Franchising Follies & Failures


The birthplace of railroads has an identity crisis. Or perhaps more of a “political will” crisis. Great Britain’s railways seem to be rapidly approaching a day of reckoning and grudging acknowledgement of the fact, that the much ballyhooed privatization and franchising model of the British railway system is destined for failure. It “only” took 20 some years to reach this state of affairs. It is with delicious irony to note, that it is the Conservative Party’s own Transport Secretary Grant Shapps, who stated just a few days ago, that measures had been initiated to take another one of the franchised rail networks back into public hands! Remember it was the Conservative Party under John Major which started the privatization process of the British rail system in 1994. The thinking went, that the private sector could do better, that the private sector would save the taxpayer heaps of money and that everything would just be wonderful and blissful, and the government would finally be out of the business of running railroads.

As is so often the case when subject expertise and common sense, and I might add a vision for a countries future, are pushed aside by political party doctrine and orthodoxy, as well as deep pocketed vested interests, it did not quite turn out that way.

The privatization model chosen was an incredibly convoluted franchising system. Entity “A” would bid for operating a designated part of the rail network, then in turn would have to lease the rolling stock from entity “B”, which would procure said rolling stock with funds from entity “C”. Entity “A” would then pay entity “D” (the owner of the rail infrastructure) for using the rail network. There were all sorts of accounting gimmicks built into this system. Two things are immediately glaringly obvious: The owner of the rail infrastructure, currently Network Rail, is a public, government owned entity. So much for the government getting out of the railroad business! Secondly, there is no competition on the railways as had been promised by the Railways Act 1993. If one wants to go from London to Penzance the only realistic choice is using Great Western Railway. That is because they have acquired the franchise for the south western rail network region of the UK. Nobody else goes from London to Penzance. To me real competition would look something like this:

Company A leaves London Paddington at 10:00

Company B leaves London Paddington at 10:10

Company C leaves London Paddington at 10:20

…and so on. You get the idea.

As can be expected with all promises by politicians, the savings to the UK taxpayer by privatizing the rail system have, of course, not materialized. In 2017/2018 the net UK government direct subsidy to the railways was around 6.4 billion UK pounds. (About US $8.1 billion) Just before the Railway Act 1993 to privatize the railways was passed, the yearly subsidy was around 1.7 billion UK pounds. (About US $2.1 billion)

Unfortunately these figures are somewhat misleading. Remember my aforementioned reference to accounting gimmicks? Because, conveniently, government “subsidies” to railways is not the same as “total government spending” on the rail industry. The total UK government spending on railways for 2017/2018 was a whooping 17 billion UK pounds. (About US $21.7 billion)

Ticket prices on the UK rail system have also risen considerably. Between 1995 and 2018 average ticket prices have risen more than 20%. The United Kingdom now has some of the highest railroad fares in the world. The walk up fare from London Kings Cross to York for tomorrow at 07:00, with an arrival at 08:51, is 136.00 UK pounds. About US $173. The distance between Berlin and Hamburg is roughly the same, give or take a few kilometers. Deutsche Bahn charges 67 Euros, about US $76, for a ride on their ICE, leaving at 07:06 and arriving at 09:11 tomorrow.

On a more personal level my unscientific observations over the years traveling in the UK is that the rail rolling stock has gotten more and more unpleasant. It used to be a pleasure riding on an HST: the seats were comfortable and there was plenty of space. The MK4 coaches on the East Coast Main line were a joy to ride in. The new trains not so much. The seats are like ironing boards, space is cramped and a lot of the new units ride horribly. Here is a blog entry about my experience on one of the brand new trains. To me it is sort of like the airlines: a race to the bottom.

New UK Train at InnoTrans.jpgUK EMU.jpgUK Train.jpg

The future of comfort on brand new British trains. Even US trains aren’t this bad!

Here is some more interesting reading. A bit dry perhaps, but interesting nonetheless:

Accounting Forum (UK Railways Funding)

Passengers take on more of the costs of running rail – The Transport Network

And finally a word on wether or not passenger rail can cover its operating cost. Seems like the consensus is that there is not a rail system in the world that makes money on running passenger trains. The much quoted Japanese rail system does not make any money from running their trains. They get their funds from real estate rentals in their train stations and other ancillary income sources:

The Myth of Passenger Train Profitability

Here is a comment from my pal Colin in the UK:

Colin’s Comments

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