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Rail Professional interview: Bob Holland

October 2011

Katie Silvester

Bob Holland tells Katie Silvester what Deutsche Bahn’s plans for the UK are, why prequalification is a waste of time and why open access ought to be given a chance on a much bigger scale

Last time Rail Professional interviewed Bob Holland, he was managing director of Arriva Trains Wales. That was four years ago. Since then, his empire has grown considerably. As managing director of Arriva’s UK train division, Holland has had responsibility for all of Deutsche Bahn’s UK rail operations since Arriva was acquired by DB in 2010. This includes Arriva Trains Wales, Chiltern Railways, CrossCountry, Tyne and Wear Metro, London Overground and open access hopeful Alliance Rail.

DB’s acquisition of Arriva has seen it become one of Europe’s biggest transport groups. But the Arriva brand will live on – British passenger trains will not be carrying the Deutsche Bahn name – with Arriva taking over all of DB’s passenger operations outside Germany. Arriva now runs bus and rail operations in 12 European countries. In the UK, Arriva is now responsible for 13 per cent of UK train kilometres and 10 per cent of the railways’ revenue.

So how did the takeover come about?

‘They made a very good offer and it’s as simple as that. We’ve been successful in Arriva in acquiring and operating companies across Europe over the last 10 years. We’ve done it and made money, and most of our competitors haven’t. It was logical for them to buy us inasmuch as they want a successful business outside of Germany, which they can expand in their desire to become the most successful commercial venture in Europe.’

Consequently, DB has not been particularly hands on, says Holland, leaving Arriva’s management to continue as they were before. And Arriva’s motivations and objectives have not changed, he insists, now there are no shareholders.

‘Looking at UK rail, our aims haven’t changed at all. The motivation for the business is all based on operational performance. All five of our operations operate very very reliably; the PPM numbers are some of the highest in the country and I do believe that if you get that right, you will keep passengers happy and, commercially, you will be successful.’

Now that DB owns several Tocs and operating concessions in the UK, many will be wondering what the group is planning next. Arriva expressed an interest in the West Coast franchise, but failed to prequalify. So what are DB’s ambitions for the UK?

‘To get bigger! The strategy for UK rail is to add some more franchises. You’ll be aware we didn’t prequalify for West Coast. We were disappointed, but we were completely unsurprised. We only merged together on 1st January and we had to submit a prequalification with a really well thought-out strategy for the West Coast for February 18th. We couldn’t do it, but we did come remarkably close, we were fifth.

‘We wanted to increase our holdings in terms of franchises because we think we’re good at it, so we have a bid team fully up and running now, preparing for the future series of bids, waiting to see what franchise reform there will be.’

He won’t say whether or not Arriva will be bidding for the full-length Greater Anglia franchise, which will be one of the next to come up, but he does admit that he would be wary of putting too many bids together at the same time, where timescales for different franchise competitions are close together. Arriva will be focusing particularly on franchises where there is still room for significant growth.

‘There’s no point in taking on one that’s achieved all that it can, because where do you get your returns from in terms of the bid? There’s every chance that bidding in the future will become more risky, so we’ve got to be very careful how we bid and what parameters we use.’

What he is very clear about is his dislike of the prequalification process, which is where interested parties submit an outline bid for the DfT to use as a basis for creating a shortlist of companies, which will then be invited to put together a full bid.

‘We’ve long been critics of the whole prequalification process – we don’t understand why we need to prequalify, or why anyone needs to. It’s a completely unnecessary expense for the UK industry – it doesn’t happen anywhere else in Europe. As long as you’ve got financial repute you can bid and you put the money into the actual bidding process. The DfT in this country have decided they do a need a shortlist of three, four or five bidders. I think that’s silly, really. The market will naturally determine how many bidders there are going to be. The cost of bidding, if you do it professionally, is £6m or £7m per bid. If you’ve got 10 competitors trying to do that all the time, the market will just even itself out. And it must cost the DfT a fortune as well, just to administer the process. So we’re not keen on it, but we will adapt to whatever system we’re faced with.’

Like most transport groups, Arriva is keen to see more flexibility in franchise agreements.

‘Everything about the timetable has been too prescriptive. Again, there is a lot of talk about them being much more relaxed and more flexible. But until we actually see that, I can’t really comment.’

While there have been moves in Germany to privatise DB, it remains the case that the railway is still state owned for the present. This leaves some people in the UK uncomfortable with the fact that profits from Arriva’s British operations will be going back to the German government.

Of course, DB is not the only foreign state operator making inroads into the UK. Keolis, the international arm of SNCF, has a stake in Govia, which runs Southern, Southeastern and London Midland with the GoAhead Group. And Abellio – part of the Dutch national operator Nederlandse Spoorwegen – co-owns Northern Rail and Merseyrail. It’s a scenario which has led Tony Berkley, head of the Rail Freight Group, to say: ‘More than half the passenger Tocs are state owned now – it’s just that some of them are owned by other states.’

What would Holland say to people who aren’t that happy with DB building a portfolio over here?

‘The truth is that the German market is open. We can go into Germany; we can bid for regional operations in Germany successfully, so I think there’s no real issue with a state company from Germany operating in the franchise market in the UK. If you look at Italy, if you look at France, those markets are not open, yet they are coming to compete with us in the UK. I think that is unfair. The Dutch are as well. So I’d say to anyone that we believe in a free market, a commercial market and DB operate on a commercial basis. So we’re bidding on exactly the same basis as we would have done as Arriva – to be commercial.’

The UK will benefit from DB’s expertise, Holland says, as best practice from its German operations are built into future franchise bids. Based on what’s happened in Germany, does Holland think that the UK made a mistake to get rid of British Rail? If we’d still got BR, would we be running parts of Germany’s railway?

‘Absolutely not! I think privatisation of the UK rail industry was essential; the efficiencies that have been produced by the rail operating companies since privatisation have been dramatic.’

But what I’m getting at, I persist, is could we have done it differently, given that DB still exists as an entity and BR was broken up? When telecoms were privatised, British Telecom continued to exist and is still a very successful company. But a completely different strategy was used with the railways. Other countries still have what was once the state national railway operator running some of its trains, whether it’s still a state operator or has been privatised to some extent. When BR went, did we lose expertise?

‘It’s easy to say that with hindsight, isn’t it? But at the time, we couldn’t really comprehend a market going forward that would have state operators competing in other countries. We had British Rail, which was perceived as being top heavy, very inefficient and it needed sorting out and I think, to a degree, it has been sorted out. I think we’ve got a better railway industry than we had in the 1990s. We’re good at kicking ourselves, but the UK railway industry is a fantastic success by any stretch of the imagination.’

Arriva has a good relationship with Network Rail, says Holland, and he’s happy to work with the infrastructure owner to get industry costs down. But, like other transport groups, he believes that the costs that can be cut are mainly down to Network Rail, because franchises are so prescriptive that Tocs have little wiggle room to cut their costs. He’s also enthusiastic about Network Rail’s devolution. ‘Wales is now a separate Network Rail route. We’ve been calling for this for the last four or five years.’

But he stops short of favouring vertical integration. While acknowledging that it should be explored, he prefers to concentrate on running trains.

‘I personally believe that a specialist provider like Network Rail should provide infrastructure. DB in Germany believe it should all be part of the one set up. So there’s a debate about what is the best thing to do in different markets. But if the government offer franchises that include vertical integration, we will bid for them.’

DB attracted criticism for folding Wrexham & Shropshire Railway, even though it had proved impossible to make the open access service profitable. But Holland is far from being anti-open access. In fact Arriva is putting together plans for a network of open access routes on the West Coast Main Line through its subsidiary Alliance. It just needs to convince the ORR that the new routes will attract genuinely new revenue and not just take passengers away from franchised operators.

In fact, he has a rather radical suggestion that would end the problems that the DfT has had with the East Coast franchise, where two successive operators have had to pull out, leading to the current state-owned operation on that line.

‘I think that, in time, we will move away from a franchise system on the obviously commercial corridors, which are the West and East Coast in particular. It might take a long time, but I think it will happen. There is no need for franchises on those routes. They cover their costs and they’re profitable, but obviously at the moment the DfT values the premium payments that come from those franchises, so it’s difficult until you do it to show that the actual overall benefit of more investment is there for the taxpayer, as well as the passenger and the company that’s putting the investment in.’

He believes that using an open access format will introduce more commercial risk into the process, providing a better deal for customers. ‘At the moment, franchises are very risky. The government seeks to reduce their risk, understandably. But by transferring it all to the current franchise system, it ends up not being a great deal for the taxpayer because prices will rise.

‘You do need to let franchises where services are socially or politically desired – some of the regional operations are providing a good service. Wales is a great example where subsidy accounts for two thirds of the revenue, so there are good reasons for doing that.’

There are too many things going on at Arriva’s individual franchises to list them all here. One obvious highlight is Chiltern’s new Mainline service (see page 7) which has just launched, reducing journey times from London to Birmingham.

‘It’s a massive project, which should have been launched in May, but it would have been unprofessional to do it then, bearing in mind the problems we’d had. The service will be significantly better than it has been in the past; it will be faster, more trains, more capacity and, we hope, further passenger growth to pay for it all.’

Chiltern is unusual, in that the length of its 20-year franchise has meant it has been able to invest in new infrastructure, which short franchises never could, because they wouldn’t get sufficient return on their cash injection before their contract ran out.

Should more franchises take the same format as Chiltern?

‘We will bid for whatever model comes up. I’m not sure that model would be successful everywhere, because there were some special circumstances on what was a fairly run-down line. It has to be driven by massive revenue growth.’

Arriva Trains Wales is a jointly managed franchise, with both the DfT and the Welsh government overseeing it. Holland is keen for the Welsh government to take it over entirely, as Transport Scotland has done north of the border.

‘We’re proud of what we’ve achieved there. We’ve grown passenger numbers by 40 per cent since the franchise started and we’ve got a good relationship with the Welsh assembly where, because there’s only effectively one Toc and one client body, we can talk, we can change things. We can increase services, we can reduce them. It’s a very flexible scenario.’

Tyne and Wear and London Overground are both concessions, rather than franchises. Holland says they are both ‘superb’ when it comes to operations and reliability, but in business terms, franchises offer Arriva more opportunities than concessions, which are even more tightly specified.

‘As a business, we prefer net cost contracts because it gives us a chance to generate additional revenue, whereas concessions don’t. But we’ll work to any client body specification.’

He certainly seems to have a lot on his plate. At 61, is Holland thinking of retiring anytime soon?

‘I will carry on as long as I am enjoying it,’ he says. ‘But the time will come to hand over to someone else.’

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Pic credit: Justin GraingeBob Holland
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