Select Committee on Transport, Local Government and the Regions Appendices to the Minutes of Evidence


Memorandum by National Express Group Plc (PRF 30)

PASSENGER RAIL FRANCHISING

  National Express is delighted to submit its memorandum in response to the Transport Sub-Committee Inquiry announced on 23 July 2001 on the topic of passenger rail refranchising.

  Senior management of the National Express Group will be available to provide oral evidence if required.

INTRODUCTION TO THE NATIONAL EXPRESS GROUP

  National Express Group is a leading public transport group. Following its flotation in 1992, the Group expanded through the acquisition of businesses privatised by national and local Government. Since flotation the Group has developed a strong reputation for successfully transferring companies from the public to the private sector, primarily in the UK. We carry over one billion passengers a year worldwide through our bus, train, tram and express coach operations. We hold leading market positions in the United Kingdom, the USA and Australia. Within the UK, we operate buses, trains and coaches.

  With the privatisation of the UK rail industry in the mid 1990s, we were awarded our first franchises in 1996, with a total award of five franchises as a result of the privatisation process. Our presence in rail was further extended in September 2000 when we acquired Prism Rail. This brought two busy London commuter train operating companies, c2c and WAGN into the Group as well as Valley Lines and Wales and West.

  We are now the largest train operating company with nine rail franchises; C2C, Central Trains, Gatwick Express, Midland Mainline, ScotRail, Silverlink, Valley Lines, Wales and West and WAGN plus a dedicated train maintenance operation, Maintrain. 200 million journeys were made on our franchises last year. We are also a leading member of the joint venture company that manages Eurostar. Our trains division has a turnover of £1.5 billion and employs 15,000 people.

  We are committed to achieving customer and revenue growth through five key objectives; delivering high quality, accessible, value for money services to the highest safety standards; improving continuously, standards of reliability, punctuality and other important elements of operational performance; establishing Quality Partnerships with local authorities; integrating different modes of transport and reinvesting profits for long term growth. We operate a highly devolved management structure which reflects our belief that local management teams are best placed to understand and meet the diverse needs of the customers and communities they serve. Day to day operations are managed through individual divisions, which comprise a number of autonomous subsidiary businesses.

  Further background information on the Group and its individual subsidiaries can be found via www.nationalexpressgroup.com.

OUR VISION FOR THE RAILWAYS

  As a major provider of rail services, National Express is uniquely placed to encourage the use of rail as the preferred method of transport and to improve transport integration. We are passionate about train travel and the vital contribution it makes to the nation's travel needs.

  We are committed to building a railway network which:

    —  operates to high standards of safety;

    —  runs more trains to a wider choice of destinations;

    —  provides a reliable, comfortable and secure service;

    —  offers attractive fares that win people back to train travel; and

    —  invests consistently in new and refurbished trains and stations.

  To achieve this we recognise a number of key stakeholders who are vital to the success of the business including Government and trade unions.

THE SUB-COMMITTEE'S INQUIRY

  The Sub-Committee wishes to:

    —  "investigate the implications for rail services of the Government's recently issued draft policy statement on passenger rail franchising and the draft directions and guidance to the Strategic Rail Authority";

    —  and is then reviewing these documents against five specific criteria.

  We feel it is appropriate to comment on both parts of the inquiry.

  The two statements contain some key themes on which we comment below. These are:

    —  Early Delivery through Franchise Extensions.

    —  Prioritisation and Value for Money.

    —  Better Franchise Management by the SRA.

EMPHASIS ON EARLY DELIVERY THROUGH FRANCHISE EXTENSIONS

  We believe that in many circumstances, quickly negotiated franchise extensions are a good way of addressing the twin objectives of growth and overcrowding. They are particularly suitable where longer trains will largely solve the problems, possibly in conjunction with platform extensions. This is because additional rolling stock can be ordered and delivered within the timescales of an extended franchise, and because platform work does not usually require the scarce resources or long planning cycles that major infrastructure entail.

  We have already negotiated such an extension for Midland Mainline, details of which are attached in an appendix. We have also submitted a proposal for an extension to Silverlink and are intending to submit a number of others, including ScotRail and Central.

  The corollary is that short-term extensions are not suitable for situations where the need is for major infrastructure enhancement to track and signalling. Here, the need is for a long term franchise.

  For the policy of short-term extensions to work, it is urgent that the extensions are progressed very quickly. Rolling stock orders placed in early 2002 are unlikely to come into service before the winter timetable of 2004, and if ordered later are unlikely to impact on passenger overcrowding before Summer 2005; this is getting very close to the two-year extension dates (many of which are end-2005 or 2006). It is unlikely that franchisees would accept the risks of ordering new rolling stock which they would not see introduced during the period of their franchise. We suggest that it may be desirable to extend some franchises by more than two years if the momentum and full potential of franchise extension is to be maintained.

PRIORITISATION AND VALUE FOR MONEY

  The re-statement of the financial provision within the 10-Year Plan, and the emphasis on prioritisation of schemes and value for money suggest that enhancement of some parts of the network will have to wait. This in turn suggests that the twin objectives of growth and overcrowding will not be achieved uniformly over the whole of the network. We suggest that the proposed policy of franchise extensions will have a useful part to play in complementing the limited number of long term franchises, and so ensure that there is reasonable distribution across the network of the benefits of increased capacity.

  In prioritising schemes, we would urge the SRA to make some provision for small and medium sized enhancement schemes and not to go exclusively for the large eye-catching schemes. Firstly, we believe there is less technical risk and the possibility of earlier delivery; secondly, we suggest they can represent excellent value for money. Midland Mainline is again a case in point.

  Understanding of the finances of the industry has changed significantly since the 10-Year Plan was published, and it is more doubtful now whether all the aspirations can be delivered within the period. The growing awareness of the costs of implementing the Rail Vehicle Accessibility Regulations are one example. Here, we suggest that the SRA should obtain best value by ensuring that improvements in accessibility for the disabled are dovetailed with other enhancement or improvement work, so that all users benefit and the costs are spread across a wider base.

BETTER FRANCHISE MANAGEMENT BY THE SRA

  There is a suggestion that because not all franchises have delivered acceptable results, then the SRA must have been insufficiently "tough" in its contract management and that a harder approach would achieve more.

  But the underlying problem is that the agreements were not intended to deliver everything that is now expected of them, so we suggest that a more constructive approach would be to work together on improving and renegotiating the agreements. We envisage that this will substantially happen as part of the extension process.

COMMENTS ON THE SUB-COMMITTEE'S FIVE CRITERIA

1.   "Ensure that rapid improvements in the safety, punctuality, reliability, comfort and frequency of services are achieved."

  Our view is that short-term extensions will address a number of these issues, and indeed are the only way of tackling them quickly.

  The key issues on safety are the fitment of Train Protection and Warning System to reduce the risk of train collisions, and the increasing investment in CCTV to improve passengers' personal security on trains and stations. The former is assured regardless of the proposed DTLR policy thrust, whereas the latter is likely to benefit substantially from it.

  On punctuality, the industry is working hard to restore levels to pre-Hatfield and better. However, there are trade-offs between punctuality and other goals, such as service frequency and the amount of investment-led rebuilding work, which are unlikely to be fully resolved in the short term. Nonetheless, franchise extensions could provide the basis for making more provision for spare resources, thereby improving service robustness.

  Reliability has similar issues to punctuality, but a specific factor relates to new trains. So far, new trains have been unreliable when first introduced and have required a substantial programme of modifications before they can deliver acceptable levels of reliability. Whilst we expect that further orders of new trains in the next few years will not have the same degree of unproven technology, and will benefit from recent experience, it would be very optimistic to think that there will be no commissioning and early service problems.

  The key issue on comfort which will be addressed by the proposed policy is overcrowding. On many routes, additional rolling stock would enable train sizes to increase and the parallel programme of increasing station platform lengths could be undertaken without consuming scarce infrastructure and signalling resources. Where this approach can be adopted, it is fast, low-risk, and good value for money. New and/or refurbished rolling stock can also impact on other aspects of comfort including seating design and air conditioning.

  Service frequency is already one of the industry's success stories but further increases may not be the best way of tackling growth and overcrowding in the short-term; as suggested above, improvements to the size of existing trains may yield the fastest results.

2.   "Secure investment in additional network capacity and other improvements to meet both the long and short-term needs of the railways and whether the sums allocated to the rail investment remain adequate in the light of events since the publication of the Government's 10-year plan for transport."

  There is a key point here in relation to growth and increased output. For most TOCs—and certainly for "regional" TOCs such as Central and ScotRail, the costs of providing extra capacity in the peak (when it is required) generally exceed the expected revenues. On most routes, the cost of financing (at around £1 million per carriage) and operating additional trains will be more than the extra revenues they earn, even before the cost of any enhanced infrastructure is taken into account.

  In specifying the improved outputs which the SRA wishes to see in extended and renegotiated franchises, the key issue will be how much grant they wish to commit.

3.   "Provide the framework for major infrastructure enhancement projects to be taken forward now that Railtrack is to focus on the maintenance and renewal of the existing network."

  From the franchisee's perspective, there are several elements of the proposed policy which are encouraging on network capacity. Firstly, the requirement that the SRA should specify the outputs it wants will improve the bidding process and ensure that planning resources—both in bidders and in Railtrack—are sensibly used. Secondly, the emphasis on prioritisation should ensure that bottlenecks on the network are identified and resolved by the SRA on a network-wide basis. Lastly, the prospect of stability and an assured programme of schemes should enable the supply industry to deliver more output at better value.

4.   "Transform the SRA's leadership of the industry, its day-to-day management of franchises and the way in which it assesses and awards new and extended contracts for passenger services."

  Clearly, the appointment of a new Chairman is key to the success of the SRA in its new role. We look forward to working with the new sense leadership which he or she will bring. Meanwhile, business needs to be done, and we continue to work with the team at the SRA. In terms of day-to-day franchise management, we believe that a "partnership" approach—in which the parties work together towards evolving objectives—will yield better results than the pure "enforcement" approach in which the emphasis is on policing a contract rooted in the past.

5.   "Improve the poor state of industrial relations in the railways."

  The number of disputes and lost days in the railways has been relatively low since privatisation. There is a correlation between this and the substantial improvements in terms and conditions which have been enjoyed by employees. Train drivers' basic salaries, for example, are generally in the range of £23,000 to £33,000, and actual earnings can be up to 100 per cent higher. For passenger franchises, the cost of above-inflation increases in earnings is met in the longer term by the SRA—since they feed through into bid prices when franchises are renegotiated. The SRA needs to consider whether the terms of Franchise Agreements provide the desired signals and incentives to ensure value for money. Notwithstanding the low level of disputes, we would agree that there is scope for improvement in workplace culture, and for investing further in the skills and competencies of our people, both of which would impact positively on industrial relations. This is, of course, a matter for employers to work on, rather than the SRA; although the SRA might wish to bear these issues in mind when evaluating bids.

IMPLICATIONS FOR OTHER FRANCHISE EXTENSIONS

  Key characteristics which enabled the parties to negotiate the deal—and which may be relevant to other short-term franchise extensions included:

    —  continued growth in demand;

    —  mechanism to enable costs of new investment to be spread over the life of the investment, not just the life of the franchise;

    —  financial support from the SRA for additional social benefits, given that incremental costs of growth outweigh the expected revenues;

    —  low-technology infrastructure upgrade, with minimal signalling content—enabling early implementation and low project risk;

    —  adequate financial performance, providing suitable base for extension.

September 2001


 
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