MR IAN YEOWART AND MR MIKE JONES

19 JULY 2006

  Q340  Chairman: You are quite a good example of what can be done within that set up. Mr Jones.

  Mr Jones: What I wanted to say was that our experience of working with the passenger transport executives, I have had two approaches asking them if they could sponsor with Renaissance Trains open access services. The reason for that, I think, is a certain frustration with the ability to influence the timetable design process at the centre and the belief that the open access operator will probably be able to do it with either no subsidy or a lot less subsidy. It just gives me an opportunity to say that we have to run trains where money is made and whilst I do not want to equate open access to low cost airlines you can see many of the principles are quite the same. All our services run with an 80% seat occupancy and we achieve that through various marketing efforts and different methods, different outlets for selling tickets. I do not think any franchised operator could sit down and say that they sell 80% of their seats, even in comparable long distance express services. So it is very much a cultural thing about the market approach.

  Q341  Mrs Ellman: What about vertical integration, how would that affect your businesses?

  Mr Yeowart: I do not believe that vertical integration is an option unless you are going to re-nationalise the entire network and put BR back in place as it was. The problem with vertical integration with franchises is that various franchises operate across a route. Virgin cross-country, for example, go through half a dozen different routes, so who is responsible and why should Virgin not take responsibility? On the East Coast mainline why should only GNER be responsible for the upkeep of the infrastructure when indeed there are five or six operators across the route and franchises are transient—they are here one day and a few years later they might still be here, they might not be here. I think what we have seen certainly as a perspective open access operator is a development over 10 years or so—I have mentioned before—where the railway has slowly started to mature and settle down. Network Rail still has its faults but it is a far better animal than Railtrack was and slowly but surely as the industry settles down and people understand their roles and responsibilities within the industry it is starting to work, and I think the last thing it wants now is another wholesale change where everything is ripped apart and we go back to basics. So, for me, vertical integration means British Rail, otherwise do not do it.

  Q342  Chairman: Do you disagree with that, Mr Jones?

  Mr Jones: What I would say is that I think it should be recognised that the network is probably in the best condition it has ever been since nationalisation and I think Network Rail are go be congratulated for getting the engineering right. Also, operational integration is taking place—at most major centres now integrated traffic control rooms are being built where the staff of the train operating companies and the Network Rail controllers will sit together in one room.

  Q343  Chairman: We understand that, Mr Jones, but do you think vertical integration is good?

  Mr Jones: Could I just continue and finish with the thread of my argument? I think there would have to be arrangements for use by other operators, freight and open access, but in principle I do not necessarily see it as a problem because an independent regulator would have to ensure that the infrastructure was fairly allocated and used by people who did not control it, and I think of the BT telephone service here and the fact that they control the local delivery of services to your house. As I say, I think provided that there is independent regulation there to set fair terms of access to an integrated network then so far as the open access operator is concerned I would not have concerns.

  Chairman: Mr Goodwill on this.

  Q344  Mr Goodwill: On this particular point, we had the point made by Network Rail that train operators are opting for heavier and heavier trains and this is causing the track maintenance costs to spiral. Do you think that actually having a system of vertical integration where the non-franchise holder would pay for access to that network would actually reverse this trend and you would see maybe the costs of running trains on the track being taken into account by the operators?

  Mr Jones: I think that is a very difficult one to answer because it is the freight operators who are running the bigger, heavier trains, and there would have to be some convention for the cost of their access to an integrated network run by, say, First Great Western of GNER.

  Q345  Mr Goodwill: Do you think that if freight operators were paying a cost which took into account the wear and tear on the network that freight would become less prevalent on the railways or not?

  Mr Jones: It is my understanding that the marginal charge that is levied on the freight operators takes account of all their wear and tear.

  Q346  Chairman: Mr Yeowart, do you have a view on that?

  Mr Yeowart: I think the variable charge that is in place now which has developed over time does take account of the type of rolling stock, so the heavier or more wear and tear you are liable to bring to a network the more you pay and I think that that is right. But there is also, as you have rightly pointed out, heavier passenger trains now appearing on the network to do with the air conditioning units, more crash worthiness in trains despite the fact that it can be built with different materials. A diesel multiple unit, for example, carries its own engine in every vehicle, whereas in the past they did not, so you have heavy vehicles at either end. In relation to whether vertical integration would make a difference there is still a cost and I do not think it would make a difference as such. I think it is really to do again with a mature industry and these things are coming out now, 10 years down the line since privatisation, and perhaps in another 10 years people will recognise it and realise it. I am sure it will come through with HST2 or its equivalent when it happens, that it will be taken into account. But I think it is really more about railway people being more involved now in the railway delivery than the accountants—

  Chairman: I do not want to go on too long on this. Mr Leech, on this.

  Q347  Mr Leech: Mr Jones, at the beginning you said that you had created a lot of new extra rail users.

  Mr Jones: Yes.

  Q348  Mr Leech: If that is the case who are your main competitors? Is it the people using cars, the people using aeroplanes, or do you see any of the franchisees as competitors?

  Mr Jones: I think firstly that the BR idea of a long distance passenger service with a 500 seater trainer that just operated on core routes—you build big car parks and people drive in 50 miles or so and catch the trains—that does not seem to me to be a very good railway policy. The alternative of changing trains was changing trains into poor quality rolling stock, which was not attractive to many users. So I think that we have generated a lot of new users and there is a lot of anecdotal evidence to suggest that there are more students travelling to Hull, that businesses find it easier to relocate to Hull because the transport links are better, and also the people who perhaps did not think that they could afford to use the train are using the train, because we have some very attractive family offers. Just sitting here, and probably advertising, but there is a very attractive fare for a family of four to travel to London during the summer holidays, which would not previously have been available. So we are very minded towards the responsibility that goes with the right to run these services that we have to meet the needs of all the community in Hull.

  Chairman: I did interrupt Mrs Ellman. I will come back to you in a minute.

  Q349  Mrs Ellman: What would you say the obstacles are for new bidders wanting to seek franchises?

  Mr Yeowart: The biggest problem for a company like ours—I do not know if it is the same with Mike—is that the requirement for capital in order to mount the bid alone would probably preclude a small operator from doing it, and of course our backers, is roughly a £40 million, £50 million turnover and we would not be regarded as big enough to consider an application for a rail franchise, and I would certainly be very surprised if we ever got short listed if we were interested. But for somebody like ourselves, who we like to think we are innovative, they are too prescriptive for us at the moment anyway; you are basically told what to run and how to run it and I do not think that is really what railway people like to do. You have to work within the parameters, we understand that, but certainly as a new operator we believe that the system at the moment offers small niche players the opportunity to fill up markets that perhaps the big players cannot or are not allowed to address, and I think that is quite important and it should not be lost.

  Q350  Mr Leech: Just one follow-up question. Do you think that open access routes are more likely to be able to get modal shift into the trains than the franchise operation?

  Mr Jones: Without a doubt because they are more focused on the local market, understand that local market and also have more consistently high product quality. I did submit a paper which provided some details of that.

  Q351  Mr Leech: Would you agree with that, Mr Yeowart?

  Mr Yeowart: Yes, I think so. We are looking at using the infrastructure that is already there. Sunderland, Hartlepool, Eaglescliffe, that is through Teesside, the railway lines are there. They are not the high speed lines, they are 70 miles an hour generally, but the railway lines are there, so we are not talking about running new services and spending millions on the infrastructure; what we are saying is that if the franchisers cannot see an opportunity the infrastructure is there, we will provide the rolling stock, and people therefore believe that these are services are being provided for them. Hull Trains are slightly different because their name is synonymous with Hull and our name is more general, but the fact is that we are regarded, if you like, as the local operator and that is quite important, I think, for people's perceptions about modal shift.

  Chairman: On that general note can I thank you both very much?