Rail fares and franchises - Transport Committee Contents

Examination of Witnesses (Questions 40-59)



  Q40  Graham Stringer: What profits are you talking about here? Are you talking about profits per franchise? Are you talking about the profits of the overall groups, or are you talking about the profits of each individual train operating company?

  Mr Mapp: We are talking about the collective profits of train companies from their rail operations, not the total profits earned by the larger transport groups. These are the profits earned by Virgin Trains or by National Express East Coast, added together and taken as a proportion of their total costs or their total revenue. You then have to ask the question, is that 3% profit margin on cost good value for money? We would argue extremely strongly that it is good value for money; that the industry costs are significantly lower because of private sector involvement; and industry revenue and indeed the use of the network in terms of volume is considerably higher because of private sector involvement. We do not believe that our profit margins are excessive, therefore. We believe that we bring considerably more value into the rail industry than the cost of those profits.

  Graham Stringer: Do you think it would be helpful if you published accounts for each franchise, so that we could see whether there is profiteering going on on each route? You do not, do you?

  Q41  Chairman: Would anybody think it is a good idea to do that?

  Mr Horton: Companies' records are obviously lodged with Companies House.

  Q42  Graham Stringer: But it is not easy to disaggregate them, is it, from franchise to franchise?

  Mr Horton: Sure, but it is a longstanding policy of publication of results, using that. As I said, I am very happy to share with the Committee the profit that was achieved by my company.

  Q43  Chairman: Does that mean, Mr Horton, you are saying that you are willing to identify the profits made on individual franchises?

  Mr Horton: I am very happy to tell you what the profits which were lodged for my franchise, which are with Companies House at the moment, and tell you that in relation to Southeastern franchise our revenues in the year ended June 2008 were £581 million and our profit on £581 million worth of revenue was £27 million.

  Q44  Graham Stringer: That is very helpful. I do not know if the other members of your organisation would be willing to put the figures out, franchise by franchise. For instance, RMT claim that there is profiteering because there has been a one-third increase in the dividend on equity by Stagecoach in the six months to 31 October last year. I find it difficult to reconcile those figures with your 3% figures and with the large increases in fares.

  Mr Mapp: The dividends paid by large, integrated transport groups like Stagecoach do not reflect profits just in the rail industry; they also reflect extensive bus operations in this country and often overseas as well. I think that you have to take that dividend point in that broader context.

  Q45  Graham Stringer: It would help, would it not—and we have had one offer to give us the details franchise by franchise—if all operating companies were prepared to release them, because a number of operating companies run a number of franchises? Then we could see where, on that particular franchise, exploitation was going on. Can you say anything on behalf of your members?

  Mr Mapp: Perhaps what I can offer to do is to talk to our members about that request and provide some further information to the Committee in writing.

  Q46  Graham Stringer: Do any of the other members here want to say anything?

  Mr Bunting: We share that information with the DfT. They see our finances. At the moment we are in our close period, so I am not able to say anything specific for National Express at this point in time.

  Q47  Chairman: Is that that you share information on the specific franchises?

  Mr Bunting: Yes, with the DfT.

  Q48  Graham Stringer: But would you share it with us and the public?

  Mr Bunting: I cannot at this point in time.

  Q49  Graham Stringer: Will you in the future?

  Mr Bunting: I think that is something we will have to take back to our groups and come back to you on that.

  Q50  Mr Clelland: I was wondering whether, from what was being said earlier about the level of fares and the various options which are now available for cheaper fares, it has given rise to an indication from general customers about their satisfaction. Do you get an indication that customers are generally satisfied with the levels of fares, the fare structure and the general journey experience these days?

  Mr Bunting: Overall, for National Express East Coast, in the last 12 months as we have taken over the franchise from GNER—which was in a bit of a poor state—we have increased our overall customer satisfaction by 6%.

  Q51  Mr Clelland: How have you measured that?

  Mr Bunting: That is measured through a rolling passenger survey the whole industry does. It is taken by an independent third party, administered by Passenger Focus, and that is reported back to us. We have therefore moved that on by 6% over the last 12 months, which is great. A lot of that is the fact that we have taken punctuality—which is really what the customer wants—and driven that from about 81 to over 86%. In the last few weeks we have run the first 100% punctual days that the East Coast main line has seen since it was privatised. We are prioritising punctuality, reliability, which is what the customer wants, and that is coming through in some really encouraging customer satisfaction figures.

  Q52  Mr Clelland: Is that a general feeling amongst train operators, that the customers are happy with the situation?

  Mr Furze-Waddock: It is. Overall satisfaction on Great Western has lifted significantly over the last year, to a level of 80% now. With FSR—First ScotRail—similarly, but 90%. First Capital Connect and TPE are flat. Within that, it would be no secret that surveys on value for money are not as good, but a significant driver of that has been in the past the performance, which is demonstrably improving across the industry. The other factor which the Passenger Focus survey has recently highlighted is the feeling of overcrowding; that is a big driver of a customer's feeling of satisfaction with value for money. All of us are working very hard at the moment with the DfT on schemes to deliver additional capacity. Some operators have recently significantly increased capacity. First Capital Connect is increasing capacity from May on the Cambridge route by 15%, and we are all bidding to the department at the moment for additional rolling stock through the HLOS mechanism. We are, in all of our franchises; and they are all targeted to improve those key flows where we are suffering the most overcrowding.

  Mr Mapp: Through the National Passenger Survey, the most recent wave of which was published by Passenger Focus last week, overall satisfaction across all train operating companies had increased to 83%, which was the highest level recorded since the survey began in 1999. I therefore think that there is clear evidence that customer satisfaction at the moment is good. Clearly we can always do better, and it should not be inferred as reflecting any degree of complacency.

  Q53  Mr Clelland: Yes, but, Mr Mapp, as you pointed out to the Committee before, we can only do better on the railways apparently if either the taxpayer pays more, the fare-payer pays more, but profits have continually to increase.

  Mr Mapp: Profit margins have remained remarkably stable and, if anything, have indeed declined over the years; so I think that point needs to be put into perspective. Clearly it is in all our interests. We only make profits because we provide a good service that customers want to use. I think those National Passenger Survey numbers indicate that we are doing that. It is also reflected in the huge growth in usage of the network over the last 12 years. Whilst we are not complacent and there are still clearly areas for improvement, the evidence—evidence that comes from an objective source, Passenger Focus, and we are not involved in that research—suggests that customer satisfaction at the moment is at good levels.

  Q54  Mr Clelland: I used to work for a private industry. I never wanted it to make a loss, I have to say, and I am not suggesting that private train operators would want to do other than make a profit; it is a question of whether we have got the balance right, and that is what the Committee is trying to get down to. Could I ask Mr Bunting, did National Express overstretch itself when it bid for the franchise for the East Coast line?

  Mr Bunting: We put in a bid. It was not the highest bid.

  Q55  Mr Clelland: With the light of experience, was that a realistic bid?

  Mr Bunting: At the moment we are seeing growth; our customer satisfaction levels are rising; our punctuality levels are rising, so we have every reason to have real confidence with the franchise.

  Q56  Mr Clelland: No problems with the franchise on the horizon at all?

  Mr Bunting: We are looking forward to making even further improvements for it, yes.

  Q57  Mr Clelland: So you do not think that perhaps you might have given rise to expectations which you have not been able to live up to?

  Mr Bunting: No, not at all.

  Q58  Mr Clelland: There is to be no deterioration in the service at any level?

  Mr Bunting: We took over a business that needed some TLC and some hard work, and we have been doing that. As I say, the results we are seeing so far—we have really focused in on getting the trains to run on time, and that is going extremely well at the moment.

  Q59  Mr Clelland: We had a small inquiry of our own in the North East before the franchises were let, and your representative there was making all sorts of indications that there would be improvements, including additional services, reduced journey times; that there would be improvements in catering services. You are satisfied that all of these things are going to go ahead, as far as you can see?

  Mr Bunting: We still have our plans to improve the franchise. We are waiting on the final conclusion of the ORR report on our increased service levels, for which we got some real encouragement last week. The rights for our Leeds services have been firmed up. We have the opportunity now to work with Government to push through those improvements that we talked about when won the franchise.

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Prepared 27 July 2009