Price Wars Come to South Wales railways

[the absent minded professor]

Absolute madness in my view, and I can't see it being economically
sustainable.

The Absent Minded Professor

Cheap rail tickets launch price war - Dec 19 2006

Rhodri Clark, Western Mail

A PRICE war is about to break out on the trains in South Wales, with
ticket prices cut by up to 50%.

On January 2, First Great Western will launch bargain fares between
principal stations along the main line from Newport to Swansea. But
the catch is that passengers must use FGW trains - and will be charged
for another ticket if caught travelling on Arriva trains. Consumer
watchdogs welcomed FGW's initiative yesterday, but said it was vital
that passengers were fully informed of the restrictions. FGW is
expected to erode Arriva's revenue on the M4 corridor, and Arriva
warned yesterday it might have to make "cost savings" on the route.

Ordinary tickets for the South Wales main line have traditionally been
valid on all trains, with revenue shared between train operators.
FGW's new tickets will help to fill empty seats on Swansea-London
trains at the quieter end of the route. The cheaper tickets will not
apply to people travelling outside South Wales. Arriva Trains Wales
will not receive a share of the ticket revenue.

This is the first time in nearly a century that passengers travelling
within South Wales have been offered a choice of ordinary tickets by
competing train operators. Companies like the Taff Vale Railway and
Barry Railway used to compete, although mainly for coal rather than
passengers, before they merged into the Great Western Railway in 1923.
Competition was foreseen by the Conservatives when they broke up
British Rail's monopoly but has been difficult to achieve in practice.

FGW's new weekly season ticket between Bridgend and Neath will cost
£12, compared with £24.20 for the equivalent ticket valid on any
train. Tom Stables, FGW's commercial director, said, "We're
determined to offer good value for money and a wide range of fares to
give our customers choice and flexibility. "These price cuts are an
excellent deal for our customers in South Wales, and this underlines
our commitment to the region."

But ATW warned that travellers would "severely restrict" their choices
when buying the cheaper tickets. Mike Bagshaw, ATW's commercial
director, said, "Passengers opting for these cut price fares will be
restricted to travelling with FGW only. "It will particularly hit
evening commuters travelling between Cardiff, Bridgend, Neath, Port
Talbot and Swansea who will only have the option of one FGW train
between 5pm and 6pm, now that the 5.18pm service has been withdrawn.
Should FGW services be delayed or cancelled, passengers would need to
purchase a full fare ticket to travel on alternative, regular services
provided by ATW and other operators. "It's disappointing that in being
offered reduced fares, rail travellers are missing out on choice. "In
the longer term, costs savings may be necessary on this route if these
changes result in fewer passengers travelling on Arriva Trains Wales'
services."

Rhys Evans, deputy director of the Welsh Consumer Council, said, "It's
good to see FGW being quite innovative in offering a product that
consumers will want, at a good price. "It's important that the caveats
on it are made clear, otherwise it becomes confusing for consumers.
Train ticketing is complicated enough anyway."

Simon Pickering, of rail watchdog Passenger Focus, said, "It's good
news for passengers in that it will reduce costs and encourage people
to use rail." It was vital that passengers were fully informed. "They
will need to understand which company the train belongs to that they're
getting on to, otherwise they run the danger of being charged twice."
He said the new tickets were expected to extract revenue from Arriva,
whose franchise is subsidised by the Welsh Assembly Government.
"The Assembly Government and Arriva will need to sit down and look what
they can do about that.
"We would hope they can come up with innovative marketing that will
entice more people onto the railways, to protect or increase their
revenue."

FGW's bargain tickets will not be available for travel between Severn
Tunnel Junction and other Welsh stations. An FGW spokesman said this
would be "kept under review".

[luckycomrade]

If we compare this to two bus companies running the same route in a
deregulated area, you might think the point would be to run the other
company out of business by offering unsustainably low fares for a
period just slightly longer than the competition can bare.

Vive la Competition!

Or Not. What are FGW trying to acheive? Increased ridership on their
trains may only lead to existing passengers on ATW swapping train
companies. Where would that leave all concerned? Arriva running an
ultra budget (read "undesribale") service and FGW running packed trains
full of passengers willing to suffer the crush to save a few quid
(can't blame them there).

I'm left wondering if this sort of "competition" is really very healthy
for the economy and nation at all. Its good to make the most of
exisiting rolling stock and infrastructure but surely ATW and FGW
should be working together to make their services much more attractive
to the real competition, the car?

But then why should two TOCs who run the same route work together? Or
should the question be "why should there even be two seperate TOCs
running the same route?".

[luckycomrade]

> I feel sure that there must be at least one place in the UK where
> First Buses and Arriva Buses have had *exactly* this sort of battle.

Quite, Tony. However the diffference here is that neither party are
able to push their rival out of business. The franchise commitments
are such that these companies are obligated to run these services.

Which brings me to ask the question, why should First Great Western be
allowed to compete in such a manner when Arriva Trains Wales seems set
to suffer so much. Passengers outside this forum only see "the
railway" as the alternative to "their cars".

[the absent minded professor]

> > I feel sure that there must be at least one place in the UK where
> > First Buses and Arriva Buses have had *exactly* this sort of battle.
>
> Quite, Tony. However the diffference here is that neither party are
> able to push their rival out of business. The franchise commitments
> are such that these companies are obligated to run these services.
>
> Which brings me to ask the question, why should First Great Western be
> allowed to compete in such a manner when Arriva Trains Wales seems set
> to suffer so much. Passengers outside this forum only see "the
> railway" as the alternative to "their cars".

The situation is further muddied by noting that First's bus company in
South Wales, First Cymru also operates an hourly Shuttle coach service
between Swansea and Cardiff. An alternative which was rigorously
promoted by First, far more than their train service between the two
cities. Furthermore, First Great Western and Arriva Trains Wales, and
before them Wales and Borders never jointly promoted the hourly and
better train service and value for money fares that existed on the
route. ((£24 for a weekly season ticket between Bridgend and Cardiff
is cheap when you consider costs £6 a day to park in the capital).

Both First Great Western, and Arriva Trains Wales as well, forget that
their main competition is the Peugoet 106, Fiat Punto, Ford Zetec which
trundle along the M4.

This fares wheeze will in the short-term grab all the headlines, and
some people have already been taken in by the low fares and huge price
reductions. But the cost long-term?

[the absent minded professor]

> "luckycomrade" <luckycomrade@mac.com> wrote:
>
> >
> >> I feel sure that there must be at least one place in the UK where
> >> First Buses and Arriva Buses have had *exactly* this sort of battle.
> >
> >Quite, Tony. However the diffference here is that neither party are
> >able to push their rival out of business. The franchise commitments
> >are such that these companies are obligated to run these services.
>
> Hang on a minute.
>
> If First GW uses predatory pricing to such an extent that Arriva
> starts to lose a lot of money, Arriva might not go out of business
> nationally but they might be forced to quit that particular franchise.
>
> >Which brings me to ask the question, why should First Great Western be
> >allowed to compete in such a manner when Arriva Trains Wales seems set
> >to suffer so much.
>
> Alas that is the free market for you. Dog eat dog, isn't it?
>
If it was a totally free market, you'd be right.

But the rail market isnt a free one - certainly with regards to fares

[Stevie D]

> Or Not. What are FGW trying to acheive? Increased ridership on their
> trains may only lead to existing passengers on ATW swapping train
> companies. Where would that leave all concerned? Arriva running an
> ultra budget (read "undesribale") service and FGW running packed trains
> full of passengers willing to suffer the crush to save a few quid
> (can't blame them there).

First don't care how many people use their trains and how many use
Arriva's. Why should they? It makes no difference to them.

What First care about is getting the biggest share of the farebox. If
they run half the trains, they will get half of the revenue from Open
tickets. But if they can persuade all the passengers who travel on FGW
to buy FGW-only tickets, they will get 100% of the revenue from those
passengers, plus half the revenue from the half who bought Open
tickets.

Let's say that, in a day, 5000 people travel from Caerdydd to
Abertawe, buying single tickets.

-- Under the old system, where everyone bought Open tickets, First
and Arriva would have shared the £41500 equally[1], giving them £20750
each.

-- Under First's "ideal" system, as I just described, they would get
the full revenue from the passengers using their services = 2500×6 =
£15000, plus half the revenue from the passengers using Open tickets =
2500×8.30×0.5 = £10375, giving First a total revenue of £26375, an
increase of more than 25%, for carrying no extra passengers.

Yes, it's unlikely that the shift to FGW-only tickets would ever be so
dramatic, and Arriva would have to do something to counter it or else
they would lose 50% of their revenue at a stroke.

[1] OK, I know it wouldn't be quite a 50:50 split, but it's close
enough for the purposes of the argument. And yes, I know I haven't
deducted 9% commission either - stop being so pedantic!

> But then why should two TOCs who run the same route work together?
> Or should the question be "why should there even be two seperate TOCs
> running the same route?".

I don't have a problem with more than one TOC running over a route,
where there are clear reasons for doing so [2]. Arriva TW and First GW
are serving different markets. The alternatives to the two TOCs are
(i) merge them into one - but if you do that every time there are
shared routes, you will end up with very few TOCs left! or (ii) cancel
one or other TOC's services on the shared section - which would be
very detrimental for passengers, losing valuable through services.

[2] Except inasmuch as I object to the presence of TOCs at all,
compared with, say, British Rail.

--
Stevie D
\\\\\ ///// Bringing dating agencies to the
\\\\\\\__X__/////// common hedgehog since 2001 - "HedgeHugs"
___\\\\\\\'/ \'///////_____________________________________________

[the absent minded professor]

> In article <1166563305.427116.282750@79g2000cws.............. com>,
> luckycomrade@mac.com says...
> >
> > > I feel sure that there must be at least one place in the UK where
> > > First Buses and Arriva Buses have had *exactly* this sort of battle.
> >
> > Quite, Tony. However the diffference here is that neither party are
> > able to push their rival out of business. The franchise commitments
> > are such that these companies are obligated to run these services.
> >
> > Which brings me to ask the question, why should First Great Western be
> > allowed to compete in such a manner when Arriva Trains Wales seems set
> > to suffer so much. Passengers outside this forum only see "the
> > railway" as the alternative to "their cars".
>
> Surely it depends where the extra passengers come from. If the lower
> prices tempt more people to switch from cars onto the trains then surely
> this is a good thing as it increases the overall share on the railways.
>
> Last year First reduced prices by up to 40% in Devon and Cornwall where
> it sets the fares, so couldn't have been an ORCATS raid. It therefore
> suggests that this kind of strategy increases overall custom for the
> railways.
>
> Duncan

In this instance though the inter-available fares between Swansea and
Newport are set by ATW, and as I understand it they can't introduce ATW
only fares between the two points, and stations in-between.

Added to which, it's my view that current fares provide value for money
- and are competitive compared to the car. The great tragedy has been
in the failure of the two train companies to actually promote the fare
and services between Swansea and Newport.