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Stagecoach calls for "radical reform" of UK rail

Stagecoach Group warned today (18 October 2010) that changes to the system of rail franchising alone will not deliver improved value for money to taxpayers and a better service to train passengers.

The transport group said the scope of the Government's consultation on future franchising was not wide enough. It should take account of Sir Roy McNulty's value for money review and also address the structure, revenues and costs of the wider industry, including Network Rail.

Stagecoach, which has an involvement in running around a quarter of the passenger rail market in the UK, also called for targeted testing of vertical integration where train operators are responsible for both trains and track.

The proposals are contained in the Group's response to the Department for Transport's consultation, Reforming Rail Franchising, which closes today (18 October 2010), and come in advance of the Comprehensive Spending Review announcement this week.

Brian Souter, Stagecoach Group Chief Executive, said: "We are at a crucial crossroads for the UK rail network. We have a once in a generation opportunity to deliver real change that will benefit both passengers and taxpayers.

"But we must not take the easy option of tinkering around the edges - we need radical reform. Our proposals ensure that customer, safety and shareholder interests are brought together as the focus of a new model. These interests have never been properly aligned in the past.

“We believe this is the only way to deliver a safer, more efficient and more reliable railway in the long-term. Stagecoach has successfully delivered change before and we could do it again. Our plans would unlock the investment and innovation of commercial operators, provide value for money, and deliver better services to the millions of people who rely on our railways every day."

Stagecoach Group operates Britain's biggest commuter franchise at South West Trains. It also runs the East Midlands Trains franchise and has a 49% share in Virgin rail Group, which runs West Coast inter-city services. The Group was the first rail operator to successfully pilot integrated control centres and in an earlier 2001 study, A Platform for Change, put forward other ideas for better infrastructure management.

Stagecoach says in its response to the Government’s rail franchise consultation that:

  • Current franchise arrangements have an artificial split between infrastructure operations and service delivery that is inefficient and not in the best interests of passengers.
  • Infrastructure investment is not targeted where it will benefit passengers most and Network Rail is not subject to normal commercial disciplines, particularly in an economic downturn.
  • Targeted use of a vertical integration model can deliver substantial savings to Government and Stagecoach has offered to test the approach on its South West Trains franchise.
  • The Group has developed a low-cost model for rail services. It has removed 25% of controllable costs from its wholly-owned franchises since 2008, whilst performance and customer satisfaction levels are higher than the national UK average. This approach can be replicated elsewhere on the UK rail network.
  • There is no "one size fits all" solution. Intercity, commuter and regional train operating companies each have different characteristics that will mean different approaches.
  • Any new franchise regime must be flexible enough to cope with a range of possible future scenarios to avoid stakeholders being saddled with a structure that cannot adapt to future needs

Stagecoach said the Government needs to be clear about what it wants to "buy" and the risks it is prepared to take if it is to get best value from the private sector. Future franchising should be based on six principles:

  • An output specification based on service levels, performance, crowding and passenger service.
  • Longer franchises on the right terms.
  • Reduced fares regulation
  • Appropriate risk-sharing - exogenous risk shared with Government.
  • More control for train companies over costs and inputs
  • A more commercial approach to financial commitments and bonds.
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