Scrap franchising & use licensing to promote rail competition

Stagecoach and Virgin have called for a new licensing system to replace franchising on some inter-city rail routes. They say it will promote greater competition and provide taxpayers and passengers with a better deal.

The two groups were responding to a Competition and Markets Authority (CMA) consultation document released earlier in the year (LTT 27 July) calling for more rail competition from 2023. The CMA outlined four options: (1) to retain the existing market structure but allow significantly more open access operations; (2) to have two franchisees for every franchise; (3) to have more overlapping franchises; and (4) to licence multiple operators, but subject to conditions.

Stagecoach and Virgin strongly favour the fourth option: “The licensing system would be introduced on inter-city routes in place of franchising. It would also replace the current open access regime where the government competitively lets rail franchises, but then other operators are allowed to selectively run competing services on some routes without having to pay the same charges or meet the same specification.’

The groups suggest the scheme could be trialled on either, the East Coast, West Coast or Great Western mainlines first, but says franchising should remain for non inter-city routes.

“Under the new licensing system bundles of train ‘paths’ would be auctioned by a letting agency – probably by the DfT or ORR -and based on a nationally agreed capacity statement.  It would allow for multiple operators to compete on a route on a level playing field.

“The current confused and damaging mix of both open access services and franchised networks does not provide a level playing field, with biased track access and ticketing regimes. This hybrid ‘cherry-picking’ arrangement offers poor value for money for taxpayers, is an inefficient use of network capacity and, at worst, risks franchise failure. For example, the East Coast franchise has produced significantly lower revenue growth compared to other inter-city franchises over the last 15 years because open access has been abstracting revenue and blocking timetable optimisation.”

The licensing proposals have drawn responses from rival groups Arriva and FirstGroup (who run both franchised as well as open access rail operations).

Ian Yeowart, managing director of Alliance, Arriva’s open access development business, told LTT: “The CMA report recognises that there is plenty of evidence to support the fact that competition on the East Coast Main Line has brought significant benefits to passengers without detriment to taxpayers. The current system makes it difficult to extend that without considering changes to the way track access is allocated on routes with commercial services.”

But FirstGroup’s Head of Media, Stuart Butchers, informed LTT that FG believed CMA’s first option – of retaining the existing structure but encouraging more open access – was the best one, and he questioned the motives behind any move towards licensing: “A good operator has nothing to fear from competition. Everyone bidding for a franchise should know that open access is a factor, particularly on the East Coast Mainline. The Rail Regulator is legally responsible for making sure franchisees don’t lose out in the process. Train operators have long argued that any structural reform is unnecessary, so one has to speculate what has prompted calls for this new structure.”


684/Oct 15

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