Rail season ticket rises: making an inevitable decision, but presenting it badly “It’s the way I tell ‘em!” (the late Frank Carson)

Season tickets were always going to go up this month – and commuters have known for three months by how much. Yet newspapers and radio phone-ins have been buzzing with righteous indignation, swiftly followed by demands that the railways should be nationalised. For people interested in decision science, it’s a classic case, and one worth dwelling on briefly.

But let’s knock one urban myth on the head from the outset: the one about the railways being under the control of private companies. It’s certainly true that the train operating companies (TOCs) own assets like rolling stock and the power units that move them around the rail network, publish timetables, charge customers and pay wages. But control? Forget it. The UK rail industry is very firmly regulated, and is effectively controlled by the Government. None of the TOCs can run even one service without Network Rail. And Network Rail is a statutory corporation, with no shareholders. The Government has the right to make any changes to the company, including taking it into state ownership.

The Government also manages the whole industry through the Office of Rail Regulation (ORR). ORR is responsible for economic and safety management, through a Board, which reports to the Secretary of State for Transport. ORR has the final say in fare structure. Also they negotiate with the Treasury on what proportion of investment is paid for by the Government, and what by the rail traveller. The UK rail industry has significantly less subsidy than in other countries.

Sorry about the lesson – but this is an interesting case, and the background is important. Let’s do the rest by numbers:
1. There appears to be a paradox – ten years of increased prices, and still passenger numbers are rising. What does that tell us? The demand side for rail travel in general and commuting in particular continues to be strong. Surprising? Not really. The rail service in the UK has improved steadily in both reliability and comfort – apart from peak rush hour services, and more people than ever rely on trains to get them to work
2. There are numerous other examples of goods and services where – even in an economic downturn – demand is strong despite increased prices
3. Does this mean that price elasticity doesn’t apply to rail fares? Can the TOCs increase prices for ever with no fall off in demand? Almost certainly not – but we are not there yet
4. What about the TOCs investing in much needed improvements to rolling stock and the stations they own? Do they need to increase prices to achieve future customer satisfaction? Yes, they do, given Government regulation, and subsidy at less than 40%. It absolutely makes sense to do it while negative price elasticity still applies
5. So why were the 24 TOCs and their joint body ATOC so apologetic and defensive when they announced the average increase in season tickets of 4.2%? Heaven knows. No commuter relishes paying more, but in the current climate of cuts it is obvious that increasing the level of rail subsidy is not an option for the Government
6. Wouldn’t it have been possible to explain the reasons for investing in the future, with the Government sharing the pain with the travelling public. Of course it would. This piece has done it in less than 600 words
7. HS2? Now you’re talking dirty!