Open access has introduced competition on long distance routes, but we must go much further to deliver a real choice to consumers

kingsxHead-to-head: Grand Central and East Coast trains at London Kings Cross station in November 2014
The Office of Rail and Road’s approval of Alliance Rail’s application to run six return trains per day between Blackpool and London from 2018 has been portrayed in many quarters as a breakthrough for greater open access competition on the railways and a real illustration of the benefits competition can bring.

It represents the first authorisation for open access on the West Coast Main Line and the highest number of services approved in a single open access application. There will be some new direct journeys to London, some trips will be faster and there will be investment in new rolling stock, all of which will pressure Virgin and London Midland to up their game from a number of stations. The regulator noted, with justification, that new customers will be attracted to the railway.

Put like that it sounds quite a big deal. From the narrow perspective of the way ORR promotes competition, the prospect of further open access applications succeeding, and presenting a challenge for civil servants intent on exercising total control over rail services, it could be seen like that.

In the real world, though, the new Blackpool-London service simply highlights a much bigger issue – the failure of railway competition policy to put passengers first.

For me, open access, as conceived 20 years ago, has no great relevance in the next 20, despite some development of the framework in favour of a more competitive market.

This may seem surprising given my role as a founder of the first open access business Hull Trains. However, if you were to start from the perspective that competition delivers consumer benefits, as the evidence suggests, and that the railways should be privately operated, as one might reasonably expect from even the most timid Conservative government, I would argue that it is time to move on.

Open access operators have blazed a trail for niche markets in the past but their role has been very restricted, slow to develop and further opportunities may be more limited in the future. It has taken the best part of two decades for open access to reach a point where a start-up business as large as Alliance’s Blackpool-London operation is approved but in reality this service still amounts to little more than picking at the monopolies the West Coast and London Midland franchises enjoy.

What we need to do now is create genuine competition on commercial long distance railways – East Coast, West Coast and Great Western – where revenue exceeds track and train operating costs (or can be expected to in the near future) and air travel and motorways present an alternative to rail. In these circumstances it can reasonably be argued that commercial freedom and competition rather than quasi-privatised, government-controlled franchising is a much better means of delivering consumer interest and of growing the whole rail market share.

The reason for the slow pace of change in creating competition on the railways is partly because open access, as originally conceived, was not a vehicle for head-on competition with franchises. In fact, when I helped set up Hull Trains, more than 15 years ago, open access was not about competition at all – it was best avoided if approval was to be given. Our business plan was based on filling the gap in services between London and Hull and minimising revenue taken from the East Coast franchise. The rules meant our application needed to show we could succeed without relying on serving a major established market, although we were permitted to stop at Doncaster – a second tier market for the franchise.

When Grand Central introduced the first direct Sunderland-London services five years later, it was apparent that the regulator wanted to start looking at things differently and to test the impact of genuine competition. Grand Central’s application included head-on competition with the East Coast franchise in one large market, York.  In the case of Alliance’s Blackpool-London service, ORR has eventually been able to take competition to another stage. Stops at Preston, Crewe, Nuneaton, Tamworth and Milton Keynes represent an increase in the level of competition permitted by open access and a reduced emphasis on filling gaps and building markets for poorly-served destinations. However, approving even this relatively minor expansion of competition required ORR to take account of novel ways of assessing revenue abstraction to ensure Alliance’s application clearly achieved the required ratio of new business generated to business abstracted.

To put it mildly, the process gives the impression of having been a complex academic exercise with figures being plucked from the air – like forecasting how many angels can dance on the head of a pin – to show the new services could meet a rather arbitrary revenue generation threshold. The logical (from a passenger’s point of view) need for Alliance’s services to call at Warrington was still ruled out by the Not Primarily Abstractive test.

Meanwhile, the Department for Transport has for the most part maintained a narrow view intractably opposing open access with little apparent consideration of the benefits for customers. When starting Hull Trains, the main concern of civil servants was not the needs of people in Hull, who were without any meaningful rail service, but the small amount of money they thought would be abstracted from their franchise.

That opposition has continued with every subsequent open access application – regardless of whether their view of revenue abstraction has any justifiable basis (experience at Hull Trains suggests it is overplayed), or of the benefits open access has provided to passengers. The objects placed in the path of Wrexham & Shropshire, for example, were outrageous.

Despite the obstacles, even the very limited competition to date on the ECML shows competitive pressure has led to lower fares on franchised services, at York particularly, and other stations such as Doncaster as well. The open access operators have also developed markets which were virtually non-existent, benefiting consumers and the franchised operator’s finances, as well as themselves. And they have identified new train paths, helping make best use of the infrastructure.

Although the DfT’s historical position is totally at odds with the current government’s wider policy to promote competition -hence the Competition and Markets Authority’s growing interest in rail – it is hard to envisage how the open access regime of itself could be developed to provide adequate competition to franchised operators.

There is, of course, a prospect of further evolution in the ORR’s view of open access if new Edinburgh-London applications on the East Coast Main Line from FirstGroup and Alliance are approved. All pretence of gap-filling has been dropped in these applications which are based purely on expanding existing markets with new styles of service focused on taking the airlines’ business apart.

However, even if all the pending ECML open access applications navigate their way through the convoluted approval process and DfT opposition, it would not deliver a fully competitive market and there would be no paths left to create one. The Virgin Trains East Coast franchise would remain larger than all seven new and existing open access routes combined, and some markets would still be deprived of meaningful competition. Durham, Darlington and Peterborough would continue to be served only by the franchised operator on long distance routes. Leeds, the largest market on the ECML, would only have an open access service every two hours. York would only be served by one competitor to the franchise. The list goes on.

From a consumer’s perspective, you would feel entitled to expect more choice from a privatised railway and more consistent competitive pressure to deliver innovation in pricing and customer service. For these benefits to be realised, it will require a decision from government in favour of free competition on a defined number of long distance rail services to replace arcane regulatory open access processes and their inevitable caveats and restrictions. I sense political interest here but will this trump officialdom?

My view is that it is rational for reforms to go as far as possible – there seems little point in privatising the railway only to insist on retaining quasi-state control of the commercial network 20 years on. This could mean all long distance services on the East Coast, West Coast and Great Western Main Lines being sold off in bundles so that there would be competition to all destinations from multiple operators who would control the fares, service patterns and customer care they choose to provide.

Of course, strong consumer protection and regulation would still need to cover issues such as safety and first and last trains. However, in principle government should relinquish control.

Importantly, there would also be a need to prevent any ideological ‘competition creep’ to the ‘social railway’ – regional services and commuter routes where rail has a natural monopoly, the public sector is the principal funder and on-track competition would be likely to create more difficulties for passengers than benefits. Debates on how far you can push it inevitably occur during any restructuring of markets. They were a feature of the privatisation of the railways when the Treasury needed to be persuaded that it would not be in anyone’s interest to split the South Western commuter network into 11 separate businesses. We may well need to guard against that sort of ideological extremism again.

This article, and many more, appears in the latest issue of Passenger Transport.

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