Is franchising working?

Speaking in the first session of yesterday'sUK Rail Summit, entitled Is Franchising Working, FirstGroup chief executive Tim O'Toole said: "I represent the status quo. " Defending the current environment, he said its record on a range of statistics from passenger growth to customer satisfaction was "overwhelming".

In the franchises run by First, £1.2bn was being invested in new trains for South West Railway, and £1.5bn for Great Western. A universal ticketing system was being introduced along with improved wi-fi, as well as infotainment systems to reduce people's tendency to stream bandwidth hungry content. Capacity was being increased by 50% on many commuter lines. Overall capacity on services into Waterloo was increasing by a similar figure.

"It's a myth that all this could have happened with the train operating companies," Mr O'Toole said. "We're focused on growth, on getting more people on the railway." First's successful bid for the South West franchise "was built entirely on surveys of passengers and on quality," he continued. "We won on our quality scores. TOCs represent the push for growth that you wouldn't get in a monolithic railway."

So why was there dissatisfaction?

New capacity has been promised and would be here soon but hadn't yet arrived, he said. Passenger's expectations are rising, fuelled by the advent of services such as Uber. People standing on crowded commuter trains would understandably feel disappointed.
For the future, he said franchise bid structures "have to be improved". The SWT bid was "a good concept", focusing on bid quality and deliverability. It had "upside benefits" for both First and the DfT if targets were exceeded, but bonding arrangements were "sensible" and penalties were not too onerous if results were less successful.

He said: "The industry needs to do a better job of bridging across different franchises with different timescales": for example, parochial interests had delayed the introduction of smart ticketing, without an industry body to provide an overall push.

He also argued that train operators should be responsible for operating all stations. "South West runs all the trains into Waterloo but we don't run Waterloo itself," he said.

Finally, he said, train operators needed to do "a better job [of working together with] Network Rail. It's important that there's pressure for us all to improve, but to make some big structural change would be a huge mistake."

Jim Steer, director of consultancy Steer Davies Gleave, invited delegates to imagine that at some point in the future franchises had been taken back into public ownership, and that a single "guiding mind" for the railways, perhaps called the National Railways Authority, had been created.
"Imagine you were running it. You'd probably want to reinvent franchising," he said.

In the 1980s, he said, "What British Rail didn't have was the ability to make changes at all quickly." The task of keeping the network running while dealing with any problems that arose kept the organisation fully occupied. "The result was innovation got stifled".

A future NRA director would want to bring franchising back "because you'd want bright new ideas. Let's face it, managements get tired. You'd want to bring in fresh thinking in a way that demonstrably gives you value for money."

To make this work a number of other things would be needed, such as an independent regulator and a competitive rolling stock supply base, and a way of retaining overall network benefits in timetables, fares and so on – all things that were created as part of privatisation in the 1990s. These safeguards add complexity and transaction costs but are a necessary part of the system.

The railway is "a complex machine", he said. "We should be thinking about how we can make it more efficient."
However, Mr Steer added "I do worry that some franchises are too big. Customers value above all the kind of trust they can develop with a TOC – the evidence is that they can do that more easily with a local operator."

Transport Focus chief executive Anthony Smith said that passengers were not too concerned about who operated a franchise. At the same time, the National Rail Passenger Survey, which his organisation conducts, showed the high rates of satisfaction achieved by many train operators – 97% by Heathrow Express and Hull Trains, 94% by Grand Central, 92% by Chiltern.

Transport Focus has been working on what people felt and how happy they were about individual journeys. Happiness was driven by factors such as punctuality and the ability to get a seat. Data collected during the recent Waterloo upgrade showed "people don't arrive on Monday feeling grumpy. What happens during the week influences how they feel."

Priorities for improvement were value for money, the chances of getting a seat, more trains and more reliable trains.

He said that there were examples of successful long franchises, short franchises, big franchises and small ones. But a factor in success seemed to be length of experience. For example, Virgin Trains has operated the West Coast for 20 years. Now satisfaction is at 91% , but at the start it experienced difficulties.

He added that Network Rail's involvement is "a huge factor in the success of a franchise", as well as the DfT and staff among many other stakeholders. ScotRail is one of the biggest contracts the Scottish government awards. "It's not easy to get those contracts right," he said.
Transport Focus's involvement in the franchise process meant the passenger view was built into it.

In summary he said: "Franchises help secure investment, public and private, and continued investment is essential for passenger satisfaction."