On the day when commuters returned to work after the New Year holiday and rail fares increased by an average 2.7% and Northern were still cancelling services, confusion reigned over the future of the Northern franchise. This morning Transport Minister Grant Shapps gave an interview to the BBC which was widely interpreted by the media as him announcing he was stripping operator Arriva of the franchise. The BBC later backtracked on this and ITV secured a quote from the Dept of Transport saying that no decision had been made.
So what is happening? Will Arriva lose the franchise?
Shapps has made it fairly clear this is his intention and an operator of last resort is being put into place. But it’s not going to happen overnight. Politically, it would be a popular move as Northern have come in for a huge amount of criticism over the past year. Some of it justified, some not. Elected Mayors, User groups and the passengers themselves have all given the company a good kicking. The fact the franchise’s MD has a very low profile compared to previous bosses like Heidi Mottram and Alex Hynes hasn’t helped either. They’re seen by many (including their staff) as a faceless company. But no franchise has ever been terminated purely on the grounds of poor performance…
What isn’t clear to seasoned observers is how running Northern from a desk at the DfT in Westminster is meant to improve anything. After all, the franchise was specified by the DfT in the first place! Let’s look at some of the problems Northern are facing and where responsibility lies.
Infrastructure.
The company’s suffered from the late completion (or shelving entirely) of infrastructure enhancements like electrification that were meant to help it deliver new timetables and new services. These are the results of failings by Network Rail which is already in public control and funded by Government, plus political delays in decision-making on future enhancements like the Trans-Pennine route upgrade (which was ‘paused’ by then Transport Minister Chris Grayling) and the Manchester Oxford Rd corridor.
Trains.
Problems with the late delivery of new and refurbished trains such as the CAF built Class 331s and 195s, as well as the rebuilt Class 769 bi-mode trains have had a big impact, as have the inevitable teething problems with new fleets. None of these are Northern’s fault, but they’ve meant that the company has suffered more cancellations and-short-formed trains. It’s also going to be keeping over 45 old Pacer trains running until May (possibly August) 2020 when they should all have gone by the end of last year. This is manna from heaven for the critics, but what else can they do? Leave themselves short of trains and cancel more services? They’re caught between a rock and a hard place until all the new trains are in service (over a year late).
Staffing.
The new trains being late has had an impact on staff training and availability, which hasn’t helped service levels or delivery of the new timetables. There’s also the small matter of finding paths to run these trains in to allow mileage accumulation and time for staff to familiarise themselves with their workings. The difficulty finding paths has been exacerbated by both LNER and Trans-Pennine also introducing new fleets, leaving capacity at a premium. Sweating the Northern fleet by running complex diagrams and relying on staff working rest days hasn’t helped either. Nor have the problems at Trans-Pennine Express. Their timetabling problems have an impact on Northern services at pinch points like Leeds and Manchester.
Here’s an illustration of today’s performance for Northern and TPE, taken from the Trains.im website. Timed at 19.50.
How will stripping Arriva of the franchise resolve these issues? It won’t.
What will happen to the franchise in the long term? There’s a lot of rumours flying around that the franchise will be split into East and West, as it was before two areas were merged to form the first Northern franchise in 2004.
If the Conservatives wanted to play clever, they might even decide to hand these franchises over to local control. Either directly to transport for the North, or (if they’re feeling really devious) they could give Manchester’s elected Mayor, Andy Burnham, a level of control. He’s a long-standing critic of Northern and as a Labour Party member he’s pushed for rail renationalisation. The expression ‘be careful what you wish for’ springs to mind here as the buck would (potentially) then stop with him. Only he’s no control over the root causes of Northern’s problems either!
Whatever is decided in the corridors of power, the franchises problems will continue until the infrastructure and capacity is sorted out. The situation with staff and new trains will ease when the new fleets are fully introduced and trains and staff are bedded in which will mean punctuality will improve but it won’t cure bottlenecks around Manchester or Leeds. If the Government is serious about investing in the North (and keeping the Labour constituencies that turned Tory at the last election) it’s going to have to address these issues by investing in HS2 and Northern Powerhouse Rail. But what does it do in the short-term as neither of these projects will be delivered for two general elections? A quick fix could be to devolve power and money to the North and say, ‘right, get on with it’…
Meanwhile, there’s looking like there’s going to be rail congestion at the DfT as a number of franchises are looking rocky. TPE seemed Teflon-coated as Northern got all the flack, but now they’re starting to feel the heat too and there’s no sign of a recovery plan. SouthWestern Railway is under pressure too, both financially and through strike action. There’s also the unresolved SouthEastern franchise. And what of the William’s review?
It’s not as if there’s a queue of people waiting to bid for franchises. Let’s face it, despite what some on the left claim, they’re hardly a licence to print money more like a licence to lose it – as this informative tweet from my RAIL colleague Phil Haigh demonstrates! Abellio aren’t having a happy time with a few of their franchises, including Scotrail.
So, not only can you lose your shirt, there’s also the reputational damage. Is it any wonder both Virgin and Stagecoach have now left the field? As a source at Stagecoach told me, the cost of recent unsuccessful bids wiped out the profits from their bus operations. When bidding is that expensive (£5m plus a pop) and the chances of winning so uncertain, why bother?
Paul Bigland 
The armchair campaigners were out in force in the wake of the media coverage, inflating the age of Northern’s rolling stock to “over 50 years old” in some comments online. You can bet that one will stick.
I’m assuming that current franchise operators are unable to make the level of profit assumed in the rate of return calculations used by ORR in setting the regulated fares (that also assumes that ORR use a similar mechanism for setting a ‘reasonable rate of return’ as we used to in Ofwat price-setting). One of my former bosses used to mutter darkly that “any half-decent REAL private sector company would give their corporate right arm for a guaranteed income stream”, so something doesn’t add up somewhere if the franchise companies can’t make a profit – or is it that they can’t make ENOUGH profit?
Reading your thoughts, it almost seems as though the likeliest outcome will be re-nationalisation by stealth as various franchises fall to the Operator of Last Resort. Which would be a dilemma for the Tories: let the OLR succeed and undermine the case for privatisation, or let it fail and face the wrath of the New Red North…
Interesting piece Paul, but you seriously underestimate cost of bidding. The system is broken and it needs something better…not nationalisation! A mutual Northern that can tickle in external investment, with staff and passenger involvement?