Presentation by Professor Chris Nash, March 2015 Also see: www.railpro.co.uk/railpro-magazine/magazine-archives/may-2015/interview-chris-nash www.westminsterforumprojects.co.uk/forums/agenda/rail-2015-agenda.pdf www.its.leeds.ac.uk/people/c.nash

1. Competition, contracts and setting out a future roadmap
Chris Nash
Research Professor
Institute for Transport Studies
University of Leeds

2. Outline
1. What is the problem?
2. Is on track competition the solution?
3. How could franchises work better?

3. Rail traffic in Britain
Total rail passenger km in Britain (b)
1997 42
2012 70
67% growth
Explanation? Economic growth, car ownership, road journey
times, petrol costs
Improved services and better marketing a part
See: Wardman, M. (2006)

4. Passenger railway costs per
train km (2011/2 prices)
1996/7 2005/6 2011/2
• Total 20.2 27.0 25.4
• Infrastructure 9.2 14.4 13.9
• Operations. 11.0 12.6 11.5
See Smith and Nash (2014)

5. British Train Operating
Company Costs
•Evidence that British franchises are typically too big
Wheat and Smith (2015)
•Problems in managing franchise failure
•Some costs such as fuel cost, insurance and policing have
risen a lot
•Big rise in staff costs partly due to competition for scarce
skilled staff?
•Lack of alignment of incentives between infrastructure and
operations (McNulty)

6. Possible solution – on track
competition
On track competition now exists in:
Italy – on the high speed network
Czech Republic and Austria – on one key route
Germany, Sweden, Britain – currently very limited but may
increase
General pattern:
Lower fares, improved services
BUT Also some disadvantages

7. Disadvantages of on track
competition
•Where ever it competes with franchises, it reduces
profitability of franchisees and thus raises subsidies
•Wasteful use of track capacity (fault of track access
pricing?)
•Failure to produce a well integrated timetable (see recent
paper on Improving Connectivity from Network Rail)
•Loss of economies of density

8. Possible solution - reform of
franchising
• Long franchises necessary whenever franchisee responsible
for service development, procuring rolling stock, influencing
infrastructure investment (at least 20 years)
Chiltern 20 year franchise the model
• Short gross cost franchises may make sense where the
franchising authority is responsible for asset procurement,
marketing, influencing working practices etc.
London Overground 7 year franchise the model
• Alliances with Network Rail crucial – ideally complete
sharing of changes in revenue and cost
SW Trains the model.

9. References
• Andrew Smith and Chris Nash (2014) Rail Efficiency: cost
research and its implications for policy. Discussion paper,
International Transport Forum
• Wardman, M. (2006): ‘Demand for rail travel and the effects
of external factors’, Transportation Research, 42(3), 129–48
• Wheat, P.E. and Smith, A.S.J. (2015), Do the usual results
of railway economies of scale and density hold in the case of
heterogeneity in outputs: A hedonic cost function approach,
Journal of Transport Economics and Policy. 49(1) 35-57.

10. References
• Andrew Smith and Chris Nash (2014) Rail Efficiency: cost
research and its implications for policy. Discussion paper,
International Transport Forum
• Wardman, M. (2006): ‘Demand for rail travel and the effects
of external factors’, Transportation Research, 42(3), 129–48
• Wheat, P.E. and Smith, A.S.J. (2015), Do the usual results
of railway economies of scale and density hold in the case of
heterogeneity in outputs: A hedonic cost function approach,
Journal of Transport Economics and Policy. 49(1) 35-57.