Conclusions and recommendations
Rail fares in the bigger picture
THE STRATEGIC SIGNIFICANCE OF THE RAILWAYS
1.
The affordability and attractiveness of rail travel is likely
to affect the ability of Government to achieve broader economic
and regional development goals. It is therefore imperative that
the railways are managed and priced in such a way that they help
and facilitate economic and regional development. Given that the
railways are now run as private semi-monopoly enterprises, the
Government needs to regulate actively to ensure that fares policy
works with the grain of broader Government policy and not
against it. (Paragraph 10)
2. If the Government
is to entertain any hope of achieving its targets on emissions
and congestion, it is essential for it to encourage a significant
shift from road to rail. Rail travel must be made affordable and
user-friendly in order to encourage people to reject cars in favour
of rail. Ticketing policy is crucial in achieving this public
policy goal. (Paragraph 13)
THE LEVEL OF PUBLIC SUBSIDIES FOR THE RAILWAYS
3. The
railways are a public service in receipt of substantial Government
subsidies. In the spirit of a public service, the railways should
be affordable and accessible to all, for walk-on, same-day or
advance purchase travel. To achieve this, the Government needs
to police the train operators much more rigorously than it has
done to date. (Paragraph 14)
4. We accept that
an increase in subsidies is not in itself the solution to the
problem of unreasonable rail fares. We appreciate that the railways
have to compete with many other vital services such as schools
and hospitals for Government funds and we do not argue for French
levels of railway subsidy. We do, however, believe that the dogged
pursuit of a policy to minimise public subsidy risks the long-term
viability of rail services and undermines the proper public service
function of the railways. We need a balanced approach to rail
subsidy which allows investment where relatively small sums can
produce significant results. This should be accompanied by strong
controls ensuring that the Government gets good value for its
money. There must be no waste. (Paragraph 17)
OBJECTIVES OF TICKETING POLICY
5. We
strongly urge that the Government revise its policy on unregulated
rail fares. The primary objective when setting rail fares and
fare restrictions must always be to maximise the public benefit
of the railways. This entails the greatest possible number of
passengers travelling at the cheapest possible prices without
raising public subsidies to unrealistic levels. This is not
synonymous with the maximisation of revenue or profit for private
operators. Given the natural preoccupation of private operators
with maximising revenue, it is the Government alone which is able
to safeguard a public service railway operated to maximise the
benefit to passengers and taxpayers. (Paragraph 21)
6. We believe the
issue of industry efficiency is crucial to controlling the levels
of fares. We also consider that too little attention is being
paid to driving up efficiency levels and controlling costs as
a way of keeping ticket prices down. Subsidies and industry efficiency
are both crucial elements in ensuring that the railways provide
value for money to travellers. (Paragraph 23)
RAILWAY CAPACITY AND FARES POLICY
7. The
railways are suffering from considerable capacity problems and
bottlenecks in parts of the system. These problems have serious
consequences for the ability of Government to achieve the level
of growth in passenger kilometres needed to meet other of its
key objectives such as the reduction in emissions and congestion.
Capacity problems can also drive the ticketing strategies of train
operators, enhancing their ability to continue to raise the price
of a scarce commodity and thereby pricing many passengers out
of the market. The Government must ensure an increase in railway
capacity. (Paragraph 26)
The complexity of rail fares
UNREGULATED FARES
8. The
current complexity of unregulated fares and conditions is an insult
to the passenger. It is unacceptable that in order to purchase
a rail ticket passengers are faced with up to a dozen different
products, most of which have subtly different conditions and restrictions.
Adding to the insult, operators not only market an unwieldy range
of slightly different products, but in some cases, identical
products are marketed under different names. The fact that
this situation has been allowed to develop unchecked over a number
of years demonstrates a lack of commitment from both train operating
companies and the Government to the best interests of rail passengers.
(Paragraph 31)
Creating a user-friendly structure
9. Train
operators must take urgent action to implement a unified fares
structure across the entire industry. This should involve no more
than a handful of different fares, and names and restrictions
should be identical across the network making the system user-friendly
and transparent for passengers. (Paragraph 34)
Initiatives to improve the problem of fares complexity
10. The
Committee is not sanguine about the industry's capacity to create
a uniform, coherent, and successful system of fares and conditions
without Government regulation. The assertion by some train operating
companies that the current level of complexity is caused by the
old reservations systems being incapable of handling a simple
fares structure is not credible. Under British Rail, the system
was capable of managing a simple fares structure, but that is
apparently no longer so. We believe that the level of complexity
arises from a different cause entirely. In our view, it is inherent
in the privatised and fragmented industry that different operators
will wish to apply different conditions and restrictions which
optimise the commercial advantage of their individual franchise.
Where no regulation is applied, such commercial considerations
will invariably win out over considerations of consistency and
ease of use for the customer. The experience of the past decade
gives us no reason to think otherwise. Government regulation is
required to ensure that all train operating companies adhere
to one simplified fares system so that passengers can travel
with easily identifiable fares across the entire network. (Paragraph
38)
Reducing complexity through regulation
11. We
do not accept the view that a Government-imposed harmonisation
of fares categories and conditions would unduly reduce the scope
for innovation. There is not a shred of evidence to imply that
a clear, comprehensible and transparent framework of ticket names
and conditions will reduce the scope for product innovation, as
is suggested by the Department. Rather, such a framework would
serve to improve customer satisfaction. It is imperative that
the Government take steps to enforce a degree of harmonisation
of ticket names and conditions on all operators. (Paragraph 40)
REGULATED FARES
12. We
believe that the greater stability and clarity of fares' names
as well as the restrictions and conditions of travel for regulated
fares such as commuter fares and Saver fares is an illustration
of the potential benefit of a tighter regulatory framework for
rail fares in general. (Paragraph 43)
The value for money of rail travel - real and
perceived
SUMMARY OF PRICE DEVELOPMENTS SINCE 1995
13. The
trends since 1995 demonstrate clearly that when fares are unregulated,
there is a tendency for prices to rise faster than inflation.
Fares on long-distance routes and first class fares have been
the worst affected by price rises. This trend appears to continue
relentlessly. Furthermore, the differences in fares increases
on different routes have been startling. This has created a situation
where the price for travelling a 100 mile journey on one route
might cost significantly more than on another route, even where
the quality and speed of the service is similar. This is neither
fair nor in the best interests of passengers. (Paragraph 47)
The announcement of 2006 fares increases
14. It
would appear that the train operating companies deliberately chose
to wait until the Committee's hearing on train fares had been
concluded before announcing yet another round of well-above-inflation
hikes in rail fares. If so, this was both unhelpful and irresponsible.
Our hearing was an excellent opportunity for the train operators
to debate the grounds of their pricing structure and any further
price increases. Instead, they chose short-term presentational
gain over transparency and credibility. We find this behaviour
immature and disappointing. (Paragraph 50)
PERCEIVED VALUE FOR MONEY OF RAIL TRAVEL
15. The
persistently poor levels of passenger satisfaction with the value
for money of rail travel are important. If passengers perceive
rail travel to be too expensive, then in some senses it is
too expensive, and it may reasonably be assumed that they will
try to avoid paying the set price - if not in the short term,
then in the longer term. Passengers' perception of pricing is
therefore crucial to the long-term outlook for the railways. (Paragraph
53)
Passenger growth and satisfaction despite poor
value for money?
16. Passengers
are fully capable of distinguishing between different aspects
of the service they receive, and overall satisfaction is a measure
of a whole range of things including punctuality, general comfort
in addition to value for money. Over the five years since the
Hatfield crash, the situation on the railways has improved from
appalling through to just bearable in terms of punctuality and
passenger comfort. As a result, while overall passenger satisfaction
has improved, satisfaction with value for money has not. (Paragraph
55)
17. Unlike the Minister
and the train operators, we do not accept the notion that the
growth in passenger numbers is an unambiguous indication that
train operators are performing well or even adequately in terms
of value for money to the passenger. People travel by train for
a variety of reasons. In some cases, they have no real choice.
Increasing congestion on the roads and the difficulty in parking
in built-up areas has made travel by car a more difficult option
in many cases and on many of the routes where people opt to travel
by train, neither air nor coach constitute realistic alternatives
to rail. (Paragraph 56)
INTERNATIONAL PRICE COMPARISONS
18. On
the whole, there is little doubt that walk-on rail fares in the
UK are more expensive than in many European countries. (Paragraph
58)
19. International
comparisons can only take us so far. What matters is how the price
of rail travel in the UK compares to other modes of travel here,
and whether passengers believe they get value for money when they
travel by train. The emphasis must be on train operating companies
delivering a cost effective, streamlined and attractively priced
fares structure which provides value for money, and on the Government
delivering a framework which supports such services and protects
passengers actively against sharp practices by the industry. (Paragraph
59)
INTER-MODAL PRICE COMPARISONS
20. We
urge the Government to review the comparative costs of travel
by different modes in the UK and to ensure that mechanisms are
put in place to ensure a reasonable price balance between modes,
reflecting strategic policy priorities such as limiting emissions.
This may involve increasing subsidies for one or more modes whilst
taking measures to increase the cost of using other modes. This
kind of joined-up approach would promote transparency in the debate
over the true costs of different transport modes, and assist the
Government in achieving its broad strategic policy objectives
such as regional development and a reduction in road congestion
and emissions. (Paragraph 61)
Value for money of rail travel - a lottery?
21. Rail
travel in the UK ten years after privatisation is perceived to
be poor value for money. And for those passengers who do not succeed
in getting cheap advance purchase tickets, train travel is
poor value for money compared to other modes of transport. It
is clear beyond reasonable doubt that walk-on fares in the UK
are more expensive than equivalent tickets in many other European
countries. (Paragraph 64)
22. We appreciate
that a small proportion of the lowest fares are sometimes available
through advance purchase tickets. We also understand the need
to spread passenger usage across the day. But not everyone is
able to plan their journey weeks in advance to take advantage
of such cheap prices. Train operating companies need to provide
cheap tickets on all services, not just a few off-peak services.
It is imperative that reasonably priced open walk-on fares are
re-instated so that nobody is excluded from using the railways
for trips which cannot be booked in advance. We recommend that
the Government take measures without delay, through franchise
agreements, to cap open walk-on fares. (Paragraph 64)
SHORT AND LONG-TERM EFFECTS OF TICKET PRICES (ELASTICITY)
23. We
fear that the current level of rail fares will have far-reaching
long-term consequences because it restricts unreasonably people's
options of where to live and work, where to locate or manage businesses.
This could potentially hamper regional economic growth and reduce
the popularity of rail in the long term. (Paragraph 67)
24. In order to ensure
that commuting on the railways remains an option for as many passengers
as possible, we urge the Government to reverse the changes in
the regulation of commuter fares so that the permitted annual
increase is brought back down below the level of inflation.
(Paragraph 69)
Evidence-based debate
25. We
urge train operating companies to make publicly available their
research into elasticity, and in particular their Passenger Demand
Forecasting Data and Handbooks. Given that this information is
shared by the entire industry, there could be no competitive disadvantage
in this data being in the public domain. We are concerned that
the unwarranted secretiveness of the industry is hampering an
open evidence-based public debate about fares policy. (Paragraph
70)
26. We also recommend
that the Government commission its own independent and
publicly available research to evaluate the long-term elasticity
of rail-fares as well as the propensity of Train Operating Companies
(TOCs) to prioritise short-term revenue over long-term passenger
retention. Such research must be placed in the public domain so
that fully informed external scrutiny of TOCs can be undertaken.
(Paragraph 72)
The management and pricing of key rail fares
WALK-ON FARES
27. The
ability to turn up and go without notice is a vital characteristic
of the railway. Without walk-on fares, the railways would have
no hope of competing with road travel. What most passengers need
first and foremost is flexibility and ease of use, and walk-on
fares provide the easiest and most flexible way to travel. (Paragraph
74)
Open fares
28. It
is essential that when rail passengers walk up and buy a ticket
immediately before departure, they do not have to pay over the
odds. Fully flexible open fares may need to command a price premium
over other less flexible tickets, but the prices now charged by
many long-distance operators are absurdly high. The 'see how much
we can get away with' attitude of operators has put the thumbscrews
on those passengers who have no option but to travel on peak-hour
trains, using fully flexible Open fares. Such behaviour has brought
not only individual train operators, but the passenger railways
in general into disrepute. Train operating companies bear a heavy
responsibility for giving passenger railways a bad reputation.
Over and above our earlier recommendation for the Government to
cap open walk-on fares, operators themselves must now take action
to develop reasonable pricing structures for open flexible fares.
(Paragraph 77)
Saver fares
29. We
find it hard to see how Saver fares that are easy for passengers
to understand and use, universal across the network, and good
value for money can be seen to prevent the development of more
"customer focused products". What could be more 'customer
focused' than the Saver fare? We are therefore deeply concerned
about proposals to reform or even abolish regulation of Saver
fares. It is imperative that Saver fares, which are the only remaining
affordable walk-on fare on our railways, are ring-fenced and protected.
It is the Government's duty to tax-payers and passengers to provide
this protection. (Paragraph 82)
30. We note the claims
of some Train Operating Companies that they would retain
Saver fares if they were de-regulated. We have little faith in
these assertions. Savers have already been eroded in many cases
by ever narrower time-of-travel restrictions imposed by train
operators. We strongly suspect that in a de-regulated market,
Saver fares would eventually be eroded to the point of irrelevance
because operators would be tempted to apply ever stricter conditions
and restrictions on their use, making these tickets difficult
for passengers to use. (Paragraph 86)
31. If Saver fares
were eroded further, passengers are likely to be pushed onto much
more expensive open tickets, or onto advance purchase tickets
which are cheap but inflexible. The former would be likely to
increase the revenue per passenger for train operators whilst
the latter would increase predictability and make it easier for
them to manage passenger demand across the day. Needless to say,
the passenger would be the loser in both circumstances. We therefore
recommend not only that the Government retains regulation of Saver
fares, but that it takes immediate steps to strengthen the current
regulatory regime in order to limit the kind of travel restrictions
that train operators are able to impose, and to ensure that travel
restrictions are the same for Saver tickets across all operators
on the network. (Paragraph 87)
ADVANCE PURCHASE TICKETS (APEX)
The limitations of advance purchase fares
32. Advance
Purchase rail fares are here to stay. We acknowledge the benefits
that such fares may have for some leisure travellers, and we also
accept the need to make off-peak services attractive to as many
passengers as possible. Cheap advance purchase fares are a sensible
way to fill up off-peak seats that otherwise would not be sold,
but this must never be to the detriment of affordable walk-on
fares. The latter must once again become the mainstay of rail
travel if the railways are going to compete with the motorcar
and be affordable to the general public for routine journeys.
The Government needs to develop the regulatory framework to ensure
a sound and passenger-friendly balance between off-peak bargains
and user-friendly and affordable services every day of the week.
(Paragraph 91)
GROUP TRAVEL
33. Train
operators have made it far too difficult for schools and colleges
to undertake study trips using the railways. Instead of encouraging
the young to use the railways for study purposes, barriers are
put in their way. This is yet another case where we believe minimum
standards should be guaranteed through Government regulation.
Evidently train operators put revenue and profit before elementary
social responsibilities. (Paragraph 96)
YIELD MANAGEMENT
A win-win situation?
34. 'Yield
management', the system now used by train operators to maximise
their revenue for every seat, serves train operators by helping
to maximise revenue and profit. It serves the Government by helping
to minimise the need for Government subsidies. It also serves
some passengers who are in a position to benefit from cheap
advance booking fares with complex restrictions. The system, however,
clearly fails all those passengers who have less predictable and
flexible travel needs and who end up paying over the odds to travel.
(Paragraph 105)
35. A system for managing
railway capacity and fares which puts financial outcomes for train
operators or the Government on a par with, or even before, the
needs of passengers is a retrograde development. Meeting passenger
needs should be the primary and overarching objective of a public
service railway. Therefore, whilst we appreciate the positive
contribution of 'yield management' systems in utilising the capacity
of the railways effectively by providing incentives for those
who are able to travel outside peak hours to do so, we believe
that train operators are taking the system far further than is
required purely for the purposes of using capacity effectively.
Driven purely by economic models of revenue maximisation, the
premiums attached to walk-on and peak-hour travel have risen so
high that many passengers are unable to afford them. This is nonsensical.
It is incompatible with what ought to be the key public service
objectives of our railways. This problem is inherent in the current
structure of our railways, and short of altering this structure,
broader and tougher regulation is the sole practical way of ensuring
that the passenger is given proper priority. (Paragraph 105)
Quotas
36. Passengers
have suffered for years from a severe lack of transparency about
the availability of cheap advance purchase fares. This has prevented
them from making informed decisions and obtaining the best tickets
available. We note that train operators are now in the process
of launching new and improved systems. We are also conscious,
however, of the limitations imposed by 'yield management' systems
in terms of the information that can be supplied to passengers.
We will return to look at rail fares again next year, and we will
expect to find substantial improvements in terms of the information
available to passengers about the availability of cheap fares.
We want to see a system where passengers can identify easily and
quickly how they can travel most cost effectively within a three
day period, that is, what departures have the cheapest fares,
and what the restrictions on these tickets are. (Paragraph 109)
Availability of advance purchase tickets for festive
periods
37. Train
Operating Companies have been holding passengers to ransom during
the festive season where many passengers have particularly important
travel needs. Christmas is a time when many people can ill afford
to pay large sums of money to travel to see family and friends,
perhaps as their main annual journey. The lack of clarity and
information for passengers about where and when seats are available
is disappointing at this time of year. (Paragraph 113)
38. We have the distinct
impression that the frequently chaotic rush for limited numbers
of good value seats on departures other than the most unsocial
hours is positively encouraged by train operators, perhaps because
it leads passengers to buy more expensive fares than would be
the case if the purchasing arrangements were more straight-forward.
It is imperative that train operators provide much clearer up-to-date
real-time information to passengers about the availability of
different fares on individual departures in the run-up to very
busy periods such as the festive season. (Paragraph 114)
COLLECTION OF DUE FARES
39. We
are concerned over the lack of commitment by train operators to
the collection of fares across the network. It is vital to collect
the fares that are due in order to prevent unnecessary price hikes
for law-abiding passengers who do pay for their travel. The industry
must look carefully at its collection and enforcement levels and
make improvements as a matter of priority. (Paragraph 116)
Timetabling and the 'T-12' issue
THE OBLIGATION FOR NETWORK RAIL TO MAKE TIMETABLE
AVAILABLE
40. The
importance of timetables being made available to passengers in
a timely fashion has increased significantly with the growth in
advance purchase tickets. Advance purchase tickets are sold only
with a seat reservation. It is therefore essential that the timetable
for the specific train and date is available at the time of booking
the ticket. If the timetable is not available nine weeks ahead
of departure, the passengers cannot book their tickets, and may
as a result miss out on the best value fares. (Paragraph 120)
THE T-12 RECOVERY
41. Network
Rail has made progress towards meeting the obligation to release
timetables 12 weeks before the date of travel (T-12). This is
no time, however, for the industry to rest on its laurels. The
obligation is not met for six out of 28 operators, so the 'Informed
Traveller' requirement is not being met in more than 20% of cases.
Whether or not advance purchase fares are common on these particular
routes, passengers will be disadvantaged if travel information
is not made available to them at the required nine weeks before
departure so that they can plan their travel itineraries. (Paragraph
125)
42. The recovery process
is clearly far from complete, and Network Rail needs to up its
game. Failures to release timetables the required 12 weeks ahead
of travel must become a thing of the past, not a recurring phenomenon.
When we return to the issue of rail fares next year, we will expect
to find that the remaining problems in this area have been resolved
satisfactorily, and progress to date sustained. (Paragraph 125)
THE ADEQUACY AND SUSTAINABILITY OF THE T-12 RECOVERY
43. We
have concerns about the robustness of industry performance in
achieving T-12 and T-9 (that is the requirement of Network Rail
to release timetables to train operators 12 weeks before departure,
and for train operators to release timetables to passengers nine
weeks ahead of departure). We urge the Office of Rail Regulation
to evaluate carefully what further action is required to shore
up current performance in the delivery of timetables and to guarantee
consistent future delivery. (Paragraph 129)
44. In the event of
future failures to meet the T-12 and T-9 obligations we believe
train operators should be obliged to offer alternative solutions
at advance purchase price levels to passengers who are unable
to make advance purchase bookings within the time-frame normally
applied. We also believe that the industry needs to consider carefully
whether the T-9 timeframe is out-of date and booking services
need to open at an earlier stage. (Paragraph 130)
Regulatory complexity and weakness
A COMPLEX STRUCTURE OF REGULATION
45. The
abolition of the Strategic Rail Authority (SRA), as recommended
by our predecessors, has helped to simplify the regulatory framework
for the railways. In some areas, however, notably fares and ticketing,
there remains scope for confusion. This complexity is only compounded
by the fact that, in competition matters, the power to make judgements
and enforcement decisions is shared between the Office of Rail
Regulation (ORR) and the Office of Fair Trading. Despite reassurances
from the ORR, we are not convinced that a regulatory framework
of this level of complexity is effective and efficient, let alone
intelligible for passengers who wish to raise issues or complaints.
We urge the Government to look at the structure again, with specific
reference to fares and ticketing, and to simplify the system.
(Paragraph 136)
The lack of powers to control prices
46. The
ability of the Office for Rail Regulation to pursue successfully
exorbitant rail fares through the Competition Act is very limited.
We therefore recommend that the Government review the regulation
of rail fares and the definition of 'dominant position' within
the rail sector. The Government needs to ensure that the power
of the ORR to regulate exorbitant fares is meaningful. (Paragraph
140)
The consensual approach to regulation
47. It
is vital that the Regulator should have the power and willingness
to take effective remedial action swiftly where problems arise.
Although T-12 compliance is now acceptable, the Office for Rail
Regulation could have secured compliance by Network Rail more
quickly through a more forceful approach to regulation. The Office
for Rail Regulation must consider the efficacy of a tougher regulatory
approach. (Paragraph 146)
Conclusions
48. The
Government famously now invests £87 million per week in the
railways. This level of public subsidy is given in recognition
of the fact that the railways are a vital public service. The
subsidy places an obligation on those who manage the railway to
run it as a public service, and the railways should also be managed
so that they support important economic, environmental and social
objectives of the Government. (Paragraph 148)
49. Despite the unprecedented
level of investment, neither passengers nor tax payers get value
for money. The current system has had more than a decade to prove
its worth, but in terms of value for money and user-friendliness
it has proven to be an abject failure. Fares structures are chaotic
and pricing absurd because they are determined by commercial considerations
rather than considerations for the public good and the value for
money of passengers and tax payers. This is not acceptable, and
the current system is not fit for purpose. If the Government is
committed to the railway, it must at the very least use
regulation to ensure that passengers get value not only for their
own money, but also for the subsidy contributed by the taxpayer
every year. (Paragraph 149)
50. The Government
has done some good work in terms of investment and the renewal
of infrastructure of the railways in recent years, but it has
failed to honour its obligation to passengers and tax-payers alike
to ensure that the railways are affordable and user-friendly,
that all passengers get good value for money when travelling
by train. Although rail operators face competition from other
transport modes, they usually operate as monopolies on individual
rail routes. Both the Government and the industry are happy to
draw parallels with the no-frills airline sector, and to see the
booking systems and pricing structures of that sector take hold
in the rail industry. But the railways are not like no-frills
airlines, and neither should they become like airlines. Passengers
use the railway for a much wider variety of journeys and situations
than they would flights, and the railways are part of the country's
fundamental and essential infrastructure for domestic travel.
This is not a free market, and the Government must flex its muscles
to ensure that passengers get a fair deal. It must ensure that
a proper robust framework of regulation of fares is maintained,
and there is an urgent need for the Office of Rail Regulation
(ORR) to be granted better and clearer powers to pursue exorbitant
or unfair pricing by train operating companies. (Paragraph 150)
51. We are astonished
at the complacency and lack of strategic thinking displayed by
a Government who have accepted all too readily a privatised railway
which has put revenue and profit before passengers over the past
decade. The railways need strategy and strong leadership, something
which only the Government can provide. The abolition of the Strategic
Rail Authority and the assumption by the Government of direction
over rail policy and financing was a good first step. But more
needs to be done. It is imperative that the Government now wakes
up to its responsibilities and starts to rectify the current vacuum
by incorporating a coherent policy on fares and ticketing structures
into its forthcoming White Paper on Rail. (Paragraph 150)
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