Examination of Witnesses (Questions 180-199)
MR DAVID
MAPP, MR
PAUL SMITH,
MR TONY
COLLINS, MR
GRAHAM LEECH
AND MR
CHRISTOPHER GARNETT
30 NOVEMBER 2005
Q180 Chairman: Over two years, Mr
Leech?
Mr Leech: Yes, perhaps I could
just explain the things that we have done. In the advance purchase
fares, where the industry came from with British Rail, there was
a whole series of fares with different names, like Super Advance
and Apex, which had different conditions and different companies,
between us, we had different conditions too. What we have now
done is create one range of advance fares for Virgin and GNER,
and Midland Mainline have done a similar thing too, and there
are not different conditions amongst those fares. The only difference
is that you pay a different price, but you know that the conditions
are the same and you do not have to worry about whether you stay
away on the Saturday or it is only valid on the Friday, so that
is one simplification. Another simplification we have done is
that we have made our single tickets half the price of a return
ticket and that may sound like a simple and obvious thing to do,
but it is not what happened historically; the customers used to
pay only £1 less for a return ticket under British Rail which
does not make sense to customers. We have also applied the normal
standard Railcard discounts to all of our advance fares which
was also not the case. Therefore, we are setting out a whole range
of simplifications there essentially on Virgin Trains and increasingly
on other rail operators. There are only three types of fare: there
is the Open fare which is fully flexible; there is the Saver fare
which is for walk-up travel at off-peak times; and then there
are the advance fares. We believe that that simple concept of
three types of fare is something that customers can understand
and indeed we are now developing our communication and our website
to present fares in that simple way.
Q181 Chairman: Mr Garnett, you wanted
to comment on that?
Mr Garnett: The criticism in the
past is totally justified, that there were too many fares, absolutely
as Mr Leech has said. We, Midland Mainline and Virgin have all
made this change in September with three Standard and three first-class
discounted fares which has made it much easier. The problem is
that our websites do not make it easy for the passenger to find
it and—
Q182 Chairman: So you have got a
simplified system, but you just hide it?
Mr Garnett: No, but you have got
to have patience. I went on to the website this morning, to check
something up after the interesting article in today's Times,
and it is not easy to find fares, I accept that, and it takes
a bit of time. If you go on to the Easyjet site, which I went
on to compare their Christmas fares, the fare comes up straightaway.
If you go and look at the eight o'clock to York, you have to got
to go through it and find if the fare is available. What we have
got to get to, and that is probably something we will have in
12 to 18 months' time, is you will go to the eight o'clock and
there is your fare, dead easy, it is there. It is not in our interests
to make this difficult for passengers because our research shows
that they get fed up and they go to the airline websites because
it is easier.
Mr Leech: We are actually making
just that change on our website now and in the spring of next
year that is what you will be able to see. You will be able to
see your Open fare, your Saver fare and the cheapest available
Advance fare for the journey that you want to make.
Chairman: Well, you have started some
hares running now!
Q183 Clive Efford: That leads to
the question of how long have you been running your contracts
and why has it taken so long for you to begin to revise your fare
structure to make it simpler for the public?
Mr Leech: The main reason it has
taken time to make that simplification is the changes that have
had to be made in the industry systems. It was recognised in about
2000 by the industry that the situation was not as we wanted it
to be either for customers or for making best use of the train
capacity that we have. That was the point when the decision was
made to invest in a new reservation system which is necessary
for these controls. Previously what was happening was that there
was quite a complicated set of fares being run with a fairly ropey
set of old systems and you could argue that it was trying to do
something too complicated. We now have, since last December, the
new National Reservation System. GNER and ourselves have been
the prime supporters of that, but all of the other train operators
use it and it is the ability that we have within that system which
is now allowing us to make these simplifications.
Mr Garnett: We all learned on
privatisation about introducing new fares. At privatisation, the
cheapest British Rail fare was the Super Apex, I think. Last year
on GNER 10% of passengers travelled on fares that in real terms
were lower than anything there was in the BR days, so we have
introduced lots of new fares that offer fantastic value for passengers,
our fault, mostly driven, as Graham Leech said, by the industry
systems making them easy, but you had to hunt for them and that
was not in our interest and we are tackling that problem.
Q184 Clive Efford: Can I ask both
of you then to explain to us why all the TOCs cannot adopt and
propose a straightforward and user-friendly fare structure in
the Grand Central Rail franchise bid?
Mr Garnett: I am delighted to
answer the question on Grand Central. Grand Central is going to
operate at £28 million per annum less for the first five
years for the number of trains that we are going to run as an
open-access operator. That is a fantastic public subsidy that
they are getting which we, as government-controlled, government-owned
franchises, have to pay, so here we are, letting somebody come
in with a £28 million per annum subsidy. If I had that equivalent
subsidy, which would be £150/160 million, I could discount
fares. The only problem is that I could not carry passengers because
the trains are full already and the taxpayer would lose, the railways
would lose and there is no benefit. Secondly, we already offer
for cheap discounted fares full reservation and if you do not
get a seat, you get a 100% refund. The fares that they are quoting
are identical to our off-peak fares because they are not going
to be operating in the peak, so I think that it is a totally incompatible
comparison to make because of the massive subsidy that, strangely,
they are being given by the railways which simply cannot afford
to give out subsidies. We cannot afford to do what we need to
do today, yet we are giving these people access worth £28
million a year. There is something seriously wrong with a system
that allows that.
Q185 Clive Efford: Mr Leech, do you
have anything to add to that? Why is it that we cannot offer a
straightforward, user-friendly fare system in the franchise bids?
Mr Leech: I cannot comment on
Grand Central because that is not affecting us in the same way,
but what you are actually seeing is that the long-distance operators
are now, of their own volition, adopting similar terms. In fact
when the three companies we talked about made this move to allow
all of the cheap Advance tickets to be available up to one day
ahead, which is obviously a positive thing for customers because
they are easier to get, we all agreed that we were going to use
the same type of description for them, so they are all being called
Advance fares. It is not that one of us calls them "bargain"
and one of us calls them "value" and the other calls
them "advance", but we all agreed that we would call
them Advance fares; they are a similar concept. One could go a
step further in harmonising other names, but I think you can now
see the train companies recognising that simpler communication
to the customers is beneficial to everyone.
Q186 Chairman: How long have you
held the franchise, Mr Collins?
Mr Collins: We were awarded the
franchise in 1997.
Q187 Chairman: And you, Mr Garnett?
Mr Garnett: We got our franchise
renewed in May of this year.
Q188 Chairman: And what about the
one before that?
Mr Garnett: That was seven years
with a two-year extension.
Q189 Chairman: Yes, so you both,
gentlemen, have had quite a long time to think about it, have
you not?
Mr Garnett: And we have made,
I believe, a lot of change and a lot of improvement and the customer
research has shown that we have got simplified. GNER—
Q190 Chairman: The customer research
shows that particularly on long-haul, nearly half of your customers
do not think you are value for money.
Mr Garnett: 60% of our passengers
are satisfied with the fare structure on GNER. The problem we
are going to face as an industry, and there are two points, we
get no public subsidy whatsoever, we pay the Government—
Q191 Chairman: Well, that does make
you fairly unique amongst the train companies.
Mr Garnett: Well, it also means
that we have got to go out, as any intercity train company has
got to go and do, and get every passenger we can. We have enormous
competition with the airlines. That is where our principal competition
comes from, the long distance, and that is where the money comes
from, so we have got to go out and offer fares—
Q192 Chairman: Lots of people take
planes from York, do they?
Mr Garnett: No, the big market,
the big revenue flows come from Edinburgh, Newcastle and Teesside.
What we cannot do is reduce the fares there to meet the airlines
and then make the York fares higher. It dictates the fares the
whole way down the route, otherwise people say, "This is
not reasonable".
Q193 Chairman: Yes, it is called
commerce, I think.
Mr Garnett: It is. So we have
to go out and sell the fares and get people to travel. That drives
what we are doing. We have to fill up every train we can to pay
the Government the subsidy which the franchise was awarded on.
Mr Collins: If I could add some
further information on the Virgin franchises, one of our key flows
is the Manchester-London route where we—
Q194 Chairman: Oh, we hear a lot
about the London-Manchester route, Mr Collins! I can say it is
one of the most famous routes in the United Kingdom!
Mr Collins: We are in direct competition
with the airlines there and we have grown the volume of passengers
over the last 12 months by nearly 30%. Our fare price, our highest
fare, which only 5% of people pay, is £187 compared to £294
which the airlines charge for a similar type of journey. Our average
fare in real terms has not increased since we took the franchise
over as more and more people, over 50% of our passengers, on a
return ticket pay between £50 and £60 on that route
and 25% pay even less than that, so we have grown the volume,
grown the revenue base by growing the number of passengers we
carry.
Q195 Clive Efford: Following on from
that, you say you favour simplification of the Ticketing Settlement
Agreement to give you more freedom, but how would you use that
freedom and how would the travelling public benefit?
Mr Mapp: Well, I think we would
use that freedom to allow fares to be set in an easier way by
train companies. One good example of the kind of constraints that
the TSA currently places upon train companies is the Megatrain
Initiative which has been launched by South West Trains, offering
fares at £1 for the lowest from Southampton and the Solent
to London. Under the current regulation, that fare would have
to be withdrawn in 34 weeks' time because it is deemed a temporary
fare. We would like to see changes to the TSE which would allow
that kind of innovatory pricing to be introduced on a permanent
basis so that the train company would not have either to withdraw
the fare or seek, as it is doing, a derogation from the Department
for Transport. So we would like more freedom to create fares and
more freedom to choose how those fares are retailed and I think
the kind of benefits you would see would be more attractive fares
for customers and better use of retailing channels by train companies.
Q196 Clive Efford: Would it result
in, for instance, it being easier for someone to buy a through-ticket
rather than to have to buy two separate tickets for a leg of a
journey? Would that benefit people?
Mr Mapp: At the moment through-ticketing
is a condition on every TOC's passenger licence. TOCs have to
offer through-ticketing and indeed they have to offer inter-available
fares, for that matter, as well.
Mr Leech: Probably the main purpose
of the Ticketing Settlement Agreement has been to maintain these
network benefits of through-journeys and that is not a question
which is being disputed because, as train operating companies,
we see that as essential for the prosperity of the railway and
for customers being able to use it easily. The Ticketing Settlement
Agreement does not require train operators to set through-fares
where they are setting up their own Advance products, but we believe
it is still essential, so even with our own Virgin Advance tickets,
the ones that are the cheapest, we offer connections with all
the other TOCs all over the country, so you can travel from anywhere
in the south-east of England, for example, to anywhere in Scotland
on an Advance ticket. That is something we think is absolutely
essential to keep it as a national system and nothing we are proposing
in changing the Ticketing Settlement Agreement would be taking
that away.
Q197 Clive Efford: Can I just press
this point because I just want to be clear. Currently, in some
circumstances, it is cheaper for somebody to buy two separate
tickets than to buy a through-ticket. Now, are we hearing here
today that you are now going to bring that to an end?
Mr Mapp: I have worked for the
industry for around about 24 years now and there was a time during
my career when I used to price the Great Western route from London
to the west country and south Wales. There will never be a time
when anomalies of the kind that you suggest do not exist. We have
something like 19 million point-to-point flows in our fare system,
not fares, just flows, because, apart from the 2,500 by 2,500
matrix of station-to-station flows that we have got, we have also
got London Underground destinations and PTE destinations and so
on. There will never be a time when there will not be anomalies
of the kind that you suggest. It is simply not possible to do
that. It is too complex a problem. We try and eliminate anomalies
where we are aware of them and where they are causing a problem,
but the kind of perfect fare system that you envisage I just do
not think is practical or possible.
Q198 Chairman: Is the research that
is going to be undertaken on fares by the Passenger Demand Forecasting
Council going to examine the extent to which high-price tickets
deter people from buying rail tickets?
Mr Mapp: Well, the Demand Forecasting
Council, which has existed since privatisation, is funded by the
train companies and it is also funded by the DfT, by Network Rail,
the regulator, and—
Q199 Chairman: Yes, but what is the
extent of its research? I am sure we are very interested in its
financing.
Mr Mapp: It has an ongoing programme
of research. It reviewed the existing research evidence on fares
earlier on this year and that was undertaken by Leeds University
on behalf of the Forecasting Council. It plans to do further research
in the near future on one or two aspects of fares, the effect
of pricing and the lag between price changes and the effect on
demand, and also to have a look at the effect of changing different
price levels and the effect on demand amongst different groups
of customers.
| 
