Tony Collins, chief executive, and Chris Gibb, chief operating officer at Virgin Trains, deliver Richard Branson’s vision for the future of rail travel at Virgin Trains
Looking back at the last 10-15 years of the privatisation period, it is fair to say that we’ve enjoyed some great successes; lots of investment has gone into the tracks which has allowed us to achieved greater passenger volumes. Everyone involved in the industry can be proud of what they’ve achieved. The challenge now is, what’s next?
The funds from the tax payer are going to be a lot less than they have been in the past because of the static economy. Therefore, the only way we are going to be able to drive the rail industry forward is by creating more of a demand-led railway, rather than a tax-funded railway.
We believe there is a real demand out there for much better rail services. This could include more high-speed lines, increasing frequency, linking cities closer together, adding more local services, and adding more freight services.
Recently, we have come up against questions like why it is currently not possible to have four trains running out of Birmingham, with a 60 minute journey time? And why the journey time between Manchester and London can’t be reduced to an hour and a half with increased frequency? These are question we will be looking at going forward.
Competing with air travel
The fastest train journey time from London to Glasgow is currently around four hours and ten minutes. We are competitive with air but we’ve only got about a nine per cent market share for this route. We think we can get a 50 per cent market share if we can make the improvements we know are possible. We believe we can reduce the journey time to way below four hours without building a brand new railway, but by using our existing trains more efficiently, with some infrastructure upgrades. That way we don’t have to somehow find a massive new market; we can just win new business from air.
And we can compete with air travel without the need to mimic airlines. We have our own product which is a lot more flexible than air travel; we don’t charge for seat reservations, we don’t charge for luggage, and yet we can still sell walk-on tickets.
We can also compete on cost. If you are prepared to book in advance, you can travel many routes for as little as £5. Yet we can still offer flexible walk-on tickets which is something that the airlines don’t offer.
Our walk-on fairs are often compared with the cheapest fairs offered by low-cost airlines. But if you were to ask a budget airline how much a ‘walk-on’ ticket would be; where you can get on any plane you want on the day and take as much luggage as you want, the price would be considerably higher. We therefore believe we offer better all round value and flexibility.
The greener option
Being greener also gives us the competitive advantage over air travel. I don’t know anybody that environmentally supports the fact that there are 74 flights a day between Glasgow and London.
The public now makes informed choices about how they travel and we’ve got evidence with our revenue figures supporting the fact that people are more inclined to travel on rail because we are greener than air travel. For us, that’s a competitive edge.
In particular, in the last 12 months, we’ve seen a lot of big corporates shift from sending their staff on flights to now sending them on rail, as one of many measures to become more socially responsible. If we can make it financially attractive then that’s a double win for them. Some of these companies have been flying hundreds of people a day between Manchester and London simply because it is their company policy to fly with a certain airline. But that is beginning to change as companies begin to look at what greener options are available.
We also believe we can compete with car travel. Because one thing for certain is fuel prices are going to continue to rise. In the last 12 months, we have seen that when fuel prices rise, we get a shift across to rail. At Virgin, we believe that we haven’t even seen the peak fuel price yet and it’s going to go through the roof. Therefore we’ve got to plan for the fact that energy prices are going to be extremely high.
Stopping along the way
Rail travel is not just about getting people to and from London. By improving the journey times and frequency you can then start to put selected stops in, such as connecting Manchester with Birmingham. By doing this, you begin to create a new market.
Again, this is another advantage we have as a railway; it is easier for us to stop along the way, whereas it’s more difficult for air travel.
There is limited air capacity as well. Therefore it has surely got to be better for the country if rail can link the major UK cities to free up airport slots for international flights. I believe for the government and the nation it’s a win-win situation. And we can demonstrate that with the right sort of rail service we can compete head on with air.
Growing the market
Back in 2004 we had about 30 per cent of the market for Manchester to London. That has now grown to about 85 per cent. So clearly we have a product that can compete with the airlines.
If we could make the Glasgow to London service faster then maybe we could achieve a similar market share as we did with London to Manchester. That could potentially generate £100m extra revenue a year. And what we’d be investing in is an asset with a 40 to 50 year life span. That’s an awful lot of revenue over that period of time to fund the infrastructure upgrades needed. It is an excellent business case.
But the problem we have as a train operator is at the moment we can only look seven years ahead with our franchise model. So for us the business case is very hard to justify during such a short amount of time. The type of procurement process that we currently have with franchises is too simplistic; we have to get governments to think of the business case over the life of the asset.
In summary, we believe that with some infrastructure upgrades, the rail industry will be able to offer so much more to the passenger. By linking up with more cities, and increasing the speed and frequency of our trains, we believe we can compete head on with air and car travel, and offer passengers a greener, flexible and cost effective travel option.