Rail fares and franchises - Transport Committee Contents


Examination of Witnesses (Questions 120-139)

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

4 FEBRUARY 2009

  Q120  Chairman: Mr Leech, can you enlighten us on this?

  Mr Leech: I say the same as I said before, that we have no plans for reducing services and no plans for shortening trains. All of our energy in fact at Virgin Trains is devoted to making a success of the expanded services that we have just introduced.

  Q121  Chairman: But are any of the items in that memo familiar to you as matters of concern expressed by Virgin?

  Mr Leech: No, because, speaking for us, those are not a concern for us and we have no thoughts of needing to go asking for additional support.

  Q122  Chairman: Mr Horton, what can you tell us?

  Mr Horton: Again, I was not a recipient of the memo and I have not seen it either. I do not know if it exists and I just have not been party to that. In terms of our franchise, we have particular challenges here because this year is one of significant development in growth for us and we are in the midst of leading up to the new high-speed service on our franchise, boosting capacity by 10%, so that is what we are focusing on and that is where our attention and effort are at the moment.

  Q123  Mr Clelland: I know we should not always believe everything we read in the newspapers, but with reputable newspapers there is generally something behind the story. I wonder if Mr Bunting has seen this morning's Newcastle Journal which has an article about projected problems that there might be with the franchise of the East Coast Line, suggesting that Richard Branson might have an interest in taking it over. Where has that story come from?

  Mr Bunting: I think Mr Branson gave a personal view which his company have refuted, so I think we will just put that one down to Richard's style. I have spoken to the author of the Newcastle Journal article this morning, but he has not shared with me exactly what is in there. No, it is just a little bit of mischief-making there, I think, from our friends at Virgin, or our friend at Virgin.

  Mr Furze-Waddock: From FirstGroup's point of view, we are not talking about cutting services either. Indeed, as I said earlier, we are actually bidding on the three UK or English franchises. We are bidding for additional capacity in First Capital Connect, TPE and Great Western, and we are looking for additional trains, additional resources, and we are actively doing that at the moment with the Department.

  Q124  Graham Stringer: We are in an incredible situation, are we not, that we all accept that we are running into a recession, there are real difficulties, and we get a Panglossian response from the witnesses that we are sort of in the best of all possible worlds. Let me ask you specifically, Mr Mapp, again referring to this Guardian article, and there are lots of ways of reading articles, it points out that South West Trains have to pay the Government at least £1 billion over the next decade. Do we really think that £1 billion is going to come out of South West Trains in what might be the deepest recession this country has had since the Second World War? Do you think South West Trains is one of these red-lighted companies?

  Mr Mapp: Well, I cannot really comment on this list of red-lighted companies because we simply do not know anything about it.

  Q125  Graham Stringer: Do you think South West Trains will be able to pay £1 billion?

  Mr Mapp: Well, the franchising bidding process is a highly competitive process, but it is also, I think, a process that the train companies which are bidding for franchises think extremely carefully about. I do not think that the train companies submit bids lightly and I do not think that they take undue risks either in submitting those bids. Clearly, the competitive element means that it is the most economically advantageous bid that wins, but I do not think that the train companies would submit bids that they did not think they could then deliver on.

  Q126  Graham Stringer: The whole of the economy is full of companies that try to make the best decisions for their shareholders and members and lots of them are going to the wall. The rail industry, which I know moderately well, is relatively closed at the top of it and everybody knows everybody else's business because you move from train company to train company, from Network Rail to the Strategic Rail Authority and through. Are you saying that there is no gossip, there is no real understanding of which five train operating companies are at risk when companies are going to the wall all over this country?

  Mr Mapp: Well, I can honestly say that I am not aware of any train companies at the moment which are in financial difficulties and I am not aware of the five train companies on the list.

  Q127  Ms Smith: I just want to carry on from what Mr Stringer just asked to ask for a straight yes-or-no answer. Do you believe that the current franchising system encourages over-optimistic forecasts in terms of what they can return to the Government, to shareholders, et cetera?

  Mr Mapp: Sorry, could you repeat the question?

  Q128  Ms Smith: Do you believe that the current franchising system encourages over-optimistic forecasts?

  Mr Mapp: Well, clearly the fact that it is a competitive bidding process means that the companies are incentivised to make their best offer, but I think there is sufficient maturity and experience in the train company community now to mean that the bids are tempered so that undue risks are not taken, so I think, in answer to your question do I think forecasts contained within bids are generally over-optimistic, the answer is no.

  Q129  Ms Smith: A number of companies are believed to be on the verge of announcing a number of redundancies, including South West Trains itself, National Express and Southeastern Trains. As a trade body, you must be aware of this rumour that is circulating at the moment. Is there any truth in it?

  Mr Mapp: Well, I think some of those train companies have in fact made announcements about those reductions publicly. Any business heading into an economic downturn has to take prudent action to make sure that its costs are under control, and the sorts of reductions that you are talking about have been focused very much on back-office support areas of businesses. The train companies affected have been very careful indeed to protect front-line services and services to customers, so I do not think that you should read too much into that. It would be an imprudent industry and an imprudent business that did not take sensible measures to cut non-essential costs in the context of an economic downturn.

  Q130  Ms Smith: Well, you cannot blame us, surely, for thinking, because of this kind of news reporting, that the payments to the Government which Mr Stringer referred to may be at risk.

  Mr Mapp: I cannot blame you, no, but nor can I control news reports, and ours is an industry that seems to be of constant interest to the media. I think all we can do today is try and allay the kinds of fears and concerns that those news reports generated.

  Q131  Sammy Wilson: I have just one last question which, I suppose, is to Mr Bunting because there has been this speculation about the five red-lighted companies, but there has been specific speculation about National Express and the ability which they have in a declining market or in a very tight market, first of all, to meet the £1.4 billion requirement for the repayment on the franchise and that those repayments, according to the investment bank, JP Morgan, really require 10% growth in volume each year. Now, I think we have already in the discussion accepted that that is not likely to happen certainly during the next year, so is there a likelihood that National Express are going to find that the franchise which they have for the Eastern service is going to come under pressure?

  Mr Bunting: We are in a closed period at the moment, so a lot of that is commercially sensitive, so I am not able to say anything further on that.

  Q132  Mr Leech: I would just like to pick up one of Mr Mapp's last comments. He was saying that in an economic downturn companies need to be looking at tightening their belts or cutting costs, but is that not somewhat at odds in comparison to what everyone has been saying for the last hour and a half about how well all the companies are doing?

  Mr Mapp: Well, British Petroleum this week announced profits of, I think, £18 billion and they also announced a cost reduction programme, so healthy businesses keep their costs under control, and it is a constant battle for all of us. I think the fact that it is more in the public eye now is because of the general economic context, but you should not, I think, infer from the fact that we made sensible reductions to non-essential costs that the rail industry is in collective financial difficulty, or even in individual financial difficulty for that matter.

  Q133  Mr Leech: Is it not the case though that everyone has been saying that they are looking towards growth in the rail industry rather than actual cutbacks?

  Mr Mapp: Yes, and that is still our focus. With the timetable introduced in December 2008, there are 250,000 additional train services this year, so yes, we are still focused on growth, and there are two ways to get through a recession. One is to reduce costs, and we are doing that in a sensible and prudent way that does not impact on customer services, and the second is to grow revenue, and that will certainly be a very, very strong focus for us this year.

  Chairman: Thank you for answering our questions, and I am sure that your answers will be considered fully in the coming weeks and months. Thank you very much.


 
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