Supplementary memorandum submitted by
GNER
FOLLOW-UP QUESTIONS FROM THE COMMITTEE
ELASTICITY
(a) Regular passengers such as commuters
may not desert the railway right away if ticket prices are too
high, but it will affect their long-term choices of where to live
and work. Explain why the current high ticket prices won't result
in regular passengers fleeing from the railways in the long term?
Although season tickets are only a relatively
small part of GNER's total business, our experience is that commuters'
decisions on where to live and how to travel to work are not only
decided by rail fares, but also strongly influenced by other factors
such as the availability of affordable housing and journey time.
As with all types of passengers, we face strong competition from
other modes and rail operators when potential commuters make decisions
about where to live and work and we have to price our tickets
accordingly. ATOC has conducted more extensive research on this
question, on behalf of all transport operators, and we agree with
their conclusions.
(b) The cost of rail has increased relative
to other modes of transport over the past two decades. Will this
not serve to drive passengers away from rail in the long term?
Passengers' choice of mode is based on a number
of factors not just price. Other factors such as road congestion,
journey time, convenience, comfort and service quality all play
a part in passengers' decisions whether or not to travel by rail.
GNER operates in a very competitive environment and, if we do
not offer value for money to our passengers then they will switch
to either air or road transport. When forecasting demand over
the long term GNER (in common with DfT and other train companies)
uses the Passenger Demand Forecasting Handbook for information
on elasticities of demand. This handbook is the best current view
of industry and academic experts on the various elasticities of
demand for all these factors. Based on the data from this handbook
GNER believes that there will still be significant growth in passenger
numbers over the next 10 years on the East Coast Mainline. Indeed,
our franchise premium payments depend on it.
On a pence per mile basis GNER compares favourably
with typical car running costs. Based on figures from The AA,
the total costs for a typical priced car doing 10,000 miles per
year are between 45p and 57.4p per mile. The average Standard
fare on GNER in 2005 is 13.7p per mile. Even the petrol only costs
for a typical car are in the range 10.5p to 13.5p per mile.
COMPLEXITY AND
TRANSPARENCY OF
FARES
(c) What are the benefits of moving away
from a traditional price-per-mile system towards so-called dynamic
yield management where the price of a ticket depends on a whole
range of factors, such as the time of travel and how far in advance
the ticket was booked?
(i) Who benefits from these new systems?
Market based pricing first replaced the price-per-mile
approach on UK railways over 20 years ago. GNER believes that
adjusting fares to reflect competitive pressures and the balance
between supply and demand in different markets benefits both the
passenger and the taxpayer. The introduction of yield management
systems allows this balance between supply and demand to be determined
dynamically on a train by train basis, thus making much more effective
use of the available capacity. With higher levels of utilisation
the need for investment in additional capacity can be delayed
giving better value for money to the tax payer.
Yield management systems have allowed GNER to
offer lower fares at off-peak times than would have been the case
if only walk-up pence per mile fares existed. In 2004 10% of GNER
passengers travelled on permanent fares which were cheaper in
real terms than pre-privatisation. Yield management systems are
successful used by the many other industries including the low
cost airlines.
(d) How do you know whether rail users and
non-users are aware of the full range of fares and ticket types
available?
In common with all other franchised operators
we are obliged through regulation to provide accurate and impartial
information on the full range of fares available. Sales through
our travel centres are monitored through a mystery shopping survey
administered by ATOC on behalf of the DfT. Since 2003 GNER has
scored in excess of 99% accuracy/impartiality in this annual survey.
Operating in a highly competitive market, it
is in our interest to advertise and market our full range of fares
as widely as possible. GNER prides itself on doing this well;
increases in passenger numbers and the take-up of off-peak fares
are proof of our success. We have undertaken a number of major
marketing campaigns including TV advertising, email and posters
to promote the range of fares. As mentioned to the Committee on
30 November, we have plans in place to improve our internet ticket
booking facility to make it easier for passengers to find the
cheapest fares.
(e) What is the rationale for ticket prices
to be cheaper via the internet than other media?
With the exception of short term promotional
offers, regulation prevents GNER from offering fares sold via
the internet which are cheaper than via other channels. The internet
offers GNER the opportunity to reduce its ticket retailing costs
as well as a chance to attract new passengers to rail who currently
use the internet to book air and coach travel. In common with
other industries which have cheaper prices via the internet GNER
would like to reflect the lower costs of internet retailing by
offering lower cost fares to passengers who book via the internet.
OPEN TICKETS
(f) What proportion of passengers travel
on open tickets on your routes?
Currently, 4% of our passengers travel on First
Class Open tickets and 14% travel on Standard Open tickets.
(g) What proportion of your revenue comes
from First and Standard open tickets respectively and in total?
Currently, 13% of our revenue comes from First
Open tickets and 19% from Standard Open tickets.
(h) What proportion of your passengers using
walk-on fares are business travellers?
The table below shows the split between business
and leisure passengers purchasing fares on the day of travel.
The proportion of business travellers is highest for the peak
time fares, whilst the discounted off-peak fares (saver and cheap
day return) are more commonly purchased by leisure passengers.
The data comes from our own on-train surveys.
| Business | Leisure
|
| First Open Return | 85% |
15% |
| Standard Open Return | 58% |
42% |
| Business Saver | 72% | 28%
|
| Saver | 39% | 61%
|
| Cheap Day Return | 32% |
67% |
(i) To what extent do people who "turn up and go" represent a "captive market", that is people who have little or no choice but to travel by train using open tickets?
| | |
Passengers who "turn up and go" are not required
to buy open tickets. Both saver fares for longer distance flows
and cheap day returns for shorter flows are available outside
of the peak times on the day of travel. Far from being a captive
market, GNER faces competition from the car and bus/coach in the
"turn up and go" market and, as such, the cheap day
and saver tickets need to be competitively priced, especially
on the shorter distance journeys if we are to offer a realistic
alternative to the car or indeed coach travel.
SAVER AND
ADVANCE-PURCHASE
FARES
(j) Will Saver tickets not suffer the same fate as the
SuperSaver and effectively disappear if they are de-regulated?
As mentioned above the walk-up market is an important segment
for GNER and saver fares account for about 20% of revenue. Therefore
discounted walk-up fares are likely to be continue to be available
even if saver fares are deregulated. The supersaver fare had complex
terms and conditions that were neither well understood by passengers
nor well suited to passengers' travel needs. Its removal was part
of our long term ambition to simplify the ticket type structure.
(k) The allocation of advance purchase tickets is unclear.
How can passengers make informed choices if the details of quotas
are not publicly available?
We are not aware of any examples from industries which use
yield management (airlines, hotels, car rental etc) where companies
publish details of their price quotas. GNER cannot see a case
for the rail industry to be any different. In a competitive market
place information about price and availability is commercially
sensitive and it is difficult to see what benefit passengers would
get from having access to such rapidly changing and dynamic information.
GNER uses computerised systems to help their analysts in
the complex task of managing the availability of cheap advanced
purchase fares so as to meet the revenue targets whilst minimising
overcrowding. With booking 10 weeks ahead for 122 trains per day,
GNER is reviewing the availability of cheap fares on approximately
8,500 trains at any one time and with typically 10 fare types
on each service. Such a mass of data would only serve to confuse
the passenger. Whilst the availability can change on a daily basis
in response to changes in demand, the general policy is that the
earlier passengers book the cheaper the fare will be.
We believe that passengers understand the principle that
the earlier you book, the better the chance of getting the cheapest
advance purchase tickets.
GROUP TICKETS
(l) What are the restrictions governing group travel on
your routes?
GNER has a dedicated team specialising in the booking of
groups of 10 or more people. The same conditions of carriage restrictions
apply as for all passengers booking on our services. Again, the
earlier that bookings are made and the more flexible groups can
be with their travel times, then the greater the savings GNER
may be able to offer them. GNER Group Travel can help arrange
all aspects of the journey, including:
— Luggage assistance upon arrival and when changing
over to a connecting train or coach.
— Advance bookings for connecting journeys on other
train operators' routes.
— Discount Underground tickets for groups travelling
to or from London.
— Group seating on board, wherever possible, in
reserved seats.
— Discounts on our GO EAT catering range in the
Restaurant and at the Buffet. If requested we can also arrange
onboard catering orders in advance.
RAIL CARDS
(m) Would a National Railcard scheme not be the best way
to expand the market for rail travel in the UK?
GNER does not believe that a National Railcard would be the
best way to expand the market for rail travel in the UK. GNER
supports the existing range of Railcards targeted at specific
segments of the population. We believe that a generally available
Railcard is likely to lead to a reduction in revenue for GNER
especially if it means discounting fares on already full peak
trains. We believe that the current approach of simplifying fares
and offering discounted fares targeted at less busy trains is
a more cost effective way of expanding the market for rail ie
growing demand where we have the capacity available to carry the
passengers without overcrowding.
Our Franchise Agreement with the DfT means that any revenue
reduction as a result of this change would be reflected in a reduction
in the premiums paid by GNER to the Government.
BOOKING SYSTEMS
(n) Do you offer special booking services to business
travellers which assist them in identifying the most advantageous
fares?
GNER offers a range of services to all travellers which helps
them identify our best fares, such as being emailed automatically
when our cheapest fares become available. GNER's Business Travel
Service (BTS) is a dedicated ticket booking facility for business
travellers, arranging travel both on and off the GNER network.
Its users are business individuals, corporations themselves and
even travel agents who require GNER's ticket on departure facility.
BTS customers can arrange a payment account or can pay for each
ticket as they book. BTS benefits from a team of highly trained
consultants who are in a position to manage business travel itineraries
to best effect and ensure that our business community are getting
the best value for their travel choice.
EFFECT OF
TIMETABLING ON
THE AVAILABILITY
OF CHEAPER
FARES
(o) Last year there were significant problems for passengers
in making cheap advance bookings for the Christmas period. How
do you think advance bookings are progressing for Christmas this
year?
This year bookings for travel over the Christmas period are
progressing well. We started taking bookings on 13 October, 10
weeks before Christmas. More than 3,000 people took advantage
of our "advance notice" facility and were emailed as
soon as the booking window opened for travel over Christmas.
The tables below show that the availability of advance fares
is almost 40% higher than in 2004 and the availability of the
cheapest advance fares is more than four times higher than last
year. By 5 December we had sold 90% more Advance fares than at
the same time last year and sales of the cheapest Advance fares
was almost three times higher.
| Christmas
2004
| Christmas
2005 |
Total number of Advance tickets available for sales
| 82,204 | 114,095 |
| Number of Advance tickets sold as of 5 December
| 27,479 | 52,275 |
| Number of unsold Advance tickets still available as of 5 December
| 54,725 | 61,820 |
| | |
| Christmas
2004
| Christmas
2005 |
| Total number of the cheapest Advance tickets available for sale 6,164
| 26,580 |
| Number of the cheapest Advance tickets sold as of 5 December 2,948
| 8,382 |
| Number of unsold cheapest Advance tickets still availablef as of 5 December 3,216
| 18,198 |
| |
|
Christmas 2005 is travel from Thursday 22 December to Tuesday
3 January inc.
Christmas 2004 is travel from Thursday 23 December to Tuesday
4 January inc.
(p) Is the process of Network Rail uploading timetables
and engineering works data to the national database at T-12 now
functioning satisfactorily?
As of 5 December the reservation system is open for bookings
for travel up to 24 February 2006, a booking horizon of just over
11 weeks. Currently, the process is working satisfactorily. This
is the result of concerted efforts between GNER and Network Rail
to address the issues around forward planning of engineering works
and timetables.
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