Passenger Rail Franchising – British Experience
Given that virtually all British passenger train services were franchised out over the period1995-7, and many have now been franchised for a second time, Britain should provide anexcellent opportunity to study the impact of franchising passenger rail services. Moreover,since several different franchising models have been tried, there should also be some usefulevidence on how best to go about franchising. In practice, however, the turbulent history ofthe British rail industry over this period makes drawing firm conclusions difficult. At the start,it appeared that franchising was very successful with strong competition for franchises,rapidly rising traffic, rising productivity and falling subsidies. Whilst most of the increase intraffic was due to external factors, the growth appears somewhat faster than would beexplained by these factors alone. Despite this, a number of train operating companies got intofinancial difficulties, particularly in the Regional sector, where franchisees were relying onreduced costs rather than increased revenues to achieve subsidy reductions, and in the shortterm franchises were renegotiated or replaced with cost-plus contracts pending refranchising.After the bankruptcy of Railtrack not only have the costs and performance of theinfrastructure manager severely deteriorated, but there has also been a large rise in the costs oftrain operating companies. Without a better understanding of the causes of this rise it is hardto form firm conclusions on the success of franchising. One argument is that one of thereasons franchisees found it difficult to achieve the anticipated cost reductions was the degreeto which costs had already been driven down in the 1980s. However costs did start to riseagain in the early 1990s and in the early years of franchising substantial savings in costs pertrain kilometre were achieved, with cost increases only following later. A second suggestedexplanation for the cost increase is the temporary placing of many Train OperatingCompanies on management contracts or renegotiation of franchises around 2001. We havefound some support for this hypothesis, with our analysis showing that the affected TOCsexperienced higher cost growth than other TOCs. A third argument is that the increase incosts in the last few years may have been driven by factors unrelated to the franchisingprocess, and in particular, other aspects of policy such as health and safety legislation,disability discrimination legislation and a general requirement for higher standards. It is hardto be definitive on which of these three effects dominates, but we do have evidence whichsuggests that the way in which problem franchises were managed may have contributedsubstantially to the rise in costs after 1999/00. Our overall conclusion then is that passengerrail franchising in Britain may be regarded as a moderate success on the demand side, but thatit has failed to achieve its objectives on the cost side. However, it should be noted that the risein train operating costs in recent years has occurred at a time of considerable disruption,during which many other factors unrelated to franchising policy were changing at the sametime. It remains to be seen what the re-franchising process will achieve in terms of costreduction in a more stable environment.* We have greatly benefited from comments on an earlier draft by a number of peopleincluding, Mary Bonar, Richard Davies, Jeremy Drew, Peter Kain, John Glover, LouThompson and Steve Perkins. Responsibility for the final version is however solely our own.
Year of publication: |
2007
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Authors: | Nash, Chris ; Smith, Andrew |
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