Memorandum by National Express Group Plc
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.
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.
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
operates to high standards of safety;
runs more trains to a wider choice
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 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
Prioritisation and Value for Money.
Better Franchise Management by the
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
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
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.
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
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
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
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 TOCsand 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
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 resourcesboth in bidders and in
Railtrackare 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" approachin
which the parties work together towards evolving objectiveswill
yield better results than the pure "enforcement" approach
in which the emphasis is on policing a contract rooted in the
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 SRAsince 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
Key characteristics which enabled the parties
to negotiate the dealand 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 contentenabling early implementation
and low project risk;
adequate financial performance, providing
suitable base for extension.