Examination of Witnesses (Questions 328-339)
MR IAN
YEOWART AND
MR MIKE
JONES
19 JULY 2006
Chairman: Good afternoon to you, gentlemen.
We do have a little bit of housekeeping to transact before we
begin. Members having an interest to declare.
Mr Martlew: Member of Transport and General
Workers and General and Municipal Workers.
Graham Stringer: Member of Amicus.
Chairman: Gwyneth Dunwoody, member of
ASLEF. Mrs Ellman.
Mrs Ellman: Member of the Transport and
General Workers' Union.
Clive Efford: Member of the Transport
and General Workers' Union.
Q328 Chairman: Thank you. I do have
one important point. Before we start I want to remind you that
when we hear evidence in public we are bound by the resolution
of the House of Commons of 15 November 2001: no matter currently
before a Court of Law should be debated. There is a case currently
before the courts concerning open access on the railway network
and I wish to make it clear that I will allow no reference whatsoever
to this individual case in the forthcoming evidence session. Gentlemen,
you may not know that the microphones in front of you record your
voices but do not project your voices, so I am going to ask you
to identify yourselves, and I may even from time to time ask you
to speak up.
Mr Jones: Michael Jones, Director
of Renaissance Trains Limited.
Mr Yeowart: I am Ian Yeowart,
the Managing Director of Grand Central Rail Company.
Q329 Chairman: Thank you very much.
Did either of you have anything that you wanted to say before
we go on to questions, or may we proceed?
Mr Yeowart: I am happy for you
to proceed.
Q330 Chairman: Mr Jones?
Mr Jones: Yes, thank you.
Q331 Chairman: Mr Jones, without
mentioning the current judicial review could you summarise what
your experience of open access operations has been to date?
Mr Jones: Madam Chairman, the
first thing to say is that we would view the company as being
very successful. We started on a small-scale basis and we have
achieved continual growth of new customers—that is not customers
that we have secured from other operators. The first two years
of operation were not profitable and that was part of the effect
of the Hatfield crash and the general difficulties in the industry
at the time. From year three we moved into a small profit and
gradually enhanced that to the point that at the end of year five
we were able to pay for the losses that had been incurred in that
initial period. So the company is now trading successfully in
terms of earning a rate of return and that is quite an achievement
when you think that we have bought new trains, the Class 222 125
miles per hour units. I think also so far as the city of Hull
is concerned—and that remains our predominant market—that
a great deal has been achieved there in contributing to the regeneration
of the city. Hull is a very rundown part of the country and one
of the poorest in terms of the socio-economic mix. We have provided
access to people who would not otherwise have access to rail services
and I think that although an independent private company we take
very seriously the desire to bring a greater access of the railway
to all sections of the community.
Q332 Chairman: One of the things
that you have done in open access is worked as joint ventures
with franchise companies. Has that made it easier for you to gain
access?
Mr Jones: I think it may be wrong
to use the word "franchise companies"; it has been done
with owning groups in the sense that GB Railways and First Group
own franchises but they tend to use resources in their headquarters'
organisations to provide the backing for an open access operator
that they support. That was not, in fairness, the situation when
we started with Hull Trains; there was very short notice available
and basically we sub-contracted the operation to Anglia Railways,
who provided all the necessary things that were needed to get
the railway started quickly.
Q333 Chairman: So has it been easy
for you to find partners?
Mr Jones: I would say that if
the business case is robust the answer to that is yes; they are
basically providing venture capital.
Q334 Chairman: Mr Yeowart, do you
also have established partners?
Mr Yeowart: We do, but they are
not currently rail operators.
Q335 Chairman: So what should be
the government's objective in allowing open access to the railway?
Let me ask you first, Mr Yeowart.
Mr Yeowart: The basic franchise,
as we see it, is for the government to buy what it believes it
can afford and what it believes it needs to deliver in relation
to railway services. Open access was always designed to perhaps
fill in some gaps or provide some new opportunities whereby franchises
and indeed BR in its day would not perhaps have seen a business
opportunity. One of the difficulties we found in creating a business
case is that most of the railway development work is based on
incremental traffic, so therefore if you have a level of service
now you get a bigger level of service. The problem with that is
if you have no traffic at all an increment of 1,000 times nothing
is still nothing and therefore the models that are used do not
actually work. So I am sure Mike had to do exactly the same as
we had to do, which is to strip it right back to bare basics and
in effect build a business case from scratch in the same way you
would if you were looking to open a shop or put something else
in the high street.
Q336 Chairman: If an open access
is viable and profitable on a particular route, why would it not
be better for the government to widen an existing franchise to
include those paths?
Mr Jones: I think the answer against
that is the lack of marketing focus. If you look at Hull it is
very much seen as Hull's railway. All the staff are employed there,
we have 75 people or so who are based in Hull, and we probably
spend more on marketing relative to our turnover than the franchised
operators would do. I think the franchised operator is always
going to be interested in its key eight or 10 flows—the
flow from London to Bristol, London to Birmingham, London to York,
et cetera; but when you have a flow like London to Hull, which
is a small percentage of the overall revenue, the effort that
has to be put in to growing that is probably a lot more than the
effort needed to get a similar growth on the flow from, say, London
to Leeds.
Q337 Chairman: Do you really think
open access operations affect coordination of the integration
of train services at a national and regional level?
Mr Jones: I do not think there
is a problem with that because the timetable making process is
something which involves all the other operators. We are members
of ATOC, we offer all the usual national products—
Q338 Chairman: That is not quite
the question I was asking you. Mr Yeowart, do you agree that it
would make it difficult to coordinate and integrate?
Mr Yeowart: I think the problem
with integration within a franchise is they are very tightly specified
and if they are tightly specified and there is a pressure on spend,
for example, then they will always look at the margins—BR
always used to and I am sure that franchises will be the same.
Open access has to survive by the fact that it delivers for its
customers and in relation to what Mike was saying about the timetable,
he is right that there is a responsibility on all of us, open
access, freight and franchise passenger services to integrate
our services. We are talking to Northern, for example, about connectional
opportunities at some of the stations on the Durham coast where
our trains serve and the local trains serve. So we are trying
to make it so that perhaps they are five minutes before us rather
than five minutes after us so that they can deliver people to
Redcar, for example, to Eaglescliffe as a connection onwards.
So we do try to integrate but the railway is now, I think, a bit
more mature than it was in most areas but it is an evolving process
and will no doubt continue to evolve.
Chairman: Mrs Ellman.
Q339 Mrs Ellman: Mr Yeowart, you
refer to franchises being very tight. Do you think that there
is a case for PTEs and other regional operators to have more involvement
in the drawing up of those franchises?
Mr Yeowart: I am an ex-BR man
and I used to work in two PTE areas so I know quite well the level
of specification that PTEs put forward. I always used to think
that that worked very well under BR. Whether it can work well
under a franchise position in the same way where people's desire
is profits for the shareholders then it might be a little bit
different than where it was when we were BR managers working to
a set budget, if you like. But if PTEs contribute then they should
be allowed to specify, and even as an open access operator where
we are we do interface with the PTE in Sunderland, Tyne &
Weir, and for our proposed services from Bradford we spent a lot
of time with West Yorkshire PTE and the PTA in trying to elicit
some support—not financial support, but just support—and
that has included talking to them about timetables and opportunities.
So I think they should perhaps have a bit more of an involvement.
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