I heart Copenhagen

Last month, I was lucky enough to be invited to speak at a workshop in Copenhagen (funding for my place was kindly provided by PROGRESS – the EU’s employment and social solidarity programme). You can view my presentation on transport and social inclusion here. This post isn’t about the conference though – instead I thought I’d share some random thoughts on what is an incredibly inspiring city from a mobility point of view.

Let’s start with the road space. Cyclists, pedestrians and motorists get the same amount of space on the road (where cars are allowed that is – many of the shopping streets are for people and bikes only). This means wide pavements for pedestrians (no more pavement rage as there’s ample room to overtake the ‘statelier’ walkers!) and wide lanes for cyclists who in theory could ride up to three abreast (although would only do so when overtaking).

Compared to this, cars, occupying the same amount of road space, look positively cramped and there is a real visual sense that they are the least attractive travel option. Cyclists stream past at a much faster and free-flowing pace – the evening rush hour in particular is a real sight to behold as the stream becomes a torrent of people pedalling home while the cars inch along next to them – wish I’d taken a picture!

Then there are the bikes themselves. There’s no shame in having an old bone-shaker/sit-up-and-beg bike – there are very few mountain bikes here. Most people have standard shopper bikes – all you need for the urban jungle. Standard doesn’t mean dull though, as this pic of a very lovely and shiny red shopper shows. Check out this blog – Cycle Chic  – tag-line ‘Hold my bicycle while I kiss your girlfriend’ (!) for more stylish Danes doing what they do best!

From the chic to the highly practical – many people in Copenhagen attach big trailers to the front of their bikes and I saw people carrying everything in them from what you would expect (shopping) to what you wouldn’t – girlfriends and gigantic houseplants spring to mind. When I googled this I found that you can also transport pirates in these contraptions:

Such additions would stand little chance of fitting in the measly, narrow and fragmented cycle lanes we witness in many of our towns and cities. In Copenhagen, the bike is a very practical item and the useful add-ons mean you can use it for most tasks around the city from the weekly shop, to moving house – not to mention swashbuckling expeditions.

The city is also a safe place for pedestrians – everybody (except maybe the tourists, but they learn!) waits for the green man before they cross. How refreshing – especially for someone like me who’s road crossing technique might be best described as ‘rabbit in headlights’.

All in all, my impression was of a city where pedestrians, cyclists, public transport users and motorists live harmoniously and where, most strikingly, the bike was a highly visible, attractive and practical alternative to the car for many journeys. I think we need to get away from thinking that walking, cycling, driving and using public transport have to be in competition with one another – all have their uses depending on the journey you need to make. The trick is to get them all joined up and working together as seamlessly (and as greenly) as possible. It’s about ‘bikes and…’ not ‘bikes or…’.

Tak!*

Rebecca Handley

*thank-you!

Confessions of a Network Rail Public Member

I confess

I’m one of the 100 plus members of Network Rail. Technically, between us, we own the railway infrastructure. Though we are not personally liable for it! Broadly speaking we have the power to sack the Board of Network Rail – but they can also sack us! When Network Rail was first created I was one of the Public Members then, and I’m now on my third term (though I’ve had a period when I wasn’t a Member). I also used to run the Save our Railways campaign which castigated NR’s predecessor -Railtrack – as part of the campaign against rail privatisation.

So given this long involvement I’ve had time to give the way in which NR is governed a bit of thought. And was doing so again at a recent day and a half set of meetings and presentations in London for the Members.

What do you mean Network Rail governance isn’t hopeless?

It’s always puzzled me how few friends the principles behind the current arrangements for governance of Network Rail seems to have. Indeed such is the derisive consensus about NR’s governance structure that people don’t even bother to justify it. It’s taken as read that it’s an irretrievably hopeless way to run a company like Network Rail.

The media don’t like it because they like dealing with a cast of recognisable names that they can build up and knock down (100 plus members doesn’t work for them)

The operators don’t like it because – guess what? They think they should have more power

The unions don’t like it because NR offers them the uncomfortable choice of being on the inside of the governance of the railways – when they also want to be free to take management on unencumbered by any responsibility for management decisions (which NR membership implies)

Now I’m not saying that Network Rail’s current governance model is perfect – no governance model is – but it does seem to have some significant advantages over other possible alternatives that are too readily passed over.

Firstly, it’s not full nationalisation (which in the UK means too much interference by a civil service driven by short term considerations and policy flip flops). Can you imagine what would now be happening to the funding of the railways right now if the civil service was able to turn off the taps as it was with BR? It’s also not a private sector company (PLC status doesn’t work for something like Network Rail because it’s in the business of long term protection and development of long term assets – not be distracted by whatever its share price might happen to be at 3.30 tomorrow afternoon).

Network Rail is accountable to the public interest and to Government through various indirect mechanisms but at the same time its governance structures mean that it is not beholden to either the short term interests of the DfT or of private companies. It’s governance provides a buffer against both.

Crowd versus clique

The other accepted wisdom about Network Rail is that how can anything possibly be effectively governed by something with 100 plus decision-makers with a very limited range of powers at their disposal other than nuclear options like sacking the Board. 

Views on this tend to break down between those who think that they should have a role in managing the company, and those who see themselves in the Trustee role. The ‘shadow managers’ are endlessly frustrated because what are they sitting around at meetings for unless it should be to exercise their own views and wisdom on what Network Rail should be doing. The ‘Trustees’ don’t think it’s down to them to second guess the details of what the company does – as this is a complex engineering outfit with safety critical aspects to it. Instead the ‘Trustees ‘ see themselves as giving the company a steer on the big decisions rather than the detail, and only seriously intervening when the company is in danger of getting the big strategic decisions seriously wrong. 

I’m on the Trustee end of the debate. Although in some ways its easier for me than it is for some public members as pteg has other dialogues and other ways of interacting with Network Rail at all sorts of levels.  I can see why many of the individual public members get frustrated because they don’t have those other channels open to them.

And the large number of members? Well here there are some advantages too. It means it is very difficult for vested interests to take control over the company and start shadow managing it (as might be the case if a bloc of interests were to work together within a smaller number of members – such as the operators). Instead there is something about the wisdom of the crowd in NR governance, something akin to jury service. When something goes really wrong (as I suspect might be happening on bonuses) then the crowd starts to move.  The problem with the number of members issue is that it tends to drive the debate about reform – whereas the number of members should be a function of what you are trying to achieve rather than an end in itself. This is where the Members Review Group blew it big time as they started with a determination to reduce the number of members – and ignored completely some more important issues such as who the members should be made up of. Should they represent interests (and if so which ones?) or be individuals (if so who and why?) or should it be a balance between them (and if so what should the balance be?). And once you’ve determined that how do you guard against capture by blocs of vested interests (if members are to represent interests) and what is the number of members that you would need to get these balances right?

None of this is to say that there might not be a better model of governance – or that the current number of members within the existing model is right – just that in any search for a new model should recognise that there are strengths in the existing model which should be acknowledged.

London’s legacy

The other thing that struck me at the last NR members meeting was the amazing legacy that London now has from the good times on transport spending.

We were given a tour of the works at Kings Cross station – which will be another wonder of the transport world to add to London’s list alongside London Overground, the best bus service in the world, fully integrated smart ticketing, HSL One and St Pancras International, the refurbishment of the entire London Underground, East London Line, Thameslink and Crossrail and so on. In fact what significant element of London’s public transport network hasn’t been improved?

For the first time (ever?) the roof is being given a proper overhaul and when the clutter is cleared away from the front of the station (a new ticket hall is being built at the St Pancras side of Kings Cross) the clean lines of Lewis Cubitt’s Kings Cross station will give the gothic excesses of St Pancras a run for its money. 

Whatever happens next London has skillfully acquired a legacy of transport investment from the boom years of transport spending which will stand it in good stead for a few decades to come.

Here’s my pix from the tour of the Kings Cross works.

Down the platform – up and back along the roof – down the unchanged since built (or if it wasn’t it looked like it) interior of the clock tower and re-entering 2010 back onto the concourse in our Health and Safety orange spacesuits…

Jonathan Bray

Higher profits or better regulation – what would really get bus markets moving?

 A report recently published by the Department for Transport  robustly demonstrates what we have long known but many in the bus industry regularly attempt to discredit – the deregulated bus market has effectively become a set of local monopolies which large operators are able to exploit to their advantage. This is nowhere more true than in PTE areas where large operators are making profits, on average, double of those that would be expected in a truly competitive environment.

But let’s focus on the fundamental question of what drives successful local bus markets. Some have argued that it is lack of profitability rather than lack of regulation, that is holding back the development of a more competitive and efficient bus sector. They contend that operators’ strong desire for growth would tempt them away from reaping excess profits even in what have effectively become monopolies of local bus markets. This is at the core of the recent TAS submission to the Competition Commission, which suggests that it is the inherently low level of profitability in the industry, rather than incumbents’ market power, which has led to limited competition.

pteg is sceptical about this argument – which is in danger of becoming received wisdom in some quarters. Instead we would argue that bus operations in the PTE areas have maintained relatively high profit margins, largely at the expense of patronage growth, whilst being supported by significant levels of public sector funding. We would further contend that far from being the distraction that some claim it is, improved regulation could lead to some of that profit being better channelled towards improving the quality and coverage of bus networks.

Healthy levels of profitability in the industry were clearly demonstrated in research carried out by NERA in 2006 which showed average profitability amongst the five largest groups to be above the national average for non-financial businesses, and higher still within PTE areas. Bearing in mind the relatively low proportion of actual capital expenditure and the growing volume of public sector funding (more than 40%), the return on capital from deregulated bus operations has been and continues to look highly attractive to investors. This conclusion is strongly supported by the recent L.E.K. report to the DfT, which shows that PTE bus subsidiaries of large groups are earning profits well above those expected from a competitive market.

Indeed, this view seems to be reflected in the stock market performance of the largest UK operators. The graph below shows the price to earnings ratio (P/E) of the five quoted groups over the past 5 years, using the BT Group and Barclays as benchmarks. All four groups which have UK bus as their core business have been well regarded by investors even through the recession. Interestingly, the greatest drop in investor confidence was linked to National Express’s forfeit of its East Coast rail franchise rather than any event taking place in the bus market. And despite the recession, a recent analysis by UBS  (UBS Investment Research – UK Bus and Rail, 14 April 2010) was remarkably upbeat about the profitability prospects for deregulated bus operations, upgrading its recommendation to ‘buy’ for two of the five groups.

As the table shows, deregulated bus operations appear to be the workhorse of the large groups, having generally delivered year on year revenue growth (and profit) for most of the past 10 years. Interestingly, analysis by NERA and TAS shows profitability to be highest within PTE areas which should naturally make this market highly attractive to both new entrants and investors. If we then acknowledge that incumbent operators are making respectable profits on what are fairly large and heterogeneous networks, this suggests there are likely to be core sections of their networks where much higher profit levels are being achieved. The small number of significant new entrants in PTE areas along with the rapid decline of smaller groups and management or employee-owned operators constitutes a clear sign of the degree of market power held by incumbents. Curiously, a number of significant new entrants have emerged not in the deregulated PTE areas, but rather in the more tightly regulated London bus market (for example, Abellio and Comfort Delgro)

So if, as TAS and others appear to believe, profitability equals patronage growth, then the levels of profitability we are seeing should be resulting in that patronage growth. However, in many areas this is clearly not the case. This is because there are other ways in which operators can achieve attractive levels of profitability – including utilising available public subsidy and increasing fare levels (see table).

To understand how this works it is important to acknowledge that there is inherently some degree of cross-subsidy within commercial networks as incumbents avoid leaving gaps for new entrants whereas only small savings will result from cutting marginal services (such as early morning services). But when profit targets are hit by falling demand a low risk strategy is to de-register such marginal services since the danger of entry is small and the incumbent will often be best placed to win back the service if tendered . There are also examples where the incumbent started operating commercially again following the loss of a tender. It is no surprise that tenders for such services typically receive a small number of bids. Another obvious strategy is to increase fares so as to extract maximum revenue from lower elasticity passengers on profitable routes . The recent growth in the free travel market, which now typically represent over one quarter of PTE bus demand, has made this strategy increasingly attractive for operators. This is because a growing proportion of passengers (in some cases the majority) are insensitive to the adult cash fare.

The argument that bus regulation is a distraction from more central issues of bus profitability levels is also false. There is clearly potential for increased regulation (such as through the introduction of Quality Contracts) to grow the bus market. For one, it could help remove some of the existing barriers to entry therefore unlocking the full benefits from effective and healthy competition. But more critically perhaps it would allow passengers to reap a greater proportion of the benefits currently flowing directly to operators (and their shareholders) by using profits from commercial routes to support a fully comprehensive and high quality public transport network. Also important is that it would do this in a context of greater network stability and with the explicit objective of achieving long term patronage growth while maintaining affordability. Greater regulation would also remove barriers to the roll-out of smartcard ticketing, enabling significant operational and time savings and greater value integrated tickets, all key to sustained passenger growth.

So, the argument that inadequate profitability in the bus sector is the main obstacle to better bus markets is not supported by the evidence – particularly in PTE areas. The evidence that operators are motivated primarily by passenger growth is also weak. Even in relatively closed markets operators are achieving good rates of return in declining markets through fares increases, service reductions and effective utilisation of public subsidy. Far from being a distraction better regulation offers the prospect of reasonable returns for operators as well as creating a more competitive market for the provision of bus services with better outcomes for passengers and taxpayers.

 

Pedro Abrantes

A version of this article originally appeared in Transit magazine.