RDG: scrap mixed franchises and return to short franchises

[Pumbaa]

http://guardian.co.uk/uk/2012/nov/25/long-term-rail-contracts-industry?cat=uk&type=article

From the Guardian.

Makes better business sense for my eyes but does not make for a better service.

Also throws the route directorship and harmonisation out of the window between TOCs and NR in my opinion.

 

[Cherry_Picker]

So because the government cocked up the WCML franchise tender, people affiliated with First Group think the entire system should be overhauled? Would they have said this if Virgin hadn't appealed? Maybe I'm missing something, but isnt this a case of throwing the baby out with the bath water?

 

[wintonian]

Dam beaten to it yet again!

I'm now off to discover how the Rail Delivery Group are going to implement the cost reduction measures of the Rail Value for Money Study.

 

[Wath Yard]

More a bit of opportunism than throwing the baby out with the bath water. You can't blame the TOCs for pushing for risk free, investment free, guaranteed money printing franchises. It is, however, the Government's job to not cave in to them - though I wouldn't bet against them doing so.

 

[HH]

The problem with the RDG on this issue is that had to present something that none of the TOCs was going to violently object to. They've ended up with a camel (horse designed by committee).

What is true, as I've noted previously, is that you can't have long franchises with most of the risk on TOCs, but most of the key income/cost drivers left with DfT (e.g. fares and minimum service levels), because high bids will attract unaffordable SLFs (as they should have on ICWC). DfT have to find some way of keeping the risk down if they want attractive bids.

The easy way to do that is shorter franchises. And if they can come up with a residual value mechanism then it shouldn't stop investment.

PS Alliancing between TOC & NR has to overcome a lot of issues before it will ever work; many of those at the NR end. I don't see shorter franchises being a bar.

 

[ian959]

I can see shorter franchises under the current system as just being a licence to print money as far as the TOCs are concerned, with little benefit to the taxpayer or train users.

Longer franchises with a specified minimum amount of investment in new capital assets would be a better bet if the current franchising system is to be retained.

If the TOCs want shorter franchises -fine, then on terms I have mentioned before. Rolling 12 month franchises on a cost plus basis with specified minimum service levels that must be achieved otherwise the TOC is out on its ear.

Oh, and all trains and stations in a single national identity to stop the stupid waste of money in re-branding every time a franchise changes hands.

 

[Oliver]

More a bit of opportunism than throwing the baby out with the bath water. You can't blame the TOCs for pushing for risk free, investment free, guaranteed money printing franchises. It is, however, the Government's job to not cave in to them - though I wouldn't bet against them doing so.

The problem is that asking TOCs to take more risk increases the price they will expect. and increases the chance of a franchise going horribly wrong. The "longer" franchises of 15 years still are not long enough to permit a TOC to fund new stock purchases which have a life of 30 years or so.

We shouldn't dismiss the proposal simply because Tim O'Toole comes from First Group.

 

[jopsuk]

I thought the idea with the "mixed" franchises (FGW, Greater Anglia, EMT) was to help support local/rural services with the revenue from lucrative intercity and packed London commuter routes? So they RDG want to go back to sectorised ones where big profits can be made whilst even higher subsidies are required for the rural routes?

 

[HH]

I thought the idea with the "mixed" franchises (FGW, Greater Anglia, EMT) was to help support local/rural services with the revenue from lucrative intercity and packed London commuter routes? So they RDG want to go back to sectorised ones where big profits can be made whilst even higher subsidies are required for the rural routes?

I'm not sure where you got that idea; in reality it makes absolutely no difference on how the routes are carved up - the more profitable ones end up supporting the less profitable.

The obvious benefit from keeping TOCs by sector is that management is focused on just one thing. If you have a profitable mainline and a loss-making country service in the same franchise guess where the management time is going to be focused on?

--- old post above --- --- new post below ---

I can see shorter franchises under the current system as just being a licence to print money as far as the TOCs are concerned, with little benefit to the taxpayer or train users.

Longer franchises with a specified minimum amount of investment in new capital assets would be a better bet if the current franchising system is to be retained.

If the TOCs want shorter franchises -fine, then on terms I have mentioned before. Rolling 12 month franchises on a cost plus basis with specified minimum service levels that must be achieved otherwise the TOC is out on its ear.

Oh, and all trains and stations in a single national identity to stop the stupid waste of money in re-branding every time a franchise changes hands.

You're entitled to your views, however mistaken they may be. But mistaken they are. Long franchises have generally been more profitable for TOCs than short ones.

Rolling 12 month franchises would be a terrible idea; there would be no point in planning for tomorrow - milk it while you can would be the approach of some.

Branding has a point, as the whole Virgin Trains saga has proved. What should be, and is being, done is to make rebranding them a simple and inexpensive exercise by setting sensible parameters.

 

[tbtc]

If it costs each company ~£15m to bid for a new fifteen year franchise then is anyone naive enough to assume that the costs will come down significantly when they are bidding for a shorter franchise? We'll just waste more and more time, money and effort on the bidding process, which means less being targetted to the long term investment decisions.

 

[transmanche]

So the head of First Group is telling us that the industry wants shorter franchises. Yet in a June 2012 presentation to TravelWatch NorthWest, FTPE was saying that the industry priorities included 'longer franchises'. :roll:

 

[scandal]

The "longer" franchises of 15 years still are not long enough to permit a TOC to fund new stock purchases which have a life of 30 years or so.

Check EU Regulation 1370/2007

 

[eastdyke]

Check EU Regulation 1370/2007

Franchises of longer than 15 years are not precluded.

Contract must however invlove exceptional investment, be awarded by fair competition and a letter sent to the EU within 1 year detailing the justification.

Which I guess is what happened with the Chiltern Franchise.

 

[Zoe]

Which I guess is what happened with the Chiltern Franchise.

The Chiltern franchise was let before the EU Directive was issued. The SRA planned to award several 20 year franchises but post Hatfield there was a change in policy to shorter franchises and the only one that actually went ahead was Chiltern.

 

[HH]

Longer Franchises (15+) can work, but there has to be a way for TOCs to mitigate risk, and in some cases to get value from investments that last longer than the franchise.

On the latter this could be DfT guarantees, or putting investment on the RAB, for example. For the former DfT either has allow more leeway in SLC and/or fares and/or it has to take part of the risk (and reward!).

Regardless of good intentions, without these two keys in place you will not get all the investment you could, and you run the risk of failed franchises. It's no good looking historically - the period from privatisation to the recession (1997-2008) is unlikely to be repeated in the near future, and any responsible bidder is not going to project high growth for 15 years.

The more I think about it, the more I come to the conclusion that First's ICWC bid was a mistake. Yes, they were obviously desperate to win it, and they probably took a pretty aggressive view on the risks, but even allowing for this I don't think their bid was sensible (perhaps they also made mistakes in their calculations - I know their financial model score was low). Even Virgin's bid was risky (riskier than First's in the medium term). It's likely that the "failed" bidders (SNCF/Keolis & Abellio) were the ones who got it right - but their lower Premiums are not what the DfT/Treasury are after.

My conclusion - unless DfT are prepared to share more of the risk, or give bidders more freedom on how they run the business, franchises will have to be shorter. That's not necessarily a problem - they just have to find (financial) methods of allowing investment.

 

[LE Greys]

I'm not sure where you got that idea; in reality it makes absolutely no difference on how the routes are carved up - the more profitable ones end up supporting the less profitable.

The obvious benefit from keeping TOCs by sector is that management is focused on just one thing. If you have a profitable mainline and a loss-making country service in the same franchise guess where the management time is going to be focused on?

Which also brings up a whole raft of problems that first developed when BR secotrised, then got far worse with privatisation. Stock utilisation, especially with locos, was a major problem. Suddenly, an 86/2 would no longer be able to work expresses by day and parcels by night (or more likely, expresses before a B-exam and parcels afterwards). Separate liveries caused that. Secondly, it caused a lot of problems for in-between services, the ones that had their loco-hauled sets replaced by units, causing some major downgrades. Then, after privatisation, we had path-blocking, such as WAGN putting 313s through Welwyn right in the middle of the peak for no apparent reason.

FGW and Greater Anglia can have a lot of credit for sorting out some major problems. Look at the 125mph commuter services in the Thames Valley, freeing 166s for other duties (and freeing the Cotswolds from 166s!). Look at the redeployments of 170s around Anglia. How about Chiltern and SWT (integrated from the start)? Both now have full inter-city services to Weymouth and Birmingham, yet Chiltern has made a much greater effort to promote them as what they are while SWT has suburbanised them much more. Would incorporating the rump of WAGN with GNER have helped? I'd like to think so.

 

[HH]

Good points. I'd point at the differeing successes of TPE & Northern for an alternative view. Operationally it should work better together - up to a point - but commercially it's better apart.