Michael_Holden_banner

Jeremy Corbyn claims that renationalisation would fix problems like crowding on East Coast Main Line services. I don’t agree

 

Virgin_AzumaNew IEP trains will help deliver extra capacity. Nationalisation would not

 

Once the fuss around Jeremy Corbyn’s #traingate has died down, what should we make of it? In some ways this was a massive fuss about nothing, just a silly-season distraction. For me the important element was nothing to do with seating or privatisation; it was the obvious duplicity of the Labour leader’s media operation, another incident leading to further loss of trust in his supposed “straight talking, honest politics” approach. Probably though he won’t suffer much in the longer term, and the episode will gently drop into one of the footnotes of history.

The area he wanted to stand and fight on was rail privatisation. Funnily enough though, the specific issue he sat and fought over was seating capacity on long distance trains. This paradoxically has very little to do with whether or not franchises are operated in the public or private sectors. The total seating capacity on trains to and from London on Virgin Trains East Coast is unchanged from that operated when the franchise was operated in the public sector by Directly Operated Railways. The only service expansions so far have come from a couple of extensions from Edinburgh to Stirling and from Newcastle to Sunderland, making slightly more use of the inherited fleet of trains in marginal time. We had looked at the Stirling extension whilst DOR was operating the franchise, but backed away from it because I felt the risk to reliability at that time from the resulting reduced maintenance downtime on the HST fleet at Craigentinny depot outweighed the possible net revenue gain.

The step change in capacity on the East Coast Main Line will come in three phases. First, as the new Hitachi ‘Azuma’ IEP trains are introduced in a couple of years’ time. These of course were procured directly by the Department for Transport and handed to the bidders for this franchise as a fait accompli. Second, from the introduction of open access services by FirstGroup between Edinburgh and London; and thirdly by expansion of the franchised service as a consequence of VTEC’s decision to retain six shortened 225 electric sets to operate fast trains between the Scottish and English capitals with accelerated schedules.

The exam question therefore is this: has privatisation led to this expansion in capacity or would it have happened anyway if the franchise had continued to be operated in the public sector? It is impossible to be sure what would have happened had DOR been given a longer tenure, but what follows is my guess.

The relationship we had with the DfT from the beginning allowed us to both be commercial in our approach and to reinvest some of the profits we were making in improving facilities at stations and the depots, and to spend money improving the fleet to make it more reliable and to assist in ensuring the required level of availability. Both these latter steps were needed to reduce the level of delays and cancellations experienced due to fleet causes, and to improve the on board customer experience in aspects such as catering, toilets, air conditioning and Wi-Fi.

That relationship allowed us to ensure that East Coast was staffed with seasoned industry professionals paid at the going rate, and that we were able to give them the necessary freedom to provide much needed extra capability amongst the workforce and managers. And we were able to introduce a leadership development programme amongst a host of initiatives which were designed to improve employee engagement, and thus improve customer satisfaction at each of the key touchpoints of service delivery. In all these endeavours we were successful, although we did, as you might imagine, go up a few blind alleys along the way.

On revenue, we suffered from the economic downturn which set in just before we took over the franchise, and also from the incoming government’s ban on civil servants using First Class. Performance was also very tricky during the first three years, largely due to various episodes of very bad weather and really quite poor infrastructure performance over a prolonged period. So, until our last year of operation, we did not quite enjoy the level of revenue growth we had set out in our business plan. Had we been a conventional franchise with a level of committed premium to pay, this shortfall would have acted to reduce the margin and thus the eventual dividend payable to the owners. Of course, as a public sector operator we had no need of a margin as such, with an agreement between DOR and the DfT to remit most of the profit straight to the government.

My belief is that we took appropriate steps to grow revenue through improvements to the offer and by more consistent delivery of it, through careful management of fares and yield, and by extensive marketing through both conventional and digital means. It is a moot point whether a private sector franchisee would have been incentivised to drive all this even harder in order to preserve the margin.

Whilst we had started operations with a wide degree of managerial freedom set by the DfT, over time this gradually narrowed. This happened partly as a result of being rather in the public gaze all the time, and being used as a bit of a political football by politicians on opposite sides of the public/private argument. But we also suffered a little from the civil service’s natural tendency to want to meddle, from politicians’ desire to impose politically acceptable actions on us, and from the natural caution that characterises civil servants’ behaviour.

But we enjoyed a very good relationship both with the senior civil servants we engaged with most, with all three director generals during the principal period of our tenure being very engaged and supportive. We also benefited from a great relationship with Patrick McLoughlin when he was secretary of state.

Despite this I found it hard work to ensure that we kept the troops at York as insulated as possible from the enormous amount of time and energy we had to put into managing people at the DfT. My objective was always to ensure we could continue to run the franchise in the best way possible to drive revenue growth and customer service, whilst managing the cost base to an appropriate level consistent with the type of business we were running.

DOR had been created to rescue a large and high profile franchise from imminent collapse. In doing so it enjoyed great support from ministers and civil servants alike. We had the access we needed to decision-makers to ensure that we could move on a fleet of foot basis and with a minimum of additional bureaucracy. This involved developing close relationships with the key opinion formers, and always behaving with openness and total honesty in such a way as to steadily grow trust.

I think this type of engagement was only really possible because we were seen as a special case: we were relatively small, by comparison to the whole of the GB rail industry, we were a one-off and so different to every other franchisee, and because we were clearly running the franchise on a temporary business during a turnaround period prior to refranchising. I’m really not sure how well it would have worked if one or more of these three things had not applied, or if we hadn’t succeeded in creating a very good level of personal chemistry between DOR and the three director generals involved.

I don’t think it would be possible to replicate this style of relationship if the franchise was seen to be long term rather than short term, or if it needed to be applied on a much larger scale, perhaps to a very large franchise or a combination of smaller ones.

Certainly if there was to be a programme of renationalisation through allowing franchises to lapse and be taken back in house one by one over a period of years, a completely different structure and set of incentives would be needed.

In short, I think we made East Coast work as well as we did despite us being in the public sector, and not because of it.

If we had been required to carry on, rather than selling the company to VTEC as we did, would we have committed to the level of service expansion as evidenced by the decision to retain six 225 sets? Would we have committed to the level of premium which was secured by means of the competitive bid which took place? I’m not sure about the first, but pretty sure we wouldn’t have done the second.

 

About the author: Michael Holden is managing director of Coledale Consulting, a railway management consultancy specialising in strategic advice to railway companies. His former roles include chief executive of Directly Operated Railways, chairman of East Coast and managing director of South Eastern Trains .

 

This article appears inside the latest issue of Passenger Transport.

DON’T MISS OUT – GET YOUR COPY! – click here to subscribe!