The Railway Needs More Money. Here’s how It Can Get It
The railway needs to cut its costs.
However, as Alex Hynes never tires of reminding us, this is net costs - unlike other public services, the railway has an income line. An extra pound of revenue is the same as a pound of savings.
Given that the DfT has accepted a 5% cut in operating budget, we can either wait for the economy to rescue us (pretty implausible right now) or try to find some of it ourselves.
Luckily there are untapped opportunities that don’t involve headline fare increases to make more money.
Most of them involve understanding how customers really behave, and how we can price and structure services to reflect that.
Before I come onto them, however, I want to do a quick Dictionary Corner slot. I’m going to use the phrase “price discrimination”. Here’s what it means, and an example from another sector:
Price discrimination is the art of charging different customers different prices for the same basic product, depending on how much they’re willing to pay. It’s not a trick. It’s how most industries work, and it’s one of the few tools rail has to increase revenue without simply putting up fares across the board.
A good example is a pre-theatre meal at a restaurant. The same food at the same table is sold at a lower price to people happy to eat early. The restaurant fills seats that would otherwise go empty, while charging full price later when demand is higher. That’s price discrimination. The goal is always to charge people willing to pay more the higher price (people whose meal is the main purpose of their evening) while still capturing people who are only willing to pay less (people whose main purpose of their evening is to go to the theatre).
With that in mind, let’s look at what we can do in rail.
ReFocus Advance Fares
Advance fares were invented to price discriminate. They allow business travellers, who want flexibility as their meeting might overrun, to keep paying more, while attracting leisure travellers, who don’t mind planning ahead and committing.
Advance fares have since crept onto leisure-only routes such as London to Worthing or Leeds to Hebden Bridge. The people using these services aren’t travelling for business, which makes it hard to see the price discrimination opportunity. People going for leisure are in control of their own time and can plan. That’s why they’re a market for Advance fares on business routes. Putting Advance fares onto these routes is simply giving some people a discount as you’re asking them to trade away something they don’t value.
The same applies on commuter routes. Take a suburban train into Manchester during the morning peak. The commuter has to travel at that time. If you give them a discount, they’ll take it, but you haven’t protected higher yields from anyone else. We’re offering discounts without getting anything in return.
Eurostar “Snap” Fares
There is a price discrimination opportunity in the leisure market, but it comes from doing the opposite of Advance. Advance tries to offer a discount in return for giving up flexibility. But leisure travellers plan anyway, so the discount is wasted.
But you can turn the fact that leisure travellers might be going to a specific event (a party, a wedding, a show) to your advantage.
Eurostar’s “Snap fares” took a different approach: you book a ticket knowing the broad window (say, morning out, evening back) but you don’t find out the actual train times until the day before. That creates a genuine choice. Some people will pay full fare for the certainty that they’re at Auntie Margaret’s birthday at 11 sharp. Others will take the risk of arriving too early or missing a bit, in return for a discount.
That’s price discrimination working as it should: people willing to pay for certainty can do so, while people who aren’t have the option of trading it away for a discount.
Fear of Crowding - Infrequent Travellers
One of the big issues with railfolk (I am was one too, remember), which is that we misunderstand the things ordinary people find difficult about train travel.
Almost all of the most stressful experiences to do with train travel occur before you get on the train.
They include buying a ticket (which is stressful because you might buy the wrong one and be fined), getting to the station (because you might miss your train) and boarding the train (which is stressful because you might not get a seat).
Railfolk don’t buy tickets and tend to have so much inherent knowledge that they forget most people don’t.
A member of the Railway Family (as we like to call ourselves) making a journey from Blackfriars to Brighton on a Monday morning won’t be stressed about getting a seat, because they know that there’s no risk. But an ordinary person doesn’t know that Thameslink has 12 car fixed formation sets, so they feel stressed.
We know from research (and from it being obvious) that the fear of not getting a seat is one of the biggest barriers to rail travel use.
You can use a car, in which you own the seat - or you can travel with us, and potentially have to stand the whole way.
Try to shed your railway knowledge like a snake sheds its skin. Knowing nothing about crowding patterns and train formations, imagine how stressful every journey would be.
Fear of Crowding - Commuters
Regardless of what it’s actually like, this is what many passengers fear.
Fear of not getting a seat is just as big an issue for commuters; though it’s better understood by railfolk as it’s more obviously valid.
The problem is that many passengers now have a choice whether to commute, so it actually matters. A “remote first” job at NatWest, for example, only requires workers to visit the office two days per month. But they can choose to go far more frequently.
How much more willing would you be to go into the office for an extra day or two if it didn’t risk standing for an hour in each direction. If you could guarantee a seat, it might actually be… quite… nice?
But without the guarantee, you won’t risk it.
Reservations Everywhere
Given the costs of reservations have collapsed in recent decades, you’d expect reservations to be more widely available.
At the start of my career, reservations had to be manually put out by hand as little slips of seatback paper. Now, they can be fulfilled entirely digitally at more-or-less zero marginal cost. Yet our reaction has been to reduce the number of trains on which reservations are available. I have a sneaking feeling that we’ve done this because it’s operationally easier, not because our customers have told us that they hate being able to guarantee a seat.
The operational point, however, is very valid: there are all kinds of issues that need to be considered around the behavioural science of reservations (to make sure people act on them) and the relationship with enforcement (which can only ever be minimal).
So my suggestion here is to be our future friend and start the research project NOW for what universal reservations could look like.
Before I do this, let me just deal with a few of the comments I’m going to get back:
1) I’m NOT (repeat, not, not, NOT!) saying compulsory reservations. I’m saying that customers would like to be able to guarantee a seat on any train that they travel on, and we should seek to make this possible. That’s not the same as saying that we should become Spain.
2) I’m not saying that we should do this with the current reservations system and with all the existing problems unsolved. I’m saying we should solve these problems.
There will be some people who will struggle to compute what I’m saying, because the convention that reservations are for intercity journeys only is so well-established that the idea of universal reservations will seem bizarre. But there is no logic to sticking to the intercity-only rule. It only exists because these were the trains with sufficient staff to set out the paper labels - a requirement that no longer exists.
From a customer perspective, there are two types of train on which they’d like to guarantee a seat:
1) A train they’re going to be on for a long time (which means more than about 20 minutes)
2) A train that might be crowded
From a customer perspective, that is all trains.
And remember, this doesn’t require special kit on trains or special staffing, as it can all be done by mobile app.
My final plea is not to reject this idea because there are issues with how we’d do it today. I know that - that’s why it needs to be a research project.
But no other sector would not do a research project to fulfil a potentially highly profitable customer demand because they hadn’t yet worked through the operational details.
And this really is potentially highly profitable.
There are 1.7 billion journeys on the network each year. Let’s imagine that we can increase that by 2% by eliminating the fear of not getting a seat (one of the biggest single barriers): that would be worth about £400 million in increased revenue each year. Oh, and let’s assume for sake of argument, that 10% of customers are willing to pay a quid for a guaranteed seat (no idea, making that up, but it’s a good start): that’s another £170 million. So we’re at roughly £5.7 billion additional revenue over 10 years. Worth a research project to fix some operational issues?
More First Class
We probably don’t need to go this far…
There aren’t many things on which I disagreed with the late, great Adrian Shooter, but his abolition of First Class on Chiltern Railways was one of them. The Chilterns is packed with people willing to pay a bit more for a bit more. We should take their money.
Indeed, the gradual retreat of First Class across the UK railway is, I think, a strategic mistake.
In the following paragraph, I will describe the world as it is, not the world that we might like it to be.
The economy since 1980 has been one in which the rich are getting richer and the poorest are not. Inequality has been widening my whole lifetime. The result is that the rich experience almost everything differently.
That’s why the luxury trains market now offers palaces on wheels. Have you been to Victoria Platform 2 recently? The British Pullman has a reception lounge that would put a minor Saudi prince to shame.
Virtually the only thing we ask the rich to do alongside the poorest is share a train carriage (or a bus). It’s a lovely socialist idea but I fear it may not work. Someone used to the good things in life doesn’t want to risk it.
They’ll drive.
We now get to the first of today’s compulsory references to Switzerland, but Switzerland (also a country with a large financial services sector) has first class on virtually every train, even local S-bahn commuter shuttles in the suburbs of Geneva.
It’s one of the ways in which LNER has, I think, read the room better than many other operators: LNER’s really leaned into experience with a full dining offer on many First Class trains.
As our society builds a growing cohort of rich with high standards, the railway needs to be ready to respond. More first class and better first class. (And, under GBR, consistent first class).
We’re currently in a pretty bad place, with such an inconsistent offer that the market for first class has basically given up using rail - but with many TOCs will incurring the cost. This is a superb opportunity for GBR to provide something absolutely consistent across the country, and rebuild a market that’s been allowed to die.
Child Fares to 19
This is another one about being your future friend.
The existing cut-off of child fares dates from when the school leaving age was 16. Full-time education is now compulsory to 18, creating a cost-of-living issue for parents of late teens, incentivising reduced rail use.
The idea is to move the child-fare cut off to 19 to incentivise young people to stick with trains.
16 is an unusual cut-off globally. Many other countries end child fares at 12. The Netherlands has children’s fares to 11 and Young Persons’ fares 12-18. Swiss student fares are cheaper to try to smooth the gap to 30.
Our system is actually bonkers when you think about it. Kids in compulsory full-time education are highly unlikely to increase their income at 16. Yet we double their train fares… literally a year before they’re allowed to get a driving licence! We couldn’t have come up with a better way to encourage a lifetime of car travel had we tried!
This one is tricky as the revenue benefits of this policy will emerge incrementally over the lifetimes of those kids who stick with the railway as a result, whereas the discount for this year’s 17-year-olds will be instant.
Yet there are various intelligent solutions, including different kinds of student passes. The Netherlands has quite a smart system, whereby you can get free travel on weekends or weekdays but not both. That way, the kid is disincentivised to buy a care (as they get plenty free travel when they most need) but also need to buy quite a bit (at the rest of the time).
A bit like reservations everywhere, this one needs thinking about - but it really important that the thinking happens.
Railcards for All
OK, sorry, we’re back on Switzerland again.
One of their most sensible policies is that almost everyone has a half-price card. And I mean almost everyone.
A half-price card gives you 50% off all public transport in Switzerland: trains, buses, ferries. So it’s a no-brainer to get one.
There are two huge advantages:
1) It’s a loyalty product. Once you’ve paid, you want to get value for money
2) Tourists (like me - grrr) end up paying full fare. Swiss fares look very expensive when you travel as a foreigner but the Swiss never pay the fares that we pay.
Railcards in the UK were created to stimulate incremental leisure journeys. It’s one of the weird things about privatisation that a British Rail commercial innovation ended up becoming a regulatory requirement, and thus pickled in aspic (the Network Railcard is the living, breathing ghost of Network SouthEast, abolished in 1994).
By my very rough estimate, c 85% of British people are entitled to a railcard, but it’s a mess. Only single, childless adults in their 30s-50s, outside the South East, without disabilities who never served in the Forces are not entitled to one.
But it’s such a mess, people don’t understand what they can have and what they get for it, so they don’t sign up.
Many European countries have universal loyalty products, such as Germany’s BahnCard or France’s Carte Advantage. The UK railcards are BR’s 1993 range frozen in time. What would today’s look like?
We’re not going to get to the Swiss situation immediately but we can create the loyalty product that the railway needs.
A true loyalty product is one people are willing to pay for. Like a railcard.
Some Smaller Ideas
Awaybreak tickets
These recognised that the train fare is a bigger proportion of a day out than a long holiday. Short-term returns were priced accordingly. We should bring them back. This is pure price discrimination.“This Week’s Day Out” tickets
Empty seats are wasted. We could offer discounted tickets to changing destinations each week - protecting yield from those who need to go somewhere specific, while selling more seats to those happy to go anywhere as a day out. The customer gets low-cost leisure. We fill the train.
The railway won’t close its funding gap through subsidy alone. It needs to earn.
That means thinking harder about pricing, products and what customers value. It means learning from the past - and from countries that do it better. It doesn’t necessarily mean headline fare rises or even large-scale fares reform.
But it means having the courage to challenge our own assumptions, and to have the ambition to research complex questions.
Now’s the perfect time to test some of these ideas. With individual TOCs still existing and many of them (hopefully not all) using brands that will shortly be consigned to history, there couldn’t be a better moment to run some fast, agile experiments and learn the value of some of these concepts.
As GBR grinds into existence, who’s up for it?
Addendum
Can I just say that I love the new railway clock.
It’s been slightly hard to find symbols of positivity around the creation of GBR. The lack of clarity around its purpose and leadership has created a pervading sense in the industry that it’s going to be a giant, innovation-sapping bureaucracy.
But the railway clock is a superb illustration of the best of what GBR can become. It’s beautiful, simple, elegant and it can be a truly unifying force.
I really hope that - as the GBR brand is applied to TOCS - budget can be found to install a new railway clock on every platform. That would be a great symbol of positive change.
