TfL’s £40m Travelcard gamble

Thursday 12th October 2023

This blog is a collaboration with my friend Geoff Marshall and his highly respected and much watched YouTube channel.

We teamed up last week to test out what will happen in January when time runs out for London’s popular one-day Travelcard.

Click here to see Geoff’s video setting out our findings after travelling from Guildford for a typical day out in London comparing the cost of the endangered ‘all-in’ integrated Travelcard paper ticket with buying a return rail ticket plus tapping in and out on journeys around the Capital using an Oystercard or bank card, which in three months time will be the only option for passengers.

Mayor Khan gave the required six months notice to terminate the 1995 Travelcard Agreement with Train Operating Companies (TOCs) on 20th July, so we’re just approaching the three month halfway point before that decision comes into effect. So far there are no signs of any negotiations between the parties to give TfL a bigger share of the pooled income and thus perhaps save the Travelcard.

Sadiq Khan left the door ajar when giving notice by stating “should the DfT and TOCs propose an alternative arrangement during this notice period which is financially acceptable to TfL and allows it to meet the requirements of its funding agreement with Government, this notice could (by agreement) be retracted and Day Travelcards remain available”.

However with the DfT controlling all things rail and in turn the Treasury controlling the DfT and a Prime Minister having zero interest in public transport there’s unlikely to be a deal of that kind even though many Conservative MPs have called for a rethink in response to feedback from their unhappy constituents.

Under its post Covid funding agreement with Government TfL need to find between £0.5 billion and £1 billion in either substantial cost savings or significant additional revenue (or a bit of both) by the end of this year. Actions instituted already include Freedom Passes having their morning peak validity curtailed, non-refundable increased charges introduced for an Oyster card and Underground fares to Heathrow Airport substantially increased (peak fares applying all day). Withdrawing the Day Travelcard is part of this revenue raising plan with expectations it will raise £40 million.

I’m sure expert bean counters have beavered away over enormous spread sheets to be confident of that additional revenue figure but I puzzle how they could possibly know how much people use their Travelcards since no detail registers when you flash your ticket at bus drivers or pass through gatelines. Surveys have undoubtedly been done in the past but do they represent today’s travel patterns? There must be an element of guesswork and broad assumptions involved which is why Geoff and I decided to carry out our own research.

Three factors are at play.

Firstly are passengers making multiple journeys all over zones 1 to 6 with their Travelcard or just a couple of trips in zone 1 from (and back to) a mainline railway station? The answer to this will be key to whether TfL will be better or worse off come 2024. Will passengers spend more in fares directly payable to TfL as they tap away on buses, the Underground, Overground, DLR, trams and the Elizabeth line (all subject to the daily caps of course) than TfL currently receives as a share out of the revenue taken by TOCs when selling the Travelcard?

Geoff and I found Guildford to be a typical “average” origin station in the Home Counties with a £7.40 “on-cost” for the Travelcard (£32.20) compared to the off-peak return (£24.80). Passengers need to make more than two Zone 1 journeys on the Underground (twice times £2.70 = £5.40) and a bus journey (£1.75) making £7.15 before they’re would breach the extra cost of buying a Travelcard on the next journey. After that, the daily cap would apply, which for Zone 1 is £8.10. So looking at it simplistically (but see point three below) TfL would only gain slightly more income – 70p more in fact (£8.10 cap minus the £7.40 Travelcard “on cost”).

Secondly, and complicating the assessment further is the widely different add on prices passengers pay for a Day Travelcard. Like me, you may wonder why there isn’t a standard add-on price from wherever you travel into London in the same way passengers in London pay a standard £15.20 if they want a paper Zones 1-6 Travelcard rather than the £14.90 Oyster cap (deliberately 30p lower to encourage passengers not to buy Travelcards).

For example, as explained above, from our test station, Guildford, an off peak return rail fare to Waterloo is £24.80 whereas an off-peak Day Travelcard is £32.20. A difference of £7.40.

More expensive is Chelmsford from where a passenger pays £25.00 for an off-peak return to Liverpool Street and £33.50 for a Travelcard making a difference of £8.50.

However, the difference becomes less from other sample origin stations. Northampton has a £38.30 off-peak day return and £43.60 off-peak Day Travelcard. A difference of only £5.30,

Travel into London from Brighton and an ‘any permitted’ off-peak day return is £35.40 with the Travelcard at £40.90 bringing the difference down to just £4.50.

The lowest difference I could find is from Birmingham New Street from where an off-peak return restricted to London NorthWestern trains is £39.00 with its equivalent Travelcard priced at £41.00 an incrediblly low £2.00 extra to enjoy the freedom of travelling all over London. No wonder TfL are miffed.

At the other end of the scale a passenger also from Birmingham New Street buying a flexible (‘any permitted’) off-peak return (which includes Avanti West Coast trains) costs £65.80 with the equivalent Travelcard costing £78.00, a hefty difference of £12.20.

So, the ‘break even point’ from a passenger’s perspective of whether the use they intend to make of buses, trains and Underground etc while in London justifies buying a Travelcard rather than just a return rail ticket and tap away varies depending on which station they are travelling from to London as well as what travel they undertake on arrival.

And you might think TfL’s share of the revenue similarly varies which brings me to the third factor – what share of each Travelcard sold by a TOC is handed over to TfL?

Not surprisingly there’s no simple answer. The 1995 Travelcard Agreement sets out the apportionment arrangements in far too much detail to include here, suffice to say the percentage share TfL receives varies considerably according to what TOC has sold the ticket and what type of ticket it is – whether a Day Travelcard or a longer duration one (week through to annual – all of which are continuing and not being withdrawn). It also varies according to whether the Travelcard is sold at what’s called a ‘Joint Station’ (eg Amersham, Barking etc) or not. The Agreement also includes provisions for changes to the Apportionment Factors following surveys.

I naively thought the bulk of the difference in price between a return rail ticket and a Travelcard went to TfL with perhaps a small percentage shared among the TOCs for journeys made within London on TOC run services within Zones 1-6.

In fact, the Apportionment Factors refer to the entire price of the Travelcard from the originating station so not surprisingly the greatest percentage goes to the TOC to cover the journey from the originating station into London. Typical share outs for a southern based TOC (eg sold by southeastern, Southern and SWR) are 70% to the TOC and 30% to TfL. Over at c2c that TOC receives 76% and TfL 24%. Great Northern is a Brexit style split with 52% to the TOC and 48% to TfL.

So, applying this back to our Guildford example where TfL receives 30.5% of Travelcard revenue and SWR gets 69.5% (that’s according to the original 1995 Travelcard Agreement – it could well have been updated since) …….. as the off-peak Travelcard is priced at £32.20 it will be shared out as £9.80 to TfL and £22.40 to SWR.

So in the post January abolishment of Travelcard scenario and a passenger buys a return ticket from Guildford to Waterloo, SWR will receive all of the £24.80 the passenger pays for that ticket meaning the TOC is immediately better off by £2.40 (ironically by selling a cheaper ticket). TfL’s income on the other hand will very much depend on what journeys that passenger makes while in London. Hence the gamble.

Geoff and I reckon the majority of leisure travellers using Travelcards in the off-peak are probably going shopping, visiting a museum, sightseeing, seeing a show or visiting a friend/relative. We’d guess the majority of those will involve a couple of journeys (there and back) in zones 1 or 2. If so, that will bring in an average £5.50 (either £5.40 or £5.60) to TfL, which is £4.30 less than TfL is getting under the current Travelcard regime.

Far from making an extra £40 million, on this analysis, TfL will be losing out.

But, here’s the thing. I’m not an expert bean counter and may have got all my assumptions wrong including what Apportionment Factors are currently in play – the figures I’ve quoted above (from the original 1995 Agreement) may be out of date and no longer applicable.

But what it does show is it is not as simple as it looks. Whether TfL becomes better off will very much depend on passenger reaction. Some may carry on tapping away regardless in complete ignorance of what they’re paying reassured they’ll hit a one day £14.90 cap, others may become more price conscious as they see the individual fares for each journey displayed on the gateline as they tap out, while still others may be put off from travelling completely, not least families who can currently take advantage of some excellent deals on Family Travelcards but in the new regime will need to buy a Visitor Oyster card (£7 non refundable) for each child aged 11-15 and go through the faff of getting it registered for a special discount to be applied enabling half fare when tapping.

I understand 12 million Day Travelcards are sold in a year. Tfl’s £40 million additional revenue target therefore means it’s looking to gain £3.33 for each passenger currently buying a Day Travelcard and switches to tapping away once the ticket is withdrawn come January. That’s quite a gamble, not least if the assumptions outlined above are anywhere near reality.

One final observation to illustrate just how crazy various pricing anomalies on the railways are, my £32.20 off-peak Travelcard from Guildford was £1.30 more expensive than had I used ‘split ticketing’ and bought an off-peak day return to Surbiton (the Zone 6 boundary) for £15.70 and separately purchased a Zones 1-6 Travelcard valid from there costing £15.20 making a total price paid of £30.90. Even the member of staff in Guildford’s ticket office seemed surprised when I pointed that out.

Don’t forget to give Geoff’s superb video a watch here.

Roger French

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