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Franchising works for rail - but it needn't be for profit.

THE West Coast Main Line (WCML) is the inter-city railway between London and North Wales, Birmingham, Liverpool, Manchester and Glasgow.

And given all the recent comments made about the collapse of the rail franchise process it would be reasonable to suppose that franchising had some fatal flaw as a means of contracting out operations.

But is this the case? Franchising is a widely used, successful format where the owner of a brand passes on operational responsibility to other companies.

Some of the world's most successful brands have it as the core of their business. McDonald's, the fast food chain, franchises most of its outlets to many different companies; so do Holiday Inn Express and Marriott Hotels.

Marks & Spencer has several suppliers for each of its retail lines and for its transport fleet. National Express, the success story of long distance coach travel, owns few of its vehicles.

But apart from the legal "small print" on a coach or lorry the fleet appears identical, particularly with vehicle standardisation.

So what can it bring North Wales' railways now, in the case of the WCML - and in a few years' time to the Wales and Borders rail network? There is an assessment of risk transfer of course, but which party takes the revenue risk - the franchisor (Government) or the franchisee (train company)? Forecasting revenue over more than three years is an impossible task as markets change rapidly in retailing - clothing, food, motor cars, DIY, and of course railways and buses.

Cost forecasting is also a bit tricky as many transport companies have found in trying to forecast the price of oil products which once were only about 5% of total costs but have now risen to nearly 20% in some large bus companies.

So a decision has to be made by the Department for Transport on whether franchising is possible without the transfer of revenue risk.

But commercially the private sector's strength is assessing markets and growing revenue, providing a dynamic base which adapts to changing markets and brings good quality services for passengers and value for money for the funder.

To achieve this, the franchise conditions have to be clearly set out and a whole range of possible options built in. This involves considerable vision and forward thinking and the provision of break clauses where neither party has an unfair advantage.

This is not easy and for long term franchises may be impossible.

In 2003 for example when the Wales and borders franchise was let, who would have guessed that seven years later electrification of the southern network would be under way? The Government will be involved in revenue support interventions if it wishes to achieve other economic, social and environmental objectives. Thus, accurate subsidy projections are essential.

Franchising the railway brings particular benefits if operated and let by a team of well-paid people experienced in both the operation of the railway (and bus services) and with knowledge of franchising contracts. It allows competition in terms of service provision ideas and funding levels.

But it also provides a stable and efficient train service level not entirely dependent on the commercial market through an operator of the last resort, ie the Welsh Government, and provides best value for taxpayers' money.

A franchise also provides passenger benefits through integration of timetables, ticketing between train companies, bus / rail integration and joint branding.

Richard Brown, chairman of Eurostar, who has extensive railway experience, has been asked by the DfT to find a way out of the impasse on the WCML.

It is now being suggested in England that he look at an arm's length Strategic Rail Authority type agency or an arm's length British Rail operated by railway people.

But this of course is exactly what our own Minister, Carl Sergeant is currently considering.

Options (in addition to the conventional plc version) for running the railway in Wales include a not-for-dividend company owned by the Welsh Government or a franchised not-for-dividend or co-operative company owned by users, employees and the Welsh Government (as the provider of half its income through revenue support).

If the Brown Report suggests a system based on these principles for DfT franchises, (WCML, Great Western and Cross Country), which also operate in Wales it will no doubt remember, they were first proposed in Wales!

While considering short term railway franchising affecting North Wales a futuristic and exciting challenge faces South Wales The prospect of a Western Gateway to Heathrow, where international flights would operate to and from a new Cardiff Airport can be made possible if the high speed line (HS3) is constructed west from London Central via Heathrow to Cardiff and Bristol and HS2 between London and the same Heathrow Airport hub and then northwards to Birmingham and northern England.

The current proposals for HS3 are hindered by the probability of only two trains per hour. But the prospect of six trains per hour, could be the revenue generator needed to make such a massive investment attractive to the UK Treasury and to private investors. Four of these trains would provide the non-stop service between Heathrow Airport and Western gateway - the Heathrow Atlantic Terminal - travelling at 220mph and taking 45 minutes to Heathrow and an extra 12 to London Central.

In addition three major pieces of infrastructure - HS3, the Western Gateway and a Severn Barrage which would take the new railway across the Bristol Channel -would generate employment in exactly the way the Prime Minister, David Cameron, has suggested.

Professor Stuart Cole is Emeritus Professor of Transport, Wales Transport Research Centre, University of Glamorgan


Investment in a high speed rail link between Heathrow, above, and Cardiff Airport would boost our economy says Stuart Cole
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Title Annotation:Business
Publication:Western Mail (Cardiff, Wales)
Geographic Code:4EUUK
Date:Nov 7, 2012
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