Rail fares and franchises - Transport Committee Contents


Examination of Witnesses (Questions 1-19)

MR PAUL FURZE-WADDOCK, MR PAUL BUNTING, MR GRAHAM LEECH, MR CHARLES HORTON, MR JIM MORGAN AND MR DAVID MAPP

4 FEBRUARY 2009

  Chairman: Good afternoon. Do members have any interests to declare?

Mr Clelland: I am a member of Unite.

  Graham Stringer: A member of Unite.

  Chairman: Louise Ellman, a member of Unite.

  Mr Martlew: A member of Unite and GMB.

  Q1  Chairman: Would the panel like to give their name and organisation, please?

  Mr Furze-Waddock: Paul Furze-Waddock, FirstGroup.

  Mr Morgan: Jim Morgan, from FirstGroup but representing Hull Trains.

  Mr Mapp: David Mapp, from the Association of Train Operating Companies.

  Mr Bunting: Paul Bunting, from National Express.

  Mr Leech: Graham Leech, from Virgin Trains.

  Mr Horton: Charles Horton, from Southeastern.

  Q2  Chairman: Gentlemen, we are in a situation where most fares have been increased by at least six or seven times the rate of inflation, and indeed the maximum increase appears to be 15%. The London Assembly Transport Committee has been told that there is severe overcrowding on commuter routes, which can indeed be dangerous. There are reports of cutbacks and cancellations of services and trains, and there are ticket restrictions and significant changes of use. In view of all that, are you really surprised that there has been such a public outcry about the fares increases?

  Mr Mapp: Madam Chair, we have a short opening statement to read before we commence. Is that possible?

  Q3  Chairman: No, I am asking you a question. Would anybody like to justify the increases? Nobody?

  Mr Bunting: There are some headline fares that have got the attention, quite rightly, of the media and particularly at the moment with the difficulties in the economy, which is affecting all of your constituents. I think that it is right to point out that those fares represent a relatively small proportion of the total fares available on the network. What we are doing as an industry, as operators, is trying both to make as many great value fares available for our services to as wide a group of people as possible, whilst at the same time keeping the finances of the business in shape. On our East Coast business for National Express, for example, around 15% of our tickets are our cheapest fare available during any 12-week period. In East Anglia we have about half a million advance purchase tickets available at any time. There is therefore a wide range of fares, and what we are trying to do is to make those fares as effective and also as available to people as we possibly can.

  Q4  Chairman: But you also have, Mr Bunting, an increase of 15.5% on your London-Norwich route. You have also cut your catering. Am I right in believing that the catering staff were given 30 days' notice, without going through the statutory procedures? Is that right?

  Mr Bunting: No, it is not. We basically applied the correct statutory procedures for the process we were going through and, like any business, we are looking at our cost base—like all businesses in the UK at the moment—and taking appropriate steps to ensure the future of the business.

  Q5  Chairman: The basic point is that the fare increases overall are at least six or seven times the rate of inflation that is measured by the Retail Price Index. Is anyone going to justify that, apart from speaking in broad generalities, which do not help the people who are facing increases of this measure—at least 6% and 7%, going up to 15%, and many in between?

  Mr Leech: Perhaps I could add to what Mr Bunting has said. I work for Virgin Trains. We run the West Coast Main Line InterCity services and we are very sensitive to the situation with customers' ability to pay. We take great account of that when setting our fares. There are actually several things that go on with prices at the same time, and so it is true to say that individual fares that we have set have gone up by 6% or 7%, but in fact the average price that is being paid by somebody who travels on the West Coast Main Line today is less than if they were travelling in January last year. That is for several reasons.

  Q6  Chairman: Could I just stop you for a moment? It is all right your talking about average prices, but the price to the person travelling, to the passenger, is the amount they have to pay to undertake their journey. That is what matters to them. You have managed to increase the London to Manchester route by 7.4%.

  Mr Leech: Yes. I was going on to explain that. Of course, it is the price that the individual customer pays that matters, and the types of tickets which people are now buying is different. Most of us as train operators offer a wide range of prices on our trains. What is happening is that more and more people are being able to buy the cheaper tickets, because we are making them more available. Whereas a year ago somebody may have been paying that full price, Anytime ticket, many of those people are now buying cheaper tickets, which they are able to do. In fact, for many people the price that they pay for their journey today is therefore less than they were paying last year. The other thing that has happened is that we and many other operators have introduced cheaper fares. For example, the cheapest fare that we used to offer between Manchester and London was £12. We are now offering a fare that is £8. We used to offer fares from Birmingham where the lowest one was £10 and it is now £5. Those are being bought by very large numbers of people. As many people buy the cheapest fare that we offer—for example, that is the £8 fare between Liverpool and London—as many people buy that fare as buy the most expensive price.

  Chairman: Those cheaper fares severely restrict when people can travel. While that might be appropriate for people who can choose to travel at specific times, that does not deal with the general issue of the overall massive increases and the change in the conditions attached to different tickets.

  Q7  Mr Martlew: On this very point, Mr Leech, you may have been briefed by a letter I have sent to your chief executive. Can you explain why a ticket from Carlisle to Birmingham, if you want to be there before 10.30 in the morning, went up from £71 to £124? Can you explain, if I want to go and visit the Chair in her constituency in Liverpool, why that has gone up from £40 to £70?

  Mr Leech: That is because when we had the new timetable introduced in December we wanted to look at the new passenger travel on that route and we thought it was right, at the same time as introducing these cheaper fares, to make some changes. However, we review all of them; in fact we are looking at those particular changes and we are aware that there are some problems with them. That was clear as well from feedback from our frontline staff. It was always a trial, therefore, and in that particular instance we will be making changes.

  Q8  Mr Martlew: You accept that the figures I have just commented on are correct?

  Mr Leech: For some particular—

  Q9  Mr Martlew: You restricted the travel, so you almost doubled the cost of these fares. Are you saying now that you are admitting that you got it wrong?

  Mr Leech: I am saying that we had some massive increases to our services, introduced in December and, as part of that, we had to look at the train services that we restrict. Overall, the same proportion of trains are restricted now as they were before. In many cases we made the restrictions easier. There were some cases where we tightened some restrictions, but all of this is open for review and, with hindsight, in that particular case we think that it right to make some changes.

  Q10  Mr Martlew: So you are agreeing with me that the fare from Carlisle to Birmingham went up, if you want to get there before 10.30, from £71 to £124. Is that correct?

  Mr Leech: That is correct for that particular journey, yes.

  Q11  Mr Martlew: When you are talking about the averages of fares, did you put that into the averages of fares?

  Mr Leech: Yes, absolutely. Every single change that has happened; because there are many journeys being made much more cheaply than those before.

  Q12  Mr Martlew: Finally, you are saying now that you got that wrong and you are going to look at it?

  Mr Leech: Yes, and we are going to make a change in that.

  Mr Martlew: If the President of America can admit that he has got it wrong, it does you no harm at all!

  Chairman: We look forward to hearing the results of the change.

  Mr Hollobone: Second only to bankers in the City of London, you gentlemen must be the most unpopular men in the country.

  Mr Martlew: We are!

  Q13  Mr Hollobone: You can speak for yourself, Eric! In the public's eyes, the train operating companies are fleecing the public with huge price increases and often deteriorating travel conditions. I regularly get correspondence from constituents in Kettering, who are complaining about the new franchisee on the Midland main line and overcrowding on services back to Kettering from London in the evening. Yet, in the last two years, there has been a 7% increase in prices in both years. How do you defend your unpopularity?

  Mr Mapp: I think that it is fair to take this thing in a broader perspective, because it is always going to be easy to find specific examples of fares being increased or restrictions being changed; but if you look at the overall level of fares now compared to privatisation, in terms of the average fare actually paid by customers, it has increased by around 5% in real terms. That is less than—

  Q14  Chairman: Mr Mapp, this inquiry is not going back to before privatisation. If it was, we might all have a lot of things to say. This inquiry is about what has happened this year, in January this year, compared to last year. It starts from the point of seeing that most fares have risen by at least six times the current rate of inflation. While you might want to talk about the generality, we are concerned about individual passengers wanting to make specific journeys and the difference in the cost of those journeys from last year to this, in relation to the rise in the cost of living. It would be helpful if you could perhaps direct your answers to specific points. The generality is the generality. It does not help us on individual problems.

  Mr Mapp: I was trying to use the point to illustrate the impact of the January fares increase. In reality, customers do decide across a range of fares; train companies have introduced cheaper advance fares on many routes; and, in practice, customers do choose the cheapest fare that suits their particular needs. If you look at the effect of that over time, and the same will apply this January, the overall increase in the average fare paid by customers is actually somewhat less than the headline price increases which you often see in the newspapers. You also paint a picture of a railway that is in rapid decline, falling quality standards and so on. I have to say that it is not a picture that I recognise.

  Chairman: No, Mr Mapp, I must stop you. We do not paint any such picture. This Committee has conducted a number of inquiries into rail. We recognise the increasing popularity of rail, and we want to keep it that way. However, we do have specific questions about what is happening at the moment and the extent of that increase in rail fares. We therefore paint a good picture of rail; we want it to stay popular; but we are deeply concerned about a number of areas. That is why we have called all of you here today and we want to ask you questions about it.

  Q15  Mr Hollobone: On that point, Chairman, the Committee recognises that there has been a huge growth in rail passenger traffic over recent years; so, in terms of your business model, it is actually a very healthy marketplace. However, we are sitting here today against a background of an economy where 50, 60, 70% price cuts are happening in the shops because of the recession and yet you, as an industry, are putting up your prices way in excess of the current level of inflation—often, in the public's mind, for a poorer service. What is your defence of that?

  Mr Leech: In response to that, in many cases it is actually a better service and that is one of the factors we have to take account of. We have to think about what is going on in the external environment, including the economy and people's ability to pay; what is happening to competition. Even more, we have to think about what is the service that we are providing. There is not a history of putting up fares by large amounts every year in our case. We are thinking about the new service being introduced in December and we have to ask ourselves the question: is the service that we are introducing in December a better service or is it essentially the same service as we were running before 14 December? Clearly in our case, on the West Coast Main Line with Virgin, we are running 30% more trains than we were before. We now have three trains an hour, Manchester to London; three trains an hour from Birmingham into London. We have faster journey times. For example, the trains from Liverpool to London are now 20 minutes faster than they were before. In the case of Chester, there will be an hourly direct service to London instead of only three or four per day. We look at all of those things and we say, "What is the value of what we are providing and what is the investment that has gone into this service?". On that basis, I believe that the sorts of increases we have made can be justified, because they do reflect the fact that there is now a better, more frequent and faster service on the West Coast Main Line; but we have to make a judgment about how much it is justifiable to increase the prices, related to that level of increase—and that is what we did.

  Q16  Mr Leech: Mr Leech, I think you made the point about average fares now being less than they were 12 months ago. Did I hear you correctly?

  Mr Leech: I did. Correct.

  Q17  Mr Leech: When you use statistics, they often hide the reality. Are you saying then that more than 50% of people are paying less to travel by train on Virgin than they were 12 months ago?

  Mr Leech: Yes.

  Q18  Mr Leech: What are the reasons for that? Is it that you are providing more, cheaper, advance purchase tickets or is it that, because the prices of certain fares have gone up so much, people have changed their travel behaviour so that they now travel at the off-peak times, where the tickets are more affordable?

  Mr Leech: It is because people are now finding it easier to buy the cheaper advance tickets. They are not just at off-peak times. I have to emphasise that. It is not the case that you can only travel on a peak-time train by buying an Anytime fare. We have cheaper fares available. This is something that we wanted to happen. We have created these fares because we wanted people to buy them and to have more chance of doing it. We have increased the availability of the cheaper fares. Because we are running 30% more trains than we were before, we obviously have a lot more seats to sell, and it is in our own interest to attract more people to do it. So much investment has gone into the West Coast Main Line—£9 billion from Network Rail, a couple of billion from ourselves—we want to make the most of that. In order to do that, we have to attract more people. Our plans for this year and the years ahead are to keep growing that market. We will only do that if we offer fares that people are willing to pay. They have plenty of other ways to travel on our route if they want to.

  Mr Leech: Can I widen it out to the whole panel now? The average fares for most lines are increasing by 6% but that is the average increase. We are being told that on some of the busier routes the fares increases have been higher and on the less busy routes the increases have been lower. Are all the train operating companies actually going to increase their revenue from the fare box by 6%, or is this masking bigger increases in the fare box as a result of bigger increases on the busy routes and smaller increases on the less busy routes?

  Q19  Chairman: Who would like to answer that? What increase is expected in your fare box?

  Mr Mapp: I will start off. I think the overall revenue effect will depend on the pattern of purchasing after the fares have increased. As Graham has pointed out, it is not by any means just about increasing fares: there are a lot of very good value advance fares in particular, either being introduced or reduced. Therefore some customers do shift their buying pattern to choose those particular fares if they are flexible in their travel arrangements. Overall, trying to predict what is the revenue effect is difficult.



 
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