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Regional franchises benefit from an international perspective

01 Feb 2007

Over the past decade, several state-owned railways from mainland Europe have looked at participating in the UK passenger rail franchising market. So far the only successful entrant has been NedRailways, which runs Merseyrail and Northern Rail in partnership with Serco. Chief Executive Anton Valk explains

TWO YEARS AGO, on December 10 2004, a joint venture of Serco and NedRailways took over the operation of the Northern Rail franchise. Formed by merging parts of the previous Regional Railways North East and North West franchises, Northern began its life surrounded by uncertainty, with the Department for Transport's Rail Group commissioning a major review that many commentators feared would lead to retrenchment and service cuts.

In practice, the opposite happened. The review published in March 2006 endorsed Northern's existing strategy, which has seen traffic growing faster than the national average, at more than 10% a year in each of the first two years. NedRailways and Serco are committed to working in partnership with the local communities and Passenger Transport Authorities to continue developing the business, which runs suburban services for five of the six English PTAs as well as inter-urban and rural routes across the region.

In terms of route length served and trains operated, Northern Rail is the UK's largest Train Operating Company. It runs 2 500 trains each weekday, serving 529 stations across the north of England and the East Midlands - covering 20% of Britain's rail network. Northern directly manages 471 of these stations and employs more than 4 500 staff. The franchise runs for six years and nine months, with an option for a two-year extension.

Even before the award of the Northern franchise on October 19 2004, NedRailways and Serco had already gained valuable experience of the UK franchising market. The partners had been selected in 2003 for a 25-year concession to run the electrified Merseyrail network around Liverpool, which uniquely is managed by the local PTA, Merseytravel, rather than DfT Rail.

In 2006 Northern Rail and Merseyrail together carried more than 330 000 passengers per day. This is roughly one-third of the number carried by Netherlands Railways. Total turnover for the two businesses in 2006 was £458m, based on NedRailways' 50% share of each company. With government support levels determined in the franchise agreement to meet Network Rail's track access charges, both franchises have been profitable for the two operators since the start. Operational and financial results at both businesses have exceeded our expectations.

This represents a considerable achievement, which is perhaps even more remarkable when you consider that NedRailways itself has a team of just 35 people, spread across offices and operations in the UK and the Netherlands. And our success comes against the highly entrepreneurial and competitive backdrop of the UK market, which has recently seen the government renegotiating one of its biggest franchises and putting another up for re-tendering after the operator failed to meet its projected revenue targets.

International expansion

As a wholly-owned subsidiary of Netherlands Railways, NedRailways was set up in 2001 to bid for the operation of public transport concessions across Europe. Our business tries to differentiate itself from its competitors by taking a longer-term, strategic view of the markets in which it operates.

NedRailways saw the UK as a natural starting point for its international expansion strategy, given the advanced state of market liberalisation compared to those of its continental neighbour countries. Other markets are also being scrutinised to identify the potential for expansion.

In recent years, we have seen the European market for public transport contracts become increasingly competi-tive. National and local governments are becoming more professional in letting contracts. But at the same time, they are setting more and more detailed specifications which leave little room for product differentiation or innovation.

NedRailways' presence in the UK market for the past six years, first as a bidder and then as an operator, has given us invaluable experience and an understanding of the skills required. This will support our decisions on future expansion, along with our analysis of the opportunities on offer. We are exploring several new markets but will only enter them on a selective basis if we feel the conditions are right.

We are still keen to expand our UK activities, too. NedRailways and Serco are currently one of the final two bidders for the competition to operate the new West Midlands franchise, which is due to begin in November as part of the restructuring of Central Trains.

We are bidding for West Midlands as a joint venture, because there are many synergies with the Northern and Merseyrail businesses. However, NedRailways prequalified in its own right last year for the London Rail concession (p89). We were up against three other bidders with track records in London suburban operations, in a fiercely competitive process, and failed to make the final shortlist.

Working in partnership

The Serco-NedRailways joint venture is seen by some as a perfect blend between contract management and railway operating skills.

So what is different about NedRailways? In a market as competitive as the UK, where technical experience is a given, and competent bidders are all likely to submit similar financial proposals, what can NedRailways offer that makes us stand out?

We believe in a structured approach to the exchange of international best practice. And we bring a genuine commitment to partnership, which respects the social aspects of the services we are providing. Transparency, openness and co-operation with staff, passengers, transport authorities and local stakeholders are defining features of the Dutch approach to business it is part of our culture. We bring these values to the companies we operate. We can be trusted, we take accountability and we deliver on our commitments.

We prefer franchises where the community takes ownership of the railway. Our company places priority on working with local and regional governments to deliver their transport plans.

For NedRailways, the most important criteria in the decision whether to bid is the opportunity for us to add value to a franchise. Fundamentally, we are guests in another country. This shapes the approach that we adopt to building the relationships and reputation that we must have if we are to retain, expand and win new business.

It is also vital to bring something new to the market. Why else would any transport authority consider us as a welcome visitor, or as a force for good in the provision of essential social and economic services?

Exchanging best practice

Unlike many other railway operators, NedRailways has a structured and well-funded programme for sharing international best practice and supporting continuous service improvement. During 2005 we established a 'best-practice centre', which co-ordinates and facilitates the exchange of skills and expertise across Northern Rail, Merseyrail and NS.

The programme embraces regular seminars and visits, secondments and bespoke support tools such as publications and a secure intranet. These are all geared at improving performance and providing enhanced or innovative services for our customers, by bringing together people who can make a difference.

One of the results of this exchange is the 'MtoGo' shop concept, which was rolled out on Merseyrail last summer with a pilot project at Moorfields station in Liverpool. Based on our experience with Wizzl stores at medium-sized stations in the Netherlands, the shop combines retail and ticket sales, enabling us to extend staffing hours at stations in a cost-effective way. If it is successful, we anticipate that MtoGo will be implemented at about a third of Merseyrail's 66 stations.

Our surveys have already found that our customers love the concept: it enhances the quality, appearance and security of the station. Our staff took a while to get used to the idea, but were able to exchange thoughts and experiences with their Dutch colleagues, who could feed back results from the implementation of the concept by NS.

Another example is our approach to security, dealing with anti-social behaviour and reducing offences against our staff. Again based on Dutch experience, staff have been trained in techniques to defuse potentially-significant incidents before they escalate. This led to a decrease in acts of aggression at Merseyrail by 60% in 2005, with a further decline recorded in 2006. This approach is also being implemented at Northern Rail, where additional security guards have been hired and co-operation with the British Transport Police is being improved.

Our attitude and commitment to service is reflected by the staff and management teams at Merseyrail and Northern Rail. It has helped shape their successes and it offers a platform for winning more business to rail.

Making a real difference

The Serco-NedRailways vision for Northern Rail is to provide high-quality train services linking comfortable, accessible stations. It is a challenge to translate this into reality given the relatively short timescale of our franchise - with less than seven years left including the extension period. Nevertheless, Northern Rail is committed to making a real difference. We want to contribute to the economy and communities of northern England, as part of a focus on sustainable regional development.

As with some other UK franchises, our biggest challenge is coping with growth. In the last year Northern Rail recorded an average growth of 10% across the network, and on some routes it reached nearly 30%. Northern Rail services into the major cities - predominantly Manchester, Leeds and Liverpool - have become increasingly busy, particularly during the morning and evening peaks.

Additional rolling stock is needed to cater for this growth, and in December 2006 we were able to introduce six additional DMUs to the fleet deployed in West Yorkshire, thanks to a ground-breaking deal with development agency Yorkshire Forward and Metro, the executive arm of West Yorkshire PTA. This reflects the Serco-NedRailways focus on partnership and co-operation with local stakeholders, and Northern Rail is currently exploring similar opportunities in Merseyside and Greater Manchester.

Station renaissance

Another strong focus for the business is on enhancing station quality, as part of our vision for the regeneration of urban areas and to improve personal security for our customers and staff alike. We are working in partnership with Network Rail, Manchester City Council and Greater Manchester PTE on proposals to transform Manchester Victoria.

We are proud of the transformation already achieved at stations such as Northwich and Burscough Bridge, where partnerships with the local authorities and the North West Development Agency have resulted in vastly-improved facilities.

Building on our vision of sustainability, Serco and NedRailways are piloting a new approach to smaller stations, bringing innovative approaches to create what we call 'eco-stations'. This takes account of both the station's design and what it does. Instead of just being somewhere to wait for a train, we want to see our stations as sustainable, lively community hubs at all times of the day, where you can buy local produce, enjoy a light meal or perhaps hire a bike or an eco-friendly car. The Merseyrail MtoGo pilot at Moorfields is an important test for this philosophy.

We are following with interest Network Rail's proposal to develop a range of standard modular station buildings and facilities for up to 1 500 of its medium-sized stations. In many ways this mirrors what we are already doing at similar stations in the Netherlands.

Community railways

Sustainability is also an issue for our rural stations, albeit with a different dimension to their urban cousins. We are working with 16 Community Rail Partnerships within the Northern Rail region, all promoting local rail services in their communities and delivering small-scale projects, which raise public awareness of the rail network.

We are responsible for two national demonstration projects in the government's Community Rail Strategy - the Penistone Line between Huddersfield and Sheffield and the Middlesbrough - Whitby Esk Valley Line (RG p12.05 p785). We are working closely with our partners to create a new kind of local railway, which meets the needs of its communities and visitors in an efficient and cost-effective way.

No less than 99% of all Northern Rail stations have been adopted' by local people, who act as our eyes and ears. Around 50 stations have been adopted by community groups through formal station partnerships. These groups provide voluntary effort to create superb station gardens, install artwork and maintain community notice boards. In this way they are all contributing to the growth and sustainability of rail in rural areas.

  • CAPTION: NedRailways has used its experience in the Netherlands to test the 'MtoGo' convenience store format at Liverpool Moorfields station. NedRailways hopes the concept could ultimately be rolled out at up to a third of Merseyrail stations
  • CAPTION: Ex-British Rail Class 156 DMUs form the backbone of Northern's fleet, operating both suburban and medium-distance regional services. Built by Metro-Cammell in the late 1980s, the units are now being outshopped in Northern's lilac and blue livery
    Photo: AJ Miles
  • CAPTION: The Merseyrail network is a relatively self-contained operation using third rail electric traction, with trains serving the centre of Liverpool via four underground stations. The local Passenger Transport Authority is pushing to take control of Merseyrail's infrastructure from Network Rail
  • CAPTION: The Northern franchise serves a diverse mixture of urban, suburban and rural communities, but commuter traffic into the major regional centres is a key market for the operator. Typifying just such a service, a Class 142 DMU pauses at Altrincham on the outskirts of Manchester