Quarterly numbers show underlying strength of the rail product despite current traumas, says Chris Cheek…

There has been much talk of late about the prospects for UK passenger rail. Since the turn of the year we’ve had National Express Group (NEG) quitting the market altogether, selling its last remaining franchise to the Italian state railway operator, Trenitalia. This was accompanied by the controversial ‘I wouldn’t put my own money into it’ statement from NEG’s CEO Dean Finch.

As I write, there are persistent rumours about the future of the InterCity East Coast franchise. The word is that the curse of the East Coast has worked its magic once again, and the franchise-winning business case is busy going wrong. This is a big worry in Stagecoach’s Perth HQ, especially in the light of the group’s loss of the South Western contract after more than 20 years and therefore of the profit cushion which that provided.

Meanwhile, FirstGroup’s victory on the Waterloo routes was overshadowed by the fact that it was in joint venture with Hong Kong-based MTR Corporation. What seemed to matter to the media about this, apparently, was not that MTR happens to run one of the most admired urban railways in the world, or that it made a great success of its joint venture with Deutsche Bahn on the London Overground franchise, but that it was foreign.

As so often with the media, we had the classic ‘have it both ways’ stories – on the one hand British companies were not investing in the railways any more because growth was slowing down and there was insufficient profit; on the other hand, all these foreigners were coming in and taking all this money out of the pockets of the poor British taxpayer.

Both cannot be true: the railways cannot both be insufficiently profitable and lining the pockets of wicked foreigners at one and the same time. More post-Brexit xenophobia, possibly – or, more likely, the usual ‘any story to knock the railways’ syndrome that affects the British media – with a little help from Mick Cash at RMT who can always be relied upon for a suitable anti-management quote.

So what is happening on the ground?

There are some clues in the latest quarterly statistics on patronage and revenue from the Office of Rail and Road (ORR) – but as always it is important to get behind the headlines.

These showed that there was no growth in the number of passenger journeys during the fourth quarter of 2016, ending on 31 December: 442 million passenger journeys were made during the period, unchanged from the previous year. The journeys covered 16.5 billion passenger kilometres, 1.4 per cent ahead, and cost a total of £2,384 million in fares, 1.2 per cent more than in 2015.  Over a rolling year, the national totals for the twelve months ended 31 December 2016 show the number of passenger journeys rising by 1.9 per cent to 1,732 million. Passenger kilometres travelled rose by 2.3 per cent to 65.0 billion, while passenger revenue was 2.2 per cent higher at £9,356 million.

The lack of growth was unsurprising, in the light of the ongoing dispute at Govia Thameslink Railway (GTR), which reached its nadir during the quarter with the ASLEF strikes bringing the Southern network pretty much to a complete halt. GTR was not alone in seeing a fall, either: there was a hefty fall at South West Trains as well – this for the second quarter in a row. This time, the fall was 2.4 million journeys (3.9 per cent). There were small falls as well on routes out of Liverpool Street (both Greater Anglia and TfL Rail), but still strong growth elsewhere. Chiltern led the way with a 7 per cent increase, followed by c2c on 5.9 per cent.

In the rest of the country, InterCity routes saw passenger journeys rise by 2.9 per cent. Virgin West Coast led the growth with 3.6 per cent, followed by its colleagues on the East Coast route on 3 per cent. Cross Country patronage was 2.9 per cent ahead. Other long distance routes are operated by East Midlands Trains, which saw overall growth 2.1 per cent. Great Western, also very much a mixed franchise, saw an overall fall of 0.5 per cent.

In the regional sector, demand was 5.4 per cent up on the previous year,  with the growth headed by Northern on 18.9 per cent, aided by some remapping between the new Northern and TransPennine agreements. Merseyrail saw growth of 4.3 per cent in the quarter and Arriva Trains Wales 2.1 per cent. However, ScotRail and TransPennine saw small falls.

Exciting times

Thus, the picture is by no means universally gloomy, and it is too soon to call the end of the long bull market in rail patronage. The compound annual growth rates (CAGR) still look healthy and the trend seems to be rising. The graph shown illustrates the overall national trend for passenger journeys, looking at five-year CAGR rates since 1999.

It is an interesting chart – showing clearly the effect of the post-Hatfield trauma, the recession and the slowdown since 2013. Recalling these traumas perhaps illustrates the underlying strength of the market: Hatfield, the biggest recession since the War and now some of the most disruptive infrastructure works for more than a decade and the worst industrial relations problems since the early 1980’s. Despite all these, patronage is still growing and the trend line indicates that it may even still be accelerating.

However, the recent sharp slowdown in growth could indicate that there are other forces at work, and the recent sudden fall in demand in London for all modes of public transport could be a straw in the wind. As so many other industries have found in recent years, there is no escape from massive social and behavioural change.

The next two years or so should be fascinating. A whole raft of improvement projects is due for completion, all of which should have an enormously positive effect on the numbers – Thameslink, Crossrail, InterCity Express, Great Western electrification, North West electrification are all big projects currently underway, while capacity expansion at Northern, ScotRail and TransPennine should all start to come on stream as well.

These are exciting times indeed for the rail industry: let us hope that the industry is able to take advantage of them.