Can competition lower train ticket prices?

Twenty years since UK rail privatisation and passenger numbers are higher than ever, but average ticket prices remain unjustifiably expensive. Could increasing competition help lower fares, like it has in other parts of Europe? Ross Davies finds out

This November will mark 25 years since John Major’s Conservative UK Government passed the Railways Act 1993. While the legislation has undergone several facelifts in the interim, it is ultimately synonymous with the dissolution of the British Railways Board and paved the way for privatisation of the UK rail network. 

At the time, ministers pledged a promised land of innovation, competition and better service on the railways. Yet, with the power of hindsight, can privatisation truly be looked upon as the silver bullet it was made out to be by its exponents?

In the UK, no topic quite splits a room like privatisation. For those who remember British Rail as a creaking, perennially cash-strapped behemoth, privatisation has brought about an improved frequency and quality of trains. 

Indeed, more of us are travelling by rail than ever before, with 1.7 billion passenger journeys recorded in 2016-2017. Greater safety on the lines has also been one of privatisation’s more successful upshots. 

Others, however, view privatisation as a failed experiment in greedy franchises and mismanagement. According to a YouGov poll from last year, 60% of those polled believed UK rail interests would be better served by the public sector, and nationalisation formed a key plank of the Labour Party’s manifesto going into the 2017 General Election. 

UK rail users saw average fare prices rise by 3.4% at the start of this year

Fewer franchises - cheaper fares

What cannot be disputed, even by some of the most ardent opponents of nationalisation – is that privatisation has not delivered on its brief of kindling more competition. In 2016, a report by the Competition and Markets Authority (CMA) backed the scrapping of franchises.

The report added that more direct competition could produce better services and cheaper tickets, the latter being a particularly sore point for UK rail users, who saw average fare prices rise by 3.4% at the start of this year. 

“While it took some courage to privatise rail, the government has created something of a monster in creating a set of privatised monopolies that actually behave in a way not too dissimilar to how a government entity would behave – but also have free rein to set their own prices,” says online train ticket service for the UK and Europe Loco2 CEO Dave Ashton.

“What you have is the worst of both worlds,” he continues. “You still have monopolies that operate like fiefdoms. And while they are driven to make profit, which is no bad thing as profit is what helps drive innovation, it is being done without real competition. The result is ballooning costs and massive inefficiencies.”

Loco2 ticket app integrates national operators so travellers can move across countries on a single booking. Credit: Loco2.

Rail upstarts in Europe

Ashton – a travel industry veteran based in France who previously co-founded Paris-based ride-hailing company SnapCar – believes the UK rail industry would do well to draw lessons from its European neighbours in how to generate greater competition and fairer pricing models. 

For instance, developments in Italy caught his eye. In 2012, privately backed group Italo was launched to provide direct competition and challenge state-owned operator TrenItalia’s cornering of the market. 

Six years on and long-distance rail travel in the country is reported to be up by 80% and Italo has been purchased by an investment firm for nearly €2bn. Moreover, average domestic prices are down by 40%. 

“What’s happened in Italy really is a textbook example of what competition can do,” explains Ashton. “It has forced TrenItalia, Italy’s traditional rail carrier, to be more aggressive in how it courts customers and third-party distribution because if they don’t, Italo will.

“What we have seen over the last decade, as Italo has chipped away and gained more market share, is TrenItalia become more innovative both around the products it offers and pricing and their overall cost structure.”

Ashton has also been impressed by efforts made by Spain’s state-owned company Renfe Operadora, which, in anticipation of the entry of new private players into the marketplace, recently announced the future launch of EVA, a low-fare, high-speed service. 
While exorbitant prices are the main bone of contention for rail travellers, the actual process of purchasing tickets can also be both confusing and labyrinthine – especially when it comes to cross-border travel, which often requires consumers to make multiple bookings through different ticketing platforms and websites.

Through Loco2, however, travellers in the UK and Europe can travel to any destination via a single booking, even across different countries. It is integrated with book systems of operators including SNCF, Deutsche Bahn, National Rail and Renfe. Another boon for travellers is that the service doesn’t charge booking fees. 

Can rail compete with airlines?

When it comes to longer distances, Ashton believes rail “will never compete” with the airline industry. But with aviation constantly in the spotlight over its carbon footprint, and the rise of a younger, more eco-friendly generation of travellers, might the rail sector have an opportunity to become more competitive for shorter journeys?

“The environmental angle is important, but the only way we’re going to compete with air on these shorter trips – up to 1,000km – is if the rail industry becomes faster and cheaper,” says Ashton. 

“You also have to relentlessly innovate to push prices down because there is an enormous segment of the population that simply will not buy a product, regardless of whether it’s better for the environment or not. 

“The rail industry has done a terrible job, in my opinion, in both competing with the air industry from a pricing perspective, and they have to fix that. That’s up to the carriers to solve.”

You have to relentlessly innovate to push prices down