Rail fares and franchises - Transport Committee Contents

Supplementary memorandum from Passenger Focus (RFF 04)

a)  Additional question from the Committee: "any evidence in the Jan 2009 fares that there have been lower fare increases on specific journeys where there is direct competition (Q 157 in the transcript)"

  It can be difficult to identify a clear relationship between competition and fares, not least because of the absence of direct competition in the first place. Often competition will involve taking a different route—possibly even involving a change of trains, a longer journey time, a less frequent service, a poorer quality train, or the use of a different terminus within a city/town. Passengers' decisions, therefore, are often as dependent on time and location and are not solely linked to price. Not having a "level-playing" field makes it difficult to isolate the precise impact of price in the purchasing decision.

  Even where different train companies do operate over the same route the provision of inter-available/interchangeable fares (ie the ability to travel on any operator's train with one ticket) limits the extent to which TOCs can directly compete on price.

  That said, however, competition does exist and it does bring advantages. Genuine competition provides an element of choice and can help TOCs focus on the quality of the product offered. It can be argued, for instance, that Hull Trains' open access operation has been beneficial to passengers. It is also entirely possible that, even where competition/choice hasn't reduced prices, it could have prevented them from rising by as much as would otherwise have been the case.

  Perhaps one of the best examples of direct competition was found between Newport, Cardiff and Swansea in 2006-07. Great Western introduced a fare that was only valid on its services between these places and Arriva Trains Wales retaliated by reducing the inter-available fare. The net result was reductions in the region of 30-40% for passengers. The Great Western specific fare has since been withdrawn so it remains to be seen how the Arriva Trains Wales fare will respond.

  The Cambridge to London flow is another that we will be watching closely. First Capital Connect sets the "any permitted" fares, with the off-peak and off-peak day fares being set at £29 and £20 respectively. National Express East Anglia has just introduced its own TOC-specific fares: off-peak day return at £15.20 and super off-peak day return at £14. It remains to be seen whether the cheaper choice—albeit to a different London terminus—will have an impact on the scale of FCC increases in the years to come.

  There are other examples of competition where we could find no evidence that choice had resulted in above or below average fare increases: eg London-Birmingham and London-Exeter markets. We found, though, a different result when looking at the London-East Croydon fare. Southern increased its Anytime fare by 4.6% (from £28 in January 2008 to £29.30 in January 2009) against the Southern average increase of 6%. Likewise First Capital Connect increased its restricted anytime fare (valid only on FCC services) from £20.50 to £21—a rise of 2.4% against the average of 6%. It isn't possible, however, to attribute this all to competition as other issues such as type of rolling stock and journey time will all play a part in the choice of ticket.

  It is this difficulty in isolating the precise impact of price that makes it difficult to supply the Committee with a clear pattern/trend.

b)  Clarification/expansion of Question 143 surrounding fare regulation.

  Passenger Focus's concern with fares regulation does not surround the month on which RPI is based but with more fundamental issues.

  For example, the January 2009 fare increase was based on RPI of 5% (as recorded in the preceding July). Regulated fares are grouped into what are known as fares "baskets" and the RPI cap (RPI+1%) is applied to the total value of that basket. Some individual fares within the basket may go up by more than the RPI+1 formula (up to maximum of 5% points) provided that the total average does not exceed this. So, in January 2009, an individual fare could increase by as much as 11% (RPI+1%+5%=11%) and still be perfectly within the rules.

  Our research shows that many passengers cannot relate the fact that many fares are regulated with their personal experience. This may be partly because RPI had been running ahead of increases in earnings at the time of the research, but it may also be because:

    — A system of regulation that allows prices to rise 1% ahead of inflation every year in return for a service that is not perceived to have improved does not feel like adequate consumer protection. There is a disconnect between the quality of service received and the level of fare increase.

    — Some passengers will have experienced price increases of 11%, possibly four-to-five times likely salary increases.

  The existing formula for regulated fares has undoubtedly provided some protection for passengers over the past years but we believe that the current recession makes existing assumptions about fares and indeed about the role of fares in franchising policy (which were both designed for different economic times) unsustainable. For instance: even if RPI in July 2009 is 0%, some passengers could still find themselves paying 6% more for their rail tickets (ie 0+1+5=6%).

  We believe that there is a need to review the fundamental structure governing regulation. This includes:

    — Government reviewing its intention to shift the balance of funding for the railway from the taxpayer to the fare payer (from roughly 50%/50% to 25%/75% respectively).

    — Government reviewing the impact on fare levels of high premium franchises.

    — Restricting the fares basket flexibility that allows individual tickets to rise by 5% points higher than the overall cap.

    — Preventing train companies from passing on all of the permitted increase in regulated fares on routes where performance is poor.

February 2009

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