Rail (UK)

Why fares re­form is es­sen­tial… and why it won’t be easy

- Mark Smith Con­tribut­ing Writer rail@bauer­me­dia.co.uk United Kingdom Department for Transport · Department for Transport · Iggy Pop · London · Paris · United Kingdom · France · British Rail · Brazil · Edinburgh · Rose-Hulman Institute of Technology · Paris Métro · London and North Eastern Railway

THE case for re­form­ing rail fares is now over­whelm­ing. If noth­ing else, the pan­demic has dra­mat­i­cally ac­cel­er­ated changes in work­ing pat­terns that had al­ready been tak­ing place, and which have now ren­dered the rail­way’s tra­di­tional weekly, monthly and an­nual sea­son tick­ets un­fit for pur­pose.

This may have been ac­cepted by the busi­ness end of the Depart­ment for Trans­port, but there are rea­sons why the Sec­re­tary of State (and equally im­por­tantly, the Trea­sury) might be less en­thu­si­as­tic. The po­lit­i­cal risk is sig­nif­i­cant, be­cause how­ever sen­si­ble the re­form and how­ever great the ben­e­fits to a ma­jor­ity, a los­ing mi­nor­ity al­ways shouts loud­est and changes to fares fre­quently be­come what ev­ery Trans­port Sec­re­tary wants to avoid - bad news.

The fi­nan­cial risk is con­sid­er­able. Ma­jor changes to a fares struc­ture that gen­er­ates £10 bil­lion an­nu­ally in­voke the Law of Un­in­tended Con­se­quences with a vengeance. The Pas­sen­ger De­mand Fore­cast­ing Hand­book, an amal­gam of rail in­dus­try ex­pe­ri­ence built up over decades, can pre­dict the ef­fect of in­creas­ing or de­creas­ing peak or off-peak fares in­cre­men­tally with rea­son­able ac­cu­racy, but it can­not pre­dict the ef­fects of ma­jor changes to fares struc­ture.

Lastly, there is (or was) con­trac­tual risk. The fares reg­u­la­tion sched­ule in each fran­chise agree­ment al­lowed the DfT to im­pose changes to fares reg­u­la­tion and to re­duce or in­crease fran­chise pay­ments based on a rea­son­able cal­cu­la­tion of the ef­fect.

This was used to change RPI - 1% to RPI + 1% in 2003 and claw back the ad­di­tional in­come, and it was used in 2007 to make op­er­a­tors switch their non-Trav­el­card Lon­don area fares to a zonal struc­ture so that Oys­ter could be im­ple­mented on na­tional rail. But there is an el­e­ment of ne­go­ti­a­tion in­volved, and even if changes to fares were rev­enue-neu­tral across the net­work, there’s a risk that DfT would find it­self pay­ing out more than it man­aged to claw back.

How­ever, as DfT is now tak­ing rev­enue risk, that con­trac­tual risk is elim­i­nated, and the im­ple­men­ta­tion of any fares re­form greatly sim­pli­fied. Pas­sen­ger num­bers and rev­enue are at a post-war low, mit­i­gat­ing the fi­nan­cial and po­lit­i­cal risks. And al­though ‘do noth­ing’ is typ­i­cally as­sumed to be a safe op­tion, that may no longer be so.

For many years, it has been taken for granted that the com­muter mar­ket is in­elas­tic - in other words, in­sen­si­tive to price. It’s now en­tirely plau­si­ble that the pan­demic has ren­dered it elas­tic, so if the in­dus­try fails to en­cour­age com­muters back to the of­fice with fares which ad­dress their new ways of work­ing, rev­enue will be lost for years af­ter­wards.

Tim­ing mat­ters, too. A suit­able com­mut­ing prod­uct needs to be in place by the time peo­ple re­turn to work, as the pan­demic sub­sides. A year or two af­ter­wards is too late.

In the cur­rent cir­cum­stances, swift im­ple­men­ta­tion and ad­just­ment in the light of ex­pe­ri­ence is a bet­ter strat­egy than de­lay­ing for ex­ten­sive anal­y­sis - which is un­likely to de­liver a ro­bust pre­dic­tion for changes so far be­yond in­cre­men­tal in a mar­ket so changed.

In short, now is the time to tackle the thorny is­sue of fares (not that the task will be easy). Three ob­vi­ous ob­jec­tives stand out:

Re­form com­muter fares to match modern work­ing pat­terns.

Sim­plify fares so that tick­ets can be sold ef­fec­tively through to­day’s self-ser­vice chan­nels.

Re­form the way prices are set, to re­duce anom­alies and re­store public trust.

Re­form of com­muter fares is a clear and present need. Car­nets are a pos­si­ble ap­proach, but they are not with­out is­sues.

The clas­sic Paris metro car­net works be­cause cen­tral Paris is gated, and gates date-stamp the tick­ets and can­cel the mag­netic stripe.

Bel­gian Rail­ways sells a na­tional ten-jour­ney ticket for 83 eu­ros (£75). When pas­sen­gers wish to make a jour­ney, they write the date in one of the ten boxes printed on the ticket. It’s priced for rea­son­ably long trips with a good chance of a con­duc­tor check­ing tick­ets en route, but even so, some pas­sen­gers may only en­ter the date when a con­duc­tor ap­pears, and a ticket dated for the 1st of the month can be reused on the 4th with a stroke of the pen.

On Bri­tain’s com­muter net­work, with many un­gated sta­tions and short-dis­tance jour­neys, this would present a sig­nif­i­cant rev­enue pro­tec­tion risk. Ticket val­ida­tors (like the Com­pos­teurs in France, and sim­i­lar ma­chines at Ital­ian sta­tions which stamp the date on a ticket be­fore the pas­sen­ger boards the train) could solve this, but at a cost.

A smart­phone app may pro­vide a sim­pler so­lu­tion. Pas­sen­gers could buy a car­net of e-tick­ets, ac­ti­vat­ing each one on the day they wanted to use it - per­haps within a cer­tain dis­tance of the start­ing sta­tion (us­ing GPS) to avoid peo­ple ac­ti­vat­ing them only when they see an in­spec­tor.

Smart tick­et­ing re­mains the ul­ti­mate so­lu­tion, where pas­sen­gers touch in and out with a smart­card sea­son and re­ceive a dis­count when they make a given num­ber of jour­neys within a cer­tain pe­riod. Smart­cards al­low vast scope for in­no­va­tion in how com­muter travel is priced, but only with ma­jor in­vest­ment.

In terms of fares sim­pli­fi­ca­tion, one of the prob­lems (pos­si­bly the big­gest prob­lem) in sell­ing train travel clearly on­line is that the Of­fPeak Sin­gle (the for­mer Saver Sin­gle) costs only £1 less than the equiv­a­lent Off-Peak Re­turn (the for­mer Saver Re­turn).

In Bri­tish Rail days this made com­mer­cial sense. BR of­fered dis­counts on round trips to en­cour­age op­tional days out and week­ends away, but it did not want to dis­count one-way

“Pas­sen­ger num­bers and rev­enue are at a post-war low, mit­i­gat­ing the fi­nan­cial and po­lit­i­cal risks. And al­though ‘do noth­ing’ is typ­i­cally as­sumed to be a safe op­tion, that may no longer be so.”

tick­ets which were typ­i­cally used for nonop­tional jour­neys.

BR ini­tially in­tro­duced Saver Re­turns with­out an equiv­a­lent one-way, at prices which were of­ten less than the Or­di­nary Sin­gle. Pas­sen­gers trav­el­ling one-way would be sold a Saver Re­turn and think this was a mis­take, so BR in­tro­duced Saver Sin­gles at £1 less than the re­turn.

To­day, that ra­tio­nale is over­shad­owed by the need to re­tail ef­fec­tively through self-ser­vice chan­nels. Op­er­a­tors have wres­tled with the prob­lem of how to show round-trip prices on their web­site, show­ing and com­par­ing the cost of re­turn fares against the cost of two one-ways with vary­ing de­grees of suc­cess. Fares also need to be pre­sented clearly on a self-ser­vice ticket ma­chine. And if smart­card tick­et­ing is to be used, pas­sen­gers must un­der­stand what they will be charged when they touch in and out.

The eas­i­est way to achieve this is with an al­lone-way fare struc­ture, where a sim­ple choice of flex­i­ble, semi-flex­i­ble or cheap in­flex­i­ble fare is of­fered for the out­ward jour­ney and also (com­pletely in­de­pen­dently) for the in­ward. This al­lows cheap ad­vance fares for an out­ward jour­ney to be matched with a flex­i­ble fare for the in­ward, for ex­am­ple.

Ad­vance fares are al­ready one-way, and most Any­time Sin­gles are al­ready half the price of the Any­time Re­turn. But the for­mer Saver Re­turns are reg­u­lated, so can­not be in­creased with­out DfT agree­ment. And sim­ply halv­ing the Off-Peak Sin­gle hits rev­enue.

Nev­er­the­less, LNER has been tri­alling an Off-Peak Sin­gle priced at half the Off-Peak Re­turn on sev­eral flows, in­clud­ing Ed­in­burghLon­don, to gauge the ef­fect on rev­enue and to in­form the wider ap­pli­ca­tion of this prin­ci­ple. Al­though the trial means that some peo­ple pay less and that no one pays more, it has al­ready gen­er­ated some neg­a­tive me­dia at­ten­tion - for ex­am­ple, pas­sen­gers from in­ter­me­di­ate sta­tions still pay what they have al­ways paid, but the one-way trial price from Ed­in­burgh is now cheaper. (I re­fer the reader to my sec­ond para­graph!)

Lastly, a re­view needs to ad­dress the way prices are set across the net­work - no sim­ple mat­ter. Fares anom­alies (where the fare from A to B plus B to C is cheaper than A to C) are noth­ing new, but their num­ber has in­creased sig­nif­i­cantly as dif­fer­ent pric­ing man­agers fol­low­ing dif­fer­ent op­er­a­tor pric­ing poli­cies have set fares for dif­fer­ent seg­ments of the same route, with yet another op­er­a­tor pric­ing the over­all jour­ney.

Un­der the Com­pe­ti­tion Act, pric­ing man­agers em­ployed by dif­fer­ent train op­er­a­tors are legally pre­vented from talk­ing to each other, and fares reg­u­la­tion can also limit the scope to ad­dress anom­alies. The re­sult has been the emer­gence of split-tick­et­ing web­sites and an un­der­min­ing of public trust.

At first glance, a mileage-based tar­iff seems an at­trac­tive so­lu­tion, but this also needs think­ing through.

Zonal fares re­main prefer­able in ur­ban ar­eas shared with bus and tram.

On in­ter-city routes, al­low­ing fares to set them­selves through a dis­tance-based cal­cu­la­tion would be com­mer­cial sui­cide in the face of com­pe­ti­tion from coach and air, nei­ther of which base prices on mileage.

On short and medium dis­tances out­side ur­ban ar­eas, re­lat­ing Off-Peak and Any­time fares to dis­tance could in­deed de­liver con­sis­tency as a ba­sis for re­bas­ing fares and re­mov­ing anom­alies. But as there are cur­rently wide vari­a­tions in price for a given dis­tance between dif­fer­ent UK re­gions, a sin­gle na­tional rate per mile is un­likely to work. In any case, it may be de­sir­able to flex prices, even within a given re­gion where a route serves a less af­flu­ent area or faces sig­nif­i­cant bus com­pe­ti­tion.

A mileage-based tar­iff is a blunt in­stru­ment, but there are other ways to en­able co­her­ent pric­ing. For ex­am­ple, each op­er­a­tor could price its own spe­cific route, with a through fare com­posed of the rel­e­vant route seg­ments added to­gether, with or with­out a dis­count for dis­tance.

For ex­am­ple, the fare from Brighton to Scar­bor­ough would be com­posed of Brighton to Lon­don, Lon­don to York, and York to Scar­bor­ough seg­ments, each priced by the prin­ci­pal train op­er­a­tor for that seg­ment. The end-to-end fare would never be more ex­pen­sive than the sum of its parts.

How­ever, with DfT now tak­ing rev­enue risk and in ef­fect reg­u­lat­ing its own fares, there is scope for more co-or­di­nated price-set­ting even un­der the cur­rent fare set­ting ar­range­ments. The prob­lem here is the lack of any so-called ‘guid­ing mind’ - the vac­uum between a govern­ment depart­ment un­suited for di­rect ‘hands-on’ man­age­ment and train op­er­a­tors now shorn of di­rect in­ter­est in fares, grow­ing pas­sen­ger num­bers or bal­anc­ing cost and rev­enue.

For this rea­son. the cur­rent con­ces­sion ar­range­ment isn’t a vi­able long-term so­lu­tion. A ded­i­cated arms-length rail man­age­ment body seems es­sen­tial. With­out sig­nif­i­cant new leg­is­la­tion, it would be eas­i­est to cre­ate a new or­gan­i­sa­tion within the Net­work Rail um­brella, and ham­mer­ing out a long-term fares strat­egy for the in­dus­try should be one of its first jobs. A tough one, ad­mit­tedly, but as the say­ing goes: some­body’s got to do it…

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 ?? PAUL BIGLAND/ RAIL. ?? Great West­ern Rail­way 387174 stands at Did­cot Park­way on Septem­ber 13, with a ser­vice to Lon­don Padding­ton. A new rail fares sys­tem based on a na­tional rate per mile would be ‘un­work­able’ due to the dis­tri­bu­tion of in­comes and vary­ing lev­els of com­pe­ti­tion with other modes of trans­port, ar­gues Mark Smith.
PAUL BIGLAND/ RAIL. Great West­ern Rail­way 387174 stands at Did­cot Park­way on Septem­ber 13, with a ser­vice to Lon­don Padding­ton. A new rail fares sys­tem based on a na­tional rate per mile would be ‘un­work­able’ due to the dis­tri­bu­tion of in­comes and vary­ing lev­els of com­pe­ti­tion with other modes of trans­port, ar­gues Mark Smith.
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