Changing nature of rail’s markets

Welcome to the 'Recalibrating Britain's Railways' event series—a thought-provoking journey that challenges conventions and reshapes the railway landscape.

As we approach our next event in London, and online, on 18th October, we're excited to unveil the next article in a linked collection of thought pieces. Together these pieces aim to offer some insight and act as a catalyst to the exploration at the events themselves.

Why not join us in this exploration as we delve into critical topics, spark innovation, and collectively recalibrate Britain's railway? Details at the end of the article.

Three years ago, in the summer of 2020, as we emerged from the first (although not the last, as we would soon find out) COVID-19 lockdown, I wrote an article examining the future imperatives for the rail industry.  

I identified three critical tasks that faced Britain’s railway to rebuild its offer and deliver for users in the post-pandemic world. Firstly, rebuilding the product and developing an offer that meets the needs of the passenger, for example, flexible season tickets and less dependency on a paper ticket and physical transactions. Secondly, rebuilding the timetable and using the opportunity to develop timetables that were more robust and meet changed passenger needs. Finally, rebuilding relationships with the passenger and across the industry, leveraging the greater collaboration and knowledge-sharing demonstrated during the pandemic to shape a more cohesive offer for the nation, the individual passenger and the industry’s dedicated employees.

I concluded that “The process of rebuilding cannot take years. The rail industry and its funders need to start to rapidly evolve Britain’s railways into a more resilient form, one that is ready to face the uncertain months and years ahead.”

Now, as the railway faces a financial sustainability crisis and structural reform of the industry has largely stalled, is a time to reflect on those imperatives, consider if they still hold and review the progress made.

What market are we facing?

In aggregate rail revenues are at 70% of those seen pre-pandemic noting that inflation, impact of the Elizabeth Line and ongoing industrial action make direct historical comparisons difficult. Passenger volumes are at 88% of pre-pandemic, but if the Elizabeth Line is excluded then this falls to 73%. It is clear that coming out of the pandemic, the market for rail travel has irreversibly changed and evolved, and there is a clear imperative to evolve the customer and service offer as well. 

We have seen a leisure-based recovery following the pandemic, with the proportion of revenue generated by Advance and Off-Peak tickets up to 60% from 50% pre-pandemic and weekend demand up to 22%. The commuter market, which was already changing prior to the pandemic, has altered forever with a rebalancing of home and office working. The value to the customer, and longer-term stability to the industry, offered by season tickets has largely been eroded by this increase in hybrid working. There has been some movement back towards office working since the early post-pandemic days, with recent research suggesting that three days of office working per week is optimal for key aspects of employee engagement and workplace culture. Meanwhile, the business market remains challenging at circa 40% of pre-pandemic levels as the growth of virtual meetings make business travel more discretionary than in the past.

What are rail’s next steps?

Whilst comparisons with the pre-COVID market are useful from a contextual perspective, a continual reference back to that “world” is not helpful in addressing the commercial considerations of the railway as it is now. The industry faces a financial sustainability crisis and desperately needs to develop a service offering for the customers (and potential customers) of today by meeting their needs and expectations rather than those of a bygone era. To facilitate this, the industry must: 

• Build up a profile of the contemporary rail user and our understanding of the needs of existing, and potential, customers and their expectations drawing on insight from engagement and research, including surveys and data that has emerged since the beginning of the pandemic.
• Identify new markets as the economy and society changes in multi-faceted ways. We need to identify the market areas where there is opportunity to grow patronage, optimise revenue and compete effectively with other modes. Opportunities around the sustainability agenda/net-zero transition, across geographies and customer segments should be seized. 
• Evolve our service offer in a world of constant technological innovation. There is a clear need to develop, experiment with, and implement innovative new products and services (with associated marketing and promotion) that can benefit the customer experience and attract customers. Rail needs to compete with other modes and cannot afford to fall behind.  
• Focus on value for money. With all rail’s challenges, it is easy to forget the most important thing, the customer. Rail needs to reduce the complexity of the presentation of the customer offer and allow customers to navigate their way effectively through improved fares, ticketing and retail systems. 

The challenge is achieving these ends in what remains a fragmented network of services and brands. However, if there is a common value proposition and set of principles that the industry is collectively working to then this can support movement over time to a more consistent proposition for the different markets. The marketing that was undertaken during COVID recovery demonstrated that there was benefit in a consistent national approach. 

There continues to be an opportunity to try new things and learn and evaluate the outcomes for the benefit of the industry as a whole. A recently commenced six-month trial in Scotland, where peak fares have been removed, and LNER’s activities to research and promote the business travel market through offering a variety of complementary offers (Business Travel and Railway to Recovery - Future of Business Travel by LNER) could both (in their own ways) support the case for industry-wide change if successful.  

Some of the above will be facilitated by further structural reform, but it is not a pre-requisite. Greater collaboration and alignment across operators and the industry, facilitated by a degree of flexibility and appropriate incentives in contracts, should allow realisation of opportunities to grow both the market and its revenues.

The railway cannot solely cost-cut its way out of the financial sustainability crisis - that is the way to a spiral of decline from which it may not recover. That is not to remove efficiency savings from the equation entirely, but it needs to identify, develop and grow existing and emerging markets as a priority and decisions made with complete whole-system understanding of impact on revenues, costs and the benefits and value of investment. The first-time users of the railway today are the repeat users of the railway tomorrow.

However, to provide a foundation for growth, the railway needs to provide consistently reliable operating performance and customer experience.  The imperatives we listed from 2020 still hold true.

Thank you for joining us on this thought-provoking journey as we recalibrate Britain's railway industry. Don't miss the opportunity to be part of these transformative discussions.