due to such additions as air conditioning.
Maintaining the infrastructure would seem to offer opportunities to cut unit costs, however similar to the above materials and wages have risen faster than inflation, plus there are changes to the way of working (e.g. from safety regulation) that will have added to cost. I don't know enough to comment further, but it seems clear that with longer and more frequent trains we should expect more maintenance.
This may be hard for some to believe, but I would think that Customer Service now costs a fair bit more than it used to, due to changes since the days of BR. Firstly there's the use of Ticket Gates - there's a benefit in revenue, but you have to accept the cost base increases as well. There's more security; more CCTV, more Police, more private security. There's delay/repay. Loads of money has been spent on CIS; yes I know it's often still lousy, but money has been spent.
Finally overheads. I've seen these generally decrease, but there are some areas which have gone up, e.g. Insurance & claims (many more ambulance chasers these days). Anyway these are by far the smallest element of costs.
To sum up, the assumption that unit costs should have come down is correct, but the amount is probably overestimated by McNulty & this group because they don't understand the cost drivers.
