How can the railway cut operational expenditure?

[tbwbear]

Agree ! Let's have all the government-owned companies like - Northern, LNER etc... (and new ones we create) bidding for contracts in other countries.

That will enhance the finances of the UK railway - in the same way that RATP, DB, Trenitalia, NS and all the rest do over here. Shame we got rid of BR because they could have made a good fist of running the Paris Metro. (certainly with a lot less government subsidy)

 

[ainsworth74]

I completely agree. But there isn't any incentive to maximise profits in the new system - the profit is capped at 2% isn't it.

It isn't that it's capped at 2% it's more that a lot of the other costs are baked in. For instance the biggest block of expenditure at 33% is leasing and maintenance of trains. Well leasing contracts are just that, contracts, usually for at least the length of the franchise which mean there is little to no wiggle room there. Many of them come with maintenance backed in these days so again not much wiggle room. Even where the TOC is responsible for maintenance itself there isn't going to be much that you can cut back on before negative consequences begin to feed in (from trains failing more often triggering more penalty payments to, at the worst case, safety being compromised and an accident occurring). Which isn't to say that there isn't savings to be made in maintenance and leasing but I bet all the low hanging fruit has already be taken by this point.

The next biggest block is staff at 25% and here you run into the fact that a lot of the staff that are left (it's worth noting that TOCs aren't renowned for swimming in staff) a lot are fairly critical to the operation so it's either not possible to reduce headcount further or even if it is it's likely to lead to long drawn out industrial action which, depending on who it is exactly, could range from serious inconvenience and disruption (for instance guards) to the show coming to a grinding halt (for instance drivers/controllers). Now considering that the standard length of a franchise has been around seven years for a while now the thought of losing a year or more to significant industrial action with the drop in revenue is not one that really seems like it would be good for business. I think it's telling that for quite a long time no-one really got into proper drawn out disputes (like we saw on Southern or Northern or now on SWR) until the DfT stepped in and started covering the costs...

So before even looking at other areas 58% of your costs are either baked in or would require a lot of pain to deal with it becomes hard to maximise your profit. Then we have to consider things like fares regulation which apply caps on what rate fares can be increased by and what products you can and cannot over and in which circumstances which further impinges on the ability to maximise profit.

All of which is to say that whilst there isn't an official 2% cap on profits, good luck trying to increase that profit level considering the way that the industry has been structured over the years by the DfT. There's a reason, I'd suggest, that over the last four or five years we've been struggling to get more than two bidders (indeed, allegedly the XC franchise competition was abandoned because only Arriva bid) for franchises. Compared to the "good old days" when you might have five or so bidders for nearly any franchise going...

 

[ainsworth74]

With private rail operators in Europe now becoming a thing maybe the UK should have a private operator there if it can be profitable.

National Express already run a range of local and regional rail services in Germany (having quit the UK market):

RB 48	Rhein-Wupper-Bahn	Bonn-Mehlem - Bonn - Köln - Solingen - Wuppertal[10]	December 2015	December 2030
RE 7	Rhein-Münsterland-Express	Krefeld - Neuss - Köln - Solingen - Wuppertal - Hagen - Hamm - Münster - Rheine[11]	December 2015	December 2030
RE 5	Rhein-Ruhr-Express	Koblenz - Köln - Düsseldorf - Wesel	June 2019	December 2033
RE 6	Rhein-Ruhr-Express	Köln/Bonn Flughafen - Köln - Düsseldorf - Essen - Hamm - Minden	December 2019	December 2033
RE 4	Rhein-Ruhr-Express	Aachen - Mönchengladbach - Hagen - Dortmund	December 2020	December 2033

https://en.wikipedia.org/wiki/National_Express_Germany

Arriva operate rail services all over Europe in the Netherlands, Denmark and Czech Republic for instance (sadly no easy to copy and paste table this time!): https://www.arriva.co.uk/countries

Meanwhile FirstGroup have a US based subsidiary who runs a small local rail service in a Texas town: https://en.wikipedia.org/wiki/A-train_(Denton_County)

So we have plenty of home grown companies operating in Europe and elsewhere already. It's only the UK rail market that our home grown companies seem to be tiring of...

 

[tbwbear]

So we have plenty of home grown companies operating in Europe and elsewhere already. It's only the UK rail market that our home grown companies seem to be tiring of...

But those are nothing really compared to the activities of the state-run companies like RATP. Just look what RATP operate around the world. They have grown, with the backing of the French state, to become one of the largest public transport operators on the planet.

Arriva is or at least was a part of the state-run DB anyway -so it is not exactly 100% home grown.

But the point is, surely a similar organisation here : a state-run subsidary (or a group of subsidaries) could do similar things on the world stage.

And, if you consider that BR was always better at saving money and run more efficently than its European counterparts (40% more efficient by 1989) such an organisation could probably make efficiencies here too.

 

[Energy]

Arriva is or at least was a part of the state-run DB anyway -so it is not exactly 100% home grown.

It is home grown, it just got bought out later on by DB.

 

[Energy]

It's only the UK rail market that our home grown companies seem to be tiring of...

It will be interesting when franchising finally gets redone if this changes, the DfT's micromanagement of franchises is what got rid of Stagecoach and probably NX.

 

[tbwbear]

It is home grown, it just got bought out later on by DB.

A fair point. And I think DB are trying to sell it again now.

The trouble is though, these large state-owned companies are the powerful actors they are partly because they have a different perception of risk than the true private companies. Ultimately they have state backing so the perception of failure is different. As we move to an even less risk-reward (TfL style) model, they are almost certainly bound to dominate. It's about time we had one or more of our own version of this type of company here.

It will be interesting when franchising finally gets redone if this changes, the DfT's micromanagement of franchises is what got rid of Stagecoach and probably NX.

Do you think it will get redone ? I think franchising is dead isn't it ? We are in for even more micromanagement now aren't we ? Just my opinion, but we would be better off with less government interference and a mix of companies - some public / some private - like they have in Japan and other places.

 

[Starmill]

If the argument for private not working for the railway is because that 2% will go to profits (lots of that will go to paying of things like station refurbishments, new ticket machines, etc.)

I am not sure that this is true - most upgrades of station or train facilities, including new ticket machines or refurbishments, are contracted through the franchise agreement. This means that their price is included within the competitive assesment of bids. There may be some examples of the operator taking their own initiative on the spending in the hope they will get something for themselves out of it - I'm sure you could suggest a couple?

I'm not saying that the discussion around the 2% isn't worthwhile, and in normal times 2% of revenue would be significant. But I do think that for obvious reasons it's the remaining 98% that rather need to be looked at.

That doesn't add up to 100% does it? Was it intended to omit reference to the 10% of expenses in the pie chart which is spent on day to day business costs and admin? Might there be savings there?

As well as focusing on expenditure, perhaps there should be equal focus on income. For example, is the farebox currently being actively collected just now?

And as regards supplementary income streams available to the Railway industry, who would want to be reliant on rental income just now?

Maybe at the end of the day, there should be a realisation that operating the Railway in the current environment is the financial equivalent of storing water in a leaky bucket.

No sorry; just a copy editing error.

 

[IanXC]

I am not sure that this is true - most upgrades of station or train facilities, including new ticket machines or refurbishments, are contracted through the franchise agreement. This means that their price is included within the competitive assesment of bids. There may be some examples of the operator taking their own initiative on the spending in the hope they will get something for themselves out of it - I'm sure you could suggest a couple?

I'm not saying that the discussion around the 2% isn't worthwhile, and in normal times 2% of revenue would be significant. But I do think that for obvious reasons it's the remaining 98% that rather need to be looked at.

Agreed, I'd read the 2% as dividends paid. New ticket machines, ticket office refurbishments etc etc will be a cost of doing business accounted for in a different part of the pie chart.

 

[Horizon22]

Do you think it will get redone ? I think franchising is dead isn't it ? We are in for even more micromanagement now aren't we ? Just my opinion, but we would be better off with less government interference and a mix of companies - some public / some private - like they have in Japan and other places.

Perhaps, but then some sort of replacement SRA has also been mooted. Depending on how much independence/authority that's given, there could be less or more interference.

 

[tbwbear]

Perhaps, but then some sort of replacement SRA has also been mooted. Depending on how much independence/authority that's given, there could be less or more interference.

That is a very good point. You are quite correct.

The original SRA gave up much of its power to the DfT so it would be interesting now to see how easy it would be for the DfT would now reverse the process. Presumably the power given to the Scottish and Welsh authorities could not easily be reversed.

How much power “SRA2” is given over Network Rail (assuming that is kept) would also be interesting as that was one of the problem areas with SRA1.


In terms of the original question of the thread, if it wasn’t implemented correctly, you could easily see that and SRA2 would just add an extra layer and only add to cost.

BUT - On the other hand, if the “SRA2” were given much more power over procurement for example, you might get cost savings. From a reducing “expenditure point of view” a more centralised approach might work.

Could we envisage a system where the stations are all run by Network Rail, so there is just one (or maybe two) contract for all equipment such as ticket machines etc. (happens in Italy for example) and maybe even train leasing is given to SRA2 to force down leasing costs ?

The Franchises (“Concessions” in the new post-Covid world) actually do and influence very little.

IOW - the Treasury uses the size and power of SRA2 to batter down the suppliers on cost across the board and saves ?

As we are already seeing in the airline industry's approach to the "post-COVID world", - "everyone"-- airline staff, airport staff, manufacturers, leasors - is going to have to suffer. With rail the question of who is going to impose the suffering and possibly a new SRA could be the answer.

 

[Energy]

That is a very good point. You are quite correct.

The original SRA gave up much of its power to the DfT so it would be interesting now to see how easy it would be for the DfT would now reverse the process. Presumably the power given to the Scottish and Welsh authorities could not easily be reversed.

How much power “SRA2” is given over Network Rail (assuming that is kept) would also be interesting as that was one of the problem areas with SRA1.


In terms of the original question of the thread, if it wasn’t implemented correctly, you could easily see that and SRA2 would just add an extra layer and only add to cost.

BUT - On the other hand, if the “SRA2” were given much more power over procurement for example, you might get cost savings. From a reducing “expenditure point of view” a more centralised approach might work.

Could we envisage a system where the stations are all run by Network Rail, so there is just one (or maybe two) contract for all equipment such as ticket machines etc. (happens in Italy for example) and maybe even train leasing is given to SRA2 to force down leasing costs ?

The Franchises (“Concessions” in the new post-Covid world) actually do and influence very little.

IOW - the Treasury uses the size and power of SRA2 to batter down the suppliers on cost across the board and saves ?

As we are already seeing in the airline industry's approach to the "post-COVID world", - "everyone"-- airline staff, airport staff manufacturers, leasors - is going to have to suffer. With rail the question of who is going to impose the suffering and possibly a new SRA could be the answer.

I'm not a great fan of the SRA, despite their name they weren't very strategic, cutting the orders of 185s and not allowing them to be 4 cars (they are now overcrowded), cutting the order of 450s (although we did get 350s so not all bad), the 5th car never being added to 4 car voyagers...

 

[Horizon22]

Keeping the DfT out of micromanagement or highly specifying new infrastructure or projects (new rolling stock is the first thing that comes to mind) could also lead to a reduction in costs. Generally any commonality between processes / iinfrastructyure can reduce costs too.

On the flip side, like it or love it, the IET programme has probably reduced some costs now it is being utilised across multiple companies, although the initial investment perhaps not.

 

[Dr Day]

AFAIK, the staff at the SRA (including some ex-BR managers) were all TUPEd across to the DfT when the SRA was disbanded, so presumably the same set of staff would TUPE back to a SRA2 (although clearly some individuals will have come and gone in that time and many ex-BR managers will have now retired). There will be a group of people in the public sector planning and strategising either way even if they transfer to another national body, Network Rail or regional transport authorities - public money being spent needs to bring with it some degree of process and accountability and like it or not politics.

Small beer in the overall scheme of things, but the 'overheads' of the wider railway industry outside TOCs I presume aren't included in the OP's breakdown, along with other direct funding to Network Rail and others not via the TOC track access charges etc.

The question how can the TOCs save money is slightly different to how can the tax payer get best value for its overall contribution to the railway network although either way the unpalatable answers probably involve some reverse business cases resulting in fewer tracks, fewer trains and fewer/cheaper staff at least in some places. This need not be all bad for the passengers- conversion to light rail where appropriate could enable higher frequencies for lower operating costs for example. Regardless of Covid, I would have expected the Williams Review to cover long term drivers for the industry to reduce operating costs.

 

[HSTEd]

Most ways to save operational expenditure seem likely to require capital expenditure in the interim.

 

[markymark2000]

Would costs be saved if we got rid of ROSCOs and all trains were owned by a Govt owned company (to reduce medling from central Gov)? I know there are lots of issues with the trains which were all created to a UK Gov spec but all leasing costs of course include profits for the ROSCO. If we rid ROSCOs, the leasing costs might reduce slightly since there is not someone else in the railway wanting profit from it. There are of course big risks and some additional costs but I think longer term now, ROSCOs are a bit useless. I feel like ROSCOs are being used less as newer trains come in owned by the gov.

As for maintenance, could some of the 28 day checks be made into 30 day checks for example? I know there will be some safety critical things which need to be done but 2 days, is that much of an issue to save money. Are some of the checks/overhauls a bit overly safety conscious and thus the extra 2 days would free up time for maintenance staff.

To save money on fuel/electricity energy, I would say install more solar panels on stations. It might not save much on a per station basis but overall, the savings could be larger.

Staff savings could be made by not bowing down to the daft union demands. The staffing costs are ever increasing thanks to unions asking for silly high wages. While I can fully appreciate the work the staff do, some of the train driver wages are bonkers. A lot of more pay for less work going on in the railway and that means a lot of cost. I see no reason for some of the silly percentage pay rises when inflation around 2% each year. How can an 11% pay rise be justified. I really don't understand some of the railway driver wages and more so when some unions threaten strikes every few months because a TOC or Gov has done something they don't agree with. Oh, I know why the wages keep going up silly high, because the more someone is paid, the higher the union fees.

Finally, removing disused trips or stops would really help. I believe there are plenty of early morning and late night trains which aren't needed but are in there simply because of the TSR and the government not wanting to reduce trains even if a service isn't needed any longer.

Other than these, I think a lot of the costs which can be reduced are being done for example removing level crossings and upgrading some which are still manned on site. Then you have the railway trying to condense ops into some smaller areas so less signallers needed overall and also other things like reducing station staffing hours. We do have more electrification meaning less fuel costs and I would argue some decreasing train maintenance costs since the fleets are newer and more is being done under warranty with older more unreliable trains coming off the network.
I can't see many actual savings being made though really but more a case of keeping costs stable since the majority of the costs will increase over time as more electrification means more energy costs and more infrastructure. Newer trains means higher leasing cost, more services being added means more staff and higher fuel cost. It will be very hard to actually reduce the costs of the railway while it is ever-expanding.

 

[yorksrob]

Finally, removing disused trips or stops would really help. I believe there are plenty of early morning and late night trains which aren't needed but are in there simply because of the TSR and the government not wanting to reduce trains even if a service isn't needed any longer.

Out in the regions, train services usually end at atound 10:30, 11:00 which is already too early.

Even in that London I think services only generally run to about 1 in the morning, which is probably necessary for a global metropolis.

 

[Bletchleyite]

A national move to DOO without OBS would achieve a considerable cut in operational expenditure, as would removing "nice to have" staff like platform staff. That much is a fact.

However (and let's avoid a DOO debate; I just posted it because it is an answer to the question; by posting it I am neither advocating it nor going against it), there are many reasons why that may not be desirable. I would however prefer it to any line closures, which would do the same.

 

[squizzler]

I reckon the abandonment of ORCATS (with its perverse incentives to run frequent short trains) will come with the new ticketing system that more precisely matches fares to specific services. This will allow operators to cut costs by running longer services that carry more passengers but only require the same number of staff as shorter ones.

This approach will likely require the industry to 'speculate to accumulate' in the form of longer platforms. It might also require the purchase of additional cars to lengthen the newest trains which in turn (since we are talking about longer but fewer trains) would allow the oldest to go to the breakers. Also, since the London commuter routes are unlikely to need all of these electric trains for some time, it might make a compelling business case for additional wiring so they can be deployed on new routes.

 

[SuspectUsual]

It isn't that it's capped at 2% it's more that a lot of the other costs are baked in

And furthermore that’s the TOC’s profit margin. If you look at the profit margin of the industry, it’s more than this. As has been said, around a third of TOC costs are rolling stock leases - if the leasing company makes 3% (which i believe is lower than the reality) then that’s effectively 1% of the TOC cost base so a 2% profit margin increases by 50%

 

[Dr Day]

I reckon the abandonment of ORCATS (with its perverse incentives to run frequent short trains) will come with the new ticketing system that more precisely matches fares to specific services. This will allow operators to cut costs by running longer services that carry more passengers but only require the same number of staff as shorter ones.

I'm not sure I agree with the first point but I do the second - I would actually expect to see a move away from operator-specific tickets as there will be less need for individual operators to fight against each other, which arguably will focus minds on growing revenue across the railway as a whole. I would still expect to have some form of allocation of revenue though between different sectors or however TOCs get re-organised, and ORCATS (with a bit of tweaking) is still a reasonable (if not perfect) means of allocation of inter-available tickets. ORCATS is just a means of revenue allocation - I would say it is the market which drives the incentive to run more frequent services - people are more likely to get the train if there are 4 opportunities an hour than 1. I can still see cost cutting with possibly the same capacity provided over fewer longer trains, but would expect that to come with a drop in demand

 

[Bald Rick]

I reckon the abandonment of ORCATS (with its perverse incentives to run frequent short trains)

It is pure economics that drives the incentive to run more frequent services. For most markets, frequency is the single biggest factor affecting demand, after price

 

[Bletchleyite]

It is pure economics that drives the incentive to run more frequent services. For most markets, frequency is the single biggest factor affecting demand, after price

To a point. I very much doubt the move from 5 to 6tph on the TPE core did anything other than muck up punctuality, and I doubt people would come streaming to Merseyrail if they upped from 4 to 6tph, even though there might be arguments for actually doing that in that specific context. Nor do I really think 2 vs. 3tph on London-Manchester/Birmingham would make a jot of difference to the saleability of the product, particularly as the majority of people use train-specific tickets these days - that one is more about capacity because the train lengths are maxed out.

 

[baz962]

National Express already run a range of local and regional rail services in Germany (having quit the UK market):

RB 48	Rhein-Wupper-Bahn	Bonn-Mehlem - Bonn - Köln - Solingen - Wuppertal[10]	December 2015	December 2030
RE 7	Rhein-Münsterland-Express	Krefeld - Neuss - Köln - Solingen - Wuppertal - Hagen - Hamm - Münster - Rheine[11]	December 2015	December 2030
RE 5	Rhein-Ruhr-Express	Koblenz - Köln - Düsseldorf - Wesel	June 2019	December 2033
RE 6	Rhein-Ruhr-Express	Köln/Bonn Flughafen - Köln - Düsseldorf - Essen - Hamm - Minden	December 2019	December 2033
RE 4	Rhein-Ruhr-Express	Aachen - Mönchengladbach - Hagen - Dortmund	December 2020	December 2033

https://en.wikipedia.org/wiki/National_Express_Germany

Arriva operate rail services all over Europe in the Netherlands, Denmark and Czech Republic for instance (sadly no easy to copy and paste table this time!): https://www.arriva.co.uk/countries

Meanwhile FirstGroup have a US based subsidiary who runs a small local rail service in a Texas town: https://en.wikipedia.org/wiki/A-train_(Denton_County)

So we have plenty of home grown companies operating in Europe and elsewhere already. It's only the UK rail market that our home grown companies seem to be tiring of...

First also operate the us yellow school buses

 

[Bletchleyite]

Interestingly, they use a red, white and blue colour scheme and brand themselves "Echt British" (very British in typical "Denglish") - or did do - even though it is very much a German operation and doesn't look British at all.

Amazingly the Germans still like us despite Brexit etc, strongly enough that it's actually a workable marketing ploy!

Re First I bet a lot of Americans think it is actually an American firm, as "First" is a very common US name for businesses, e.g. the "First Anytown Bank" and similar.

 

[Bald Rick]

To a point. I very much doubt the move from 5 to 6tph on the TPE core did anything other than muck up punctuality, and I doubt people would come streaming to Merseyrail if they upped from 4 to 6tph, even though there might be arguments for actually doing that in that specific context. Nor do I really think 2 vs. 3tph on London-Manchester/Birmingham would make a jot of difference to the saleability of the product, particularly as the majority of people use train-specific tickets these days - that one is more about capacity because the train lengths are maxed out.

You can think that, but that’s not what the revenue models show, nor what happens in reality.

 

[coppercapped]

Maybe we should? With private rail operators in Europe now becoming a thing maybe the UK should have a private operator there if it can be profitable.

From the National Express website:

We operate the Rhine-Münster Express and the Rhine-Wupper-Bahn contracted rail services in Germany, and we have been awarded further contracts to operate Rhine-Ruhr Express (RRX) services, the first started in June 2019, the second in December 2019 and the third in December 2020.

National Express got there before you...!

 

[markymark2000]

Out in the regions, train services usually end at atound 10:30, 11:00 which is already too early.

Even in that London I think services only generally run to about 1 in the morning, which is probably necessary for a global metropolis.

Some of them won't be used by many (any) passengers and while yes it's great to say you have trains running from very early until very late, all it does is increase the subsidy from central gov. Of course if the train is used, no one has any issue with it being ran but there are examples around the country of trains running simply because of the TSR and they have no or very few passengers.

At night, there are certainly more examples where trains stop at stations and there is never anyone alight or board, in these instances, just make the train non stop that then reduces journey time and saves fuel/energy.

 

[yorksrob]

Some of them won't be used by many (any) passengers and while yes it's great to say you have trains running from very early until very late, all it does is increase the subsidy from central gov. Of course if the train is used, no one has any issue with it being ran but there are examples around the country of trains running simply because of the TSR and they have no or very few passengers.

At night, there are certainly more examples where trains stop at stations and there is never anyone alight or board, in these instances, just make the train non stop that then reduces journey time and saves fuel/energy.

Fundamentally though, if you want to open up the economy, and society more generally, you need a good service throughout the day. I suspect that most of the railway's subsidy is spent before a wheel is even turned, therefore you might as well have a service that is useful to society. And that goes for smaller stops. In most cases, savings from not stopping will be negligible, so you might as well enable residents to use the station for a days journey.

 

[bramling]

Interestingly, they use a red, white and blue colour scheme and brand themselves "Echt British" (very British in typical "Denglish") - or did do - even though it is very much a German operation and doesn't look British at all.

Amazingly the Germans still like us despite Brexit etc, strongly enough that it's actually a workable marketing ploy!

Re First I bet a lot of Americans think it is actually an American firm, as "First" is a very common US name for businesses, e.g. the "First Anytown Bank" and similar.

There must be a reason why TOCs prefer to run larger numbers of shorter trains, as there’s plenty of operational reasons not to do it. Even Sundays have started to tend in this direction in places.

I agree it’s perverse on so many levels, but it wouldn’t be so commonplace if there wasn’t a revenue benefit.