Need some rail franchise insights

[kentuckytony]

A friend of mine here in the US of A had some questions about rail service in the UK. I would appreciate someone in the know over there answering them briefly for us.

1) Am I correct in presuming that when a franchise is awarded to a given bidder for a particular route package, the winning bidder will have promised to meet certain conditions which might include replacing the rolling stock with more modern equipment, more frequent service, etc. and will also include a payment to the British government? In return the franchise winner gets to keep the fares and other fees collected from the public who use these trains?


2) Next question: who sets the fares for each station pair along a franchise route? Is it done by the company that holds the franchise (and do they have the right to adjust the fares if their costs change)? Or is it part of their ‘bid’ which won them the route (and thus fixed per that bid)? Or is it set -and adjusted- by some government body?


3) In any case, it seems to me things then get even more complicated. For example, in 225’s SWT 16 Plymouth to Waterloo, along the route from Plymouth to Exeter St. David’s in a SWT Class 159 set we meet other SWT 159s, Virgin Trains Voyager sets, and First Great Western HST sets. Now I’m fairly sure that all these companies don’t serve every station along the way but there are definite overlaps, and other 225 videos of routes show multiple stations which are clearly served by more than one carrier as well (e.g., the route from Havant to Brighton served by both SWT and Southern). In cases like these can a prospective passenger find, say, a ticket from Company B serving his route which is cheaper than Company A would charge and then use B’s ticket on A’s train? Does each company accept each other’s ticket or only their own? If the former, they have to find some way to divide the revenue properly and ensure that they aren’t getting gypped if they charge different fares. With the growth of multi-ride and electronic tickets (i.e., show your phone) it would seem revenue division would be almost impossibly difficult.

I hope these are somewhat easily answered. If there is a convenient web site with the answers, that would be okay too.

Thanks ahead of time for any insights.

 

[ainsworth74]

For example, in 225’s SWT 16 Plymouth to Waterloo

Sorry I think something got a bit garbled there? What do you mean by 225s and SWT 16?
--- old post above --- --- new post below ---

1) Am I correct in presuming that when a franchise is awarded to a given bidder for a particular route package, the winning bidder will have promised to meet certain conditions which might include replacing the rolling stock with more modern equipment, more frequent service, etc. and will also include a payment to the British government? In return the franchise winner gets to keep the fares and other fees collected from the public who use these trains?

Broadly. When a new franchise is awarded it will normally see things like a minimum service level specified (which means the TOC can call more but not less), any improvements that either the government want (such as new rolling stock or services) or that the TOC wish to provide without having been told to do so.

Payments normally run on the basis that the TOC will pay £xm to the Treasury per year in what is known as 'premiums'. These are normally predicated on performance (general economic, passenger numbers and revenue) being as predicted. If things are not going well then the companies can get support either in the form of not having to pay or even cash from the government. This is capped to prevent the government being on the hook for an unlimited amount of money. There are moves to change this system as it hasn't worked very well in the past (what with it being hard to predict economic performance over ten years or even longer) but I'm not sure what the details of this new system are (or if it ever did get adopted).

Basically it's flipping complicated.

2) Next question: who sets the fares for each station pair along a franchise route? Is it done by the company that holds the franchise (and do they have the right to adjust the fares if their costs change)? Or is it part of their ‘bid’ which won them the route (and thus fixed per that bid)? Or is it set -and adjusted- by some government body?

Fares are set by the TOC which 'owns' the flow. You can check who owns what on this website. Enter in your journey and under each fare it'll say who the 'Fare Setter' is.

Some fares are regulated (season tickets and some off-peak tickets) which means they can only be increased by a certain percentage set by government (and that figure is linked to inflation). There are ways around that so you can increase regulated fares by more than the allowed amount by using 'baskets'. Basically if you increase a bunch of fares by more than you're supposed to and then reduce some others so that the overall increase is no more than the maximum you're golden. This happened a few years ago on First Great Western where they hiked up the fares on the Thames Valley commuter routes into London (high value) but lowered fares in Devon and Cornwall (low value) to keep everything at the maximum increase.

Others (advances for example) are completely un-regulated and the TOCs can charge whatever they think the market will pay.

3) In cases like these can a prospective passenger find, say, a ticket from Company B serving his route which is cheaper than Company A would charge and then use B’s ticket on A’s train? Does each company accept each other’s ticket or only their own? If the former, they have to find some way to divide the revenue properly and ensure that they aren’t getting gypped if they charge different fares. With the growth of multi-ride and electronic tickets (i.e., show your phone) it would seem revenue division would be almost impossibly difficult.

TOC specific tickets are available and normally undercut the 'Any Permitted' ticket (sometimes quite considerably) but, of course, restrict you to that TOC only. For example London Midland (running a lot of services from London to the Birmingham area) have fares only for their services which are cheaper than tickets valid on Virgin Trains (running trains on the same corridor and also beyond into the North West, North Wales and Scotland). But London Midland are normally a lot slower than Virgin so you get a cheaper ticket but a longer journey. If you tried using a London Midland ticket on a Virgin Train service you'd need to buy a new ticket that was valid on Virgin Trains.

'Any Permitted' tickets are those that can be used on any operator on a valid route between your two stations and the revenue allocation is quite complex using a system called ORCATs. The best general outline I've come across is here:

Well, I was just wondering how it is calculated. For example if there is an Off Peak return at £30, and three TOCs can be used each way, would each TOC get £10, or is it done based on who's "turf" it is, or based on service frequency, or what? How do open access operators come into it?

Lets say Liverpool to Chester SDS Any Permitted, £8.50.

Step 1
9% of that ticket goes to whatever TOC sold it (at a station)

Step 2
Merseyrail, ATW, Virgin, London Midland, TPE, EMT and Northern are all entitled to a part of that ticket due to various permitted routes being available, (via Runcorn, Warrington & Birkenhead).

Step 3
Allocation Factors
-Who runs the most trains
-Journey times of those trains
-The route of the trains
-The frequency of service
-The capacity of the rolling stock

My Chester Any Permitted example would meanthe fare split as follows:

Merseyrail - 60%
Arriva - 15%
Commission 9%
All other TOCs share remainder.

If it was route BIRKENHEAD
Merseyrail - 91%
Commission 9%
All other TOCs 0%

The operator who sets the fare is *usually* the one who stands to make the most money from the flow, although this isn't always the case. Sometimes it is better for one operator to set the fare, despite say never operating any services.

Consider this,

Merseyrail can increase fares by Inflation only.
ATW can increase fares by more then inflation.

Example:
If Liverpool-Chester Any Permitted was priced by Merseyrail initially, then "given" to ATW, then Merseyrail will still get most of the ORCATS share (as per above criteria). Merseyrail therefore have a "fares rise" that is "out of their control" but increases their revenue nonetheless.

I hope these are somewhat easily answered. If there is a convenient web site with the answers, that would be okay too.

You've already found the website with the answers

 

[Peter Mugridge]

Sorry I think something got a bit garbled there? What do you mean by 225s and SWT 16?

I think ( but I'm not sure ) from the rest of his wording that 225 might be a video production company and the 16 is the number in a series about SWT?

 

[ainsworth74]

Ah right that would make sense

 

[WatcherZero]

Pretty much all covered, just to add their clamping down on the basket trick by limiting maximum increase to not much more than the permitted average increase.

 

[ainsworth74]

Ah yes I did have something tickling at the back of my mind about fixing the basket trick but couldn't remember exactly what it was they'd done.

 

[kentuckytony]

Yes he was referring to 225 Video cab rides. Sorry I didn't clarify.
I will pass along all this info - and thank you all.

 

[edwin_m]

The SWT services no longer run west of Exeter. When they did, I think they were crewed by FGW and probably counted as FGW services for revenue purposes, with FGW paying SWT for the use of the train.

Just to add also that for some (probably most) franchises the "premium" is negative so the government pays the franchisee. In some franchises the operator does not take "revenue risk" but is paid a fee to run the service, and all the fare revenue goes to the government. Franchises described as "concessions" and "management contracts" are generally run in this way, and the payment is usually (probably always) adjusted to penalise the operator if they don't meet various quality standards.

 

[swt_passenger]

The SWT services no longer run west of Exeter. When they did, I think they were crewed by FGW and probably counted as FGW services for revenue purposes, with FGW paying SWT for the use of the train...

I have the 2007 franchise track access agreement and service level commitments here, all the 'west of Exeter' SWT services, including to/from Penzance are perfectly normal SWT services, and AIUI they just used FGW train crew hired in for the route west of Plymouth to avoid having to have a small SWT train crew depot in the area.

'Train crew trading' deals are completely independent of 'service ownership', and don't automatically make a service a shared service as in (for example) the Scotrail/Northern setup.

 

[mikeg]

With reference to fare setting, it would perhaps be worth noting that:

In areas with a Passenger Transport Executive (a body combined of local authorities that coordinates passenger transport) the PTE is entitled to set fares instead of the TOCs. The TOCs can still set their own competitive fares at a lower level but the 'any permitted route' and most geographical routes wholly within that area are effectively directly set by the PTE. West Yorkshire, for example has some reasonably priced rail travel owing to this arrangement. I do believe though that this leaves the PTE liable for the excess subsidy required if the fares are set too low.

For journeys wholly within London, fares are set by the Association of Train Operating Companies (ATOC)

Open access operators share in ORCATS for the any permitted/geographically routed fares just the same as other operators and may set competitive fares (e.g. York to London, Thirsk to York, Hull to London)

It's worth noting that most fares that have existed for competitive reasons only don't seem to be subject to any form of price control, other than that none would sell if they increased above the 'any permitted' or appropriate geographically restricted route price.