mandag 1. februar 2016

Railway Economics and the Failure of the UK Privatisation

There is a campaign group in the UK called 'Bring Back British Rail' - does what it says on the box, so to speak.... Of course many deride this as nostalgia and even a bunch of old communists, but the group is far from being cranks. The UK rail industry has basically failed to improve passenger value via privatisation, due in many observer's opinion to the slighly cowardly decisions made by the John Major government. There was no real element of competition on the majority of routes, while the rail regulator became a toothless paper tiger. Companies exert massively above inflation fair increases, especially for season tickets which are the milk cow for the TOCs in the South East.

Many old timers and Tory true blue believers hark back to the time of the Big Four railway companies in the pre war era, when the glory of private investment, management and market pricing ruled with a whisp of steam and the smell of grease and burning coals. GWR, SE, LNER and LMS. To a small extent some of these routes and passenger lines were reborn into private monopolies of course. Only now they are not monopolies. Back then in the late nineteenth to mid twentieth century, the railway was a virtual monopoly in several different markets for getting from A to B efficiently. Private cars were expensive relative to average incomes, and not very reliable per hundred mile travelled, with short distances for services relative to today. Roads suffered from being based often on the old radial routes which connected towns and villages to the metropolises with many junctions at each node. Pre motorway commuting must have been a nightmare, despite there being relatively few cars on the road. What the big four had was a monopoly on fast, affordable transport for both passenger and freight in their respective regions or corridors ( freight being not really considered here in particular as the market to some extent is more competitive)

Looking back at the big four is using both rose tinted spectacles and also a good deal of naive, wishful thinking on how such a set up could exist today. The Uk in particular is littered not only with relics of the Beechings related cuts, but also old private lines which went bankrupt. By the late 19th century, Railways in the UK had become the internet of their day. This is a more literal relation than you may at first think, because railways facilitated much of the transport in the economy and rapid movement of mail and money. Like the internet, the sector became a bubble which burst and dozens of small railways went bust and either succumbed to being part of the big 4 under the 1921 railways act,  or simply dissoleved into being mere farm tracks.

One other legacy of the huge confidence of investors in the late 19th century followed by a more look warm scenario into the 20th century was that a huge deal of the track bed and even track itself, the very infrastructure, was Victorian and remained so during WWII. Longevity or durability is not unique to the railway, but a rather spartan attitude was taken to rail replacement. As late as the 1960s when the 3300 hp deltic fleet were introduced to operate at 100mph, there were still several sections of the East Coast Main Line which were basically victorian and demanded a 30 mph speed limit.

Post war on the one side the railway was of course bombed and so on, but also much of it was neglected and in a dire state. Given the repair bill and the debts acrued during the requistion of the railways in the 1940s, nationalisation was the only real means of progress to avoid a total financial and service collapse.

Nationalisation involved changing things....not very dramatically at first. The Great Western Region and Southern Region carried on under much the same management structures as before. Scotland became a natural region as did the old LNER mainstay of the east coast, while the west midlands and north west followed after a mix of London Midland and Scottish and LNER, with Midland region taking the north home counties and middle bits towards derby, Nottigham and Brum.

  Regionality removed large amounts of competition but at the same time there were some routes of course which were still rivals. Some Southern Region routes competed with GWR routes into London for commuters, and indeed the SR  Exeter route at one point was quite competitive in journey times to the Bristol route. The main competition was of course between the three main north - south arteries of ECML, WCML and Midland Line, with the later being somewhat sidelined with the restrictive size of St Pancreas compared to the new Euston and Kings Cross stations.

Through the sixties and seventies, the two main routes to Scotland competed for the cash income of those travelling to and from terra caledonia. The aforementioned Deltic services to Scotland and the NE, were actually a planned stop gap before the envisaged electrification of the line, while of course the WCML was electrified with overhead 25 kv lines progressively through to completion to Glasgow Central in 1974.

The post war infrastructural renewal aside, these routes in particular were expected to pay their way forward and contribute profitably in both freight and passenger income to the Railway. It could be said that both routes had their hayday in the late 1970s when intercity 125 sets on the ECML were operational and the fastest expresses on WCMl made london in under fiver hours from Edinburgh and Glasgow respectively. The Railway was most concerned about competition not from at that time flights but from of course motorways.  To extend the utility of the major WCML route, with its larger coverage or interconnectivity of major connurbations when compared to the ECML, the corporation for want of a better term, decided to adapt trains to the curves and came up with the revolutionary APT which has influenced and been largely copied by tilting train designers the world over, and influenced much of the advanced speed of 140mph run for some years on the ECML.

The class 370 prototype fleet, a kind of beta test of its day, were only reallly let down by three factors, two of them to do with private suppliers letting them down 1) The dynamic braking fluid was not available in time for the winter launch , so there were problems with viscosity and freezing  2) the very basic design of final friction brakes, dating to Rocket type designs, was built with components out of tolerance and just badly made by a private work shop  3) the rate of tilt was shown to induce motion sickness in passengers, somethign which could have been designed out and of course has been for the "pendolinos". 

The six train sets were a proof of concept which had one foot a bit too firmly in prototype land. In any case, Thatcher was keen on selling off British Airways, righly so, and saw that a three hour London to Glasgow rail route would likely outcompete the shuttle with the then hour or so out on the tube or cab ride to Heathrow.APT was shelved, but continued to be an experimental train through to at least 1984. Just over a decade later and Richard Branson was running trains based very much on the design and on the ground breaking operational and safety work the sets provided to the international industry.

The APT aside, British Rail managed several huge achievements. Firstly there was the rebuilding post war and the planning in the 1950s for a modern railway network, the beechings inspired rationalisation in the motor car age, the removal of all steam power by the late 1960s, the achievement of sustainable 100mph operation on WCML and ECML, the rationalisation of the ill concieved purchase of over 40 diesel locomotive types down to less than half tha, the electrifiication of the WCML and the Glasgow metropolitan area, the introduction of the intercity 125 to ECML, WR and later MR, the electrification of  the ECML, sectorisation and increased tractive power for freight, the introduction of efficient third generation diesel and electric multiple units..... The private railway has one main achievement and that is ironically, the introduction of tilting trains to regular passenger services.

Back to economics. We have a history of the British Railways in about four main chunks to date...... which begins with fanfare and a rush to invest in this new means of communication in the Victorian era, followed by the economic realities of what we call today "income model" and actual returns on that investment via capital gains and dividends....then the shake up with WWI when the railway was comandeered for troop and supply chain to armaments and the subsequent 1921 railway "Big Four" act....then WWII and 1947 when the Big Railway was born.....then the ill fated privatisation by the John  Major government.

Ill fated? Oh most definetly on just about every measure of utility to the paying passenger. Also on the frieght side, the private companies received several hundred new locomotives just bought by the public purse, at a knock down rate by accepting also to buy the older locos....which were already by in large rationalised and refurbished from their 1960s over engineered , sturdy design.

The main measures you can look up are grouped as follows, the figures are disputed a bit in terms of what inflation means in the railways and so on, and what constitutes operational subsidy, but this is the score>

1) Passenger Fair Increases Above RPI
2) Seating Capacity over the late 90s to 2008 in particular
3) Punctuality is decreasing now across many TOCs
4) Rolling stock has been replaced at a slow pace as the life cycle of the third generation multiple units, carriages and freight locos comes to an end
5) Public subsidy to the operational railway has increased above inflation
6) Railtrack had to be renationalised and is also a subsidised hole for tax payers money

The unfortunate fact has been clear since before 1900. Railways are very capitally intensive, and it is incredibly difficuylt to get ROI if you dont have a monopoly over not just rail route, but time effective transport in a corridor. This is just not the case for the vast majority of rail routes. How would the 'glorious big 4' have faired with the competition from motorways and later cheap flights ? Train operating companies have had to fall back on three streams of income - the poor commuter, the routes which are faster than flying and driving, and those who cant or wont fly. Beyond this in terms of making a profit, the TOCs need to hunt subsidy, The former of these three
passenger group is a literally captive audience around the Capital. Much of Londons middle class suburbia grew up around the new SE electric railway routes, and people lived within walking distance of a station. Now with conjestion into the capital, these poor blighters are the cash cow of the TOCs. They have them by the short and curlies because if they leave their season ticket year, they risk more conjestion by their own numbers.

There could have been alternative competition based privatisation models, which John Major dared not take up, but we come back to the fact that railways are capitally intensive in terms of rolling stock and track renewal, which are two demands the safety authority must lay down, while there is a finite and often limited capacity at rush hour when most money is to be made in getting people from both near and wide into the metropolii. Competition on routes like deregulating busses, has a market pain barrier which it must go through when less efficient operators fall to the side. There is also a huge degree of either redundancy or just using the same common sub supplier in terms of stabling rolling stock outside peak demand, maintaining rolling stock, and operating staff transport etc, Eventually on a route there would probably be one dominant operator, a single source of all repairs and stabling and a smaller second operator. There would be then a virtual monopoly on many routes where capacity in terms of the lines, terminus platforms and stabling & maintenance does not favour anything near the conditions for a free market.

The concept should not be completely dead, though, even when infrastructure is largely public owned. It is just very hard to make both competition work and to allow for return on investment and dividends without rail route monopolies.