One thing which does not quite seem to have registered everywhere just yet is the impact of Covid-19 on the OpEx of the railway. For the moment, of course this was not an immediete concern. In March the Department for Transport managed to get agreements out to the fourteen contractors they manage to cover almost all costs in exchange for 2% fees. It seems this was done in a drastic hurry because it happened so many weeks before Transport Scotland and Transport for Wales got amended terms out to their contractors. It has been widely reported that HM Treasury are unhappy with the way this deal was done (including by RAIL and Chris Stokes, among others), and they most certainly are all over the negotiations for the renewal of these which is coming in just a few months in September. Rodger Ford reports in his June Informed Sources that this is costing around £900 million / month in total, factoring additional support to Network Rail.
We could speculate on why the Treasury were 'bounced' into spending this much money, but maybe that's not too helpful. However one looks at it though, in addition to the whole-economy support (such as Coronavirus Job Retention Scheme), many industries got nothing at all, and even Local Authorities and charities have only been offered a portion of lost funding, while the railway has broadly managed to scoop up close to 100% funding for the first six months - this looks like a stand-out deal. So the question I seek to pose in this thread is this: how could the railway industry, mainly with a focus on the fourteen TOCs and Network Rail, reduce current expenditure to help weather the pandemic?
It is worth noting that if the government are willing to drop their 'avoid public transport' message, there may be some extra ticket revenue that can support this calculation a bit. I imagine that, again, the Treasury are all over this. However, without much sign of that coming forward as yet it is almost impossible to see significant extra revenue coming in. I think also even if the government did lift the message, social distancing on trains and the various other new things like mask wearing would make it very difficult to attract large enough numbers back to avoid a spending cut. This could be discussed more thoroughly in a seperate thread.
NB that this thread concerns the picture in England only. Contracts at Merseyrail, TfL Rail and London Overground are not managed directly through DfT but will be likely to face retrenchment too in some form or another.
The obvious thing that could be cut is the management fee - Direct Awards have been done with it at 1% before, and the contractors don't have much bargaining power in the matter. Even there though one wonders how much more tolerance there is among the twelve who've won their contracts competitively.
After that, these are the areas where most costs come from the following in proportion according to RDG:
Train leasing
I can't see much of a saving here, but I wonder if renegotiation of the leases to delay payments are being looked at? Redeploying rolling stock to where it will do more work or save money may be possible. Delaying the introduction of new services and asking to delay start dates on new leases is possible.
Train maintenence, fuel and electricity
What cost savings are available from timetable cuts in terms of maintenence, as a proportion of the lease costs? Cutting some timetables might be very unpopular in the age of social distancing, especially if it leads to rolling stock being 'stopped' - but might there be routes where this works out well? For example cutting from 3 to 2tph on fast services from London to Birmingham and Manchester. Some ideas about how to save fuel specifially were offered in this thread: https://www.railforums.co.uk/threads/timetable-changes-for-the-decarbonisation-agenda.205930/ 'Peak Spreading' has been identified specifically as a potential cost-saving measure, and we could certainly see some reductions in service with all trains running at maximum length, but how can this be translated into hard savings within a few months?
Staff
Most businesses have tried to reduce staff costs by withdrawing paid overtime, offering unpaid leave or transfers / using internal secondments to fill vacancies, and freezing hiring and pay or maybe offering voluntary redundancy. Going further than this would be asking for voluntary pay cuts, which many firms have successfully implemented for a year or two if led appropriately by senior management accepting a slightly larger cut. Compulsory redundancy is probably a step too far, on the basis that timetables may be restored to higher levels within a few years.
Infrastructure
Routine maintainence is probably mostly safety critical or beneficial work being brought forward (e.g. Kilsby Tunnel), which represents better than usual value for money. Are there any oppurtunities if routes are quieter in terms of weekly train movements, though? Hard to imagine there's much.
Payments to government
No longer relevant
Administration
Unclear. Background updates deferred or cancelled?
Any more ideas? Where will the Treasury seek to extract their 'pound of flesh'?
We could speculate on why the Treasury were 'bounced' into spending this much money, but maybe that's not too helpful. However one looks at it though, in addition to the whole-economy support (such as Coronavirus Job Retention Scheme), many industries got nothing at all, and even Local Authorities and charities have only been offered a portion of lost funding, while the railway has broadly managed to scoop up close to 100% funding for the first six months - this looks like a stand-out deal. So the question I seek to pose in this thread is this: how could the railway industry, mainly with a focus on the fourteen TOCs and Network Rail, reduce current expenditure to help weather the pandemic?
It is worth noting that if the government are willing to drop their 'avoid public transport' message, there may be some extra ticket revenue that can support this calculation a bit. I imagine that, again, the Treasury are all over this. However, without much sign of that coming forward as yet it is almost impossible to see significant extra revenue coming in. I think also even if the government did lift the message, social distancing on trains and the various other new things like mask wearing would make it very difficult to attract large enough numbers back to avoid a spending cut. This could be discussed more thoroughly in a seperate thread.
NB that this thread concerns the picture in England only. Contracts at Merseyrail, TfL Rail and London Overground are not managed directly through DfT but will be likely to face retrenchment too in some form or another.
The obvious thing that could be cut is the management fee - Direct Awards have been done with it at 1% before, and the contractors don't have much bargaining power in the matter. Even there though one wonders how much more tolerance there is among the twelve who've won their contracts competitively.
After that, these are the areas where most costs come from the following in proportion according to RDG:
- 33% Leasing and maintaining trains
- 25% Staff
- 17% infrastructure maintentence
- 8% Payments to government
- 5% Fuel and energy
- 2% Train operator profit
Train leasing
I can't see much of a saving here, but I wonder if renegotiation of the leases to delay payments are being looked at? Redeploying rolling stock to where it will do more work or save money may be possible. Delaying the introduction of new services and asking to delay start dates on new leases is possible.
Train maintenence, fuel and electricity
What cost savings are available from timetable cuts in terms of maintenence, as a proportion of the lease costs? Cutting some timetables might be very unpopular in the age of social distancing, especially if it leads to rolling stock being 'stopped' - but might there be routes where this works out well? For example cutting from 3 to 2tph on fast services from London to Birmingham and Manchester. Some ideas about how to save fuel specifially were offered in this thread: https://www.railforums.co.uk/threads/timetable-changes-for-the-decarbonisation-agenda.205930/ 'Peak Spreading' has been identified specifically as a potential cost-saving measure, and we could certainly see some reductions in service with all trains running at maximum length, but how can this be translated into hard savings within a few months?
Staff
Most businesses have tried to reduce staff costs by withdrawing paid overtime, offering unpaid leave or transfers / using internal secondments to fill vacancies, and freezing hiring and pay or maybe offering voluntary redundancy. Going further than this would be asking for voluntary pay cuts, which many firms have successfully implemented for a year or two if led appropriately by senior management accepting a slightly larger cut. Compulsory redundancy is probably a step too far, on the basis that timetables may be restored to higher levels within a few years.
Infrastructure
Routine maintainence is probably mostly safety critical or beneficial work being brought forward (e.g. Kilsby Tunnel), which represents better than usual value for money. Are there any oppurtunities if routes are quieter in terms of weekly train movements, though? Hard to imagine there's much.
Payments to government
No longer relevant
Administration
Unclear. Background updates deferred or cancelled?
Any more ideas? Where will the Treasury seek to extract their 'pound of flesh'?
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