The government's latest restructuring proposals came as little surprise to the companies providing passenger services on Britain's privatised railway, who hope that the result will be an industry fit for the next 20 years. Robert Preston spoke to ATOC Chairman Keith Ludeman* about the white paper and its implications

Keith Ludeman is Chairman of the Association of Train Operating Companies, which represents Britain's 24 passenger TOCs and manages joint activities including revenue allocation, railcard marketing and the National Rail Enquiries Service. He is also Chief Executive, Rail, at UK transport operator The Go-Ahead Group, which through its GOVIA joint venture with Keolis of France runs the Southern and Thameslink franchises. The Rail business now accounts for over 50% of annual turnover at Go-Ahead, where Ludeman was appointed to the board as an Executive Director on September 3 2004.

THE CONTENTS of the white paper The Future of Rail, published by Transport Secretary Alistair Darling on July 15 (RG 8.04 p447), came as 'no great surprise' to Keith Ludeman. In one sense this reflects the 'very fair' and open consultation process that included four industry seminars across the country, but also the fact that many proposals build on work that was already in progress before the white paper was published.

As it seeks to cut the cost of the railway to the taxpayer while improving operational performance, the government wants a new structure for the industry under which train operating companies (TOCs) and infrastructure company Network Rail 'will be incentivised to work more closely together at the front line'. Ludeman thinks that this commitment to foster a stronger working relationship is 'the most important thing to come out of the white paper', noting that 'when we work meaningfully together, the railway works better'.

Before Darling announced his review, the TOC community had decided that 'our future was best served by a close working relationship with Network Rail', says Ludeman. Joint boards have been formed to tackle performance issues at local level, and Network Rail is now required to make contractually-binding commitments to reduce infrastructure-related delays to train services under Part L of the Network Code introduced by former Rail Regulator Tom Winsor in May this year. Should Network Rail fail to meet the targets set by these local output commitments, it would be liable to pay compensation and ultimately face enforcement action from the Office of Rail Regulation.

The white paper makes favourable mention of the Integrated Control Centres bringing together Network Rail and TOC staff, and says that the new industry structure 'will strengthen and build upon these changes'. ICCs have now been established for all three London commuter TOCs south of the Thames, including Southern, where a single person has responsibility for all aspects of service recovery. The strategy for creating more ICCs is already being developed, Ludeman reports, and in all there is 'plenty going on' to bring Network Rail and the TOCs closer.

Performance challenge

The ultimate aim of such co-operation is a more punctual and reliable train service, and The Future of Rail proposes that Network Rail should become publicly accountable for performance. The company's own management incentive plan already includes the national Public Performance Measure as one of the three targets that must be met to earn bonuses; the PPM expresses the percentage of trains arriving at their planned destinations within 5min of the scheduled time, or within 10min for inter-city operators.

With the overall performance of the network likely to be specified by the 'new and binding arrangement' that will be put in place between the government and Network Rail, Ludeman expects that the TOCs will focus even more closely on those causes of train delays within their immediate control, such as train crew availability and station dwell times. But as the company has at present only a national PPM target, he notes that at TOC level Network Rail is 'not as fussed about cancellations as we are'. He gives the example of an ICC controller deciding that a late-running service should omit some station stops in order to arrive at its final destination on time. Under one franchise agreement, partial cancellation of a service in this manner would incur a 20min delay penalty compared with a 40min penalty for entirely cancelling a service.

Ludeman suggests that Network Rail should also be set an availability target, and 'both of us will work together to deliver it'. There has been concern that prolonged route closures for engineering work are becoming a more frequent occurrence, and to ensure that the infrastructure company does not lose sight of the end user Ludeman would like to see a target for growing passenger traffic set for Network Rail executives as 'a personal incentive'. He notes with some pride that Britain has 'Europe's fastest-growing railway', with total passenger-journeys up from 976million in 2002-03 to 1014million in 2003-04 and growth continuing at a rate of 4% this year.

Cost focus

The Chairman of ATOC believes that aligning the objectives of Network Rail and the train operators 'will help significantly in improving performance and driving costs down'. There is 'no doubt that the railway is very expensive', and Ludeman is well aware that it has to provide value for money for the taxpayer. Having brought all infrastructure maintenance in-house, the infrastructure operator is looking to reduce its operations and maintenance costs by 30% over the next five years (RG 6.04 p350). 'I fully anticipate Network Rail will achieve this target', says Ludeman.

As it seeks to increase control over the railway industry by abolishing the Strategic Rail Authority and transferring its franchising duties to the Department for Transport, the government will be looking to reduce the amount of subsidy it pays to the TOCs. Ludeman is clear that the cost of a franchise to the taxpayer is determined by 'what the government seeks to buy'. Franchising policy at SRA has moved towards tighter definition of the timetable to be operated, with the result that the cost of providing the train service is 'totally at the government's discretion' and is set by 'what they put in the ITTs'.

As of late September, Invitations to Tender were still awaited by the shortlisted bidders for the Integrated Kent Franchise, which include the London South Eastern Railway partnership of Go-Ahead and Keolis. In reducing existing service levels at some less well-used stations, SRA's draft IKF timetable provoked a fierce local reaction, while the aspiration to operate commuter services over the Channel Tunnel Rail Link is likely to come with a hefty price tag if specialised high speed rolling stock is to be procured. Ludeman notes that such trains would be 'relatively expensive', while the prospects for making significant economies on the conventional IKF network (currently operated by South Eastern Trains) are 'not particularly good' as it must be adequately resourced to handle heavy commuter traffic during the peaks.

Ludeman suggests that the cost of franchising could be brought down through 'simpler' procurement requiring 'less staffing and measurement'. He cites the example of Greater Anglia, the first franchise to be let under SRA's new model contract, where 30 key performance indicators have been set to measure rolling stock quality and 227 for stations. The resources required on both sides of the contract to monitor compliance with these and other targets do not represent best value, he believes.

Around 50% of TOC costs are fixed, mainly comprising the track access charges paid to Network Rail and rolling stock leasing charges paid to the ROSCOs who own the trains. 'We are thinking about our position on the future of leasing', says Ludeman. ATOC will be making further submissions to the government as it develops a long-term strategy for rolling stock leasing, which currently costs the TOCs over £1bn a year and where the maintenance and financing markets established at privatisation 'are not working in the way they were expected to' according to The Future of Rail.

Ludeman highlights maintenance as a concern, noting that TOCs have been unable to negotiate 'dry' leases which would see them assume responsibility for heavy maintenance. 'We would like some sort of performance commitment', he says, particularly for the trains inherited from British Rail as they come up for major overhaul and refurbishment. While targets have been set for the performance of its new Class 377 fleet under a 20-year agreement with Bombardier, Southern was unable to secure a similar regime for its Class 455 EMUs that are now being refurbished.

Who leads on enhancements?

Reducing the total number of franchises from the present 24 might offer some scope for economies of scale, but as the representative of the passenger industry, ATOC supports the largest number possible. However, Ludeman recognises that the cause of closer co-operation with Network Rail might be furthered by bringing this figure down to 18, which is the number of Area General Managers at Network Rail following a major reorganisation programme completed in May this year. The relationship between the TOC MD and the corresponding AGM 'works well', he says.

His own working relationship with Network Rail may be a good one, 'but you need an architecture there'. One component of this architecture he feels is missing from the The Future of Rail is how to take forward projects to enhance the network, given that SRA is to be abolished and that Network Rail has not been funded for new projects in its regulatory settlement for Control Period 3 from 2004-05 to 2008-09. Ludeman acknowledges that the cost escalation experienced by major projects such as West Coast Route Modernisation has damaged the credibility of the railway, and that 'the government will need to know that the industry can deliver to time and to budget'.

'My firm belief is that Network Rail should do the enhancements', says Ludeman, who can see 'no reason' why the project board structure established under SRA leadership should not continue. But alongside what can at times be a rather artificial regulatory distinction between spending on renewals and enhancements, there remains the thorny issue of risk. Attempts to create special purpose vehicles bringing together TOCs and Railtrack to deliver upgrades failed because 'we could not agree the commercial allocation of risk between the parties', he says. If the structure proposed by The Future of Rail is executed as planned, Ludeman thinks that it 'could well be good for the next 20 years'.

The six key changes proposed by The Future of Rail

  • The government will take charge of setting the strategy for the railways.
  • Network Rail will be given clear responsibility for operating the network and for its performance.
  • Track and train companies will work more closely together.
  • There will be an increased role for the Scottish Executive, the Welsh Assembly Government and the London Mayor, and more local decision-making in England.
  • The Office of Rail Regulation will cover safety, performance and cost.
  • A better deal for freight will enable the industry and its customers to invest for the long-term.

  • CAPTION: SRA's draft Route Utilisation Strategy for the Brighton Main Line, published on September 9, suggests that capacity can be increased by closer integration of GatwickExpress and Southern services, with the present dedicated London - Gatwick Airport services extended to serve a range of coastal destinations
  • CAPTION: With Network Rail expected to take greater responsibility for timetable planning, train operators are concerned that pressure to reduce maintenance costs may result in more line closures for engineering work
  • CAPTION: Current rolling stock leasing arrangements are costing the train operators over £1bn a year in rental charges; The Future of Rail questions whether this provides value for money. Southern is leasing 42 Bombardier Turbostar cars from Porterbrook to work its non-electrified Oxted - Uckfield and Hastings - Ashford routes
  • CAPTION: One of the few privately-funded infrastructure enhancements to be backed by a train operator is the £122m upgrade of Southern's depots to service its new generation of EMUs, being funded through a special purpose vehicle set up as part of SRA's aborted plan to award GOVIA a 20-year franchise to run the network
  • CAPTION: New stations for Midland Main Line and Thameslink (foreground) are taking shape as part of the construction of the new Channel Tunnel Rail Link terminal at St Pancras. With SRA to be abolished and Network Rail only responsible for maintenance and renewals, ATOC is concerned about the sponsorship of major projects and enhancement schemes

Hands off our trains

The Future of Rail proposes to hand more control over passenger services to the recently-established governments in Scotland and Wales as well as the Passenger Transport Executives in England, and this is unlikely to drastically alter the way the TOCs concerned go about their business. Keith Ludeman does not think the same can be said for the proposal to grant similar powers to the Mayor of London, and he sees an increased role for Transport for London in specifying fares and service levels on the heavy rail network as 'fraught with problems'.

He points out that 50% of journeys into the capital's termini start outside the Greater London area, and that TfL's aspiration for metro-style frequencies on inner-suburban routes could conflict with wider capacity and performance objectives.

Ludeman says that aligning point-to-point rail fares with TfL's zonal structure could cause 'a significant revenue shortfall', and he would resist any attempt by the Mayor's transport authority to take revenue risk, retaining fares revenue while paying the TOC for operating the service.

Revenue risk, says Ludeman. 'is one of the few upsides in a contract', noting that 'revenue bids can win or lose a franchise'. By retaining revenue risk TOCs are incentivised to improve revenue protection and develop off-peak business, as the profits from the income generated in this way are theirs to keep.

Ludeman says the TOCs are happy to work with TfL as at present, with the authority involved in joint marketing initiatives and funding station refurbishment projects and some additional services. But his message is clear: 'leave us to run the heavy rail network'.

  • CAPTION: Transport for London is keen to exercise greater control over the capital's inner-suburban services; Thameslink trains connect with London Underground's Circle Line at Farringdon

Travailler ensemble sur la ligne de front

Les dernières propositions de restructuration du gouvernement exposées dans son livre blanc 'The Future of Rail' n'ont que peu surpris les compagnies voyageurs du réseau britannique privatisé, qui espèrent que le résultat sera une activité en pleine forme pour les 20 prochaines années. Robert Preston s'est entretenu avec Keith Ludeman, président de l'Association of Train Operating Companies regroupant les opérateurs voyageurs, a propos du récent livre blanc et de ses implications. L'un des principaux objectifs est de développer de solides relations de travail entre les opérateurs et Network Rail visant à augmenter les résultats et à diminuer les coûts

Zusammenarbeit an der Front

Die neuesten Restrukturierungsvorschläge im Weissbuch der Regierung 'The Future of Rail' enthalten für die Unternehmungen, welche auf dem privatisierten britischen Bahnnetz Personenverkehrsleistungen erbringen und hoffen, dass die Resultate zu einer Industrie führen, welche für die nächsten 20 Jahre fit ist, kaum Überraschungen. Robert Preston sprach mit Keith Ludeman, dem Präsidenten der Vereinigung der Betreibergesellschaften (Association of Train Operating Companies) über das kürzlich erschienene Weissbuch und dessen Folgen. Ein wesentlicher Punkt ist die Entwicklung einer starken Beziehung zwischen den Betreibern und Network Rail, mit dem Ziel, die Leistungen zu verbessern und die Kosten zu senken

Trabajando juntos en primera línea

Las últimas propuestas de reestructuración del libro blanco del gobierno 'The Future of Rail' no han sorprendido mucho a las compañías que ofrecen servicios de pasajeros en los ferrocarriles privatizados de Gran Bretaña, que esperan que el resultado sea el apropiado para la industria a lo largo de los próximos 20 años. Robert Preston ha hablado con Keith Ludeman, Presidente de la Association of Train Operating Companies, acerca del reciente libro blanco y sus implicaciones. Uno de los objetivos principales es desarrollar fuertes relaciones de trabajo entre los operadores y Network Rail en un intento de incrementar el rendimiento y reducir los costes