Commons scrutiny of rail franchising

Ben Blackburn, account director at Freshwater, considers the Commons select committees that have been set up to scrutinise the franchising process

With two new inquiries recently launched by Commons select committees, the rail franchising model continues to come under serious levels of scrutiny.

From the Public Accounts Committee on rail franchising, and by the Transport Select Committee on the Intercity East Coast franchise, these two are in addition to inquiries into the Thameslink programme, rail infrastructure investment, and, in a one-off session at the turn of the new year, on cancelled electrification schemes. Together, these constitute a huge level of interest which, if the committees execute their responsibilities well, could contribute much to debates that have been raging in the sector for years.

Franchises have experienced challenging operating environments, evidenced by suboptimal performance and customer satisfaction, for some time. The Labour party’s ambition to bring train operators into public ownership has been instrumental in activating particular, and often rather complex, issues for a wider audience: they are now tools in the campaigner’s armoury. Now that Labour’s vision is being clarified into policy, the whole franchising system will continue to be highly politicised and the subject of many a fact-light sparring on Twitter.

However, are there signs of a fight-back from those who have been the target of so much ire? If you look hard, two recent sessions – of the Transport Committee on infrastructure investment and of the Public Accounts Committee on rail franchising – provide some reason to think so.

Virgin Trains East Coast

At the end of February, David Horne, the Virgin Trains East Coast (VTEC) managing director, and Martin Griffiths, Stagecoach’s chief executive, gave a robust defence to the Public Accounts Committee of their work on the east coast franchise.

Semantics matter here, and the two sought to rebut claims of ‘overbidding’. There was no incentive to do so, Mr Griffiths claimed, while also admitting that, although they didn’t forecast how passenger demand would slow, they have, and will continue to, honour their contractual obligations.

The extent to which the bid factored in potential changes to passenger numbers was less clear. The committee’s chair, Meg Hiller, may have been left dissatisfied by an oblique reference to running ‘a lot of downside sensitivities’. As Mr Griffiths explained, they also took their experience on the west coast, which has seen an increase in passenger numbers of around 20 million per year over the last decade, and sought to implement a similar approach to the east. Given the fundamentally different markets, some may query this logic.

Tricky territory was navigated when witnesses were interrogated on exactly why revenue growth collapsed. In the next session, Pete Wilkinson, the DfT’s head of passenger services, said that he had identified ‘50 or 60’ factors contributing to the changing fundamentals. Meanwhile, the reasons given here included ‘political uncertainty’ caused by the referenda on Brexit and Scottish independence, a diagnosis that Gareth Snell, a Labour committee member, found rather ‘baffling’.

Later, the witnesses successfully illustrated the extent to which revenue had dropped off and were right to paint it as an industry-wide phenomenon. According to David Horne, at the time of bidding, passenger revenue in the inter-city sector was growing at 7.5 per cent. The latest figures describe a growth of 1.2 per cent.

Despite VTEC’s troubles and the operator swallowing all the risk, not only does Mr Griffiths seem to hold out a hope that Stagecoach could secure an exit fee if they hit their targets and if the secretary of state decides to allow them to continue to run the franchise on a not-for-profit basis to 2020.

It’s clear, to Mr Griffiths at least, that his company is fundamentally sound: it continues to deliver value for the taxpayer, including around £260 million this year. We can probably assume that, should the balance of risk be appropriate, Stagecoach will be tempted to bid once again for the franchise when 2020 comes around.

GTR: a brighter future?

Going by his evidence, Govia Thameslink Railway’s (GTR) chief executive, Charlies Horton, is overseeing a company that is desperate to make up for lost time and attempt, even if in vain, to win back the hearts of its customers.

The circumstances of the evidence session were not great for doing so, with dangerous overcrowding at Redhill station the weekend before making the headlines. Passengers who missed flights from Gatwick will hope that Mr Horton’s assurance, that they would not be left out of pocket, is followed through.

Inevitably, as whenever Southern rail is discussed, so too are the unions and driver controlled operation (DCO). While the RMT might have hoped for more interrogative questioning, the tag-team of Horton, Wilkinson and the DfT’s permanent secretary Bernadette Kelly, did a good job of telling their side of the story:

• DCO has been extensively used for years in the UK (including on 60 per cent of GTR services before the start of the new franchise)
• 24 trains per hour through the Thameslink core requires low dwell times and making the door operating procedure more time efficient
• at least as many trains have an onboard member of staff than at the start of the change programme.

There were signs, however, that more could have been done to strike a positive dialogue with unions at the franchise letting stage, with offers to talk ‘not readily taken up’. With the 319s having been replaced by Siemens’ Class 700s and the London Bridge transformation almost fully complete, GTR is returning to profit and has delivered its highest level of passenger satisfaction ever. It can start to paint a more positive story for the future.

It is not quite yet time for customers to relax altogether; particularly those travelling on the Brighton main line who will see two one-week closures in October, and February 2019. But, as explained by its chief executive, Mark Carne, Network Rail will seek to implement the type of extensive communication campaign applied to London Bridge closures to limit disruption and fallout.

Because of the turnaround, the department can now state with confidence that it made the right decision to stick with Govia. They can even say it’s delivering financially, with a net contribution to the Treasury of around £760 million to date, and the operator, not the taxpayer, taking a financial hit – a loss of over £5 million to last September versus a projected profit of £130 million.

But given the political forces at play and the long memories and understandable scepticism of the travelling public, only time will tell if success, here and across the franchised system, is real and sustainable – and whether it is enough to change entrenched positions.

Freshwater is a full-service communications agency with over a decade’s experience in the transport sector.

This article appeared in RailPro magazine on 23 March 2018.

PHOTO CREDIT: iStockphoto.com / Lord Baileys