Why was the ECML unprofitable for so many years until LNER?

[LNW-GW Joint]

The "no growth" franchises were when the SRA couldn't extract any investment money out of the DfT (partly because of too-generous deals over NSE franchises where slam-door fleets had to be replaced), and TPE were preferred over Northern in fleet replacement terms.
Various regional TOCs (including Northern) also had a DMU procurement canned (by Labour).
Northern and ATW/TfW did pretty well in the next franchise rounds c2015.

 

[mike57]

Award a long franchise

The Treasury (who else) vetoed long franchises

I think thats the problem, franchises were significantly shorter than the investment cycle.

I also think the multiple TOC approach has brought other downsides, microfleets, rather than a UK wide procurement. Ticket acceptance issues, and multiple instances of the 'back office' infrastructure which seems wasteful but thats outside the scope of this thread.

 

[RailWonderer]

Various regional TOCs (including Northern) also had a DMU procurement canned (by Labour).

Was this the rumoured class 172 order that would have been a follow on from the London Midland order that would have replaced Pacers after 30 years rather than several more?

 

[Irascible]

Franchising ensured that all the routes got investment every 7-10 years (infrastructure, rolling stock, stations etc).

The entire South West begs to differ. Voyagers ( woohoo )... and then GWR's first new trains in the area since privatisation, the IETs. If GWR's operations in the area were their own franchise like say Northern is operated ( I can remember W&W just about ), there wouldn't be any post privatisation stock in it at all. I'm fairly sure there's been no signalling either until recently. There have at least been a couple of new stations.

In the last decade or two before privatisation BR gave us resignalling of large areas, HSTs, and the replacement of the entire local & secondary rollingstock. Plenty of other regions got that too, so it's not like it was special.

 

[JJmoogle]

The entire South West begs to differ. Voyagers ( woohoo )... and then GWR's first new trains in the area since privatisation, the IETs. If GWR's operations in the area were their own franchise like say Northern is operated ( I can remember W&W just about ), there wouldn't be any post privatisation stock in it at all. I'm fairly sure there's been no signalling either until recently. There have at least been a couple of new stations.

In the last decade or two before privatisation BR gave us resignalling of large areas, HSTs, and the replacement of the entire local & secondary rollingstock. Plenty of other regions got that too, so it's not like it was special.

Yes the idea that Privitisation and franchising gave us investment in the regions seems farcical,
NSE where about to kick on with Crossrail(s) and urgent slammer replacement,
Further electrification of the other mainlines after the EC, Pacer replacement, the transpennine route upgrade...

Instead we got a railway frozen and declining(sometimes in horrifying ways) for at least 10 years as it worked out how to work itself out having been smashed, and to this day we are still implementing ideas that where on the agenda as being required 30 years ago, often at great expense.

 

[LNW-GW Joint]

The thread title appears to assume that "ECML" equals "LNER" and its predecessors.
But the ECML, like the other main lines, is a complex mix of separate services/TOCs, including NSE commuting, regional/local services and other pseudo-intercity services on the northern half (north of Doncaster).
Most of these services/TOCs don't come anywhere near breaking even.
Unlike the WCML and GWML operators, LNER is not burdened with these lesser services, so it is not surprising that it is a good performer finance-wise.
On the WCML, the Virgin/Avanti operation picked up the Birmingham-Scotland leg from XC, and on the GWML GWR runs a combined IC/NSE/Regional network.

 

[DynamicSpirit]

Pretty much the entire Regional Railways fleet was replaced between 1982 and 1992 using brand new trains. And, certainly in RRNE territory, that was then it for another 20+ years. No new diesels between the 158s of 1990-1992 and the 195s of 2019.

But yep, we should be thankful for privatisation(!)

Are you counting the class 142 pacers amongst the brand new trains? Yes, they were brand new, but I'm not sure I'd count them as shining examples of the benefits of a nationalised railway. And in general, if memory serves me correctly, the replacement of the RR fleet involved mediocre trains that were often too short/lacking in capacity. I think the lesson I'd draw from that was that for many decades dating back to at least the time of Beeching and up until 2010-ish, the Government shamefully neglected the 'regional railways' routes, both pre- and post-privatisation.

 

[The exile]

Are you counting the class 142 pacers amongst the brand new trains? Yes, they were brand new, but I'm not sure I'd count them as shining examples of the benefits of a nationalised railway. And in general, if memory serves me correctly, the replacement of the RR fleet involved mediocre trains that were often too short/lacking in capacity. I think the lesson I'd draw from that was that for many decades dating back to at least the time of Beeching and up until 2010-ish, the Government shamefully neglected the 'regional railways' routes, both pre- and post-privatisation.

I think it's probably fairer to say that "regional railway" routes were always neglected (pre-nationalisation as well) - at least after the initial euphoria that led to them being built (and often saddled with vastly over-ambitious and expensive to maintain infrastructure) in the first place. The two main occasions when there was a vast influx of new stock (effectively 1st and 2nd generation dmus) were when cost and other pressures meant it was new stock or closure - cascade-able stock simply wasn't suitable (too big, too heavy or too expensive to operate). What has probably had the most influence is the fact that so many constituencies served by regional services have become much more marginal. There aren't that many places where the old adage of "you could stick a red / blue [delete as appropriate] rosette on a donkey and it'd get elected" still applies.

 

[norbitonflyer]

The two main occasions when there was a vast influx of new stock (effectively 1st and 2nd generation dmus) were when cost and other pressures meant it was new stock or closure - cascade-able stock simply wasn't suitable (too big, too heavy or too expensive to operate).

There was a period in the early to mid eighties when cascaded loco hauled stock made a welcome re-appearance on some longer-distance regional services - no younger than the dmus they replaced but a more pleasant experience. Generally Class 31 or 33 haulage - the econmic downturn having made them available as they were no longer needed for freight trains. Examples were Birmingham- Norwich, York to Scarborough, newark to Cleethorpes, Cardiff to Portsmouth, and Cardiff to Manchester via the Marches line - the latter bringing the unlikely sight of Class 33s to Manchester!

 

[WAB]

Northern/TfW/Scotrail would not have got new trains under that model, they would be operating cast-offs.

Cast-offs from where? The Sprinter programme already demonstrated pre-privatisation the efficiencies in operation and cost that multiple units could achieve on regional routes. Anyway, the cost of operating and maintaining some sort of Castle-set and still needing to replace them in 10 years time would make RR fleet replacement the easy choice. This isn't the 80s, there is not the same supply of passenger-suitable locomotives going spare (unless you count ancient specimens like the 37s and 47s).

 

[Adrian1980uk]

I think it's probably fairer to say that "regional railway" routes were always neglected (pre-nationalisation as well) - at least after the initial euphoria that led to them being built (and often saddled with vastly over-ambitious and expensive to maintain infrastructure) in the first place. The two main occasions when there was a vast influx of new stock (effectively 1st and 2nd generation dmus) were when cost and other pressures meant it was new stock or closure - cascade-able stock simply wasn't suitable (too big, too heavy or too expensive to operate). What has probably had the most influence is the fact that so many constituencies served by regional services have become much more marginal. There aren't that many places where the old adage of "you could stick a red / blue [delete as appropriate] rosette on a donkey and it'd get elected" still applies.

Problem is if you don't have double tracks on a number of the regional routes, you can't get the service frequency that attracts passengers. I believe if it's not hourly, for the average passenger it becomes unusable in the modern culture with mobile phones where you don't have to plan in quite the same way

 

[norbitonflyer]

The thread title appears to assume that "ECML" equals "LNER" and its predecessors.

I think it was meant as a shorthand for the various East Coast franchises (and the ICEC subsector and East Coast shadow franchise before them)

 

[The exile]

There was a period in the early to mid eighties when cascaded loco hauled stock made a welcome re-appearance on some longer-distance regional services - no younger than the dmus they replaced but a more pleasant experience. Generally Class 31 or 33 haulage - the econmic downturn having made them available as they were no longer needed for freight trains. Examples were Birmingham- Norwich, York to Scarborough, newark to Cleethorpes, Cardiff to Portsmouth, and Cardiff to Manchester via the Marches line - the latter bringing the unlikely sight of Class 33s to Manchester!

Indeed - I remember them well, but those were hardly the minor regional services I was thinking about.

 

[johntea]

An interesting factor that I suppose has helped in leisure market terms especially based on another recent thread…marketing (and the boom in technology at your fingertips combined with social media)

Also the fact the average passenger probably couldn’t care less previously what class of train they were travelling on but throw in a buzz word like ‘Azuma’ and it’s a different story all of a sudden!

 

[TT-ONR-NRN]

There is a element of it was Britains premier railway (remember when Virgin took over the wcml it was most definitely the poor relation) and carried premium in franchise bidding. Also that's the only line where open access operators can soak up some of the passengers and provide competition.

An emphasis on was, though. Since the West Coast upgrade took place I'd think it's fair to say that's definitely been the UK's flagship railway so far since.

 

[northwichcat]

Northern and ATW/TfW did pretty well in the next franchise rounds c2015.

I'd say at the time the Northern franchise spec sounded good - additional services, brand new trains, Pacer withdrawal and 'like new' interiors for all retained trains.

In reality:

• 'Like new' meant mandatory accessible improvements, plus new seat covers and a full internal and external repaint.
• Many of the promised additional services never materialised.
• The new train order ended up being smaller than what other equivalent renewed franchises got.
• Northern remained the dumping ground when it came to the released EMR stock. The ex-Anglia 156s are awful, they retain seat covers from the Anglia days and frequently have train faults.
• There's an increasing number of Northern services with carriages locked out-of-use, partly due to them making do with old trains that don't fit the infrastructure. In constrast I recently travelled on a 12 car London Northwestern Railway service. There were no carriages locked out of use but annoucements for passengers alighting at 2 calling points to move to the front 4 carriages.
• Northern are still the operator with the most class 150 trains.

 

[Merle Haggard]

Back in 2018/19, the franchise payments to DfT (£2.856bn) more than offset those paid by DfT (£2.388bn).

Source : ORR financial data for the year https://www.orr.gov.uk/sites/default/files/om/uk-rail-industry-financial-information-2018-19.pdf

I can't follow this.

Presumably the payments paid 'by DfT' are in respect of access charges subsidy - possibly what was explained herefurther explained up thread.

You also have the fixed track access paid through the TOC to consider. That was and is effectively a “laundered” DfT subsidy to NR and did go up and down by several million each year of a Control Period, affecting the actual premium paid or subsidy received, as the TOC was indemnified for any change in FTAC.

So it would seem thattaxpayers paid the franchisee to run trains £2.388 bn being greater than £2.856bn (by £468m).

To put it in simple terms, the ECML has always been profitable post privatisation (and before). It is my guess that the current LNER operation is the least profitable of the lot, adjusted for inflation.

Before Virgin EC was taken over by Government with LNER as an ‘operator of last resort‘, the franchisees paid the government an agreed sum each year for the right to run the franchise, known as a franchise premium. This was considerable amounts of money - nearly £1m a day for VTEC in 2017/18 - and if the franchise bidder did their sums wrong, or was affected by significant external events (Financial crisis, for example) then they had to pay Government more than the profit on the franchise.

Currently, compared to previous franchisees, LNER have a much higher cost of operation (including a large fleet of trains that are expensive to lease), have significantly fewer high yield passengers (ie on business) and therefore reduced revenue per passenger, and also have more competition (Lumo). I would be very surprised if the operational profit now (leaving franchise premium out of it) is higher than it was in 2017/18 on an inflation adjusted basis (£445m pa).

(my emphasis)

It just seems odd to me to describe a company that requires a subsidy of £468,000,000 per annum to operate as 'profitable'.

Could B.R. be described as "always profitable"? Well, yes, on a similar basis - after subsidy, it didn't make a loss either.

 

[Bald Rick]

I can't follow this.

Presumably the payments paid 'by DfT' are in respect of access charges subsidy - possibly what was explained herefurther explained up thread.

You’re right - you’re not following it!

The more profitable operations caused the franchisee holding it to pay the DfT a premium for running the service. This was typically the long distance high speed operators and those with high volume London commuting.
The operations that were not profitable received money from the DfT, typically regional operations.
For reasons that are quite complicated, some operators both paid premium to the DfT and received some subsidy back.

The total paid in premium by all operators (not just those on the ECML) to the DfT was £2.856bn.

The total paid in subsidy to all operators by the DfT was £2.388bn.

Therefore the net payment from all franchise operations to the DfT was £0.468bn.

None of the above takes into account DfTs direct grant to NR.

 

[lnerazuma]

The main difference is the track access fee paid to national rail. From previous published data I remember lner paid a fraction lesser access fee than virgin and that's what makes it "profitable" now. Figure shows the current lner profit is very close to the difference of that extra bit of NR track access fee.

 

[The exile]

Problem is if you don't have double tracks on a number of the regional routes, you can't get the service frequency that attracts passengers. I believe if it's not hourly, for the average passenger it becomes unusable in the modern culture with mobile phones where you don't have to plan in quite the same way

You don’t need double track throughout for a frequent service - just sufficient loops. Whether that is the cheaper to maintain and operate is another question!

 

[Tetchytyke]

Are you counting the class 142 pacers amongst the brand new trains? Yes, they were brand new, but I'm not sure I'd count them as shining examples of the benefits of a nationalised railway.

Probably one for the controversial opinions thread, but they were better than the 101s they replaced!

None of the above takes into account DfTs direct grant to NR.

And that’s the devil in the detail!

It’s fair to say the privatised rail industry is cost-neutral if you take all the expensive bits out and account for them separately. It’s a real shame BR never had that luxury.

 

[Nicholas Lewis]

You’re right - you’re not following it!

The more profitable operations caused the franchisee holding it to pay the DfT a premium for running the service. This was typically the long distance high speed operators and those with high volume London commuting.
The operations that were not profitable received money from the DfT, typically regional operations.
For reasons that are quite complicated, some operators both paid premium to the DfT and received some subsidy back.

The total paid in premium by all operators (not just those on the ECML) to the DfT was £2.856bn.

The total paid in subsidy to all operators by the DfT was £2.388bn.

Therefore the net payment from all franchise operations to the DfT was £0.468bn.

None of the above takes into account DfTs direct grant to NR.

NR got 3.85B that year - a bargain compared to last year when it was over 7B.

 

[Lewisham2221]

Problem is if you don't have double tracks on a number of the regional routes, you can't get the service frequency that attracts passengers. I believe if it's not hourly, for the average passenger it becomes unusable in the modern culture with mobile phones where you don't have to plan in quite the same way

Not quite sure I agree with your reasoning on that latter point tbh. Surely a less frequent/non-clockface service is more usable now than it has ever been, owing to the fact that you can look up the train times - using your mobile phone - pretty much anywhere, anytime rather than needing to memorise times or have access to a paper timetable? Nonetheless, I do agree that in the vast majority of cases, an hourly (or better) frequency is most desirable for attracting passengers.

 

[Dan G]

Over optimistic bidding was the reason - the expected revenue was the problem in both the NXEC and VTEC cases.

Other bidders who bid a more realistic revenue line in their bids were ignored.

What motivated the companies to overbid? I don't see how that was potentially advantageous to them.

 

[Mcr Warrior]

What motivated the companies to overbid? I don't see how that was potentially advantageous to them.

Hockey-stick shaped revenue / profit growth projections?

 

[Magdalia]

What motivated the companies to overbid? I don't see how that was potentially advantageous to them.

From the perspective of the seller/auctioneer, that's how a successful auction works. It only takes 2 or more bidders to want the same thing. Railwayana auctions are a good example.

 

[Nicholas Lewis]

From the perspective of the seller/auctioneer, that's how a successful auction works. It only takes 2 or more bidders to want the same thing. Railwayana auctions are a good example.

Indeed they were all backed by companies that had to put up performance bonds as well so if they got it wrong they would lose shed loads of cash. Remember these are companies that were supposedly commercially astute and in actual fact DafT did well out of them getting it wrong gavem them cash to support the loss makers.

 

[Dan G]

From the perspective of the seller/auctioneer, that's how a successful auction works. It only takes 2 or more bidders to want the same thing. Railwayana auctions are a good example.

Yes but that's not what I'm asking about.

 

[3141]

What motivated the companies to overbid? I don't see how that was potentially advantageous to them.

It must be very difficult to work out precisely the real cost of running a franchise. There are some things you cannot estimate - you just have to allow contingencies. You can make an estimate of passenger growth, but forecasting what will actually happen is impossible. Major external factors may impinge on what you'd planned. If your bid is cautious, someone may outbid you. It costs a lot to make a bid: I think at towards the end of the franchising period, it was frequently around £2 million. You don't want to spend all that and lose. Anyway, what is "overbid"? You won't know till someone's done it.

Some examples of the uncertainties in all this:
1) According to Roger Ford in about 2007, bids two and three for the South Western franchise totalled less than the bid from Stagecoach. I think the figures very roughly were Bids 2 and 3 about £650,000 million each and Stagecoach £1.3 billion. Stagecoach ran the franchise successfully at that level, but they could have won with £700,000 million.
2) In 2007/08, National Express bid more for the East Coast than GNER had a few years previously, but GNER had failed. Why did NatEx do that? They had been losing franchises and may have been desperate to win something. Could they have run it successfully? We don't know, because the 2008 recession came along and passenger numbers dropped.
3) West Coast in 2012: it is widely considered that First had overbid and ought to thank Richard Branson for seeking a judicial review which DfT found they didn't have the evidence to contest, so the offer to First was withdrawn. We'll never know how things would have panned out.
4) South Western in 2017: First/MTR won. One version of the story says they bid less than Stagecoach, but Stagecoach hadn't fully met the specification DfT had issued. First/MTR were making losses before Covid arrived and changed everything. We'll never know if their planned timetable and frequencies would have worked; doubts certainly exist.

Is there a common factor? Yes, the DfT, which ought to be able to assess whether bids are realistic and achievable. But their crystal ball isn't perfect either, and no doubt they were under pressure to get the best possible price for each franchise in order to justify the amounts that the Treasury were putting into the railways.

 

[JamesT]

Yes but that's not what I'm asking about.

That it was overbidding is somewhat with hindsight. At the time they must have believed they could make sufficient profit to afford the premiums. It costs money to bid and you won't earn anything unless you win the franchise, which does push companies towards making a bigger bid.
Various events did occur which will have affected the forecast revenues, e.g. during GNER's spell there were the Hatfield, Selby, and Potters Bar crashes; NXEC had the financial crash of 2008. The curious thing is why the east coast franchise seems to be so susceptible to this, as those factors will have likely affected all TOCs. Is their passenger mix such that these factors meant a larger drop in revenue?