Select Committee on Welsh Affairs Minutes of Evidence


Memorandum submitted by National Express Group/Wales & Borders Train Operating Company

  National Express is pleased to submit this memorandum in response to the Welsh Affairs Committee Inquiry announced on 24 October 2001 on the topic of Transport in Wales.

  This memorandum has been submitted in confidence. Senior management of the National Express Group and Wales & Borders Trains will be available to provide oral evidence.

INTRODUCTION TO NATIONAL EXPRESS GROUP AND WALES & BORDERS TRAIN COMPANY

  National Express Group (NEG) is the franchise of the Wales & Borders Train Company operating in much of Wales. This Train Operating Company (TOC) was formed on 14 October 2001 at the instigation of the Strategic Rail Authority (SRA) in accordance with their franchise re-mapping policy announced by Sir Alastair Morton. It was formed from:

    —  parts of the former Wales and West TOC—Cardiff to south west Wales, Holyhead, Manchester, Birmingham, Waterloo and Penzance:

    —  parts of Central Trains TOC—Birmingham to Aberystwyth, Pwllheli and Chester; and

    —  the Cardiff Railway TOC—Cardiff Valleys services for all of which NEG was the franchisee.

  The "InterCity" stations in South Wales currently operated by First Great Western are to transfer to Wales & Border TOC shortly.

  These alterations are a result of an agreement made earlier this year between NEG and the SRA, which also enabled the TOCs to operate on a firmer financial basis than had existed for Wales & West and Cardiff Railway under the previous Prism Group ownership.

  National Express Group is a leading public transport group. We carry over one billion passengers a year world-wide 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 Prison Rail. This brought Wales and West and Valley Lines into the Group as well as two busy London commuter train operating companies. WAGN and c2c 200 million journeys were made on our franchises last year. We are also a leading member of the joint venture that manages Eurostar. Our trains division has a turnover of £1.5bn 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;

    —  re-investing 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 customers and communities they service. Day to day operations are managed through individual divisions, which comprise a number of autonomous subsidiary businesses. The corporate headquarters primarily concentrates on strategic development and financial control.

OUR VISION FOR THE RAILWAYS

  We are passionate about train travel and the vital contribution it makes to a nation's travel needs. 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 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.

  We aspire to bring benefits to peoples' lives by providing safe, innovative, integrated and quality ways to travel.

RESPONSE TO INQUIRY

  A.  Questions raised in invitation to attend letter dated 5 November

  How do we operate in terms of providing an integrated transport system?

  National Express has experience in operating integrated public transport networks both in Melbourne, Australia and in Birmingham, through our ownership of the Midland Metro and West Midlands Travel local bus network. We recognise the high value of integration of travel opportunities by different modes.

  In Wales, most of our stations include car parking, including spaces for the disabled, car drop-off points and taxi waiting facilities together with publicity for local bus services and telephones to enable passengers to contact taxis and friends for onward journeys.

  Our initiatives to provide road-rail integration of public transport rely heavily upon co-operation with other, private bus operators, as NEG does not operate any local bus services in Wales, and upon sponsorship by local authorities. We have had numerous successes in this respect, notably:

    —  the dedicated bus link between Maestag and Caeraeu;

    —  La sponsored bus links Ystrad Rhondda to Maerdy, Aberdare to Hirwaun, Rhymney to Tredegar;

    —  proposed LA sponsored bus link Ystrad Mynach to Blackwood;

    —  through ticketing rail/bus in the Valleys area including onto Cardiff City local services;

    —  Participation in Cardiff Capitalcard/Cardiff Bus add-on/Cardiff Bay bus add-pon ticketing schemes;

    —  numerous through ticketing opportunities throughout Wales.

  Co-ordination of operations is complicated as rail timings are influenced by the availability of "slots" elsewhere on the rail network and cannot easily be altered. In contrast, timings of bus services are easy to adjust, but, given commercial pressures upon the private operators, occur more frequently. We continue to seek more stability in associated bus timetables.

  A further constraint is that the Traffic Commissioners impose a performance regime upon bus operators, which encourages punctual running. This is not compatible with holding bus services for late running trains. Some easement of these requirements would assist in integrated working. Trains do not generally wait for late running buses due to the importance of rail network interconnectivity and the extensive disruption to other services that can arise if a train departure is delayed.

  What is our working relationship with the various transport authorities and the UK Government? Transport consortia of local authorities in Wales

  We have worked closely for many years with local consortia, being prime mover in obtaining support for a long-term rail development strategy for the Cambrian routes (Mid Wales), and for the Cardiff Valleys network (SWIFT). We have been instrumental in these developments, involving reintroduction of passenger services (eg Vale of Glamorgan), development of stations and specification of resignalling schemes. We are actively supporting the initiatives to provide a passenger service on the Ebbw Vale line (TIGER consortium), providing operational and other consultancy advice without charge.

  We have developed successful marketing initiatives such as the Devon & Cornwall Rail Partnership and the Heart of Wales Line Partnership. These are specifically designed to promote rail-based tourism and bring together key local organisations to promote their regions. We contribute to the funding of Rail Development Officers in Local Authorities.

  We fully support the further development of local consortia, as they have proved very effective in bringing together the various unitary authorities in Wales at a strategic level, which we consider the appropriate level for rail developments

National Assembly

  We welcome the support given to rail investment by the National Assembly for Wales. We have developed a close working relationship with the Assembly and its officers, and have been pleased to be able to provide professional rail operations advice. Our commitment to establishing a working relationship with the National Assembly for Wales has led us to appoint a dedicated member of staff who acts as a key contact with both civil servants and elected members.

  Many of the discussions have related to the schemes referred to above, given the funding mechanisms within Wales. Our joint working with SWIFT and the National Assembly for Wales has resulted in indicative funding of over £50m for rail infrastructure projects over the next five years.

  We have also been instrumental in moving the concept of an All-Wales franchise into existence through the initial creation of the Wales & Borders TOC.

SRA

  Across the whole of the UK, including Wales, we have been able to develop a co-operative relationship. This had led to recent successes such as the two year Franchise extension agreement for the Midland Main Line TOC, and to the creation of the Wales & Borders TOC through the franchise re-mapping process.

  We have engaged the SRA extensively in developing our joint thoughts on the content of an All-Wales franchise and eagerly await the next steps in the process.

UK Government

  National Express has a range of contacts with the DTLR; Wales & Borders TOC has very limited contact.

  What have been the main obstacles to providing a high standard of service?

  The key issue of rail services in Wales is that the volume of passengers, at the fares that can be charged, is insufficient to make services commercially viable. The extent and quality of services is thus dependent upon the subsidy available.

Service Specification

  The service levels to be operated are determined by the Franchise Agreement with the SRA, which contains minimum service levels (known as the passenger service requirement). These service levels are covered by the existing franchise subsidy. We are only able to exceed these levels where we can identify commercial opportunities, which are very limited in Wales, or if their losses are covered by additional subsidy, which is determined by the funding bodies rather than the operator. It is also clear that the cost assumptions of Prism in their bid for the franchise were unrealistically low. This has been resolved with the transfer to National Express, which has stabilised the situation—further development is now dependent upon a revised franchise agreement.

Service Delivery

  Within the service specifications, our view is that we have been providing a good value for money service. This is reflected in the recent growth in passenger volumes (eg +23 per cent on the Valley network in two and a half years). The resources available to us have been determined by the availability of subsidy and this was based upon a Franchise Agreement based on resource and cost minimisation. Recently, both network congestion, as other operators have increased their services, the track difficulties experienced by Railtrack, and overcrowding of services from passenger growth, have caused an imbalance in the previous relationship between costs and quality.

  We do recognise that passengers desire even better delivery of services and this is likely to feature highly in the letting of the new franchise. We have a thorough understanding of what initiatives are available to, enhance delivery, but, in a highly subsidised environment, the rewards available to us from more people travelling will be less than the cost of many of these initiatives. We therefore need to look at mechanisms to provide additional finance.

  Just as road transport will always be susceptible to congestion delays, rail services will be exposed to problems on the network, by they infrastructure failures or problems with other operators' services. These will only be resolved by national initiatives to improve performance to which our own improvements would contribute.

  You might wish to outline service improvements you are proposing for the future

  We have numerous proposals for significant rail improvements. These are based upon the priority areas outlined by the Secretary of State in July, including:

    —  Reduce overcrowding

    —  Improve performance

    —  Improve the travel experience

  We also stand ready to operate the new services being proposed by the National Assembly for Wales in conjunction with their investment in infrastructure developments.

B.  RESPONSE TO TERMS AND REFERENCE

  1.  An integrated transport policy for Wales

    —  The interrelationship of the responsibilities of the UK Government and the National Assembly for Wales in providing an integrated transport network for Wales, in particular:

    —  the integration of passenger transport provided for by road (including walking and cycling), rail, sea and air

    —  the integration of transport provision in the private, public and voluntary sectors; and

    —  the relationship between transport and land use.

  The relative responsibilities of the UK Government and the National Assembly for Wales (and local authorities in Wales) are a matter for a political decision. We would observe, from a professional point of view, that the current arrangements have responsibility split between various public and private sector bodies. It is inevitable that each of these parties will have different detailed priorities and objectives and this can work against a fully integrated approach.

  We would note however that despite this, much success has been achieved in transport integration by close partnership working between public and private bodies and there are numerous examples in Wales of successful bus/rail inter-working schemes and integrated station forecourt developments.

  Transport issues which are specific to rural Wales and the Valleys, as well as those which are specific to urban areas, including case studies of transport problems facing particular areas of the country.

  In rural Wales the key issue is the low population density and hence limited potential regular usage of services. This limits the level of service that can be afforded and results in significant call on public subsidy to maintain services. Most available economies, such as the introduction of radio signalling, were secured under BR ownership in the 1980s.

  The Cardiff Valleys network is characterised by an intensive network of lines serving a large urban population with a relatively high frequency of services with frequent stops. This results in high passenger levels but at relatively low average fares from, mainly, short journeys, and higher than average unit costs (more intensive use of brakes and doors; fewer miles per traincrew duty). Opportunities to increase services are generally dependent upon increasing the capacity of the infrastructure as well as the acquisition of additional train vehicles. With current Railtrack issues, resources for infrastructure enhancement are becoming focussed on projects in England rather than in Wales.

  The role of transport in promoting social inclusion in Wales, including access to transport for Disabled people.

  Those parts of the community suffering social exclusion do not generally have access to private transport and are thus dependent upon public transport, including taxis, for access to jobs, shopping and leisure activities. Most people are able to have access to taxis but these are expensive for regular use. Buses and trains are only able to operate where sufficient numbers of people generally use them for fares income to be sufficient to cover the costs of provision, or where a subsidy is provided to cover such shortfall.

  The provision of services more accessible to the disabled is taking place with the introduction of new bus and rail vehicles. Modification of existing vehicles is much more difficult and in some instances is simply not possible. Full access to rail boarding points to also very expensive, as it often requires a new footbridge across railway tracks with long and expensive ramped approaches. Given limits on the availability of funds, a pragmatic approach is desirable, such as provision at certain locations, with use of other modes (eg dial-a-ride services) to access those points. As Operators we would advocate a balanced approach which enabled disabled people to make journeys without necessarily enabling every method of making a journey.

  The impact of the Transport Act 2000 in Wales

  This has not had any particular effect upon rail activity as it is governed by pre-existing Franchise Agreements with the SRA.

2.  Railways in Wales

  The current and future role of the UK Government, the Strategic Rail Authority and the National Assembly for Wales in providing efficient and affordable rail services within Wales, including:

  The selection of the franchise for Wales and Borders and the possibility of an all-Wales franchise.

  To complete an "All-Wales" franchise requires the train services in North Wales, currently operated by First North Western (FNW), to be added to the existing Wales & Borders portfolio. We assume it is not envisaged that the service operating in the Borders area would be removed in the creation of an All-Wales franchise. Our understanding is that the SRA has reached agreement with FNW to facilitate the transfer of their services, and that it is proposed that this should happen concurrently with the "activation" of the All-Wales franchise. We are not aware of any intention to franchise the current Wales & Borders activity separately.

  It is unclear to us whether a process of "extension" or "competition" will be used to let the franchise. Either approach is possible, each with its own advantages.

  Development of franchise propositions to date have been heavily influenced by consultation with National Assembly for Wales representatives, local authorities and user groups and we believe all potential bidders are aware of the aspirations of the Welsh community for the rail franchise. The SRA have now made clear that they intend to be highly prescriptive over the content of the franchise based upon public affordability, given the highly subsidised nature of rail in Wales and opportunities for un-commercial "extras" will be severely limited. We anticipate and welcome, that there will also be greater transparency to bidders over the selection criteria to be adopted.

  The involvement of the National for Wales or others in the process for selection of the franchisee is a matter for the SRA.

    —  The future investment required in Wales's railway infrastructure

  Investment requires three elements:

    —  availability of the initial capital outlay;

    —  availability of annual funds to repay the capital outlay;

    —  availability of annual funds to cover the operating costs;

  both the latter funds can come from the fares received from additional rail use but in the Welsh environment this is unlikely ever to be sufficient and public subsidy will be required.

  The National Assembly for Wales has made funds available as grants for the initial capital outlay for a number of infrastructure schemes and, with this mechanism, annual funds to repay the capital are not required. Only the operating costs need to be covered and these are expected to be covered within the terms of the franchise (ie SRA subsidy for the franchise will provide the public subsidy to cover operating costs after allowance for fares income).

  One element of the operating cost is the leasing charge for the additional rolling stock required. National Express has suggested to the National Assembly for Wales that they consider capital grant funding the additional rolling stock, as a way to reduce the operating cost and hence the call on public subsidy. This has already been applied in Wales where EU funds were used to purchase trains for new services to Maesteg and on the Swanline route—the trains being owned by local authorities.

  A key issue with delivery of the proposed infrastructure schemes is Railtrack's involvement in the technical approval, and implementation of schemes, and the current resource constraints, which they have ascribed to the higher priority being given to UK national projects (West Coast Main Line, train protection systems). National Express believes that a more radical review of procedures, involving some Government initiatives could assist in overcoming these problems.

  The rights and responsibilities of the SRA in relation to the National Assembly for Wales.

  This is essentially an issue about devolution of responsibility from Government to the National Assembly for Wales.

3.  Objective 1 Funding for Transport Projects

  The ways in which European Structural Funds may be used to improve passenger transport services in Wales and the uses to which ESF money has been put in other Member States, including expenditure on moving assets.

  National Express, in submitting its initial proposal for the All-Wales franchise to the SRA last December, identified numerous infrastructure enhancement schemes that appeared to be eligible for EU Objective 1 funding. We subsequently submitted a formal application to the scrutiny committee. Some of the schemes are no longer likely to take place as they are unlikely to feature in the SRA's Franchise proposition (as their operation required additional subsidy), but some, such as the SWIFT schemes in the Cardiff Valleys could still benefit.

  We are eager to assist in the submissions for funding, but are unable to do so as effectively as we would wish, given the uncertainty over the franchising process.

  A key issue is that plans for a scheme, and commitment to the operating subsidy is required well in advance of securing the EU funding. However, once this commitment is given, it is difficult to argue that the scheme is dependent upon the EU Funds, a key requirement in obtaining the funds. Some mechanism for extending the timescales for advance commitment from the EU would assist, given the timescales for infrastructure works and train vehicle construction.

National Express Group

12 November 2001


 
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