John Nelson and Richard Davies consider what the future patterns of rail demand might look like in the mid 2020s – and pose a number of questions about the rail industry’s future


The pandemic has been with us now for just over nine months. Its impact on the country’s economy and social life has been dramatic and public transport has been affected disproportionately badly. These things we know but what remains conjecture is the extent to which public transport usage – if left solely to the economic forces that impact it – will recover when things return to ‘normal’. ‘Normal’ in this sense means when the vaccine(s) are seen to be effective and the majority of people and businesses are once again free to choose how to conduct their lives. No one can say when this might be but, for the purposes of argument, let’s say it’s two years away.

Some things we know already. One is that there is a tendency for pent-up demand to be released very quickly whenever restrictions have been lifted as part of the four governments’ stop-start approach to managing the pandemic. Perhaps the most interesting element here has been the diverse response of different travel sectors, which gives us clues to future possibilities (and reminds us that rail is far from being an homogenous market).

The two sectors that have experienced the biggest hit so far have been ‘travel to work’ and ‘business’, the latter in particular having only recovered to roundly one eighth of its pre-pandemic level whenever restrictions have been lifted. Business travel was already a challenge in 2019, as the market became ever more price-sensitive and less convinced of the value of the traditional First Class rail product. The emptiness of commuter trains around our big cities coupled with the dramatic losses in business activity have both decimated the industry’s profit and loss account and brought to the fore the wisdom of continuing to provide capacity to the same tempo as before.

Leisure – or ‘optional’ – travel has generally been seen as an ‘off peak’ phenomenon, a sector that exploits the capacity that is there because of the needs of the commuting and business sectors at times of the day and week when there is less commuting and business travel. Filling these seats has been the principal pre-occupation of rail companies over the last 30 years and, pre-Covid, a combination of economic growth and discounting of fares meant they had got quite good at doing it. ORR data records that passenger revenue grew by 9% in real terms in the decade to 2018/19 whilst average fares increased almost exactly in line with RPI. A bi-product has been an ever more complex fares system and making it easier for passengers (and indeed staff) to find their way around it has become an urgent priority.

The fact that significant leisure demand returned during these periods is one of the more encouraging signs for Covid recovery.

It has been the leisure sector that, during the summer, responded soonest to any relaxation in restrictions during the pandemic. No longer capable of being fuelled by factors such as foreign tourism the sector has nonetheless shown a propensity to recover quickly as people go in search of city centre shops and restaurants or to enjoy short stays at home when these have been unattainable with foreign holidays removed from the agenda. The fact that significant leisure demand returned during these periods is one of the more encouraging signs for Covid recovery.

None of this is to exaggerate the serious impact the virus continues to have on the leisure sector as well as on business and travel to work BUT it does suggest that as the vaccine(s) begin to be rolled out,  any return to normality will present a major opportunity for rail to capitalise on this frustrated demand. Preparations for intensive marketing accompanied by a simplified and attractive fares structure would surely be sensible.

We don’t divine anything like the same propensity to bounce back in the business and travel to work sectors. In fact here the auguries are very unhelpful to a traditional view of what the railway is there to do. Business travel is possibly the most difficult to predict but in so far as it continues to be affected by what are clearly very rapidly changing attitudes to the world of work it is reasonable to suggest that it is likely to follow commuting trends.  Here there is an increasing amount of evidence backed by research to provide useful indicators of how demand for public transport may pan out. Some of this evidence is UK-based but much of it is global. This is important because some sectors of the economy – finance for example – are global in nature.

Recent research in the US has shown that up to 60% of workers would prefer a mix of home and office working – ‘hybrid working’ as it is being termed. In China it has been predicted that 10 years hence there will be a 60/40 split of work “on-site”/”remote”; and in the UK employers expect home working post pandemic to double to 38%. Indeed on the evidence available so far the UK appears to be top of the list of countries for home working. By late Summer 45% of UK workers were working remotely as compared with 22% in France, 28% in Germany and 18% in Japan. Only the USA (44%) and Australia (39%) were in the same ‘English speaking’ league.

Employee preferences are not the same thing as employer strategies but here too the evidence suggests a greater preference for more hybrid work activity than one might suppose. A US employer survey suggests only 12% of employers want to see a full return to “on site” working whilst a hefty 72% prefer hybrid. Recent McKinsey research indicates that managers have seen the advantages of greater home working in terms of faster results, flatter structures and greater employee commitment, whilst FDs are looking forward to the cost savings. But the office is far from finished: in a recent survey, only 15% of CEOs, managers and employees thought that a 100% ‘WFH’ solution was the way forward.

Those who argue that the office has had its day overlook the important role that informal interaction and team creativity in offices play: we have all seen since March that Teams and Zoom, clever though they are, cannot generate ‘water cooler’ moments that are often crucial for creativity and internal communication. In any case, before Tier 4 restrictions, commuting travel into London had climbed back to around a quarter of its previous level, in part because many jobs cannot readily be done from home: the NHS, the emergency services, retail, teaching, cleaning, building (there is still lots of that going on in London), caretaking and (apparently in the case of MI5, according to a recent FT report) even spying.

A further driver of hybrid working is its financial advantages. Less commuting saves money for the employee but the reduction of office space and other infrastructure necessary to sustain the world of work will save money for the employer too – although this will be partially offset by the need for offices to be Covid secure for some time yet.

The impact on public transport will be substantial and the challenge it presents is one that requires very careful but urgent consideration.  Not least is the need for the industry, and its funders, to adapt to a world of substantially lower revenue whilst a ‘Post-Covid, Post-Vaccine’ new normal develops, meaning lower costs and an acceptance of higher subsidies, at least for now.  Amongst the questions that now arise are:

  • Since first and foremost the railway network needs to be considered as a national asset, to what ends can it be deployed?
  • Will changing patterns of demand affect our traditional view of what it is for, with perhaps a greater emphasis on leisure travel rather than commuting and business?
  • Will the capacity needs of the weekend market become more significant, Eurostar for example having developed over many years a model in which the peak is on Fridays and Sundays?
  • If the days that the office-based population spend at the office drop further (Monday and Friday travel was already noticeably diminishing pre-Covid), how can the cost of providing capacity that is fully used only three days of the week be defrayed?
  • Can existing train frequencies be justified if peak demand remains significantly depressed?
  • Even more crucially, if revenue is substantially down for some years, what additional steps can the railway take to improve its cost efficiency?
  • If there is less pressure on capacity from the passenger sector does this clear the way for freight, particularly as an electrified trunk freight network is a rapid way of getting to ‘net zero’ for goods transport given the challenge of decarbonising HGVs?
  • If the network is used less intensively, is there a case for reviewing maintenance and renewal strategies?

 Changes that may be needed so that the rail industry can prosper in a post-Covid world

Let’s start with the peak itself. As London and the country’s major cities have grown (bringing more and more places into ‘commuter land’), the influence of the ‘peak’ on rail has become ever stronger, with crowding the consequence. Long recognised as one of the key advantages of the network, the ability of the railway to reach right into the heart of our major cities and, pre-Covid, carry over three quarters of million people there daily to work, shop and to meet friends is often overlooked. It’s hard to see how the centres of our largest cities such as London, Birmingham, Manchester, Leeds and Glasgow would function if these volumes had to be moved by bus or car (although there has been some switch to cycle that will probably be long lasting). So much so that there has been continuing demand over the past 20 years to expand this capacity through projects such as Thameslink, Crossrail, the Northern Hub, the West Coast Route Modernisation and, more indirectly, HS2 itself.

Let’s view hybrid working as a way of meeting the passenger’s underlying requirements

Does hybrid working mean the end of all this?  Or is it better viewed as a way of providing long sought-after better travelling conditions for the reduced numbers whilst opening the door to reforms to the railway’s policies on season tickets? Reduced demand post-Covid provides a good opportunity to provide the relief from crowding that passengers have long sought:  there is no requirement that the railway must ensure at least a minimum level of crowding! Crowding was more a manifestation of the railway’s long running inability to provide sufficient capacity to meet continued long term demand growth (about 1.4% per annum in the London peak since the early 80s). So let’s view hybrid working as a way of meeting the passenger’s underlying requirements.

But of course there is more to it. If as appears probable hybrid working is focussed on mid-week (accentuating the pre-Covid trend), we could find crowding problems occurring over three days rather than five though these could be mitigated if employers, faced with a similar problem of providing office capacity for the whole workforce, determine work patterns of their own to flatten the peak. For rail the opportunity is to recast rail’s fares system to move away from flat weekly season pricing based on a five-day working week to one that acknowledges flexibility and the seven-day nature of sectors such as leisure, restaurants and entertainment.

With commuter revenues so depressed now is a perfect time to introduce new systems, enabled by smartcards and smartphones, potentially offering discounts on Mondays and Fridays and removing the need to commit to upfront weekly, monthly or annual purchases. That would, have to be balanced by increases midweek, except in the (unlikely) event of accepting the need for permanently higher subsidies. Whatever the detail, the principle holds: take advantage of the changes in working patterns that are emerging and do so in a way that renews rail’s relevance in supporting them. The path between now and then presents an interesting challenge. With peak demand subdued and leisure travel potentially returning once virus cases fall (following the pattern during summer), it is surely time to revisit some of our long-held assumptions about how the service offer is put together and timetabled. There are significant operational cost savings to be made which, given the country’s financial crisis, it would be irresponsible to ignore as the mooted reduction in train frequencies following the Spending Review indicates.

Turning to other markets, especially on the longer distance routes, in this new world, Fridays and Sundays become the busiest days and higher priority must be given to trains linking home with leisure and cultural destinations. Easier said than done on a railway whose elaborate timetabling processes are legendarily inflexible and require, in effect, a detailed commercial plan (an ITSS) to be put together at least 18 months ahead of timetable implementation. This is something Network Rail was already improving following the 2018 timetable collapse, but there needs to be more focus on it: perhaps starting by temporary reduction of ‘hardwiring’ of train plans through firm rights and adopting short term planning options, using software that can accommodate different timetables more easily, and more efficiently produce traincrew rosters.

The inability of the industry to vary its output as demand varies (unless that demand is helpful enough to announce its intentions two years in advance!) is a long standing drawback

To be clear, we are not calling for the ability to make major changes to the timetable at the drop of a hat but rather that the timetable is constructed around core passenger and freight paths on all routes but perhaps with different patterns on Mondays and Fridays, and the ability to switch trains in or out of the timetable at short notice without altering the core structure (a little like the current ‘Q’ paths today). The inability of the industry to vary its output as demand varies (unless that demand is helpful enough to announce its intentions two years in advance!) is a long standing drawback and the various changes – up and down – since the crisis began have shown that the railway can be more flexible than perhaps it realised at the start of the year!

Commuting and business travel have been the mainstay of the railway’s finances for many years. A world in which they are at substantially lower levels and one in which radical approaches such as those we advocate are not adopted as a step to the railway managing its own affairs, places the system at risk of random attack as government and Treasury feel the need to step in and act. This is a risk that is not worth taking.

The need for higher efficiency has been well signalled through successive rail industry reviews. But such improvements as have been achieved in the past 20 years have tended to be swamped by the pressure of moving more passengers, expanding the train fleet and recruiting more staff to dispatch the trains and help passengers unfamiliar with the vagaries of 21st century rail travel. Visit the Netherlands to see how few staff are needed when the system and timetables are predictable and simple; and where ticketing is almost entirely via smartcards! Making things simple also makes them efficient.

Capital projects might be thought to be the largest single ‘discretionary’ item of expenditure and the £1bn reduction in Network Rail spend in the November budget indeed shows this is an option. But so much work is currently underway across the system that this is not straightforward because, to paraphrase John Humphreys, once you start you must finish. Cranking up – getting the orange army in place along with its attendant villages of portakabins, support equipment and supervisory tiers to manage, check and recheck the work – then powering down once they are mobilised is a sure-fire way to reduce efficiency. Better phasing and fine tuning, not hacking, of the enhancement programme is the way to go.

The government’s intensifying and totally justified focus on ‘Net Zero’ almost certainly means expanding the role of long-distance, intermodal trains and (whisper it softly) shifting capacity from passenger to freight on some trunk routes

But finally a much broader challenge is looming, one that upends much of the railway’s long held assumptions. The government’s intensifying and totally justified focus on ‘Net Zero’ almost certainly means expanding the role of long-distance, intermodal trains and (whisper it softly) shifting capacity from passenger to freight on some trunk routes. The reason is clear: it’s much easier to decarbonise freight movements by train by electrifying the track rather than by road (which involves electrifying the HGV, or the road (or both). The battery requirements (about 3-4 tonnes) for an ‘all-electric’ HGV would boost its weight by 5-10% (thereby reducing its payload). These follow from the need to provide the power and range that today’s on-board ‘power station’ – the diesel engine – offers.   The Swedes and Germans have understood the point and have been experimenting with an overhead catenary system to boost on-board batteries or to simply permit the diesel engine to be shut off temporarily. But practical implementation is a long way off and electrifying railways, where all that is needed on the train is simply the means to convert energy to traction, is relatively easy.

‘Net Zero’ also boosts the case for passenger electrification as well, offering about a three quarters reduction in carbon per passenger-mile compared to road though this advantage will be eroded as the car fleet shifts to hybrids then electrics. At the moment, this is costly: despite the huge amount of work done by suppliers like Tesla, Nissan and BMW to produce attractive electric cars, the cars are expensive and fuelling far from easy though this too will change through mass production and improvements in batteries. So although ‘Net Zero’ will lead to a major shift to rail, it is in freight movement that the change is likely to be the more decisive.

This is not just a case of converting today’s (largely diesel powered) freight railway to electric. It is also about running more of them from the ‘deep sea’ ports (Southampton, Felixstowe, Thames Gateway and Immingham) and from terminals in or near major cities; and reviving the domestic container business (its creation being one of the less remembered elements of Beeching). The well-known intermodal freight bottlenecks remain largely just that: Forest Gate, the North London Line, Soham – Ely, the Coventry corridor, Leicester, Crewe – Glasgow and Doncaster to Edinburgh (to name just a few) so perhaps the time is getting closer when it’s worth resetting rail’s historic capacity policies on its trunk routes to allow higher freight frequencies (and with 75mph or better paths). Even without electrification, diesel freight is better for carbon than HGVs and (who knows given all the travails at Dover?) this could be the time to resurrect unaccompanied freight through the Channel Tunnel (capacity for 24 trains per day of which is still protected across the South East).

The railway’s strong sense of doing what’s needed to help move people and goods, crisis or no crisis, has once again come to the fore

Plenty to chew over. No one wanted to be in the worst crisis the country has faced in the post-war period; nor was it what we were planning for this time last year. But we are where we are. The railway’s strong sense of doing what’s needed to help move people and goods, crisis or no crisis, has once again come to the fore. The current generation of railway managers know, just as their predecessors did, that rising to these challenges helps builds public support to advance the industry. There is a chance to do more of this: Covid provides a perfect opportunity to address some long-running historic policies and assumptions in anticipation of where we may be once the crisis is behind us. Let’s not waste the opportunity.

ABOUT THE AUTHORS: After leaving British Rail in 1997 to set up his own businesses, John Nelson founded open access operator Hull Trains and consultancy First Class Partnerships. He is currently Chairman of Flash Forward Consulting and a Director of Tracsis Plc. Richard Davies is a freelance specialist in rail strategy, bidding and economics. He has previously worked for ATOC (now Rail Delivery Group), the Strategic Rail Authority and KPMG Consulting.

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