APPENDIX 16
Supplementary memorandum submitted by
The Railway Consultancy Ltd
Having attended the hearing on Wednesday 23
November, there were a few additional points that I should like
to make, in the light of a number of omissions and inaccuracies
stated by the witnesses that afternoon.
1. Do remember, in any comparison of earnings/pass-kin,
that the rail fares system has a taper, so that fares/pass-km
would inherently be expected to be higher for short journeys.
This is to reflect the known fact that passengers respond not
only to rail fares in relation to the competitive environment,
but also to the sheer magnitude of the fare.
2. Even for a given distance, there can
be perfectly good reasons for equivalent fares (eg cheap day returns)
to vary, if the competitive environment is different—one
would expect any competent railway company to take into account
the difference between having a competing express bus service
and motorway, and not.
3. Comparisons with air fares are also not
as straightforward as might appear, because of the need of many
rail passengers for a "walk-on" service, and the requirement
for rail to provide for commuting.
4. A number of witnesses seemed unaware
of the impact of multiple factors on railway demand; these are
often divided into exogenous factors (such as the overall state
of the economy (GDP and employment in Central London are both
critical to the railway), petrol prices etc) and endogenous factors
(eg rail service levels and fares).
5. Indeed, more generally, Committee members
should be made aware of the Passenger Demand Forecasting Handbook,
the bible' of railway commercial research over the lasts 25 years,
which contains understandings of the impacts of all these factors.
6. Whilst a number of witnesses noted their
preference for a National Railcard, our initial report appeared
to demonstrate that (if limited to offpeak services only) such
a railcard could actually improve the profitability of the railway.
This is in a similar vein to comments made by Stephen Joseph in
respect to Northern Rail, where he alleged (quite plausibly) that
reductions in fares levels could increase revenues (although if
demand rises too much, additional capacity and costs could be
incurred). However, one should be careful to understand that different
actions on fares are likely to be required in different market
segments.
7. To reiterate, the three key variables
which should underline any fares policy are:
(i) the costs of providing
the service;
The interesting issue is what action should
be taken against private companies operating franchises with public
money who do not maximise revenues within the constraints they
have, through mis-understandings of the market.
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