Growing rail revenue

Sunday 27th November 2022

Growing rail revenue was the theme of one of the sessions at the ‘Future of Britain’s Railways’ Conference held over two days last week as part of the Modern Railways Expo exhibition in Milton Keynes.

Modern Railways editor Phil Sherratt kindly invited me to join the panel discussion along with Mark Smith (founder of The Man In Seat 61 website) after presentations from Suzanne Donnelly, Director, Passenger Revenue, Great British Railways Transition Team, Stuart Jones, Commercial Director, Lumo and Alistair Lees, Chair, Independent Rail Retailers. The session was ably chaired by Sharon Hedges of Transport Focus.

It was a fascinating session hearing from the speakers and the ensuing questions and discussion from the audience and I certainly added to my repertoire of knowledge nuggets about the rail industry.

Here are a few.

Of the rail industry’s roughly £8 billion of ticket revenue (down from a pre-Covid £10-11 billion) £2.5 billion of sales are made by independent rail retailers direct to passengers with another £0.5 billion to business customers and a further £1 billion are sold online through those Train Operating Company websites which are overseen by an independent company (Assertis). That’s half the country’s total rail ticket sales.

That’s a sizeable commission being paid from the industry to third party providers, when the cost of ticket offices and station Ticket Vending Machines (TVM) are borne by the industry…. but for only half of all sales.

According to Alistair there are currently 2,822 ticket types, 901 unique ticket names, 655 restriction codes and 1,288 route codes. How is anyone supposed to understand that lot? It’s a complete and utter mess overloaded with complexity. And it’s got worse since privatisation (the foregoing figures have grown seven fold since then) and it’s got worse since the pandemic (more than 300 extra ticket types have been introduced since March 2020). It’s out of control.

Ironically each Train Operating Company (TOC) is doing its own thing at a time when all revenue from ticket sales (aside from Lumo, Hull Trains and Grand Central) goes into the same central piggy bank at the Treasury. And that’s the problem – the Treasury and DfT’s micro management of the rail industry will never allow the necessary commercial risks and innovations to grow revenue.

Alistair observed the average fare on the railway is £7.40. But there are huge price variations for long distance journeys ranging from eye watering expensive to ridiculously cheap.

Online/PayAsYouGo is currently 65% of ticket sales (up from 52% pre pandemic).

Overall, trains are running on average across all journeys with 75% spare capacity. But there are extremes of horrendous overcrowding on busy lines and at other times virtually empty trains. The devil is in the average.

Suzanne explained rail revenue has recovered to between 80-85% of pre pandemic levels. Recovery improved steadily earlier this year but has now ‘flatlined’ and this recovery has brought about a new market structure with season ticket sales falling from 19% to 8%; anytime tickets down from 30% to 29%; off-peak tickets up from 33% to 40%; and advance tickets up from 17% to 22%.

Business travel is at 37%; commuting at 59%; and leisure travel 115% of pre pandemic levels.

Sundays are at 115%; Saturdays 105%; Tuesdays/Wednesdays/Thursdays are at 82-83%; and Mondays/Fridays are at 78-79% of pre pandemic levels.

Stuart told us how Lumo’s one class dynamic price offer has made inroads into the London Edinburgh air/rail market with rail increasing its market share from 35% to 57% whereas rail has more or less retained its 30% share on the London Glasgow market.

Lumo’s presence is said to be a key reason why the London Edinburgh market is now at 125% of pre pandemic levels.

So, putting all this together, how is the industry going to grow revenue to plug that £2 billion gap between revenue and costs, setting aside the impact of current disruption due to industrial action which we can only hope is resolved through negotiation and compromise on both sides very soon.

There were two contrasting views during the panel discussion whether a step by step, bit by bit evolutionary approach is better, or whether it needs a revolutionary Big Bang approach. Alistair tended toward the former while Mark felt the latter was the only way.

The problem, of course, is the Treasury. They’re not going to sanction anything that puts revenue at risk at a time when the industry is already a couple of billion down on where it needs to be. I drew the analogy with the relatively small scale comparison in Brighton & Hove twenty odd years ago when we went to a £1 flat fare to replace graduated fare scales, if your aim is to simplify and reduce complexity then almost by definition that involves major change with associated risk, and a ‘Big Bang’ is the only way, but the potential rewards are high if the new simplified system attracts new revenue, because customers suddenly understand and are attracted to travel with its new simplified logic.

Alistair put forward his idea of single journey pricing (no returns); have an industry standard for what a peak is (in time definition); have just three ticket types: Fixed, Flex and Semi-Flex; and Flexi commuter – the more you travel in a given period the more you’re rewarded (reduced fares, free days, partner offers); ‘pay as you use it’ with no commitment up front to a week, month or year but automatic calculation of best rates depending on intensity of use.

He also made the point changes to tickets after purchase and refunds should be made much easier with a fair cost for doing so rather than the penalty price paid currently.

My experience of travelling by rail over the last six months has been of relatively easy journeys during the peak commuting periods, always being able to find a seat – a peak hour journey up to Victoria on the Brighton Main Line on Friday morning saw the train only around a third full – whereas recent journeys on Sundays on the Brighton Main Line and East Coast Main Line have been uncomfortable on packed trains with passengers standing. This experience doesn’t accord with the current pricing model. A return ticket from Hassocks to London in the morning peak is around £51.30 (anytime day return, no railcard) whereas on a Sunday the same ticket can be bought for as little as £8.55 (to London Bridge with a railcard). This makes no sense. The former is too expensive; the latter too cheap.

I think it’s time to do away with peak pricing. Buses did this decades ago and with working from home being much more commonplace, now is the time to grasp the nettle and simplify the price proposition by having the same tariff irrespective of time of day or day of the week.

As has been suggested let’s also go for a single journey only pricing regime as has applied as a “trial” on the East Coast Main Line for a few years, but I don’t recall seeing any analysis of the results of that.

Such a system should include easy to understand route alternatives offering different price options – eg London to Birmingham either via Milton Keynes or High Wycombe but let’s do away with the TOC specific tickets (eg Avanti only or London NorthWestern only) when they’re on the same tracks. More complex “Any Permitted” route options for longer distance journeys need to be easily explained so passengers (and staff) know what is and isn’t possible. At the moment it’s virtually impossible to know where you can go with such tickets. For example, here’s the simple (ironic alert) introduction explaining how to use National Rail’s routing guide to let you know what route you can take – no need to read it all, I’ve just included it all for effect.

While we’re having a ‘bonfire of ticket types’ let’s throw on the pyre advanced purchase tickets at cheaper prices too. Keep it simple, with one price whenever the ticket is bought and for whenever the travel is for.

And why not make a charge for reservations on long distance journeys, just like airlines do if you want to select your seat. Something like £10 per seat or three for £25, four for £28 with automatic refunds when the system is down.

We don’t need to wait for the so called ‘Rail Reform’ (if that is ever going to happen) to introduce a whole host of other small improvements to make things easier and more understandable for passengers to encourage more journeys. For example, stop insisting customers have to specify a journey time for their return journey when buying either online or from a new type TVM. With single leg only pricing and no peak surcharges this would change anyway with the simple purchase of a single out and a single back both at the same price.

Old style TVMs (at least those in GTR territory I use) should be able to sell Railcard discounted tickets for travel before 09:00 where that is currently allowed (ie for journeys beyond the Network Card area in the “south east”) whereas they don’t permit this (the button is greyed out) and you have to manually fool the machine by pretending you’re travelling after 09:00 (even though you’re not) by changing your time of travel – very few passengers know that trick.

But in any event I’m becoming more attracted to the idea Mark put forward in advance of the discussion at the Conference that the time has probably come to do away with railcards and make the up front price of a ticket more attractive rather than hide the best price behind an unattractive high price. As Mark observed – what other customer orientated industry or retailer does that?

I still reckon many of today’s fares/tickets complications on our railway are because directors and staff responsible for the mess that’s been created don’t ever have to use it as they all enjoy free travel. They’ve never had to turn up at a station, find the ticket office with a long queue or even closed, and have to wait in a queue for the one TVM that’s in operation and then work out what the best priced ticket to buy for their journey is… as the train they want pulls in and leaves. (And yes, I know you can buy online and get a QR code to your smartphone and avoid all that faff these days, but I’m just making a point.)

And not that I’m suggesting free travel for staff should be removed. On the other hand….

Will anything change in the next few years? It seems to me all there is lots of talk about “Rail Reform” but not much reform is actually happening. Nothing has changed since the pandemic struck in March 2020 – it’ll soon be three years next March – and I doubt anything will change in the next three years to March 2026. Or ever.

Roger French

Blogging timetable: 06:00 TThS