Understanding train operators' costs and revenues - new ORR study published

23 November 2012

A study aimed at improving the understanding of train operators' costs and revenues has been published by the Office of Rail Regulation (ORR) today.

ORR's analysis compares for the first time the expenditure of the 19 franchised train operating companies (TOCs), detailing how their costs and revenues have changed over time, how costs vary across franchises and an examination of the drivers of costs. Operator costs accounted for 48% of total rail industry costs in 2010-11, and are therefore an important element in improving the overall efficiency of the industry.

Over the last decade, there has been a strong growth in railway use - a 45% increase in passenger kilometres over the period – and the study highlights that:

  • TOCs' revenue now broadly matches their direct costs. The net subsidy being paid to TOCs by the Department for Transport and Transport Scotland is now £20m, down from £2.34bn in 2006-07.
  • However, TOCs pay only part of the costs of their use of the rail network. In the absence of the nearly £4bn grant paid to Network Rail, charges for TOCs to access the network would be much higher.
  • There are differences in the costs incurred by each TOC, which also vary when measured in a range of ways (e.g. cost per passenger kilometre, per vehicle kilometre, per train kilometre and per train hour).

ORR's Director of Markets and Economics, Cathryn Ross, said:

This is the first time detailed analysis of the nineteen franchised train operating companies has been published. It has involved collaboration across a number of organisations, and I welcome the commitment to transparency and accountability made by the rail industry. This is a really important step in giving taxpayers and customers access to better information about what they are funding and paying for in relation to the services they are getting.
The cost of running Britain's railways is too high and this must be tackled by the industry as a whole. Exploring and understanding the key factors that drive each train operator's costs is a very positive step in helping achieve greater efficiency.  Future reports will build on this analysis to examine how the specification of what is to be delivered in franchises contributes to costs, so that funders and the public have better information on what they are getting for their money.

Notes to editors

  1. The Office of Rail Regulation is the independent safety and economic regulator for Britain's railways.
  2. The Rail Value for Money study recommended that ORR should benchmark TOC costs nationally and internationally to better understand their cost drivers. This report is a response to that recommendation and is the first in an annual series of reports aimed at understanding and comparing the costs of passenger train operations in the UK.
  3. In understanding potential drivers of costs there are two main categories to consider: costs drivers directly within operators' control, such as expenditures aimed at increasing revenue, and costs drivers outside of direct control, such as inherent market characteristics and franchise specifications.
  4. ORR has also published analysis undertaken by the economic consultancy firm Civity that compares TOCs in Great Britain to those in other European countries. This provides an assessment of the variation in revenues and costs across operators in different countries.
  5. Read the reports at: Costs and revenues of franchised passenger train operators in the UK