Ed Thomas, UK head of transport, comments on the Government’s new rail strategy. He said:
“The government’s new strategic vision for rail is a bold step to address head-on some of the major challenges in today’s railway. The doubling of rail demand since privatisation has put pressure not only on the capacity of the system, but also on the commercial models which were first developed in the 1990s for an industry which was at best at steady-state, and in some respects in decline.
“The move towards more and smaller franchises is likely to be broadly welcomed by the train operators. Whilst some of the initial rail franchises were of a scale that made them suitable for management buyouts, the combination of a consolidation of the franchise map and massive growth in passenger revenues means that several franchises are now major companies in their own right with annual revenues of over £1 billion. Trying to transfer the risks inherent in businesses of this scale through tightly specified franchise contracts has become increasingly tortuous. It is likely that in order to support today’s announcement, the DfT will continue to explore further changes to the franchise model that will allow it to continue to secure the benefits of innovation from the market but on terms that are commercially sustainable.
“The most eye catching announcement is the new generation of partnerships to bring the management of track and train closer together. Alliancing has been tried before in UK rail – notably in Wessex and in Scotland. The lessons from these experiences are that not only the commercial incentives but also the investment plans and culture of the two parties need to be fully aligned if this type of model is to be successful. This points to Network Rail becoming more directly engaged in future franchise competitions. It will be crucial going forwards, that when new train operating companies are appointed, their business plans have full buy-in from Network Rail and are fully compatible with what Network Rail considers to be achievable from the infrastructure over the contract period.”