HOGRIDER 125 ~ OCTOBER 2009-JANUARY 2010 ~ PART I
A RESEARCH PAPER FROM THE SOUTH HAMPSHIRE RAIL USERS’ GROUP
STAGECOACH VERSUS THE DEPARTMENT FOR TRANSPORT:
WILL THE £100 MILLION BATTLE CHANGE FRANCHISING FOR EVER?
[This article is based on extensive newspaper/magazine reports and “Stagecoach” by Christian Wolmar]
Stagecoach is in contention with the Department for Transport about the start date for payments to compensate for below-forecast returns on South West Trains. Stagecoach Chairman Brian Souter has expressed confidence of winning the argument, at a cost of £100m to taxpayers.
If the Department wins the argument, it would be unsurprising if Stagecoach walks away from its SWT and East Midlands franchises, just as it walked away from its London bus operations. That would be a severe embarrassment to the Government so soon after the collapse of the National Express East Coast franchise.
If Stagecoach wins the argument, there would be similar Government embarrassment from being seen to give £100m to Stagecoach in the midst of a belt-tightening recession, when the two founders have received huge subsidies from public funds and accumulated hundreds of millions in personal wealth.
It’s only 3 years since the DfT was nominated for an award for the excellence of the SWT re-franchising exercise. It seems to be a case of “great process; seriously flawed outcome”, and there must be real doubt about whether franchising can credibly continue in its present form.
THE LOCAL HISTORY OF STAGECOACH VERSUS THE PUBLIC INTEREST
The fledgling Stagecoach came to prominence in Southern Hampshire when it got out of the red by acquiring Hampshire Bus. It sold the less-profitable Southampton bus operation, and disposed of the city’s bus station for redevelopment, for a total of £4.4m, twice the amount it had paid for the whole company. Labour MPs were incensed, and Dale Campbell-Savours, a member of the powerful Public Accounts Committee, ensured that the affair was well publicised.
Twenty years later, complaints about the lack of a bus station still appear in the local press; country bus passengers have to queue in the open in all weather at five major departure points around the city, and changing from one service to another is awkward, particularly for frail and disabled people. Beyond a few core routes, bus services in the Southampton area have been in decline for years, and periodic service reductions generate public fury.
With Stagecoach’s finances thus underpinned at a huge cost to public transport users in Southern Hampshire, the company went from strength to strength, its “cowboy” tactics against other operators leading to the Monopoly and Mergers Commission condemning its behaviour as “predatory, deplorable and against the public interest”.
This image apparently appealed to the then Conservative Government. With the advent of rail privatisation, Stagecoach was awarded South West Trains. As this was the first and largest franchise, it was something of a flagship for the new railway order. Informed financial opinion considered that Stagecoach got a very generous settlement. Transport Minister Steven Norris later admitted, “Awarding the franchise to Stagecoach was really taking the fight to the enemy --- It was the most aggressive decision we could take, and if we had tried to dress privatisation in its most acceptable form, it would have been better to award it to almost anyone else”.
Despite an apparently generous settlement, Stagecoach immediately started profiteering through staff reductions. It shed 71 drivers and 125 middle managers, a phenomenal loss of skills. SWT was unable to run the scheduled timetable, with dozens of trains cancelled every day and many people finding it difficult to get to work. Within a year, there had been 28,000 complaints from the public.
Political fury broke out in all the major parties. Steven Norris opined, “We in the Conservative party were very happy at the way rail privatisation was going – new investment, new ideas, new services. --- SWT instantly unwound all that. It was so obviously a grave error of judgement, so obviously to the disadvantage of passengers, and so clearly an act committed by a private company. It left a bad taste instantly in people’s mouths about SWT.”
Train services were then cut permanently and, in the succeeding years, Stagecoach maintained a high media profile through its huge profits and SWT’s abysmal performance ratings. With the advent of a Labour government committed to scrapping privatisation, that should have been the end of Stagecoach’s involvement with the railways.
Unfortunately, the Labour government chose a middle way, by setting up the Strategic Rail Authority to give an element of central direction to the now hopelessly fragmented national rail system. The announcement in 2001 that Stagecoach had been chosen for a further, 20-year, franchise period on SWT was greeted with despair and anger, illustrated by comments from long-suffering passengers in papers such as the Evening Standard and Southern Daily Echo.
Stagecoach had reportedly won favour through its “straightforward” approach, its chairman Graham Eccles later admitting, “for the big PR hit what you do is add up the committed outputs, the primary aspirations and the secondary aspirations and then you shout loudly”. In the case of Southern Hampshire, Managing Director Andrew Haines had presented a long list of improvements in the Southern Daily Echo as if they were firm commitments.
SWT’s continuing poor performance, which gave Transport Secretary Stephen Byers cause to threaten Stagecoach’s dismissal, together with the collapse of Stagecoach shares owing to the ill-judged expansion of the company’s overseas bus operations, caused a two-year delay in the start of the new franchise. The SRA helped Stagecoach in keeping afloat through an extra £29m for its SWT operation, for very little return. It also gave a £106m compensation package to Virgin Trains, in which Stagecoach had a 49% interest, in relation to delays on the West Coast Main Line upgrade.
This might appear a remarkably generous use of public funds by the new SRA Chairman and Chief Executive Richard Bowker. Fortuitously, Mr Bowker was a former senior executive of Virgin Trains, his father was a senior Stagecoach executive, and he had once worked with Graham Eccles.
Mr Eccles made clear that Stagecoach wouldn’t hesitate to walk away from the franchise if it didn’t get a deal which suited it. The SRA eventually awarded the new franchise for 3 years rather than 20. In addition, Richard Bowker complied with Stagecoach wishes that SWT diesel services should not be transferred to Wessex Trains (now part of First Great Western). This meant that stock from peak Waterloo commuter services can stand idle at Salisbury depot over the weekend, while there is a shortage of space on Great Western trains in the Bristol and Cardiff areas, particularly on match days.
Most of the promised improvements on SWT evaporated, and even the mandatory order for new trains was cut by 120 carriages. The Government took back the powers it had invested in the SRA, and never again offered long-term franchises.
Stagecoach was not only draining public funds, it was placing a burden on rival franchise bidders, the cost of mounting a bid being reckoned to be about £5m. Within a couple of years, the third SWT franchising exercise started. By now the company was a Stagecoach cash cow, earning huge returns. Performance had been improved by slowing the timetable and routinely omitting booked stops to compensate for late running. A glossy passenger magazine was introduced in copious supplies, giving “independent” Stagecoach director Sir Alan Greengross a window for company spin. Remarkably, Stagecoach again kept SWT, this time by bidding more than half a billion pounds above the second highest bid. It should have been obvious that this was unlikely to provide a robust settlement, and one can only speculate whether government was blinded by the desire to claw back some of the huge amounts of taxpayers’ money which had been handed to Stagecoach. The rail watchdog PassengerFocus, apparently still believing Stagecoach was a straightforward company, welcomed the outcome as providing continuity for passengers.
Stagecoach then set about cutting quality to the marrow. Booking office opening hours were slashed, meaning many stations were unstaffed for longer hours, reducing security for passengers. Travel centres were closed, including at Southampton which had already lost its bus station through Stagecoach asset-stripping.
Rolling stock was reshuffled to cut leasing costs. The Wessex Electric long-distance trains were taken out of service, with suburban stock now regularly imposed on users of some Waterloo-Weymouth trains. Portsmouth-Waterloo commuters were squeezed into suburban trains to provide more seats for commuters from Woking, where successive trains are prone to be cancelled, or run in short-formation, during the peaks because of defective rolling stock and crew shortages.
A 20% rise was imposed on off-peak morning fares to London from stations where other operators provided no competing services. Permit to travel machines were ripped out, and the penalty fares scheme made more spiteful, with the arrogant proclamation that genuine error would be punished, despite the complexities of the fares system. Station refreshment services were jeopardised by high rental demands, for example at Godalming where SWT allegedly demanded a 140% increase.
The two Stagecoach founders prospered, sharing bonuses of a quarter of a billion pounds over two years. Then came the recession, and Stagecoach wants a £100m bail-out from taxpayers. A perfect reflection of Brian Souter’s view that “Ethics are not irrelevant, but some are incompatible with what we have to do because capitalism is based on greed”?
£70M SLASHED FROM STAGECOACH RAIL COSTS BUT SWT MANAGERS TOLD TO SLASH EVEN MORE OR LOSE BONUSES AGAIN
The Times of 10 December 2009 quoted Stagecoach Chairman Brian Souter as saying: “the [Stagecoach] group had made £70 million of cost savings in its rail business but was unlikely to be able to deliver further savings in 2010.” Elsewhere it was reported that his latest bonus was an unusually measly £6.3m.
Even less fortunate were SWT managers, who lost their performance bonuses in 2009 for missing financial targets. They have been told there will be no bonus this year unless “at least a further £7m of unbudgeted, sustainable savings are identified and implemented by year end”. Passenger income and car park revenue will be ignored in the calculation and, for the maximum available bonus to be paid, savings must be at least £10m.
One reason for targets having been missed is likely to be the limitations properly ordered by Lord Adonis on the slashing of booking office opening hours. Despite SWT’s revenue protection procedures growing ever more spiteful and the extinction of quality across the franchise, as above, it seems that Stagecoach is still managing further detriment to passengers:
* Week commencing 15/11/2009 saw misery for thousands more on SWT, with the main line between Feltham and Twickenham closed because a bridge had partially collapsed following flood damage. Advice on SWT’s website included this indication of how much was being done to mitigate the problem for passengers: “A very limited special rail replacement bus service will run between Feltham - Whitton - Twickenham. This will be a very limited service and with road congestion may take sometime. Passengers can park at alternative South West Trains stations.”
* Comment from Andy of Locks Heath: “I had to endure a rail replacement bus service a few weeks back from Bournemouth to Southampton. It was a shambles but it was not the bus driver’s fault – it was South West Trains planning for their own convenience and failing to make adequate provision or contingency plans for lack of capacity.” (Southern Daily Echo 30/11/09).
* “Assuming that the previous [rail replacement] bus had run (there was no way of knowing this) passengers at Totton and Ashurst were left with no service for a good three hours showing the usual contempt that SWT has for the largest town in the New Forest.” (David Wallis – see full report in Part 2).
* SWT’s last surviving rail-bus link, from Waterlooville to Petersfield, was axed in December. This was just a few months after Hampshire County Council literature was celebrating the Council’s partnership working with Stagecoach and the public funding of relatively limited bus services to compensate for SWT’s withdrawal of the Liphook-Bordon rail-bus link.
* The axe has also fallen on the 04.40 Southampton-Eastleigh and 05.05 Eastleigh-Southampton trains (Mondays-Fridays).
* SWT’s press and public affairs department has reportedly closed, with media enquiries now handled by East Midlands Trains’ press office in Derby or Stagecoach’s head office in Perth.
* SWT has ceased to provide seat reservations. This small savings measure is cheered by Stagecoach lobbyist Barry Doe (RAIL, issue 632) though even he chides them for saying reservations are “not necessary” rather than “not available”. Southern, which similarly doesn’t make reservations, has invested in a comprehensive priority seating scheme to help a substantial range of people, not just those who are disabled.
* Comment from Sarah of Shepperton: “GOODNESS, my railcard has been reduced by a princely 0.4 per cent. I’m still spending £235.50 a month on a journey that takes a mere 45 minutes, or at least it does when the trains are running and not flooded out, delayed, understaffed or cancelled due to lack of rolling stock or faulty equipment. I am sick of being held to ransom by greedy, profit-driven rail operators. I’d vote for almost any politician who was committed to renationalising the railways.”(Evening Standard 17/11/09)
Although farebox increases are excluded from bonus-building measures, SWT applied all normal weekday travel restrictions to off-peak and super-off peak tickets on Bank Holiday Monday, December 28th. New restrictions on super off-peak tickets were introduced from the New Year, effectively imposing a fare increase of almost 14% for many passengers. This has obvious implications for social exclusion.
£100M DEMAND ON TAXPAYERS FOLLOWS A BAD YEAR FOR STAGECOACH
While SWT’s management is being incentivised to cut through the bone and into the marrow of service quality, and fares and parking charges have soared, Mr Souter is scoring a succession of own-goals. Stagecoach has reportedly lost over £600m – by paying £555m more than the second highest bid for the latest SWT franchise; by negotiating fixed-price oil contracts before prices fell; and by loss of passengers through increasing first class season ticket rates from 50% to 80% above standard class and raising some off-peaks fares to London by 20%.
The Guardian of 14/10/09 further reported that the Stagecoach founders were claiming financier Nicholas Levene owed them over £17m. The article states: “In a high court writ, Gloag and Souter claimed Levene was given £10m to invest in mining firm Xstrata and HSBC bank. The Scottish tycoons then instructed him to sell when they made £3.8m each. They state they have not received the money.”
Sharecast recently reported that a further pre-tax amount of £2.7m was lost trying to take over National Express or its rail and bus operations. Stagecoach made prolonged efforts to grab these businesses, whilst its lobbyist Barry Doe opined in RAIL magazine that he would like to see National Express get out of railway operation altogether. Presumably Stagecoach wanted to profiteer from squeezing out as much quality from the National Express franchises, as it could get away with (destruction of the great new travel centre at Cambridge for a start?), as has happened on SWT.
The (Glasgow) Herald reports: “Stagecoach estimates it spent £7.5m on competition authorities’ cases including Preston Bus, Eastbourne Buses and Citylink.” The Competition Commission has now rejected the alleged ‘dirty tricks’ takeover of Preston Buses as not being in passengers’ interest. Stagecoach retorts that it expects to make a big profit from re-selling the company. Uncomfortable shades of the Hampshire Bus scandal?