With the new franchising timetable in place, the rail industry can breathe a sigh of relief. After months of uncertainty, there is now a clear path ahead. But at the same time, there are serious risks that much-needed improvements to the services that passengers receive won’t be delivered, and that the chance to increase competition in the passenger market will be missed.

The most immediate problem is the delay to almost all the franchising tenders. Given the serious mistakes made in the West Coast Main Line tendering process, it’s important that the Department for Transport (DfT) has sufficient resources to manage each competition appropriately, and so a staggered timetable is unfortunately necessary. But the delays to the rail franchise schedule add up to a staggering 22 franchise-years.

It’s clear that the DfT’s preference is for the incumbent operators to continue to run their franchises, and in the case of South Eastern, for an extra four years. This is understandable. The government cannot, through Directly Operated Railways, run all of Britain’s passenger rail services, even if only temporarily. But it puts the incumbents in a strong position to dictate terms and threaten to walk away if these are not met – especially given that most of the new franchises will now begin after the 2015 election. And as a result, we’ll probably see moves to cut staffing levels and increase fares and car parking charges.

London Midland provides a good example of the bind the government now finds itself in. A disastrous failure to provide sufficient staff in the last three months of 2012 – even more unforgivable given the UK’s high levels of unemployment – saw nearly 1,000 trains cancelled and many ticket offices operating with fewer staff or for shorter hours. The operator’s Public Performance Measure, which combines reliability and punctuality data, fell from around 90 per cent to 77 per cent.

London Midland was forced to offer an apology and to provide some compensation to season ticket holders, but several months on, the woes for passengers have not ended, as new staff are still being trained and services continue to be cancelled with alarming frequency. At the time of writing, the operator’s Public Performance Measure remained below 80 per cent. But despite these setbacks, the DfT has agreed a 21-month extension to the franchise, which will now run until June 2017.

The potential of rewards for poor performance is not the only problem arising from the elongated franchise schedule. Innovation and investment in improved services are also at risk. The reason is simple. Most investments do not generate a return immediately, so any rational train operator will be more likely to spend money on service improvements at the start of the franchise, rather than towards the end.

Passengers hoping to see improvements in ticketing services, for example, are likely to be waiting a while yet. Virgin Trains does offer print-at-home and mobile tickets, but only for Advance fares and only when travelling exclusively on Virgin or Cross Country services. That’s fine if you’re travelling from London to Birmingham on a specific train, but if you want some flexibility or if you’re travelling from London to Shrewsbury, these convenient ticket purchasing options are not available. And for rail commuters, it’s anyone’s guess as to when Oyster-style smart ticketing outside of the London travelcard zones will be introduced.

Ultimately, the biggest driver of improvement is not a tightly-specified franchise contract but a level of genuine competition. According to evidence recently compiled by the Centre for Policy Studies (CPS), allowing more than one operator to run passenger services on a particular route can lead to significant benefits.

The CPS report analysed data from the LENNON rail ticket database for the East Coast Main Line, which is served by East Coast (through Directly Operated Railways), together with two open access operators – Grand Central and First Hull Trains. A number of stations on the line, such as York, are served by more than one of these operators, while others, such as Leeds and Edinburgh, are served by East Coast only.

Between 2007 and 2012, the report found that passenger journeys increased by 42 per cent at those stations on the East Coast Main Line which enjoy competition, compared with 27 per cent for those without competition, while average fares increased by only 11 per cent on those stations served by more than one operator, compared to 17 per cent at stations without competition. At the same time, the open access operators are now providing a number of towns with direct services to London, where passengers would previously have had to change trains.

These improvements haven’t gone unnoticed. Grand Central and First Hull Trains ranked first and second in the Autumn 2012 passenger satisfaction survey, scoring 96 per cent and 95 per cent, respectively, overall. And they also came top in the value for money category.

While competition has brought benefits to passengers, it hasn’t led to higher subsidies for the main operator, as some might have feared. The premium paid by East Coast to the DfT has risen from £46 million in 2009-10 to £188 million in 2011-12.

Smaller fare rises, faster passenger growth and fewer subsidies may sound too good to be true, but competition has also benefited the freight sector.

Rail freight has been open access since privatisation, and there are now five registered freight operators. Between 1998-99 and 2008-09, the CPS report found that the freight operating companies reduced their unit costs by 35 per cent, while the passenger operators saw increased costs of 10 per cent. Since privatisation, the number of freight tonne kilometres has risen by 50 per cent, while the number of locomotives has halved and the number of waggons fallen by a third.

Other countries are waking up to the potential of competition. Germany now allows independent operators to run some regional lines, Italy’s NPV competes with the state-owned incumbent on the busy intercity high speed routes, including from Milan to Rome, and LEO Express started open access services in the Czech Republic in December.

After the West Coast debacle, the delays to the franchise schedule were probably unavoidable. But if passengers are to be rewarded for their patience, as sometimes poorly-performing incumbents continue to hold onto key routes, then the DfT should seriously consider allowing more open access operators to run more services to more stations.

Competition could be the one good thing to come out of this whole episode.

Corin Taylor is a senior economic adviser at the Institute of Directors (www.iod.com)