Select Committee on Transport Written Evidence


Supplementary memorandum by ATOC (FOR 95A)

THE FUTURE OF THE RAILWAYS

  Please find attached the note that you asked ATOC to prepare on TOC costs. We have used as our sources data from the SRA and analysis published in the independent publication, "Rail Industry Monitor".

  As you will see, TOC costs per unit of output when the effect of RPI changes have been stripped out, have been broadly constant since privatisation. The SRA's figures show that TOC costs per train kilometre (excluding Network Rail track access charges) fell by 3% in real terms between 1997-98 and 2001-02, and analysis in Rail Industry Monitor shows a 14% reduction in real costs per train kilometre between the earlier year of 1996-97 and 2001-02.

  The reductions in real cost have been achieved in the face of upward pressures on TOC costs. For example:

    —    2,000 additional train drivers were engaged between 1997-98 and 2002-03 to cover new train services and to improve service reliability.

    —  the replacement of some old types of rolling stock such as Mk I carriages has increased rolling stock costs. Quality has however improved for passengers.

    —  more front line customer service staff have been hired. The number of staff engaged in NRES has for example increased from just over 1,000 at privatisation to over 1,500 now.

    —  insurance costs have increased four fold in recent years.

  In summary we believe that train operators are pretty good at controlling their costs, and that the aggregate increases in the cost of rail since privatisation is almost wholly due to increased infrastructure costs.

  Looking to the future, there will continue to be upward pressure on costs. Some will be addressed by the normal competitive pressure for new franchises and cost control exercised by TOCs. There will, however, be other cost pressures which arise out of the specification of outputs required by the SRA and risk issues which are to a large extent outside the control of train companies. On these, we will work with the SRA, but the final decision is rightly theirs.

Alec McTavish

Director, Policy and Regulation

13 November 2004

Annex

TRAIN COMPANY COSTS

Sources of data

  We use three sources of information:

    (i)  The first is the SRA's 2003 Strategic Plan which shows TOC operating costs between 1997-98 and the latest year for which data is available, 2001-02.

    (ii)  The second is the Rail Industry Monitor 2003 published by TAS. This is edited by Chris Cheek and the publication is widely regarded as the most comprehensive analysis of train operators which is available.

    (iii)  TOC train kilometres from National Rail Trends published by the SRA.

THE RESULTS

SRA Strategic Plan

  The SRA's analysis of TOC operating costs shown below is taken from page 49 of their "Strategic Plan 2003". This is shown in the upper part of Table 1. The costs exclude Network Rail Costs on the grounds that these costs are not controlled by train companies.

  Two adjustments are made in these papers:

    (i)  The costs presented by the SRA are in nominal terms, ie they include the effect of general price increases. This is corrected for in the row called "Real Costs" by taking out the effect of increases in the RPI.

    (ii)  The period between 1997-98 and 2001-02 saw an increase in TOC output measured by train kilometres. The time real cost of train operations is therefore divided by train kilometres to arrive at TOC operating costs per train kilometre in constant prices.

Table 1

TOC OPERATING COSTS 1997-98—2001-02
1997-981998-99 1999-20002000-01 2001-02
Staff Costs (£M)   869    876   9341,026 1,110
Other Operating Costs   995 1,0701,0681,181 1,210
Rolling Stock Cost   811    794   782   798    927
Total Nominal Costs (£m)2,675 2,7402,7843,005 3,247
Real Costs (ie RPI deflation of prices to 1997-98 prices) (£m) 2,6752,6512,663 2,7852,996
Train kms (million)376.3 405.1418.4427.2 435.9
Real costs (£) per train km7.108   6.54  6.36  6.559   6.873


  The results show that real TOC operating costs per train kilometre are lower in 2001-02 than in 1997-98 but costs in 2001-02 are above the lowest which has been achieved.

RAIL INDUSTRY MONITOR

  TAS in their Rail Industry Monitor have used different but consistent source data of all TOC costs. It is important to note that the costs include track access charges. The analysis is particularly helpful because TAS has disaggregated the analysis of costs between InterCity, London and South East, and Regional operators and they went back to 1996-97. Of TOC efficiency TAS say:

    ". . . it will be seen that the analysis suggests that there has been a fairly impressive real-term reduction in operating cost per kilometre, amounting to almost 14%, since privatisation. The reduction in the regional sector has been particularly sharp, at 21.6%, whilst InterCity operators have reduced by 12.4% and the London and South East operators by 9.8%.

  This suggests more attention to cost control than the train operators are sometimes given credit for."

Table 2

REAL CHANGES IN TOC OPERATING COSTS PER TRAIN KILOMETRE BY SECTOR
2001-022000-01 1999-20001998-99 1997-981996-97 6 year change
££ ££ ££ %
InterCity18.4417.11 18.0620.3720.91 21.04-12.4%
London and SE11.6110.85 11.9412.0512.76 12.87-9.8%
Regional  8.65  8.30   9.41  9.69  9.09 11.03-21.6%
National12.1711.26 12.6213.1513.40 14.12-13.8%

(source TAS 2003).

November 2003


 
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