Virgin Trains East Coast franchise to end 24 June 2018 and is temporarily re-nationalised

[ainsworth74]

I suspect the reality is that whoever the operator the East Coast Route is profitable on London to York/Leeds. York to Newcastle just about breaks even and the rest is an absolute basket case financially.

The Anglo-Scots as far as Edinburgh always seem to load very well in my experiance (obviously there is seasonal variation) so I'm not sure I'd consider London to Edinburgh to be a financial basket case. Equally VTEC always seem to load well on Edinburgh - Aberdeen.

 

[paul1609]

Yes but profitability is all about £££s not passenger numbers. Taking the standard off peak return as the bench mark London to York works out at 94p per mile, Edinburgh to Aberdeen 36p per mile, Edinburgh to inverness 31p per mile. This is probably quite a generous comparison as the further north you go the more people must be travelling on very low cost advance tickets or short hop tickets priced by regional TOCs. The costs of the one a day Inverness service must be astronomical and the Aberdeens not much better.

 

[daikilo]

Let us remember that VTEC is profitable on operations, before payments to Government. Indeed, if the latter had been negotiated as say 400M then no doubt some of us would be complaining about it.

As for the profitability of parts of the network, it reminds me of Beeching, cutting off the branches doen't make the tree grow better, it kills it. If a train is full from NCL or YRK to KX it may well be because it filled up progressively at previous stops.

Personally, if I was VTEC I would be very worried about the First Open Access operation. If the fares are set as easyJet does, VTEC average fares from the 'branches' will decline. I hope the DfT have realised this and will also get a cut of FEC OA operations.

 

[yorksrob]

Yes but profitability is all about £££s not passenger numbers. Taking the standard off peak return as the bench mark London to York works out at 94p per mile, Edinburgh to Aberdeen 36p per mile, Edinburgh to inverness 31p per mile. This is probably quite a generous comparison as the further north you go the more people must be travelling on very low cost advance tickets or short hop tickets priced by regional TOCs. The costs of the one a day Inverness service must be astronomical and the Aberdeens not much better.

Then perhaps we're measuring the wrong metric. The whole point of a transport system is to enable people to go about their business, engaging in the economy, rather than being a stand-alone business in itself.

It's right that passengers should pay a reasonable proportion of costs, but not by so much that too many are put off and the cost acts as a barrier to the railway system performing it's function.

Also, short hops on the ECML tend to be comparatively expensive anyway (cheap day return from York to Doncaster anyone ?).

 

[LNW-GW Joint]

Then perhaps we're measuring the wrong metric. The whole point of a transport system is to enable people to go about their business, engaging in the economy, rather than being a stand-alone business in itself.
It's right that passengers should pay a reasonable proportion of costs, but not by so much that too many are put off and the cost acts as a barrier to the railway system performing it's function.

Yes, but the public bodies involved (DfT and PTEs, mainly) have budgetary limits set by the Treasury, after agreeing all the cross-departmental objectives (employment levels, housing development, city deals etc) which is usually on a 5-year or parliamentary term basis.
They have to operate the transport system within those limits.
That's why premiums from rail franchises and cost efficiencies by PTEs, or fare increases, matter so much in the wider equation.
If you relax all those constraints, the system just implodes for lack of funding.
When you get down to the operators (TOCs) their objective is mainly about increasing revenue or reducing costs to meet the profile set in their contracts.
The DfT balances all this and tries to deliver equable benefits across the country.
Hence things like withdrawing Pacers in the north when there wasn't a business case for it - somebody else will be paying for that.

 

[yorksrob]

Yes, but the public bodies involved (DfT and PTEs, mainly) have budgetary limits set by the Treasury, after agreeing all the cross-departmental objectives (employment levels, housing development, city deals etc) which is usually on a 5-year or parliamentary term basis.
They have to operate the transport system within those limits.
That's why premiums from rail franchises and cost efficiencies by PTEs, or fare increases, matter so much in the wider equation.
If you relax all those constraints, the system just implodes for lack of funding.
When you get down to the operators (TOCs) their objective is mainly about increasing revenue or reducing costs to meet the profile set in their contracts.
The DfT balances all this and tries to deliver equable benefits across the country.
Hence things like withdrawing Pacers in the north when there wasn't a business case for it - somebody else will be paying for that.

I'm not disputing that how it is, is how it is. Just suggesting that's not the way it should be.

Although I will take exception to your example. If a 'business case' can't be made to replace life-expired rolling stock on routes that are seen as necessary to operate, then the calculation for what is 'life expired' clearly isn't worth the paper it's written on.

 

[B&I]

Then perhaps we're measuring the wrong metric. The whole point of a transport system is to enable people to go about their business, engaging in the economy, rather than being a stand-alone business in itself.

It's right that passengers should pay a reasonable proportion of costs, but not by so much that too many are put off and the cost acts as a barrier to the railway system performing it's function.

Also, short hops on the ECML tend to be comparatively expensive anyway (cheap day return from York to Doncaster anyone ?).

You seem to have misunderstood the main role of 'public' services in this country, which is in general to make money for the people contracted to run them (in lieu of an actual, productive economy), rather than to serve the public.

 

[LNW-GW Joint]

I'm not disputing that how it is, is how it is. Just suggesting that's not the way it should be.
Although I will take exception to your example. If a 'business case' can't be made to replace life-expired rolling stock on routes that are seen as necessary to operate, then the calculation for what is 'life expired' clearly isn't worth the paper it's written on.

Well, as you probably know, the Northern Pacers were only replaced after the SoS overruled his officials who told him there was no case.
They are no older than many other DMUs which are carrying on in service with several franchises.
So politics in this case trumped financial logic.
Northern has still to demonstrate that it can meet the revenue targets for the new trains.

 

[yorksrob]

Well, as you probably know, the Northern Pacers were only replaced after the SoS overruled his officials who told him there was no case.
They are no older than many other DMUs which are carrying on in service with several franchises.
So politics in this case trumped financial logic.
Northern has still to demonstrate that it can meet the revenue targets for the new trains.

By the tiime they will have been replaced, they will be 35-40 years old anyway, which means that the officials who decided they weren't life expired were either lacking in knowledge about DMU lifescales or talking out of the side of their hats.

Those of a similar vintage that remain will have been substantially refurbished.

 

[daikilo]

By the tiime they will have been replaced, they will be 35-40 years old anyway, which means that the officials who decided they weren't life expired were either lacking in knowledge about DMU lifescales or talking out of the side of their hats.

Those of a similar vintage that remain will have been substantially refurbished.

Personally, I am astonished that Pacers survive today. That said, after various upgrades, they are in fact remarkably rugid. If it weren't for PRM issues I am sure they would live well into the 2020s. I could consider that their drive-train as a bit dated, but they generally work.

 

[yorksrob]

Personally, I am astonished that Pacers survive today. That said, after various upgrades, they are in fact remarkably rugid. If it weren't for PRM issues I am sure they would live well into the 2020s. I could consider that their drive-train as a bit dated, but they generally work.

Well, I would agree with you for the 144's !

But compared even to the slam door stock withdrawn fifteen years ago, the 142's are not fit for a modern railway.

 

[matt_world2004]

I thought the pacers were only meant to be a temporary soloution when built so of course they are not going to have the full lifespan of other dmus.

 

[daikilo]

I thought the pacers were only meant to be a temporary soloution when built so of course they are not going to have the full lifespan of other dmus.

Well yes, in theory, but the reality is somewhat different. I am of the school that says if it works, don't fix it.

 

[paul1609]

Then perhaps we're measuring the wrong metric. The whole point of a transport system is to enable people to go about their business, engaging in the economy, rather than being a stand-alone business in itself.

It's right that passengers should pay a reasonable proportion of costs, but not by so much that too many are put off and the cost acts as a barrier to the railway system performing it's function.

Also, short hops on the ECML tend to be comparatively expensive anyway (cheap day return from York to Doncaster anyone ?).

I don't entirely disagree with you about the metrics but we are discussing the reason why the franchise is repeatedly failing, in my opinion thats because the franchisees and dft are looking for huge increases in ticket income on a route half of which makes a huge profit but where spare capacity is in short supply and half of a route where the financials are an absolute basket case.
London to Edinburgh could possibly be profitable but I would suggest there is insufficient demand for 2tph on VTEC, 1 tph on XC and TPE services and First Services as well. You can fill the trains for some of the year but even then not at a price that returns a profit.
Is Doncaster to York that expensive on a national basis anyway for a high speed service? At 68 p per mile its way below the long distance fares south of York. Its around 2/3s of the cost of an Ashford to Ebbsfleet journey and still cheaper than a Ashford to Sevenoaks return on the classic main lines.

 

[matt_world2004]

Well yes, in theory, but the reality is somewhat different. I am of the school that says if it works, don't fix it.

Thet dont work really though do they. They leak. They are noisy they are uncomfortable they do not comply with dda legislation and the earliest pacers are going to be 20 years past their shelf life when they get replaced .

 

[MB1]

I don't entirely disagree with you about the metrics but we are discussing the reason why the franchise is repeatedly failing, in my opinion thats because the franchisees and dft are looking for huge increases in ticket income on a route half of which makes a huge profit but where spare capacity is in short supply and half of a route where the financials are an absolute basket case.
London to Edinburgh could possibly be profitable but I would suggest there is insufficient demand for 2tph on VTEC, 1 tph on XC and TPE services and First Services as well. You can fill the trains for some of the year but even then not at a price that returns a profit.
Is Doncaster to York that expensive on a national basis anyway for a high speed service? At 68 p per mile its way below the long distance fares south of York. Its around 2/3s of the cost of an Ashford to Ebbsfleet journey and still cheaper than a Ashford to Sevenoaks return on the classic main lines.

May I ask how often you travel on services north of York? I travel London to Newcastle/Edinburgh, and Newcastle/Edinburgh to Aberdeen (and vice versa) frequently, and the trains are always around 70-75% full - minimum.

If the finances in the Scottish part of the EC franchise were in such a state you would have thought that it would have been written out of the franchise agreement after the stint of government operation.

 

[paul1609]

May I ask how often you travel on services north of York? I travel London to Newcastle/Edinburgh, and Newcastle/Edinburgh to Aberdeen (and vice versa) frequently, and the trains are always around 70-75% full - minimum.

If the finances in the Scottish part of the EC franchise were in such a state you would have thought that it would have been written out of the franchise agreement after the stint of government operation.

I commute most weekends between Garelochead and Kent the majority of the time this is by air as the most practical and cheapest method but Im a regular user of both East and West Coast mainlines between London and Scotland.

 

[SaveECRewards]

Virgin Trains is a successful franchise. Virgin Trains East Coast is not. That has to change. And Virgin could start by imitating their West Coast approach - they could do worse, right?

No way! If VTWC had to pay VTEC level premiums they'd have gone under ages ago! Until they messed up the catering reliability and the booking engine last year the East Coast product was more attractive than the west coast offering. It's just the west coast franchise hasn't had to pay the same sort of premiums as east coast.

The East Coast is a successful operation, that's the whole reason companies overbid. GNER was making money prior to 2005, they may have pulled off their high bid in 2005 but a combination of their parent, Sea Containers, on the brink of collapse plus things like 7/7 hitting discretionary travel and I seem to remember something about electricity prices rising in 2005 all caused disaster for that franchise.

I'd rather have a franchise with a reasonable level of premiums and a good on-board service. I don't want some company paying the maximum to the government and then having to put up fares and lower on-board standards to have any attempt to meet those payments.

Personally I would have liked to see what VTEC could have done if they'd bid sensibly.

 

[47271]

I commute most weekends between Garelochead and Kent the majority of the time this is by air as the most practical and cheapest method but Im a regular user of both East and West Coast mainlines between London and Scotland.

Nothing personal and I'm not necessarily even disagreeing with you, I'm just trying to understand your argument, but aren't you the same poster who contends that versus air all anglo Scottish sleeper services are overpriced and irrelevent even with subsidy? If by extension you're now including VTEC trains north of Edinburgh, and maybe even Newcastle, and describe the Highland Main Line as an obscure single track branch, then I wonder what your positive vision for rail connectivity between the Highlands and London might be?

 

[paul1609]

Nothing personal and I'm not necessarily even disagreeing with you, I'm just trying to understand your argument, but aren't you the same poster who contends that versus air all anglo Scottish sleeper services are overpriced and irrelevent even with subsidy? If by extension you're now including VTEC trains north of Edinburgh, and maybe even Newcastle, and describe the Highland Main Line as an obscure single track branch, then I wonder what your positive vision for rail connectivity between the Highlands and London might be?

With all due respect we are not discussing rail connectivity between the highlands and London here, we are discussing why the franchise has failed for the third time (see also my comment on Yorksrobs post agreeing with the fact that the current metrics are not right). If you base your franchise bid on increasing ticket income at large rates on a franchise where capacity at the London end is largely utilised and at at the country end pricing is already severely reduced to stimulate demand you are likely to fail.
The sleeper services run at a huge loss that requires subsidy fact. The London to Inverness and Aberdeen service runs at a huge loss that is subsidised by the core franchise. Im not arguing that the services should be withdrawn. If you want the East Coast franchise to produce the sort of premium that has been promised maybe you should be stripping out these social services to a separate company.

 

[Iskra]

With all due respect we are not discussing rail connectivity between the highlands and London here, we are discussing why the franchise has failed for the third time (see also my comment on Yorksrobs post agreeing with the fact that the current metrics are not right). If you base your franchise bid on increasing ticket income at large rates on a franchise where capacity at the London end is largely utilised and at at the country end pricing is already severely reduced to stimulate demand you are likely to fail.
The sleeper services run at a huge loss that requires subsidy fact. The London to Inverness and Aberdeen service runs at a huge loss that is subsidised by the core franchise. Im not arguing that the services should be withdrawn. If you want the East Coast franchise to produce the sort of premium that has been promised maybe you should be stripping out these social services to a separate company.

Scotrail are getting HST’s shortly...

 

[yorksrob]

I don't entirely disagree with you about the metrics but we are discussing the reason why the franchise is repeatedly failing, in my opinion thats because the franchisees and dft are looking for huge increases in ticket income on a route half of which makes a huge profit but where spare capacity is in short supply and half of a route where the financials are an absolute basket case.
London to Edinburgh could possibly be profitable but I would suggest there is insufficient demand for 2tph on VTEC, 1 tph on XC and TPE services and First Services as well. You can fill the trains for some of the year but even then not at a price that returns a profit.
Is Doncaster to York that expensive on a national basis anyway for a high speed service? At 68 p per mile its way below the long distance fares south of York. Its around 2/3s of the cost of an Ashford to Ebbsfleet journey and still cheaper than a Ashford to Sevenoaks return on the classic main lines.

The point is, if you're travelling from Doncaster to York, you need a local service that gets you from a to b, rather than paying for all the InterCity trappings.

I don't think stripping off the social bits of the EC franchise is the answer as you'll still end up subsidising them, just via the Government, which is a step backwards IMO.

The bidding process needs to be more realistic about premiums - but If you're scoring a tender and all the applicants have passed due diligence, it's very difficult to bring in something fairly subjective, such as how realistic you feel a bid is. If you turn down a better bid on this basis you open yourself up to possible court action.

 

[LNW-GW Joint]

If your contractor fails, you normally then turn to the second-placed bidder to negotiate a contract.
There were 2 other bidders for ICEC in 2014, First and Keolis/Eurostar. I'm not sure if we know which one came second in the competition.
Awarding the contract to First would cause problems with its Open Access plans.
But anyway, too much has changed since VTEC won the contract, and DfT wants some other solution anyway.

 

[Agent_Squash]

Might it be worth considering instead of set premiums, a percentage of profit goes back to the DfT (but still leaving enough for service improvements)

 

[SaveECRewards]

Might it be worth considering instead of set premiums, a percentage of profit goes back to the DfT (but still leaving enough for service improvements)

On paper that sounds the best solution to me (basically the premium paid should be dynamic based on market conditions, but with an incentive to encourage growth and not stagnate), but it's way to easy for a company to look like it's making zero profit or even a loss with accounting moving money to other divisions of the company.

 

[jyte]

Might it be worth considering instead of set premiums, a percentage of profit goes back to the DfT (but still leaving enough for service improvements)

Then you risk a starbucks situation where for some reason VTEC's seat covers cost £25,000 a piece and can only be bought from a company in Luxemburg.

 

[Chrism20]

Might it be worth considering instead of set premiums, a percentage of profit goes back to the DfT (but still leaving enough for service improvements)

I’d go for a minimum amount - Say £100m a year and then a percentage of anything over and above this. It would obviously need some covenant put into the contract that any spending needs to be within reason etc - i.e. not doing things like the seat covering example shown above.

*I am not suggesting that any future franchise returns only £100m a year, it was simply the first figure that came into my head.

 

[backontrack]

Absolutely, I suspect the reality is that whoever the operator the East Coast Route is profitable on London to York/Leeds. York to Newcastle just about breaks even and the rest is an absolute basket case financially.

Nonsense.

 

[MB1]

With all due respect we are not discussing rail connectivity between the highlands and London here, we are discussing why the franchise has failed for the third time (see also my comment on Yorksrobs post agreeing with the fact that the current metrics are not right). If you base your franchise bid on increasing ticket income at large rates on a franchise where capacity at the London end is largely utilised and at at the country end pricing is already severely reduced to stimulate demand you are likely to fail.
The sleeper services run at a huge loss that requires subsidy fact. The London to Inverness and Aberdeen service runs at a huge loss that is subsidised by the core franchise. Im not arguing that the services should be withdrawn. If you want the East Coast franchise to produce the sort of premium that has been promised maybe you should be stripping out these social services to a separate company.

I don't have any experience of the Inverness route, so I can't comment, however I find it hard to believe that the Aberdeen service makes a "huge loss". If you're filling the trains for pretty much the entire route (obviously the closer you get to Aberdeen, the 'emptier' the train becomes), I struggle to see how that can be making a loss?

I'm firmly of the viewpoint that, if it was making that much of a loss when it was government operated, they would have tried to pass it off to Scotrail, and cut all services at Edinburgh.

Again, you seem to be ignoring the fact that, when under DOR, the East Coast franchise paid the taxpayer £1bn - £235m of which was in the final year.

 

[backontrack]

I don't have any experience of the Inverness route, so I can't comment, however I find it hard to believe that the Aberdeen service makes a "huge loss". If you're filling the trains for pretty much the entire route (obviously the closer you get to Aberdeen, the 'emptier' the train becomes), I struggle to see how that can be making a loss?

I'm firmly of the viewpoint that, if it was making that much of a loss when it was government operated, they would have tried to pass it off to Scotrail, and cut all services at Edinburgh.

Again, you seem to be ignoring the fact that, when under DOR, the East Coast franchise paid the taxpayer £1bn - £235m of which was in the final year.

The Inverness service is always well-loaded.