Isabel Thompson is a Director and Transportation & Infrastructure sector specialist at Vendigital. She recently shared her insights with Rail Professional.
The recent troubles facing many train operators, including Avanti West Coast, have underlined the need for transformative change. A reluctance to let go of out-of-date working practices combined with a lack of trust that is undermining managerial practices is resulting in a poor passenger experience. Urgent intervention is needed to restore services and reset the rail industry on route to a more profitable future.
In late July, Avanti West Coast was forced to cut the number of trains on its popular London Euston to Edinburgh service, when drivers refused to work additional shifts over and above their contracted hours. As with many other operators, the train operating company (TOC) had been relying on rest-day working to operate its timetable, which effectively meant that drivers had to volunteer to work overtime. As unusual as it might seem to industry onlookers, this working arrangement has become common practice across the rail sector and has been operating successfully for many years, until recently.
Other operators have been watching the situation with a significant amount of apprehension. They know that if their own train drivers were to decide one morning that they would no longer volunteer for overtime, they too could be forced to take drastic action by cutting services. Reducing services at a time when passenger numbers are getting back to pre-pandemic norms could undermine the industry’s recovery and place services on many routes at risk.
Key to the current instability at the heart of the rail industry is a breakdown of trust between management and staff. Facing a cost of living crisis, workers are not willing to accept changes to their terms and conditions, which they fear could lead to less money in their pocket. Addressing the underlying mistrust will require a cultural transformation that is rooted in a balanced understanding of what workers want, and the skills required to run a modern railway, such as digital skills and blended job roles. Trust issues must be addressed in an open and honest way, working with trade union representatives wherever possible.
However, the issues facing the industry go beyond the purely cultural. The industry has an incredibly complex structure, with multiple stakeholders – from Network Rail that owns much of the infrastructure, to the OEMs that manufacture trains and sell them to rolling stock companies (ROSCOs) who then lease them to TOCs. Operators sell tickets to passengers and run services on Network Rail’s tracks, but they are accountable to the Department for Transport and from next year, they will be accountable to Great British Railways (GBR). This complexity creates a high point of entry for new operators, particularly with regard to contracting and a web of regulation. This makes it more difficult to incentivise positive change effectively and any progress is likely to be hard won and take time.
To restore services and reset the industry on route to a more profitable future, more out-of-sector thinking is needed. Lessons can be learned from the way other industries have responded to major changes – such as the aviation sector’s response to deregulation and the arrival of low-cost airlines in the 1990s. The arrival of low-cost operators forced the traditional operators to do things differently – they had to fight to retain market share. They responded by focusing on customer service and managed to increase market share as a result. This focus on doing things differently was augmented by what many industry experts have described as ‘a competitive sense of fun’ in the industry as new operators sought creative ways to reduce operating costs in order to drive down prices for a new generation of flight-hungry consumers. While the low-cost operators disrupted the market, this resulted in a better outcome for the traditional operators in the long term too, and modernisation of the sector overall. Achieving the same competitive sense of fun in the rail industry will require vision, leadership and importantly, a commitment to reduce regulation and complexity. Change is coming with initiatives such as GBR’s fares, ticketing and retailing programme. However, with an estimated rail industry funding gap of £8 billion, many operators and other stakeholders are concerned that it can’t come quickly enough.
Some TOCs are already exploring strategies for modernising services, and out-of-sector thinking from the aviation industry in particular, is gaining traction. For example, some have adopted greater role flexibility in order to realise cost savings and improve the viability of services in a customer-focused way. Open access operators, such as Lumo, have already enjoyed some success in this area, attracting new customers to the network and others are looking to enter the market. To take another example, just as Ryanair was able strike deals with UK-based airports to avoid paying landing charges based on a guaranteed volume of passengers, it may be possible for TOCs to take a similar approach with key infrastructure providers. With industry change on the way, but not yet defined, by considering their options now there is an opportunity for TOCs to get ahead of the curve.
With many routes struggling to remain viable, TOCs can’t afford to wait for change to happen – if they stand still, they risk routes being cut. They must focus on reducing cost, improving customer service and increasing revenue now. Understanding the need for cultural change and rebuilding trust will be as important as thinking outside of the box.
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Here are some of our findings from a recent survey around a lack of sector alignment and incentivisation to deliver change in the rail industry.