Saver Fares - Differentiation and Potential Deregulation

Saver Fares: Differentiation and Potential Deregulation Final Report DfT Rail July 2007
Prepared by: ................................................ Approved by: Jane Cornthwaite Brian Vaughan John Dodgson (NERA)
................................................. Simon Temple
Saver Fares: Differentiation and Potential Deregulation Rev No 1 Comments Date
Marlborough House, Upper Marlborough Road, St Albans, Hertfordshire, AL1 3UT Telephone: 020 8784 5784 Fax: 020 8784 5700 Website: http://www.fabermaunsell.com Job No 52988T Reference Date Created July 2007
This contains confidential and commercially sensitive information, which shall not be disclosed to third parties.
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Table of Contents
Introduction ..................................................................................................................... 2 1.1 Background........................................................................................................... 2 1.2 Objectives of the study ......................................................................................... 2 1.3 Policy context........................................................................................................ 3 1.4 Structure of the Report ......................................................................................... 5 Review of existing evidence .......................................................................................... 7 2.1 Introduction ........................................................................................................... 7 2.2 Research on Fares Regulation ............................................................................. 7 2.3 TOC Submissions Regarding Saver Deregulation ............................................... 9 2.4 Evidence on Rail Fares Elasticities..................................................................... 10 2.5 Transport Select Committee Report and Government Response...................... 16 2.6 Evidence from Competition Authorities............................................................... 18 2.7 Competition Authority Views on Fare Levels...................................................... 22 2.8 Conclusions from the Review of Existing Evidence............................................ 23 New Research................................................................................................................ 26 3.1 Survey Objectives ............................................................................................... 26 3.2 Survey Methodology ........................................................................................... 26 3.3 Choice of Routes and Trains .............................................................................. 27 3.4 Questionnaire Design ......................................................................................... 27 3.5 Response Rates ................................................................................................. 29 3.6 Survey Conclusions ............................................................................................ 30 Findings From Questionnaire Responses.................................................................. 32 4.1 Introduction ......................................................................................................... 32 4.2 Number of Saver users....................................................................................... 32 4.3 Respondent income and socio-economic information........................................ 33 4.4 Journey Planning and flexibility .......................................................................... 38 4.5 Access to Sales Channels .................................................................................. 41 4.6 Conclusions from questionnaire responses........................................................ 43 Modelling........................................................................................................................ 46 5.1 Stated Preference Results and Robustness....................................................... 46 5.2 Development of policy application model ........................................................... 58 5.3 Deriving ideal departure time ............................................................................ 64 5.4 Elasticity Values and Diversion Factors between Ticket Types ......................... 69 5.5 Overall Functionality of Policy Model.................................................................. 70 5.6 Policy Tests......................................................................................................... 73 Pulling the Evidence Together..................................................................................... 83 6.1 Introduction ......................................................................................................... 83 6.2 Assessment of Market Power ............................................................................. 83 6.3 Implications for Competition Authorities if fare levels increase .......................... 84 6.4 Demand Management ........................................................................................ 85 6.5 Social Inclusion ................................................................................................... 86 6.6 Network Benefits................................................................................................. 86 6.7 Conclusions from the Evidence .......................................................................... 87
Appendix A - List of trains surveyed....................................................................................... 89 Appendix B Example questionnaire ..................................................................................... 93
1. Introduction
Faber Maunsell
Saver Fares: Differentiation and Potential Deregulation
Introduction
1.1 1.1.1
Background The nature of how passengers buy and choose rail fares, particularly for longer distance travel is changing. Only a few years ago, internet rail purchase was almost non-existent. Now 64% of travellers in off-peak periods are buying their tickets in advance, and there is every indication to assume this trend will continue. At the same time, ATOC, working in conjunction with the Department for Transport (DfT) have been pressing for a simpler fare structure, and the DfT are working with the industry delivering this for passengers. A consequence of both these development is that passengers will have more readily available and clearer information about the different fares available for the journeys they want to make. In this light, DfT Rail have commissioned this study to look at the potential impact of Saver Fares Differentiation and Potential Deregulation. Saver fares deregulation has been on the industry agenda for some while. The SRAs Fare Review Conclusions, published in 2003, did not result in Saver deregulation at the time, but comments contained with the report give a clear indication that the arguments for considering saver Fare deregulation are strong. The regulation of Saver fares (off-peak for leisure travel of about 50 miles and over) has constrained new and innovative, customer-focused tickets and has led to significant overcrowding on some routes. Indeed crowding has sometimes been higher in the offpeak than the peak due to the distortions introduced by Saver regulation. Train operators generally face a competitive market for this type of travel because passengers can normally choose alternative forms of travel if operators do not offer attractive and affordable fares. The SRA will be working with the relevant train operators to develop proposals to address these problems, with a view to replacing the existing regime by 2006 with one more suited to passenger needs. It may be possible to introduce a new regime earlier than this, subject to any proposal demonstrating benefits for passengers and taxpayers.
1.1.2
1.1.3
1.1.4
The DfT now has responsibilities for fares policy for the rail industry. As part of a wider strategic assessment of the direction of the rail industry in the years to come, DfT Rail has commissioned this study to look again specifically at the Saver fare market and to provide new research to inform decisions about saver fare regulation policy. Faber Maunsell, in conjunction with NERA Consulting, undertook the study between February and May 2007. The findings of their work are presented in this report. Objectives of the study The high level objectives of the study have been as follows:

1.1.5
1.2 1.2.1
To consider the markets within which Saver fares operate; and To consider the consequences for consumers of relaxation of regulation
1.2.2
The study was designed to provide quantitative estimates of the extent to which fares would or would not rise and the consequences to passengers of a relaxation of Saver regulation. The study aimed to assess the evidence on whether operators on routes where Savers are available have significant market power and what passengers, if any, are captive ie have no realistic travel alternatives. To achieve this, we have undertaken three main tasks: 1. 2. Reviewed and assessed existing evidence and research; Undertaken new primary research of the Saver market; and
1.2.3
Faber Maunsell
3.
Developed a policy testing model using information from both tasks 1 and 2, to provide insight into the implications of selected policy tests.
1.3 1.3.1
Policy context Why Regulate? Before considering changes to a regulatory system, it is worth reminding ourselves of why regulation can be beneficial. In the rail industry, fare regulation is in place to :
Protect consumers in situations where service providers have significant market power and can use this to raise prices significantly; Promote social inclusion, in so far as high rail prices could restrict the mobility of some sections of society; Ensure affordable tickets are retained in situations where the use of more than one operators services is required or where the constraint of being able to only use one operators services unduly restricts travel opportunities.
These points are important to bear in mind, because Saver fare de-regulation is unlikely to be acceptable unless it can be shown that the operation of the market will result in satisfactory outcomes in relation to them. The Existing Situation 1.3.2 Savers fares are available for sale for most longer distance point to point journey combinations on the rail network. They can be purchased immediately before travel, or in advance. As they are currently regulated, the extent to which Train Operators can raise prices is limited. Saver tickets are placed in a fares basket, along with other regulated tickets such as Standard Class Seasons. The total weighted increase in the fare basket is restricted (currently to RPI +1% per annum) and there are also caps on how much any individual fare within the basket can be raised. Saver fares are always cheaper than the equivalent Open ticket fare usually considerably so. The following table show some selected Open, Saver and APEX fares for selected flows:
Table 1.1 Illustrative Fares
Flow London to Manchester London to Birmingham New St London to Bristol Newcastle to Edinburgh 1.3.3
Cost of Return Journey () Open Saver APEX 219.00 59.50 from 25.00 117.00 37.70 from 20.00 125.00 49.00 from 20.00 78.00 41.50 from 18.00
Unlike Open tickets, which can be used on any train, at any time of the day, Saver tickets have time restrictions placed on them. The time restrictions vary from TOC to TOC, but typically passengers are not able to use a Saver ticket on arrivals (and sometimes departures from) London in the morning peak, or on departures from London in the evening. The restrictions that TOCs are able to put on tickets are currently regulated and currently only trains out of London may have evening peak restrictions placed on them. The table below provides a summary of current Saver restrictions for the long distance TOCs.
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Table 1.2 Saver Restrictions Operator Virgin Trains West Coast Transpennine First Great Western Virgin Cross Country GNER Restrictions Euston departures before 09:15 or between 15:15 and 18:11. Euston arrivals before 11.00. Exceptions for very long distance journeys Journeys that reach their destination prior to 09:30 Departures from Paddington before 09:00 and between 16:46 and 18:59; arrivals to Paddington before 10:40 Restrictions into and out of Birmingham in the morning peak Departures from Kings Cross before 09:00 or after 14:30
1.3.4
It is often possible for passengers to buy a cheaper ticket than a Saver fare. Advance purchase (APEX) tickets are considerably cheaper than Saver fares, but they limit a passenger to a particular train, and they must be booked in advance. At the moment APEX reservations can be taken up to 18.00 on the day before travel, although the cheapest fares are often not available by then. Train operators offer a quota system, which allocates a certain number of tickets at each advance purchase fare. When these tickets have been sold, the cheapest fare available will then be the available on the day Saver. Saver tickets have two main advantages over APEX tickets. First, they can be bought on the day of travel (as well as in advance). Second, they can be used for any train which is not in the Saver fare restricted period. This makes them a product of choice for passengers who: 1. Are unable or unwilling to ensure they can plan their journey to catch a particular train. 2. Have been unable to purchase a cheaper APEX ticket in advance (because APEX quotas have been sold out). 3. Do not know in advance that they will be making the journey. 4. Are unwilling or unable to purchase in advance by telephone or Internet. These travellers would need to make an additional trip to a station or travel agent to purchase their ticket.
1.3.5
1.3.6
If a passenger is travelling on a train for which their ticket is not valid (either on an APEX ticket for the wrong train or a Saver ticket in restricted periods), they are generally charged the difference between the fare they paid and the appropriate fare for the journey being made. For APEX tickets, an administration charge is made and allowances are made if the train booked did not actually run.
Current Policy Considerations 1.3.7 This study is primarily concerned with assessing the potential impact of changing (or removing) Saver fare regulation. However, there are other important changes that the DfT is considering. Firstly, ticket simplification could have an important impact on making it easier for passengers to choose the best ticket for them. Second, it is likely that fare setting will move towards singleleg pricing in the near future. Currently a Saver Single is priced at 1 less than the equivalent Saver Return. Single leg pricing would mean that single fares are always priced at approximately half the return fare.
Faber Maunsell
1.3.8
The DfT has been looking at the likely impact of single leg ticketing. To maintain revenue neutrality in a single leg pricing scenario, Saver Return fares would increase a little, and Saver Single fares would decrease a lot. At the moment, because of very small difference in price between a single and return, passengers are generally likely to buy a return. With single leg pricing we would expect some passengers to choose combinations of different single ticket types for the outward and return legs of their journeys. The DfT has asked TOCs for their proposals on how they would change fares and restrictions if Savers were to be deregulated. This provides some helpful insight. TOCs would prefer passengers to buy their tickets in advance because it helps them to plan and manage to make sure that capacity and resources are used as efficiently as possible, while allowing them the best opportunity to yield maximum revenue, within the existing fare regulation. The same TOCs have expressed the opinion that the Saver fare is fundamental to their income stream. In summary the following influences will be in operation on the longer distance rail market: Fares simplification; Single leg pricing; Possible Saver fare deregulation; Increasingly sophisticated yield management systems; and Increasing availability and use of internet sales.
1.3.9
1.3.10

1.3.11
All of these factors will impact (to a greater or lesser extent) on the number of passengers choosing to travel, and the type of tickets they choose. Within this context, the DfT are interested in gaining information on these impacts, and in also, specifically assessing the impact on captive and/or vulnerable people.
1.4 1.4.1
Structure of the Report Chapter 2 presents existing evidence relevant to the research. This includes a review of existing fares regulation. It covers the responses received from TOCs on their fares proposals if Saver fares were deregulated. It examines existing evidence on fare elasticity work, including material in the PDFH and more recent work from MVA. It also considers evidence from the Strategic Fares model. Finally, this chapter assesses the way that competition authorities have assessed the strength of competition in rail industry markets. Chapter 3 describes the new research that has been undertaken as part of this study through an on-board passenger survey. Chapter 4 presents finding from the questionnaire responses, together with inferences and conclusions that we can draw from this research. Chapter 5 explains in more detail the stated preference section of the survey and the use of the results from the stated preference responses to develop a policy application model. Chapter 5 also provides results from the application of the model to test a number of policy options. Chapter 6 pulls all the evidence together and reviews the conclusions that can be drawn from the policy tests undertaken using the application model.
1.4.2
1.4.3
1.4.4
2. Review of existing evidence
Faber Maunsell
Review of existing evidence
2.1 2.1.1
Introduction This chapter of the report provides a survey of relevant previous evidence for the present study of the impact of Saver deregulation. In particular we are interested to know what current evidence can tell us about the impact of changes in Saver fares on the demand for Saver tickets, on the demand for rail travel on other ticket types, on passengers choice of travel time, and on TOC revenues. This chapter is structured as follows:

In Section 2.2 we review two previous studies of the impact of fares regulation, by ITS Leeds and by NERA; In Section 2.3 we summarise TOC submissions to DfT on the potential effects of deregulation of Saver fares; Section 2.4 reviews relevant evidence on fares elasticities, including inter-relationships between ticket types. We consider in particular evidence from the latest version of PDFH, recent work by MVA, values used in the Strategic Fares Model, and a study of the effect of competition from other modes on rail fare elasticities. Section 2.5 summarises the Transport Select Committee report on rail fares and the DfT response; In Section 2.6 we review evidence from competition authority investigations, in particular with whether these investigations shed any light on the question of whether leisure rail fares are constrained by competition from other modes; and Section 2.7 sets out the competition authorities views on fares. Section 2.8 provides overall conclusions in regard to the most relevant evidence that can be used in the present study.
2.2 2.2.1
Research on Fares Regulation ITS Leeds Study This major piece of research by ITS Leeds is very relevant to the current study on Saver regulation, though it was conducted prior to establishing the principle of single leg pricing and so primarily deals with return fares, not single fares. It included interviews with TOCs and a major market research exercise, including stated preference. Central to the work was development of a model, which was used to test policy options. In this review, we concentrate on the work conducted with respect to long distance trips as these are relevant to Saver fares; the actual research also concerned short distance trips. Market Research The market research was conducted in August and September 2004. It resulted in around 1,200 completed questionnaires for standard class, long distance travel, as well as further responses for short distance trips. It covered the following long distance flows and operators:

2.2.2
GNER - Newcastle, Darlington and Durham to London; GNER and WAGN - Peterborough to London; First Great Western - Bristol, Bath and Chippenham to London; and Virgin and Silverlink - Birmingham, Birmingham International, Coventry, Rugby and Milton Keynes to London.
2.2.3
The research allowed ITS to compile data on, amongst other things:

Ticket type (and whether a Railcard was used); Journey purpose; Where tickets were bought (station, internet, etc); The number of days in advance the respondent knew that they planned to travel; The respondents desired departure time; and Respondent characteristics (age, gender, income, trip frequency).
Faber Maunsell
2.2.4
The stated preference research was tailored to be realistic for the flows and trains being surveyed, ticket type, class of travel and journey purpose, resulting in 44 questionnaire designs (some of which concerned short distance journeys). Each stated preference scenario allowed respondents to select their preferred (return) fare type, where the fare types were a subset of Open, Saver and Apex for both standard and first class. Each scenario had a choice of between two and four fares. Each ticket type had between three and five stated attributes that were a subset of the following:

Fare level; In-train journey time (presumably for flows served by two TOCs); Departure time restrictions on outward and return leg: Open was departure at any time, Saver had an earliest departure time, and Apex had a choice of departure times, but they had to be selected in advance; Number of days in advance that the Apex ticket had to be purchased; Class of travel; and Add-ons such as free parking.
Each attribute had between two and four levels. Model Design 2.2.5 ITS developed a logit model for this work. The model operated at two levels: at the lower level, individuals choose between six ticket types: Open, Saver and Apex ticket types for both standard and first class travel. At the upper level, individuals chose between rail travel and not rail travel. The lower level of the model was calibrated on the basis of the stated preference research. Notably:

Fare levels and return journey times were specified; It modelled Apex demand according to the varying number of days required for advance booking; Travel time restrictions were modelled as the divergence of the actual travel time permitted from the preferred time for the passenger (in many cases this would be zero); and Separate model parameters were used for each journey purpose, and for short and long journeys.
2.2.6
For each journey purpose, a sample of one thousand individuals was simulated, each with specific desired departure times for outward and return legs, sampled from MOIRA. The logit model was then used to allocate these individuals to ticket types. The upper level calibration (rail versus not-rail) used base demand data (from LENNON). The appropriate elasticity was taken from Wardman and Shires meta analysis of British data presented in Balcombe et al (2004).1 Policy Testing ITS used a long distance case study, traffic between London and Leeds, to investigate the potential of various policy options:

2.2.7
Fare basket regulation of all standard class fares; Fare basket regulation of standard open and standard Saver fares; Fare basket regulation of standard open fares; Fare basket regulation of Saver fares (this is current practice); Total fare deregulation at current service levels; and Welfare maximisation holding revenues and costs constant.
2.2.8
For each of these options, three scenarios were tested, where the weighted average of fares within the fares basket was permitted to rise by 2, 5 and 10 per cent in real terms. Under an additional scenario, the weighted average of fares within the fare basket was permitted to rise by 2 per cent, but individual fares could rise by no more than 6 per cent (which is akin to current regulatory practice). For each of these options and scenarios, ITS estimated the impact on fares where TOCs were assumed to set fares to maximise revenue, subject to the constraints;
1
The Demand for Public Transport: A Practical Guide; TRL Report TRL593, 2004, www.demandforpublictransport.co.uk. This guide mostly focuses on short distance public transport trips, and is superseded by the latest version of PDFH, so is not reviewed here.
Faber Maunsell
demand; revenue; consumer surplus; and welfare (= revenue plus consumer surplus). First class fares were set to be constant because ITS considered the model elasticity with respect to these fares to be spurious. 2.2.9 For all options and scenarios tested, the model forecast that the standard open fare would increase, relative to current prices, as would the standard Business Saver, but the Saver fare would fall in price. As these changes could occur in any case under current regulatory constraints, the model results appear to be counter intuitive. NERA - Rail Fares Policy: an Evaluation2 2.2.10 This study by NERA consisted of an overall assessment of rail fares policy in Great Britain from the time of rail privatisation to the time the study was prepared (2001/02). It considered many aspects of fares policy, including commuter fares regulation, use of fares baskets and protected fares, interaction with the London Travelcard and other multimodal tickets, and adjustment of fares on the basis of train performance. As part of this work, the report investigated the price changes in Saver fares from 1995/96 to 2000/01. It found that, overall, Savers increased close to the maximum amount permitted. In contrast to the constant real price of Savers, the price of pre-book and promotional tickets fell in real terms. NERA noted that other walk-on reduced fares that were unregulated, such as cheap day and supersaver tickets, increased in real terms by around 2.7 per cent a year from 19952001. NERA suggested that Saver fares have similar demand characteristics to these fares so that if Savers had not been regulated they may have risen by similar amounts. Note that this study did not look at time -of -day fare differentials. TOC Submissions Regarding Saver Deregulation Background In 2006, the Department for Transport asked train operating companies (TOCs) to make confidential submissions setting out how they might respond to Saver deregulation. Separately, TOCs were asked to consider DfTs proposals for fares simplification, and they responded to this jointly through the Association of Train Operating Companies (ATOC). A key component of the fares simplification proposal is that long distance single fares would be set at half the return fare, a proposal we refer to as single leg pricing. This has important ramifications for Saver deregulation. In addition, DfT instructed Train Operating Companies (TOCs) to assume that Saver deregulation would only be permitted on the understanding that it was revenue neutral, and that this should inform their responses. TOCs answered individually, anxious to avoid accusations of collusion. Most long distance operators responded in detail, except those under going franchise replacement. Single Leg Pricing 2.3.2 Most long distance operators accepted the principle of single leg pricing (where single fares are set at half the return fare), particularly for long distance flows for which advance purchase alternatives are available. There was some reluctance to accept single leg pricing for medium distance flows where advance purchase is not available. TOCs with high levels of non-London flows were most concerned with this proposal, and did not necessarily accept it, at least in the short term. Several TOCs noted that single leg pricing could result in significant revenue abstraction, and produced some analysis supporting this. For example, a typical business day trip currently undertaken using a full open return could be replaced by a full single on the outward leg (in the morning peak) and a Saver single on the return leg (there are fewer Saver restrictions in the evening peak). The extent of such revenue abstraction must be a concern to TOCs and others in the industry.
2.2.11
2.3 2.3.1
2.3.3
NERA (2002), prepared for the Strategic Rail Authority.
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Saver Deregulation 2.3.4 TOCs overall welcomed the principle of Saver deregulation. These included TOCs, particularly those with non-London flows, who argued that Saver deregulation would in practice make little difference to their fares structure. They noted that Savers were, in some cases, set below maximum permitted levels, and there remained some flexibility to increase restrictions on use. A number of TOCs, however, proposed to have three tiers of walk-on fare for many of their flows, instead of the current two. These would be:

Any time - permitted at any time, including the peak; Off peak - permitted at any time outside the main morning and evening peaks; and Super off peak - only permitted during the off-peak.
2.3.5
TOCs went into details as to their preliminary thoughts on how the restrictions on use should change. This included a more expansive definition of the evening peak (where only full fares would be permitted) to include services leaving stations other than London. The shoulder peak fare would be the cheapest available fare on certain services either side of the morning and evening peaks, and on a number of Sunday services. One TOC also suggested introducing restrictions on some popular travel days adjacent to public holidays, as well as summer Saturdays on some routes. Another TOC suggested making a limited number of services reservation only, to manage crowding more effectively. Whilst several TOCs argued that there was limited scope to increase prices, others made tentative proposals (presumably operating within the constraint of revenue neutrality). These proposals are quite difficult to compare with the status quo because they tend to represent large reductions on current single fares. TOCs also mentioned a number of other miscellaneous issues including:
2.3.6
Willingness to introduce single leg pricing for advance purchase fares, acceptance of railcard discounts for advance purchase fares, and other simplification policies (in line with ATOCs submission on fares simplification). Proposals to introduce advance purchase fares (at higher levels than currently) for some peak trains. Concern that Saver fare deregulation would result in less flexibility to increase inelastic regulated fares that share the same tariff baskets, notably day return fares and season tickets.
2.4 2.4.1
Evidence on Rail Fares Elasticities A rail fare elasticity is the ratio of the percentage change in demand for the rail fare to the percentage change in price. Thus an elasticity of -1 means that a 10 per cent increase in fare will result in a 10 per cent fall in demand. Fares are said to be elastic if their elasticities are -1 or more (negative); if a fare is elastic, a reduction in its price should result in an increase in revenue. Fares are said to be inelastic if their elasticities are smaller than -1; in such circumstances, an increase in the fare should result in an increase in revenue. There are different types of fare elasticity: conditional fare elasticities are those that reflect changes in demand if all other fares (usually other rail fares, but possibly other public transport fares) change by the same proportion. Own elasticities are the ratio of demand and price for the fare concerned, with all other fares being held constant. Own elasticities are greater (in absolute terms) than equivalent conditional elasticities since generally, the more alternatives that are available, the more elastic will be demand. The principal source on rail fares elasticities is the Passenger Demand Forecasting Handbook, which itself is based on a wide ranging review of evidence. We also review here recent work by MVA for the Department for Transport examining the validity of PDFH recommendations. And we refer to a technical note prepared by Institute for Transport Studies, which tests the effect of competition from other modes on fare elasticities an issue of particular relevance to this study. Passenger Demand Forecasting Handbook3 PDFH makes recommendations for fares elasticities to be used in analysis of rail demand. Table 2.1 shows own elasticities, which are the ratio of percentage demand for the specific fare
3
2.4.2
2.4.3
2.4.4
Version 4.1, June 2005.
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to percentage change in price, with the price of all other fares being held constant. This is not the same as overall demand for rail, because many passengers would switch to and from other fare categories, and PDFH explains how to relate the two using diversion factors. Table 2.1 Own Fare Elasticity Recommendations for Long Distance Trips Seasons London Travelcard Area to and from Great Britain excluding the South East Inter Urban, excluding London, > 20 miles -1.0 Other -1.0 Commuting -1.0 Business -0.65 Leisure -1.25
-0.9
-1.0
-0.9
-0.6
-1.10
Source: PDFH June 2005, Tables B2.3 and B2.4.
2.4.5
Table 2.2 shows PDFH recommendations for conditional fare elasticities, which are elasticities when all fares change by the same proportion. Table 2.2 Conditional Fare Elasticity Recommendations for Long Distance Trips First London Travelcard Area to and from rest of country, excluding the South East Non London over 20 miles Non London over 20 miles (No Apex) Non London over 20 miles (No 1st or Apex)
Source: PDFH June 2005, Table B2.6
Full -0.85 -0.85 -0.90 -0.90
Reduced -1.00 -1.00 -1.05 -1.05
Apex -1.50 -1.50 n.a. n.a.
-0.65 -0.65 -0.70 n.a.
2.4.6
Sources of PDFH recommendations with regard to fare elasticities are considered in Chapter C2 of PDFH. The chapter notes that the way that the fares elasticities in Chapter B2 (and reproduced in Tables 2.1 and 2.2) were arrived at, is documented in the fares elasticity review conducted by ITS Leeds as part of the PDFH update.4 There are a number of studies that have particularly considered fare elasticities on longer distance flows, namely:
2.4.7
The econometric study by Owen and Phillips published in Journal of Transport Economics and Policy in 1986,5 further work by Phillips, and the subsequent Jones and Nichols study published in JTEP. These studies modelled short- and long-run responses and showed overall fare elasticity to be around -1.0, but must now be regarded as somewhat old; Saver ticket research on the Manchester-London and other routes shortly after introduction of Saver products. This showed fare elasticities for business travel of -0.5 and for nonbusiness travel of between -1.3 and -1.6; The AEAT study of inter-urban fares elasticity in 1999.6 This involved disaggregation by ticket type and journey length. Fare elasticities are quoted for first non-season travel, standard full, standard reduced, and standard Apex, but PDFH notes that the Apex elasticities are not really meaningful as demand for these tickets is constrained by available quotas. Generally elasticity is higher for standard reduced than standard full tickets, and higher for standard full than for first non-season; These AEAT results were revisited as part of the update to PDFH4, with particular emphasis on disaggregation of elasticities by ticket type.7 It is this update that formed the basis of many of the fare elasticity recommendations contained in Edition 4 of the PDFH. Estimates are provided of fares elasticities in the 100-200 miles and over 200 miles distance bands.
Fares Elasticity Review, ITS Leeds, February 2005. Mark Wardman, Review of Fare Elasticity Evidence for Passenger Demand Forecasting Handbook Update, ITS Leeds, January 2005.. Inter-Urban Fare Elasticities, AEAT, December 1999. Handbook Update Demand Analysis, ITS Leeds, May 2002.
4 5
6 7
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For the 100-200 miles band first class own-fare elasticity was -0.92, full elasticity -1.55 and reduced elasticity -1.38. For the over 200 miles distance band, first class elasticity was 0.56, full fare elasticity -1.00, and reduced fare elasticity -1.23. NERAs two studies of fare elasticities;8 Reports by Oxera and by SDG;9 The SRA Strategic Fares Model produced by Jacobs Consultancy and ITS Leeds (see Section 2.3.3 below); and Meta-analysis of longer-distance fares elasticities by Wardman and Whelan.
The Wardman fares elasticity review includes the following information:

In regard to flows between the London TCA and the rest of the country they cite evidence on overall fares elasticities from Oxera, NERA, SDG, PDFH4 Update and meta analysis studies which have weighted average overall long-run elasticity of -1.0 from seven studies. This is the value that they recommend be used; In regard to non London long distance overall fare elasticities they show that long run elasticity is closely distributed around -1.0, and again recommend use of this value; For conditional ticket type elasticities: - For conditional elasticities for first class fares they quote NERA 2003 value of -0.49 meta analysis values of -0.83 (which includes evidence from dynamic studies) and -0.37 (which only includes evidence from static studies, and recommend a value of -0.65. - For conditional elasticities for full fares they quote NERA 2003 value of -0.49, meta analysis values of -1.07 and -0.61, and recommend a value of -0.85; - For conditional elasticities for reduced fares they quote NERA 2003 value of -0.82 and meta analysis values of -1.22 and -0.86, and recommend a value of -1.00p and - For Apex tickets they quote ITS values of -1.10 (Whelan short-run), -1.83 (Whelan long run) and -1.38 (Wardman and Toner), and recommend a value of -1.5.
Variation of Fare Elasticity With Fare Level in PDFH 2.4.8 PDFH also advises on how elasticity varies with fare level (Section B2 p6): There is little empirical evidence on how fare elasticities vary with the level of fare and the attractiveness of rail. The evidence for long distance London, long distance Non London and short distance Non London flows indicated that the elasticity of the fare elasticity with respect to the fare per mile charged was around 0.6. In other words, a 10% increase in the fare per mile would increase the elasticity by 6%. If allowance is to be made for the fare charged per mile, it is recommended that an elasticity of 0.6 is used. The recommended fare elasticities of Section B2.5.2 are taken to be representative at the average fare per mile. Variations in the fare per mile around the average are used to modify the fare elasticity. As an example, suppose the fare per mile on a long distance London flow is 35% higher than the average. The adjustment to the recommended fare elasticities would be: 1.350.6 = 19.7% higher = -1.20 2.4.9 In contrast to version 4.0, the latest PDFH does not advise on how elasticities should be adjusted on the basis of strength of competition. It states: The elasticity modifiers relating to the competitive position which were recommended in previous editions of the Handbook have been removed. This is because the empirical evidence only related to Non London long distance flows from a single study and a considerable element of judgement was required in their application.
NERA Analysis of Passenger Rail Demand, for OPRAF, July 1999; NERA Long Term Fares Elasticities, for SRA, November 2003. Oxera Rail Market Elasticities, 2004: SDG, The Effect of Road Congestion on Rail Demand, Report for PDFC, 2003.
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We review the document concerned in Paragraphs 2.4.22 to 2.4.25. Inter-Relationships Between Ticket Types and Time Periods in PDFH 2.4.10 PDFH also gives detailed advice on calculating demand for one fare as a result of changes to the price of another fare on the same flow. This can be calculated by using own-fare elasticities and diversion factors, which are the proportion of a change in demand for a fare that are diverted to or from each of the other fares (or other transport modes). PDFH has an accompanying spreadsheet that makes these calculations. The diversion factors are derived from a single piece of research. PDFH recommends, however, that locally derived diversion factors are sought wherever possible. The PDFH research appears to suggest that Saver fares (ie reduced fares) are elastic, and therefore increasing these fares would not increase revenue (and there may be some financial benefit in reducing them). This tends to be at odds with observed TOC behaviour, where Saver fares are typically set at maximum levels. Where Saver fares are not set at the maximum level, this may be due to the effects of other fares in their basket. PDFH also considers the relationship between conditional elasticities and pure own elasticities, and shows how they are related using diversion factors and relative volumes by ticket type. The manual provides recommended diversion factors between ticket types to undertake these calculations10, as well as the simple spreadsheet to implement them. However, PDFH recommends that, where possible, diversion factor evidence should be collected through market research related to the particular case under investigation. When introduction of new tickets is being considered, PDFH can only advise that expert advice should be sought.11. In regard to modelling changes in time-of-travel restrictions, PDFH notes if time of travel restrictions on reduced fares are to be tightened, market research should be conducted to identify switching between ticket types as well as the reduction in demand for rail travel so that demand for each ticket type can be forecast. Alternatively, changes in travel restrictions could be converted into an equivalent change in fare of the restricted ticket using parameters set out in Chapter B3 and the forecasting system set out in Section B2.10.12 Rail Passenger Demand Forecasting Research13 2.4.14 MVAs current work for DfT reviewing PDFH has made certain recommendations on fare elasticities, some of which concern long distance travel. The recommendations are set out in Table 2.3. Table 2.3 Conditional Fare Elasticity Recommendations for Long Distance Trips(All Public Transport Fares Changing Together)
2.4.11
2.4.12
2.4.13
10
Set out in Section B2.12.3 of PDFH. For example, for routes from the rest of the country to and from London with weak airline competition recommended diversion factors for standard full fares are 65 per cent to first, 24 per cent to standard reduced, and 8 per cent to standard apex. For standard reduced fares, recommended diversion factors are 8 per cent to first, 39 per cent to standard full, and 51 per cent to standard Apex. But see the comment in Section 2.4.20 that these were just guesstimates. PDFH, Chapter B2, p.16. PDFH, Chapter B2, p.12. MVA (January 2007) Workstream 1: Interim Demand Forecasting Methodology draft report for Department for Transport.
11 12 13
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Seasons London Travelcard area to and from rest of country, excluding South East Non London: Inter Urban 20 miles -0.7
Other -0.95
Commuting -0.7
Business -0.75
Leisure -1.05
Conditional Elasticities (all public transport fares moving together)
-0.7
-0.75
-0.7
-0.55
-0.9
Own Elasticities (other public transport fares held constant) -0.75 -1.05 -0.75 Rest of Country to and from London TCA -0.8 -1.0 -0.8 Non London: Inter Urban 20 miles
Source: MVA (2007) Tables 4.2 and 4.3
-0.8 -0.6
-1.25 -1.1
Note that MVA use conditional to mean changes in all public transport fares; in PDFH the term is used to mean changes in all rail fares. 2.4.15 The basis for MVAs recommendations, in so far as they differ from PDFH, is that:
MVA think long distance season ticket demand will be less elastic than that stated in PDFH, because informal discussion with TOCs suggest that they are below revenue-maximising levels, and because PDFH recommendations for long distance season tickets are very different from those for shorter distance season tickets. MVA considers the elasticity for business on flows to London to be too low. They say (para 4.5.28): We accept the leisure own-elasticities in PDFH v4.1 as reasonable, but consider the elasticity for business on flows to London to be too low. It was probably appropriate over much of the period over which analysis was undertaken, but there have been substantial recent increases in full fares which will have increased elasticities, even in the business market. These price increases have generally not occurred on the non-London flows.
In regard to diversion factors, MVA note (Para 4.5.3) There is some research into diversion factors, which has been effective for longer distance journeys. MVA do not dissent from PDFH recommendations for diversion factors with respect to long distance flows. 2.4.16 MVA argue strongly that forecasts should be made with respect to journey purpose rather than ticket type. However, we consider that presenting fares elasticities according to journey purpose rather than ticket type is problematic for the long distance market. Elasticities of demand are thought to vary according to price level: as business passengers buy both full and Saver fares, they face very different price levels, and presumably have very different elasticities for the two fares (with unregulated - full fare elasticity approaching -1, the profit maximising level). The Strategic Fares Model 2.4.17 This model was developed for the SRA by Jacobs and ITS Leeds. The SFM can be used to assess the effects of changes in different fare categories on demand and revenue in a number of different parts of the rail sector, including that for longer distance travel. As such, the SFM needs to take account of impacts of changes in fares for particular ticket types on demand for travel by that ticket type (own fare elasticities) and impacts of changes in fares for a particular ticket type on demand for travel on other ticket types (cross-elasticities). The elasticities used in the SFM model are based on work by ITS as part of the study, so we would not have expected them to differ to a substantial degree from those recommended by ITS for PDFH. Cross-elasticities are derived from own-elasticities using the diversion factor approach.
Own-Fare Elasticities in the SFM
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2.4.18
Own-elasticities for longer distance flows and for current product types are provided in Appendix A to the SFM final report. Table 2.4 reproduces values for different ticket types for eight different inter-urban service groups. Table 2.4 Own-Fare Elasticities in the Strategic Fares Model Route Rest of country to London, 20-100m Rest of country from London, 20-100m Rest of country to London, 100-200m Rest of country from London, 1000-200m Rest of country to London, 200+m Rest of country from London, 200+m Non-London interurban with full set of tickets Non-London interurban without full set of tickets
Source: SFM, Final Report, Appendix A
First class -0.75 -0.75 -0.85 -0.85 -0.60 -0.60 -5.30
Standard full -1.50 -1.50 -1.60 -1.60 -2.25 -2.25 -1.10 -0.60
Standard reduced -1.25 -1.25 -1.40 -1.40 -1.35 -1.35 -1.30 -0.60
2.4.19
We believe that these are overall, rather than conditional, elasticities. Apart from the very high own-fare elasticity for first class travel (which is likely to reflect the very low proportion of nonLondon interurban flows on first class tickets), the values used do not differ substantially between flows. However, we are surprised to note that standard reduced elasticities are less than the standard full elasticity on each flow.
Diversion Effects Between Ticket Types in the SFM 2.4.20 Appendix H to the SFM Final Report notes that the SFM methodology requires information on diversion factors in order to deduce a consistent set of own and cross elasticities across their ticket type demand equations. As far as the SFM authors (and we) are aware, there is no available evidence on diversion factors between ticket types, while they refer to those in the PDFH update (which we refer to above in Section 2.4.12) are guesstimates. Consequently, the SFM team used survey techniques to assess what passengers would do if their current ticket type became unavailable. Results are provided in Appendix H for a number of longer-distance routes, including journeys on GNER services, Great Western, Trans Pennine, Virgin Cross-Country and Virgin West Coast. These results might be used to inform the present study, though these diversion factors are likely to be higher than we need in the present study because it does not seem that passengers were being offered an alternative choice to switch of ticket type, namely switch of travel time. Effect of Coach and Car Competition on Rail Elasticities14 2.4.22 Previous versions of PDFH drew on this single piece of research to recommend adjustments to fares elasticities according to the strength of competition from alternative transport modes. It was removed from the latest version of PDFH because it was considered to be too subjective. Given the relevance of the research to the current study, however, we note its main findings here. Analysis was conducted on six years of CAPRI [sales] data (1986-91) on 764 flows. These were used to calculate fares and generalised journey time elasticities for non London InterUrban flows. In addition these elasticities were compared against the relative generalised costs of car and coach travel on that journey. Non-London flows were the most rewarding as these had the greatest variation in strength of competition.
14
2.4.21
2.4.23
ITS (University of Leeds) Technical Note 348, November 1993
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2.4.24
The work used both a constant elasticity model and a non-linear least squares model. For fares elasticities, the results from the latter model were not particularly robust, and the constant elasticity is preferred. But the analysis did find evidence that fares elasticities were higher on flows with strong competition than on those flows with relatively weak competition. Results are summarised in Table 2.5. Table 2.5 Conditional Fare Elasticity Recommendations for Long Distance Trips (All Public Transport Fares Changing Together) Fare Elasticity -1.2 Competition Strong, eg a direct motorway link or poor rail service Normal Weak Example Flows 1 2 3 -1.0 -0.8 4 5 6 7 Leeds to Luton Stoke to Blackpool Oxford to Cambridge Cardiff to Manchester Edinburgh to Aberdeen Southampton to Newport York to Newcastle
2.4.25
For an individual flow:

Generalised Cost of rail is defined as generalised time (i.e. distance divided by generalised speed Q) multiplied by 4 pence per minute (at 1993 prices) plus the average fare paid. Generalised Cost of coach is defined as generalised time (i.e. distance divided by generalised speed Q, calculated on the coach timetable) multiplied by 4 pence per minute (at 1993 prices) plus an estimate of the average fare paid. Generalised Cost of car is defined as the road journey time (as estimated by the computer package " Autoroute") multiplied by 4 pence per minute (at 1993 prices) plus petrol cost based on 4 star leaded petrol assuming 40 miles per gallon and cost per gallon from the publication "Transport Statistics".
Results for flows to and from London were less robust. Conclusions on evidence on rail fare elasticities 2.4.26 The preceding section has summarised evidence from previous work on rail fare elasticities. For the present project we are particularly interested in evidence on fares elasticities by one particular ticket type (Savers) and the values of these when Saver fares change in relation to other fares (that is, not conditional elasticities). Much of the evidence available gives elasticities by journey purpose rather than ticket type, and the overall elasticity for long-distance leisure travel by rail is often found to be elastic15. Conditional own-fare elasticities for reduced price tickets seem to cluster around -1.0. However, previous elasticity estimates do not take account of the possibility that Saver fares could vary over the day (for example, because of shoulderpeak pricing). In such circumstances passengers will consider alternative times as to travel. How this will affect behaviour can be investigated using time-of-day diversion factors, though we are not aware of previous work on the values that these might take.
2.5 2.5.1
Transport Select Committee Report and Government Response16 In 2005/06 the Transport Select Committee investigated a range of issues with respect to rail fares:
15
However, a study by ITS for the Monopolies and Mergers Commission found an elasticity of -0.9 for leisure travel by rail see para 2.6.9 House of Commons Transport Committee, Sixth Report of Session 2005 - 06. How fair are the fares? Train fares and ticketing.
16
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Their strategic significance; The complexity of rail fares; The value for money of rail travel; The management and pricing of rail fares; Timetabling issues (including disruption due to engineering works); and Regulation.
2.5.2
The Committee made a number of conclusions that are pertinent to Saver regulation. Overall, they considered Savers should be more tightly regulated, and that Open full fares should also be regulated. We set out the basis for these conclusions below, together with the Department for Transports associated response. Standard open rail fares are walk-on fares that can be used on all trains. They are unregulated, and have been subject to substantial increases on many flows. The Committee concluded: It is imperative that reasonably priced open walk-on fares are re-instated so that nobody is excluded from using the railway for trips which cannot be booked in advance. We recommend that the Government take measures without delay, through franchise agreements, to cap open walk-on fares. (para. 64)
2.5.3
2.5.4
DfT response: The Government does not believe that there is a case for capping Open fares; Open tickets are used for fully-flexible travel during the Monday-Friday business peaks and appear to be set at reasonable economic rates (i.e. at a level reflecting modal competition), taking into account the wider market and the cost of providing the necessary infrastructure. Regulating to reduce such prices would not only add to the underlying subsidy cost for rail but also create additional investment pressures to meet the resultant increases in demand. The Government does believe that there are strong economic reasons to invest in rail to respond to demand. But it does not believe that those benefits and costs would remain positive if the level of demand on such routes was being additionally stimulated by price subsidy at levels below a competitive market rate. (DfT para 52)
2.5.5
On walk-on fares (as opposed to advance purchase fares) the Committee concluded: The ability to turn up and go without notice is a vital characteristic of the railway. Without walk-on fares, the railways would have no hope of competing with road travel. (para. 74)
2.5.6
DfT response: The Government does agree that there is also a role for reasonably priced walk-on fares. These exist at present in the Saver market and both Government and operators see this type of fare as important going forward. (DfT para 51)
2.5.7
On Saver fares the Committee said: We find it hard to see how Saver fares that are easy for passengers to understand and use, universal across the network, and good value for money can be seen to prevent the development of more customer focused products. We are therefore deeply concerned about proposals to reform or even abolish regulation of Saver fares. It is imperative that Saver fares, which are the only remaining affordable walk-on fare on our railways, are ring-fenced and protected. It is the Governments duty to tax-payers and passengers to provide this protection. (para. 82) and: We note the claims of some Train Operating Companies that they would retain Saver fares if they were de-regulated. We have little faith in these assertions.
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Savers have already been eroded in many cases by ever narrower time-oftravel restrictions imposed by train operators. We strongly suspect that in a deregulated market, Saver fares would eventually be eroded to the point of irrelevance because operators would be tempted to apply ever stricter conditions and restrictions on their use, making these tickets difficult for passengers to use. We therefore recommend not only that the Government retain regulation of Saver fares, but that it take immediate steps to strengthen the current regulatory regime in order to limit the kind of travel restrictions that train operators are able to impose, and to ensure that travel restrictions are the same for Saver tickets across all operators on the network. (paras. 85 and 86)
2.5.8
DfT response: There arelegitimate questions that can be asked about whether [a cheap turn-up and go ticket] should have the same pricing level whatever the demand for the train (causing very high crowding on the last Saver trains, whilst other trains remain under-utilised at, or because of, current Saver pricing levels) We believe that it is important such issues are properly and objectively considered as part of an ongoing process of discussion. We do agree with the thrust of the Committees conclusions that de-regulation on the basis of assertion or speculation would be undesirable and could lead to passenger detriment.both Government and most importantly, passengers (sic) need to have confidence in the objectives and credibility of outcome of any changes to ensure they deliver benefit. (DfT para 60, 61)
2.6 2.6.1
Evidence from Competition Authorities In this section we consider whether evidence from competition authority investigations can shed light on the factors constraining leisure fares on longer distance rail services, and hence on the question of whether some Saver fares might rise if deregulated. The relevant competition authority investigations are those concerned with mergers or potential mergers between passenger rail service operators. The Enterprise Act 2002 made two major changes to the UK system of merger control. First of all, decisions will in general be taken by the Office of Fair Trading (OFT) and the Competition Commission acting as specialised independent competition authorities (and not, as previously, by the Secretary of State for Trade and Industry). Second, in assessing whether mergers should be allowed to proceed the OFT and Competition Commission will apply a substantial lessening of competition (SLC) test. Cases are first considered by the OFT, who decide whether the case should be referred to the Competition Commission. The Test for reference will be met if the OFT has a reasonable belief, objectively justified by relevant facts, that there is a realistic prospect that the merger will lessen competition substantially. A merger may be expected to lead to a substantial lessening of competition when it is expected to weaken rivalry to such an extent that the competitive process would no longer deliver a similar level of customer benefits as it would without the merger ... the OFT might expect that product choice would be reduced, prices could be raised profitably, output could be reduced and/or product quality or innovation could be reduced ... any of these post-merger effects would be expected to be sustained for more than a short period of time. There are three criteria to constitute a relevant merger situation:

2.6.2
2.6.3
Two or more enterprises must cease to be distinct; The merger must not yet have taken place, or taken place not more than 4 months before the reference is made (unless the merger took place without public announcement and without the OFT being informed); and
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Either the turnover test or the share of supply test are met. The 'turnover test' is that UK turnover being acquired exceeds 70 million and the 'share of supply' test is that the merging enterprises must together supply or acquire at least 25 per cent of all those particular goods or services supplied in the UK or a substantial part of it.
2.6.4
Franchise agreements in the rail industry qualify as potential mergers. Section 66(3) of 1993 Railways Act (as amended by paragraph 30(8) of Schedule 25 of the Act) provides that where a person enters into a franchise agreement as a franchisee there shall be taken to be brought under his control an enterprise engaged in supplying the railway services to which the agreement relates. The award of a rail franchise can therefore constitute an acquisition of control leading to two or more enterprises ceasing to be distinct. Most mergers relating to franchises meet the turnover test. The proper frame of reference for application of the SLC test is that of market definition it is necessary to define the relevant product and geographic markets affected by the market. Market definition focuses attention on the areas of overlap in the merging parties' activities. This is particularly the case in differentiated product markets (like travel markets) where the parties' products or services may not be identical, but may still be the competing alternatives to each other. Once the overlap of the merging parties products or services has been identified, the investigation can focus attention on assessment of the competitive situation. In principle then, evidence from these investigations may have considered whether mergers might have reduced competitive pressure on rail fares. In regard to the present study on Saver fares, we are particularly interested in any analysis of competitive effects on longer distance leisure fares. There have been some 26 decisions on rail industry mergers, but we should bear in mind that their potential to provide useful evidence is limited by the following considerations: 1. The question being asked in these exercises involving market definition is different to the question being asked in the present study of potential impact of Saver fares deregulation: In merger investigations the question is that of whether a rail operator could increase fares once a merger had taken place so that the market structure had changed from the present one In the present study the question is that of whether an existing rail operator could increase certain existing fares (namely Saver fares) in the existing market situation if they were to be deregulated.
2.6.5
2.6.6
2. Given that Saver fares are currently regulated, it is perfectly possible that a merger investigation at present would not consider that there would be a danger that they would be raised in a less competitive situation than the pre-merger one because it would simply conclude that regulation prevents this from happening. Assessment of the Evidence 2.6.7 Nevertheless we believe it is important to assess the evidence that exists. Our review is based on the 26 investigations since rail privatisation. However, we only list in detail, in Table 2.6, 12 investigations involving longer distance TOCs, where Saver fares would be of importance. These are not listed chronologically but according to service groups, as follows:

Franchise bids for the InterCity East Coast franchise (4); Franchise bids for the Greater Western franchise (3); Firsts bid for Scotrail; Monopolies and Mergers Commission investigations of initial National Express franchise awards (3); The recent Competition Commission investigation of the joint venture between Stagecoach and Scottish Citylink to operate coach services in Scotland; and Arrivas bid for the Wales and Borders franchise.
2.6.8
Table 2.6 summarises information on the way that the investigations considered overlaps between the rail services concerned and other rail or other transport services. The main conclusions are as follows:
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2.6.9
There has been relatively high emphasis on the impact of competition between rail services and coach services. Longer distance rail, and coach, services are clearly seen as in competition for leisure passengers. However the emphasis has mainly been on the question of whether rail competition constrains coach fares, rather than on whether coach competition constrains rail operators ability to increase leisure rail fares. Nevertheless, work by ITS Leeds for the Monopolies and Mergers Commission in 1996 produced an estimate of own-price elasticity of 0.9 for leisure travel by rail. The report concluded that the merger between National Express coach and rail services could be expected to lead to higher coach fares or higher fares on both coach and rail. Most recently the Competition Commission report on the Stagecoach/Scottish Citylink joint venture has provided a suggestion that coach fares could constrain rail fares, in this case in the Great Western region. The report notes17: The main parties drew our attention to the introduction of new low-price 'Firstminutefares' by First on its Great Western Rail franchise, and submitted that these were a reaction to coach fares since, in their view, relationships between these fares and both megabus and National Express pricing schemes were evident. The main parties also noted that First had stated that it had begun to monitor coach fares in Scotland. Further, the main parties considered that it could only be a matter of time until similar fares were introduced by First on its ScotRail franchise and that, more generally, it could be expected that rail fares in Scotland would fall over time (as evidenced, among other things, by lower rail fare pricing on other franchises elsewhere in the UK on comparable routes). The main parties argued that this was additional evidence that coach and rail services were in competition, and that ScotRail could be expected significantly to lower its rail fares in the near future.
2.6.10
We note that all this was somewhat speculative. Indeed, the Commission themselves were sceptical, and noted that the existence of Firstminutefare could at most be interpreted as evidence of coach services constraining rail services rather than vice versa. But note that this is exactly the type of evidence we are looking for in looking to see if leisure rail fares may be constrained by competition from other modes. Only one set of cases, namely the bids for the Inter City East Coast franchise, raised issues of the impact of competition from air services on rail services. The OFT thought that, in the case of the bid by Virgin/Stagecoach for the InterCity East Coast franchise, competition from air would constrain the ability of Virgin/Stagecoach to raise fares on the LondonEdinburgh/Glasgow/Dundee routes. While many of the investigations have looked at competition between rail and buses this has involved short-distance journeys where Saver fares do not apply. We have not covered these cases in this review. Generally the competition authorities have not regarded competition from the private car as providing a competitive constraint on rail fares because they have not regarded them as sufficiently close substitutes. This means that the time and cost of car travel is not expected to exert significant pressure on rail fares on parallel routes. Conclusions on Competition Authority Investigations In conclusion, competition authority investigations have reviewed competition and potential competition in the rail industry in considerable detail. However, evidence that leisure rail fares (and particularly Saver rail fares) on longer-distance routes are constrained by competition from other modes is limited. While many of the studies include some fare elasticity evidence, the combined sum of this evidence is much less than that which is contained in the PDFH. In addition we have also noted that competition authorities would not be inclined to worry whether mergers would lead to increases in Saver fares given that Saver fares have been regulated.
2.6.11
2.6.12
2.6.13
2.6.14
17
Competition Commission Stagecoach and Scottish Citylink TSO, 23 October, 2006
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Table 2.6 Competition Authority Investigations of Impact of Competition on Fares

Potential bidder and franchise OFT decision and date Referred Competition for rail and conclusions on impact of overlaps No overlaps identified Concern was rail-on-rail competition from Hull Trains, also from Trans-Pennine Express which was also owned by First. Rail faced continued competition from air on London Edinburgh/Glasgow/Dundee routes so this would restrict merged entitys ability to raise rail fares. Potential reduction in competition from Virgin Cross Country on certain routes did raise concerns with the OFT. Also some coach issues. The potential issue here was not competition for passengers but access to light maintenance depots. Issue was competition from bus on nine routes. Also wider network markets, and some consideration of car. OFTs concern was National Express ability to raise coach fares. OFT thought there were substantial incentives for Stagecoach to raise bus fares (and/or reduce frequencies) and perhaps also to raise unregulated rail fares as a result of the merger. Bus, but on short distance journeys and concern was that bus fares might be increased. Competition between coach and rail services. Merger was judged to be against the public interest because MMC saw possibility of increased coach and rail fares. (The public interest test was the test that preceded the SLC test.) Coach/rail overlap was expected to lead to some loss of competition, and increases in coach fares on nine routes.
GNER and Intercity East Coast First and Intercity East Coast
21/12/04, not referred 21/12/04, initially referred since First were unable to offer acceptable undertakings. But franchise was awarded to GNER. 21/12/04, not referred as OFT was considering undertakings but then the SRA awarded the franchise to GNER so undertakings and possible referral no longer relevant.
Virgin/Stagecoach and Intercity East Coast
LYNE (DSB/EWS) and Intercity East Coast
08/12/04, not referred.
First and Greater Western
30/09/05, referred. CC reported 08/03/06. Merger not expected to lead to SLC. 30/09/05, referred but withdrawn on 22/12/05 after First short-listed. 30/09/05,referred but withdrawn on 22/12/05 after First short-listed
National Express and Greater Western Stagecoach and Greater Western
First and Scotrail
13/01/04, referred. Undertakings had been offered but were not accepted. Investigated by MMC
National Express and Midland Main Line
National Express and Scotrail
Investigated by MMC
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Table 2.6 Competition Authority Investigations of Impact of Competition on Fares

Potential bidder and franchise OFT decision and date Referred Competition for rail and conclusions on impact of overlaps Some coach/rail overlaps but there was also competition on these routes from other TOCs. This was a merger between two coach operations but the issue of competition from rail on coach services was considered. While the main concern was whether competition from Scotrail constrained coach fares (rather than the other way around) there was some discussion of whether Great Western leisure rail fares had been constrained by coach competition. Competition between bus and rail. OFTs concern was that Arriva might foreclose access to rail stations by other bus operators through issue of multimodal (i.e bus and rail) tickets that could not be used on other companies bus services.
National Express and Central Trains Stagecoach and Scottish Citylink
Investigated by MMC
Competition Commission report published 23/10/06
Arriva and Wales Borders
09/07/04, not referred because Arriva gave undertaking on third party access to multi-modal tickets.
2.7 2.7.1 2.7.2
Competition Authority Views on Fare Levels A policy note by the ORR sets out the role of competition law in regard to rail fares. At the beginning of their note the ORR say: Responsibility both for fares policy and for the regulation of those fares subject to regulation lies with the Department for Transport. The note concludes with the following statement: ORR remains of the view that if there are public interest concerns about fare levels, then these should be addressed by DfT through its fares policy. Nevertheless, the ORR policy note states that the setting of fares by TOCs is subject to competition law and, as competition authority for rail services, ORR could intervene if it had reason to suspect that individual fare levels were incompatible with competition law. In doing so, the ORR would take account of whether a fare is subject to regulation when considering any complaint of excessive fares under the 1998 Competition Act. Under Chapter II of the Act, which prohibits abuse of a dominant position, ORR can scrutinise fares that appear to be excessive. But, to do so, the ORR would need to have reasonable suspicion that the TOC holds a dominant position in the relevant economic market and that it is abusing its position of dominance. In assessing whether or not dominance exists, ORR will need to take into account the extent to which alternative modes of transport provide a competitive alternative to the rail service. ORR note that where other modes of transport offer viable alternatives such that they impose a competitive constraint on the TOC, it is likely that the TOC would not be found to be dominant. In addition, the ORR note that, even if dominance were to be established, meeting the test that prices are excessive is difficult:
2.7.3
2.7.4
2.7.5
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As the ORR policy note indicates, there have been no cases either in the UK or at the European Union level where prices have been judged to be excessive in the sense that the impact is solely to harm consumers rather then distort competition: - There have been no 1998 Competition Act cases brought by competition authorities in the UK that have addressed pricing that was exploitative but not anti-competitive; and - The European Court of Justice has not upheld any decisions where the European Commission has found a dominant firm to have charged an illegal excessive price, except in cases where that price itself distorted competition.
The ORR note also points out difficulties in establishing whether individual rail fares are excessive in the circumstances, which are those which arise in the present study of longer distance rail services, where costs are shared between all train services provided by a TOC and between different passengers on the same train.
2.7.6
NERA believe that the ORR view is consistent with their ruling on the only complaint of excessive fares on which they have published a judgement. This case was that of complaints of excessive unregulated fares on Virgin West Coast services (including London-Manchester) in 2001. In this case the ORR conducted a preliminary investigation, and the Regulator ruled that although Virgin might be dominant in one or more of the relevant markets, he did not believe that there were reasonable grounds for suspecting that Virgin had behaved abusively in charging excessive fares and he declined to conduct a full investigation.
2.8
Conclusions from the Review of Existing Evidence

Two previous studies, by ITS Leeds and by NERA have considered potential impacts of deregulation of Saver fares. That by ITS concluded that Saver fares would fall rather than rise, but this result might appear curious in that there is nothing at present preventing train operators from reducing Saver fares. The study by NERA concluded that Saver fares would rise with deregulation, based on evidence on overall fare elasticity, on the fact that Saver fares were set at or close to the ceiling permitted by regulation, and on evidence on what had happened to the most closely related unregulated leisure fares, namely cheap day returns and supersavers. The DfT had invited TOCs to comment on both proposals to introduce single leg pricing and to deregulate Savers. Most long distance operators accepted the principle of single leg pricing for long distance flows, though there were some concerns in regard to other flows. Overall TOCs welcomed the principle of Saver deregulation, and some argued that in practice deregulation would make little difference to their fares structure. A number of TOCs proposed three tiers of walk-on fares. Some made tentative proposals to increase prices. There is very detailed evidence on rail fare elasticities, including evidence for leisure travel and evidence by ticket type. For modelling the potential impact of Saver deregulation we require information by ticket type. Conditional fare elasticities by ticket type are included within PDFH (see Table 2.2 above), while the Strategic Fares Model uses overall elasticities by ticket type (see Table 2.5 above). Evidence is also available on fares elasticities by journey purpose. Relationships between elasticities can be derived using diversion factors, own elasticities and relative traffic volumes. There is some evidence available on diversion factors between ticket types, but not on diversion factors between time periods. One study has considered how the strength of inter-modal competition will affect rail own-fare elasticities. The conclusion is that fare elasticities are higher on flows with strong competition than on flows with relatively weak competition. The effect of this has been captured in the study through the diversion factor approach where the " would not travel by rail " diversion factor is higher for those services where modal competition is higher. We have reported the conclusions of the Transport Select Committee investigation into rail fares and the DfTs response. The Committee considered that Savers should be more tightly
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regulated than at present and that Open full fares should also be regulated. The Committee noted that they had little faith in claims of some TOCs that they would retain Saver fares if they were deregulated. In response to this view DfT suggested that there was a case for considering whether Saver fare levels should be the same on all trains, especially on crowded trains close to the peak.
As we have just noted in the previous section, while competition authority investigations have reviewed competition and potential competition in the rail industry in considerable detail, evidence that leisure rail fares (and particularly Saver rail fares) on longer-distance routes are constrained by competition from other modes is limited. While many of the studies include some fare elasticity evidence, the combined sum of this evidence is much less than that which is contained in the PDFH. An ORR policy note sets out the ORRs position in implementing the 1998 Competition Act in regard to complaints about excessive fares.
3 New Research
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New Research
3.1 3.1.1
Survey Objectives The overall aim of the survey undertaken as part of this study was to obtain information on the characteristics and preferences of passengers making a range of longer distance rail journeys at times when Saver fares are valid. The survey was designed to include both passengers who use Savers and those who choose other ticket types. The objectives of the research were firstly to establish information about passengers who do or could potential use Savers, which would assist in determining their need for protection through the regulation of Saver fares. The second objective was to collect Stated Preference data which could be used in the development of a model which can assess the ability of operators to increase revenue through charging higher fares if regulation was reduced or eliminated. Survey Methodology Introduction The requirements for the fieldwork were to collect 1,250 completed questionnaires over a range of routes, and at different times of day. The survey was designed to provide a good understanding of the characteristics of the rail market when Savers are currently available. The stated preference (SP) part of the survey was designed to look specifically how people trade-off ticket flexibility, fare, and the requirement to purchase in advance. Because stated preference is a complicated and technical way of conducting surveys, the quality of the responses is very much dependent on the characteristics of the options respondents are offered. In order to maximise the likelihood of sound SP results, we undertook a Pilot study. If time had permitted, for a study of this complexity, it might have been preferable to use a computer aided survey approach. Although computer aided design allows extremely focussed and customised questions to be presented to an individual, there is an unavoidable amount of preparation and programming to ensure the software is set up correctly. For this study, DfT have been working to a very short timescale which did not allow a computer aided approach. The format of the final survey consisted of two parts:
3.1.2
3.2 3.2.1
3.2.2
A section containing questions relating to the respondents travel choices and demographics; and A stated preference section which has been used to determine how people trade off between ticket type characteristics.
Paper surveys were printed and handed out on-train to be completed during the journey. Survey staff collected completed surveys from respondents or left by respondents on the train. 3.2.3 The pilot survey was carried out on four trains between Manchester and London on Tuesday, 27th February. Responses rates were high (83%). Preliminary results from both the conventional and stated preference results produced encouraging results. Minor amendments were made to the first part of the survey, and production of the stated preference elements of the surveys was set in place before printing and delivering the main survey questionnaires. Further details relating to the complexity of the SP design are provided in Chapter 5, but the nature of the way information had to be customised for the SP part of the survey to be realistic to specific passengers meant there were 378 unique questionnaire types. Questionnaires for the main survey were distributed on the following days.

Friday 16 March 2007; Sunday 18 March 2007; Monday 19 March 2007; and Tuesday 20 March 2007.
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3.2.4 3.2.5
The DfT were particularly interested in carrying out surveys on Sunday, because Sundays are currently un-restricted for Saver fares, but often experience some of the heaviest train loadings. The questionnaires were designed and printed by Faber Maunsell. The fieldwork was undertaken by the survey company SkyHigh. In total 9,650 questionnaires were printed and around 6,050 were handed out. Choice of Routes and Trains Prior to the final survey schedule being finalised, considerable discussion took place to ensure a good range of flows were sampled. In order to maximise the number of passengers on any particular train who were in-scope (bearing in mind that the questionnaires were customised for specific train and flow combinations), we chose flows which were expected to have significant volumes of in-scope passengers. The final list of London flows surveyed is as follows:

3.3 3.3.1
London Euston - Birmingham/Birmingham International; London Marylebone Birmingham SnowHill/Birmingham Moor St/Solihull; London Kings Cross York; London Kings Cross Newcastle; London Kings Cross - Edinburgh; London Euston - Manchester/Stockport; London Euston Macclesfield; London Euston Stoke on Trent; London Paddington Bath Spa; and London Paddington Bristol Temple Meads.
We also surveyed the following cross country flows:

Edinburgh to York; Leeds to Birmingham; Newcastle to Birmingham; Newcastle to York; and York to Birmingham.
Each of the flows was surveyed in both directions. 3.3.2 Trains were chosen to give a good representation throughout the day, and to allow reasonable survey logistics. Appendix A provides a list of every train flow surveyed. Questionnaire Design An example of the questionnaire is shown in Appendix B. The first section of the questionnaire contains questions relating to the journey that the respondent is making, their ticket choices and their demographics. These questions were decided in discussions between the DfT, Faber Maunsell and NERA. Their purpose was to provide answers on key questions including:

3.4 3.4.1
What are the characteristics of users when Savers are available? For what purposes are they travelling? What alternatives do they have? Do they need the flexibility that Savers provide? Who is choosing which ticket type? What time would they ideally have liked to travel?
3.4.2
The second section of the questionnaire contains the stated preference exercise. Stated Preference is a research technique used which presents trade-off situations to people. It enables their underlying preferences to be revealed using advanced econometric modelling techniques using specialist software package such as ALOGIT. The timescale of the study was exceptionally tight. To a large extent, the timescales constrained the methodology used. Usually when exploring a complex research topic such as this, we would carry out qualitative research using focus groups with respondents to get a better understanding of the choice context and explore the factors that influence this choice. As
3.4.3
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explained previously, given the complexity of what we were trying to present to respondents it would have been advantageous to have used a computer aided (CAPI) approach. However, the timescale did not permit these approaches. 3.4.4 In the SP experiment respondents were asked to make trade-off between ticket types. Each type of ticket was described in terms of:

Fare - This is the one-way fare payable Advance Purchase - This is the number of days in advance it is necessary to purchase the ticket. This only applies to advance purchase tickets as for Open and Saver tickets it is not necessary to buy in advance. Time of Departure - This is the departure time of the train. This is used to calculate Displacement time which is the difference between travellers ideal travel time given elsewhere in the questionnaire and the actual time of departure. Seven departure times were given. Open tickets were available on all seven. Savers were available on four and Advance tickets were available on two.
3.4.5
Accordingly, respondents were asked to consider ticket price, availability (which trains they were available on) and flexibility (whether they could change trains after the ticket was purchased). Given the increasing use of single leg ticket pricing particularly by Virgin and GNER, it was decided to concentrate on the single leg of the journey respondents were on when contacted. In the SP experiment respondents were asked to choose their ideal time of train departure and ticket for the leg of the journey they were making when contacted in the survey. This was a highly complex design since for each of the scenarios presented to them they were faced with a choice of 7 departure times and three types of ticket Open, Saver and Advance. Seven train times were offered three either side of the train time which the respondent was travelling. We did not allow them to choose Saver or Advance tickets in any of the hypothetical situations we offered for the train they were travelling on, in order to encourage them to trade displacement time and fare. This meant that the questionnaire was customised for each train so that we could ensure Saver and Advance ticket option were not available for their chosen train. An example of the type of scenario presented is shown below for a train departing at 19.00:
3.4.6
Ticket
Open Saver Advance
Fare()
55 25 15
Advance Purchase
None None 7 days
1730
1800
1830
1900
1930
2000
2100
If these were the only tickets available I would not travel by train

3.4.7
When making a choice, respondents were asked to make a trade off between the fare payable, whether it would be necessary to buy in advance and the time of travel. In the first part of the survey, respondents were asked to state their ideal departure time. From this, it is theoretically possible to calculate the respondents implied displacement time from their ideal time of travel. Providing respondents fill in the questionnaire rationally and have understood the choices they are being asked, we expect them to choose the departure time/ticket combination which minimises the disutility (fare + convenience + availability etc) of their journey. Displacement time was a key variable of interest in this study. Open tickets in the survey were more expensive than others, but fully flexible and available on all trains. For Open tickets choosers, displacement time is assumed to be zero. Saver tickets were cheaper than Open tickets but were only available on 4 of the 7 trains. They had some flexibility because they were usable on any one of the four trains that were available. Advance tickets were cheaper than Saver tickets but were available on only 2 of the 7 trains. Advance ticket choices had no flexibility. They could not be changed once booked. Advance tickets also needed to booked in advance. In order to be as realistic as possible, the times of the available trains were based on the actual timetable. However the availability of Saver and Advance tickets were varied from reality in order to force people to switch time of travel.
3.4.8
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3.4.9
Would not travel was a fourth alternative which respondents could choose if the rail ticket alternatives were too unattractive. Although complex, the layouts were designed to be similar to information people are presented with when they book a ticket on-line, for example using www.thetrainline.com. This would at least to be familiar to some people. During the survey design process the different variables of interest are combined in such a way that the correlations between them are minimised, otherwise the data becomes collinear and estimation problems result. The design was a fractional factorial design based on the standard reference material for designing SP experiments (Kocur et al (1982)). The full SP design consisted of 18 scenarios which would have been too much for respondents to be expected to complete through a paper-based unsupervised approach. Consequently each design was split into two, A and B, each with nine scenarios. These were distributed to respondents at random. In stated preference research it is important that the options given to a respondent correspond to situations that they can easily understand and relate to their journey. This is why it was necessary to customise the questionnaire for each train. The times offered to respondents centred on the time of the train they were actually travelling on, and fare options were based on actual fares for the journey (although obviously these were varied as part of the SP experiment). Response Rates Main Survey Of the 6,050 questionnaires handed out, 1,790 questionnaires were returned giving a response rate of 30%. Table 3.1 shows the response rate and Table 3.2 shows the actual number of responses received. Significant numbers of responses were received from all of the London routes and across all of the days surveyed. However, responses were very low on cross country routes due to low numbers of people on the trains making in-scope journeys and problems with on-train Virgin staff. Table 3.1 Response Rate by Route Route Bristol Birmingham Manchester Edinburgh Cross Country All Friday 35% 22% 48% 15% 2% 24% Sunday 41% N/A 42% N/A 0% 25% Monday 19% 57% 33% 50% 10% 33% Tuesday N/A 40% 32% 18% 32% 34% All 31% 40% 39% 36% 7% 30%
3.4.10
3.4.11
3.5 3.5.1
Table 3.2 Number of Survey Responses by Route Route Bristol Birmingham Manchester Edinburgh Cross Country All Friday 197 78 112 55 9 451 Sunday 49 0 98 0 0 147 Monday 54 211 78 394 75 812 Tuesday 0 245 77 34 24 380 All 300 534 365 483 108 1,790
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3.6 3.6.1
Survey Conclusions The main survey response rate of 30% is reasonably good for a self completion survey. However it was considerably lower than the Pilot survey. It is not entirely clear why this is so. Pilot study survey administrators were only distributing one type of survey form. It is possible that staff were able to spend more time explaining the purpose and nature of the questionnaire to every person it was handed to. On some trains, survey staff received little and at times hostile co-operation from on-train staff. All TOCs whose trains were being surveyed were informed of the trains affected, and permission had been received from all. If passengers see that train staff have shown a negative or uncooperative attitude towards survey staff, it could reduce the likelihood of passengers filling the surveys in. Some passengers may chose not to fill in the questionnaire (after they have accepted it), because it takes them longer than they had anticipated. Several respondents gave up on the stated preference section (around 33% of otherwise completed questionnaires). As we have discussed, stated preference is a more complicated technique than a conventional survey, and there are trade-offs to be made between complexity of design and quality of response. In this case, the complexity of the trade-offs we required for the study meant the design of the SP was always expected to be complex. The high response rates for the Pilot study suggested that the complexity of the design was not unduly affecting response rates. The number of different survey questionnaires was also an important factor for the fieldwork part of the study. This meant the survey logistics were extremely tight and allowed very little review time between Pilot results and main survey printing. There are risks associated with all surveys (and particularly SP) surveys. These might have been minimised with either more review time scheduled into the process and/or a somewhat reduced survey scope (e.g. fewer flows). Piloting is an important way of testing the survey approach. In this particular case, the Pilot survey did not indicate any major design problems and the overall timescale for the study limited the time available for review.
3.6.2
3.6.3
4. Findings From Questionnaire Responses
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Findings From Questionnaire Responses

Introduction The survey collected a large volume of information about the characteristics of Intercity rail users travelling outside peak periods. In this Chapter we focus on providing information which assists in answering a series of questions which are of particular relevance to understanding the potential vulnerability of passengers to any possible increase in walk-up fares due to:

4.1 4.1.1
Income and socio-economic information; A lack of alternative modes; Need for flexibility in departure times; and Lack of access to booking channels other than at stations.
4.2 4.2.1
Number of Saver users First we look at the number of respondents who are using Saver tickets. In the non-peak periods, it is a high proportion. Between 37% and 39% of passengers are using Saver tickets. Table 4.1 What type of ticket are you using for your journey? Outward Return Open Saver Advance First Advance Season Other Total 25% 37% 18% 8% 2% 10% 100% 25% 39% 17% 7% 2% 9% 100%
This table is corroborated by information we have summarised from the LENNON ticket sales data.
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Table 4.2 2006 LENNON Revenue by Flow Ticket types
Flow Birmingham to London London to Birmingham Manchester to London London to Manchester Edinburgh to London London to Edinburgh Bristol to London London to Bristol Birmingham to Newcastle Newcastle to Birmingham Edinburgh to York York to Edinburgh All 4.2.2
Standard Full 50% 44% 39% 34% 35% 19% 47% 36% 43% 53% 11% 11% 37%
Standard Reduced 15% 13% 11% 13% 14% 24% 1% 0% 17% 12% 44% 35% 13%
Standard Reduced Advance Purchase 1% 1% 2% 1% 8% 11% 13% 16% 1% 1% 9% 7% 6%
Standard Season Ticket 6% 0% 1% 0% 1% 0% 7% 1% 1% 0% 3% 4% 2%
Saver Standard 29% 42% 47% 51% 42% 46% 31% 48% 38% 34% 33% 43% 42%
The LENNON data gives a slightly higher proportion of Saver fares than the survey, which is surprising, because the LENNON data includes sales from all time periods. We might expect that the total proportion from the LENNON data to be lower than in the survey, which was conducted at non-peak (Saver valid) times only. Using the categories attributed within LENNON, APEX is very small share smaller than we have been finding from the survey respondents. This may be because APEX purchases are increasing year on year (and LENNON data is historic in this respect). Alternatively, the categorisation of ticket types within LENNON reduced may include some APEX tickets. In reality it is likely to be a combination of both factors. In any event, both sources of data clearly show the significance of the Saver product in the current long-distance rail market. Respondent income and socio-economic information On average non-peak Intercity rail users are relatively affluent. Over 50% of those surveyed had a household income of over 35,000. ONS statistics state that average UK household income is 27,000. The table shows that Saver respondents have very slightly lower household incomes than the average, but not significantly so. Table 4.3 Total Household Income Overall Under 7,000 7,000 to 12,500 12,501 to 17,500 17,501 to 35,000 35,001 to 50,000 50,001 to 75,000 More than 75,000 Prefer not to disclose Don't know Total 7% 5% 7% 20% 13% 14% 17% 12% 5% 100% Saver d t 9% 7% 9% 20% 13% 13% 13% 12% 5% 100%
4.3 4.3.1
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4.3.2
Most respondents are employed over 75% are employed in some way. For Saver fare users, the proportions are very similar although there are slightly more students than average travelling on Saver tickets.
Table 4.4 Main Occupation Overall Work full time Self-employed Homemaker Work part-time Student Retired Other Total 4.3.3 57% 11% 2% 7% 12% 9% 1% 100% Saver respondents 54% 11% 1% 8% 15% 10% 1% 100%
Looking at journey purposes, there is a high proportion of passengers travelling on business. There is a higher proportion of Saver fare users visiting friends and relatives, and a slightly lower proportion travelling on business, than respondents overall. Nevertheless, the journey purpose profiles are remarkably similar for Saver fares, compared to the average.
Table 4.5 Journey Purpose Overall To/from work - regular commuting On business/in connection with work To/from school/college/university Personal business Sport or entertainment Visiting friends/relatives at their home Shopping Holiday/short break Other social/recreational Other Total 4.3.4 8% 41% 4% 3% 3% 23% 2% 8% 4% 3% 100% Saver respondents 6% 35% 5% 4% 4% 30% 2% 6% 5% 3% 100%
The high proportion of business travel leads us to look in further detail at who is paying for nonpeak tickets. First, as we would expect, a higher proportion of passengers using Saver tickets are paying themselves than on average. But the proportion of passengers not paying is still high. 45% of passengers overall do not pay for the ticket themselves, and 36% of Saver fare passengers.
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Table 4.6 Who paid/will pay for ticket Overall I have paid myself I have paid myself, but will claim the cost from my employer I am self-employed and the ticket will be a business expense My employer bought the ticket Other Total 4.3.5 55% 15% 5% 19% 5% 100% Saver respondents 64% 17% 5% 12% 5% 100%
The picture is similar to Savers for Advance purchase tickets, with 68% of Standard Advance tickets being purchased by individuals. This leaves 32% of Advance purchase tickets being bought by an employer, or someone else a surprisingly high proportion, given the traditional view of journey purposes, business, leisure and commuting roughly corresponding to full, reduced and season ticket types. These results show that the traditional correspondence is changing, and that employers and employees are taking advantage of cheaper fare alternatives in non-peak times. Unsurprisingly, of those respondents who did pay for their own ticket, more, proportionally, were from were from lower income household than average.
4.3.6
Table 4.7 Income splits for passengers paying for their own tickets Paying Respondents themselves overall Under 17.5K 17.5 - 35K Over 35K Total 33% 27% 41% 100% 23% 23% 54% 100%
4.3.7
To try and isolate how many of these lower income respondents may be particularly vulnerable (i.e. making non-discretionary trips), we can look at the split of journey purpose by income. Table 4.8 : Journey purpose by income band Under 17.5K 10% 10% 7% 6% 2% 5% 4% 9% 4% 44% 100% 17.5 35K 13% 5% 5% 4% 5% 3% 7% 3% 7% 49% 100% Over 35K 12% 14% 3% 9% 4% 4% 5% 4% 18% 27% 100%
Holiday/short break On business/in connection with work Other Other social/recreational Personal business Shopping Sport or entertainment To/from school/college/university To/from work - regular commuting Visiting friends/relatives at their home Total
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4.3.8
Again, although there are differences that one would expect for example a higher proportion of long distance commuting amongst high income respondents, the profiles are fairly consistent across all income bands. Perhaps what is most noticeable is the high proportion of student trips in the low income bands. Again not surprising, but this will account for a substantial number of lower income respondents paying for their own tickets. Although these passengers are vulnerable by virtue of their low income, they also have access to reduced ticket prices through a young persons railcard. Looking specifically at railcard use, more passengers are using railcards with Saver tickets than overall with a much larger proportion using a Young Persons card with Saver tickets than overall. Table 4.9 Did you use a railcard? All respondents No Young persons Senior Family Other Total 78% 11% 8% 2% 1% 100% Saver respondents 68% 18% 11% 2% 1% 100%
4.3.9
4.3.10
The use of railcards is particularly interesting to note in relation to how passengers choose ticket types. The following table shows that Senior and Young person railcard users are much more likely to use Saver tickets than respondents overall. This suggests one of three things. First, Senior/Young person railcard users have a higher need for the flexibility offered by a Saver ticket over an APEX than average, which would be surprising. Second, Railcards provide a sufficiently large discount to allow these passengers to access the flexibility of a Saver ticket i.e. it reduces their price sensitivity, because the fares are already significantly discounted. Third, not all APEX tickets permit railcard reductions. Table 4.10 Railcard user buy ticket type Choice of ticket for railcard users Advance Open No railcard 32% 31% Senior Railcard 28% 16% Young Person's Railcard 16% 20% Total 30% 29%
Saver 37% 57% 64% 42%
Total 100% 100% 100% 100%
Conclusions on income/socio-economic section 4.3.11 One area of concern to the DfT is whether changes to Saver fare regulation would particularly impact on vulnerable users. The evidence we have from this survey does not suggest that Saver fare users have particularly different characteristics to other ticket types. Passengers who are particularly price sensitive are likely to already be taking advantage of much cheaper APEX fares. Other economically vulnerable passengers (senior and young people) already have access to substantial ticket discounts, and there is some evidence to suggest that this is large enough to make them less likely than other users to use APEX products.
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Availability of alternatives 4.3.12 The second thing to look at is the availability of feasible alternatives for passengers who are currently using Saver tickets. The following table shows the alternative modes that respondents stated that they would use if the rail service they were on, was unavailable for a short period or long term. 40% of passengers would not travel if the rail service was unavailable for a short period, but this falls to 10% if rail was unavailable in the longer term. Possible explanations for the high proportion who stated that they would not travel if their rail service was unavailable in the short term include the possibility that they are making discretionary journeys that can be re-arranged for another day. Alternatively respondents may have assumed that they only discovered the service was unavailable on arrival at the station, by which time it was too late to make alternative arrangements. The passengers who would not travel if rail was unavailable in the long term are more likely to be genuinely captive to rail. Table 4.11 Alternative options that customers perceived available to them Short Term Car Coach/Bus Would not have made this journey Plane Train Other 4.3.13 22% 12% 41% 10% 13% 1% Long Term 30% 25% 10% 7% 15% 12% % Difference 8% 13% -31% -3% 2% 11%
The questionnaire did ask passengers to quantify the total cost of alternative means, to try and get a feel for how passengers perceived the relative costs of their alternatives. Unfortunately, it is difficult to gain a clear view of what passengers estimate in their costs for something as complicated as total travel costs. Responses to the cost of alternative were too erratic to gain any useful information from. 45% of people who would not travel if their rail service (eg London to Edinburgh via York) was not available in the longer term were using Saver tickets. This is slightly higher than expected by the overall proportion of Saver users (between 37% - 39%). Table 4.12: Ticket Type (Outward Leg) for Would Not Travel respondents Short Term 25% 37% 17% 6% 3% 12% 100% Long Term 21% 45% 23% 3% 1% 7% 100%
4.3.14
Open Saver Advance First Advance Season Other Total 4.3.15
Of these Saver users who would not travel in the long term, if their particular service was not available, 43% were visiting friends and relatives, 16% were students, and 14% were travelling on business. It is difficult to tell how many of these passengers would have chosen a different ticket before an alternative mode, because this was not how the question was presented to respondents. We did include a question asking which tickets respondents would have chosen if their chosen ticket was not available. For Saver ticket respondents, 6% chose other (rather than advance, open or season) which might give a better indication of the proportion of Saver users who would consider alternative modes if a Saver ticket was not available.
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4.3.16
If we look at alternative modes by income groups, we find that lower income respondents are more likely than average to consider car an alternative to rail, in the event of the train not being available. However the proportion which would not travel is twice that for the sample as a whole. Curiously, high income passengers are more likely than others to use coach. Conventional wisdom states that high income travellers are more likely to use car and less likely to coach/bus than lower income travellers. This is not borne out for existing long-distance rail travel in this survey.
Table 4.13 Alternative Mode in longer term All Under 17.5K Car 30% 39% Coach/Bus 25% 16% Plane 7% 6% Other train 15% 7% Other 12% 12% Dont make this journey 1% 0% often Would not have made 10% 20% this journey
Lower income bands are household income less than 17,500
17.5 - 35K 36% 21% 6% 13% 12% 0% 12%
Over 35K 25% 32% 7% 20% 12% 1% 4%
4.3.17
While confirming that alternative modes are available, data on what alternative mode would be chosen if a particular rail service were not available does not give us a picture of what passengers would do if their fares were to rise materially. In the first instance, we would expect them to consider the consequences of choosing an alternative ticket, including an advance purchase ticket. A captive passenger may be defined as one who must travel by a specific rail service at a particular time but as a consequence would face by a higher fare. Such timesensitive passengers, including some business passengers, would face a higher fare if they had to travel at a peak shoulder time, but could reduce the amount they pay if the fare structure offered a 'super off-peak ticket'. Conclusions on alternatives available
4.3.18
Our evidence shows that many passengers do perceive there to be alternatives to travel. Although we do not have conclusive proof that all passengers have alternatives, it is likely that the number with no alternative either in terms of mode, ticket type or time of day, will be small.
4.4 4.4.1 4.4.2
Journey Planning and flexibility The third consideration is to look at the need for flexibility in tickets, and the extent to which respondents could, or chose to plan their journey ahead. Almost 40% of respondents were making a day trip with a further third staying away for one or two nights. Saver users were slightly less likely to be making a day trip than overall, although, again the differences in profile are not great. Table 4.14 Length of Stay Overall Day trip 1 or 2 nights away 3 or 4 nights away five or more nights away Total 38% 34% 17% 11% 100% Saver respondents 33% 39% 15% 13% 100%
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4.4.3
Of those who are staying away more than one night from home, unsurprisingly most knew well in advance about their trip.
Table 4.15 No of days in advance know about trip vs length of trip Length of Trip Days in Advance Less than 1 day 1-3 days 4-7 days 1-2 weeks More than 2 weeks All Day 11% 17% 19% 19% 34% 100% More than 1 day 5% 9% 12% 20% 55% 100% All 7% 12% 14% 20% 47% 100%
4.4.4
The following table shows how journey purpose and ticket type are strongly related to the duration of the trip. The leisure advance purchase tickets are much more likely to be for a multi-day trip (17% compared to 1%), whereas the business advance purchase trips for APEX are more evenly split (6% compared to 5%). This table shows clearly that the leisure market is much more likely to be a multi-day trip across all ticket types. For business trips, the split for multi-day trips is even for Advance and Saver fares, but dominated by open tickets, when a trip is being carried out in a day. Table 4.16: Market splits by ticket type and trip length Day trip More than 1 day Business 5% 6% Advance Leisure 1% 17% Business 14% 6% Open Leisure 2% 7% Business 8% 8% Saver Leisure 6% 20% Total 36% 64% Total 11% 18% 19% 10% 16% 26% 100%
4.4.5
The majority of people (69%) caught the train that they intended. This is an important finding, because it shows strong awareness of journey planning. Looking at this finding split by ticket type, we find that planning is strong across all ticket types, but the more flexible tickets allow a higher degree of flexibility. What this demonstrates is that passengers behave according to the flexibility of their ticket. This table does not provide us with any insight into whether those who are travelling on a Saver ticket (particularly) could have been less flexible in their train choice. This is why we require further information from the SP part of the survey. What is somewhat surprising is the number of APEX ticket users who just turned up. Considering the difference in cost of an APEX ticket to a standard fare, this suggests there are some passengers who are buying APEX tickets but perhaps can claim the cost of a standard single in the event of a change of plan. What is also not available from the questionnaire is the proportion of these responses affected by trainrelated delays. If we assume at least some passengers were not on their chosen train because of train delays, the proportion of passengers intending to catch a specific train is higher than stated across all ticket types.
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Table 4.17: Did you plan to catch THIS particular train? Open Saver Yes No planned other No turned up All 50% 16% 34% 100% 68% 13% 18% 100%
Apex 88% 7% 6% 100%
Total 69% 12% 19% 100%
4.4.6
To get a better feel for whether Saver passengers particularly could be more flexible in their planning, we can look at how many days in advance they knew of their trip. For well over 60% of journeys, the trip was planned over a week in advance. Again the Saver responses are slightly, but not much different from the overall results. Table 4.18 How many days before travelling did you know that you were going to make this journey Overall Saver respondents Less than 1 day 1-3 days 4-7 days 1-2 weeks More than 2 weeks Total 7% 12% 14% 20% 48% 100% 8% 13% 17% 20% 42% 100%
4.4.7
When asked about the time of day of travel, the difference between Saver respondents and overall results do start to differ. Saver respondents seem to know less in advance than average about their time of travel. We cannot tell from this table whether this is because respondents had decided to use a Saver ticket, and therefore knew they were able to retain flexibility around their time, or how many genuinely could not have been less flexible. In practice, it is probably a combination of both.
Table 4.19 How many days before travelling did you know the TIME OF DAY at which you would like to travel? OUTWARD Overall Saver respondents Less than 1 day 1-3 days 4-7 days 1-2 weeks More than 2 weeks Total 18% 16% 13% 15% 38% 100% 21% 20% 17% 15% 28% 100%
4.4.8
For the return journey, the time of day of travel is slightly less known in advance, and Saver responses tend to knowing less far in advance about their time of return.
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Table 4.20 How many days before travelling did you know the TIME OF DAY at which you would like to travel? RETURN Overall Saver respondents Less than 1 day 1-3 days 4-7 days 1-2 weeks More than 2 weeks Total 23% 13% 13% 14% 37% 100% 25% 17% 16% 15% 27% 100%
4.4.9
Where differences do show between Saver respondents and the average picture is how long in advance that saver tickets are purchased. Saver users are more likely than average to purchase on the day of travel. Again, this is likely to reflect both a necessary and discretionary preference for flexibility. Table 4.21 How long before your OUTWARD journey was your ticket purchased? Saver Overall respondents On day of travel 1-3 days before travel 4-7 days before travel 1-2 weeks before travel More than 2 weeks before travel Total 36% 15% 12% 13% 24% 100% 46% 17% 13% 13% 13% 100%
Conclusions on journey planning and flexibility 4.4.10 The survey results show that most passengers do know in advance about their trip and that they exercise a high degree of planning and intent about the train they use. Open tickets are much more likely to be used for business day trips. The dominant market segments are daytrip business using open ticket and multi-trip leisure APEX and Saver ticket users. Although Saver fares users are less likely to know or plan than journey in advance than other users, but the differences are not so marked to suggest that Saver users are substantially different from other passengers they may just be opportunistically flexible particularly as we know a higher than average proportion of Saver users are railcard users.
4.5 4.5.1
Access to Sales Channels Our final consideration is the extent to which passengers have access to sales channels. In the past, ticket reservation systems were slightly onerous, involving a phone call and the postal service, or a trip to an agent, or to the station. Nowadays access to tickets is extremely convenient, if you have internet access and a credit/debit card. Furthermore, they have changed rapidly over the last few years. In this section we see whether Saver fare users differ in their access to sales channels than other average passengers.
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4.5.2
Over 90% of respondents have frequent access to the Internet. Since telephone ownership is close to 100% in the UK and most people have a payment card of some sort, most respondents had access to at least two booking channels for advance purchase, other than going to a station. This suggests that the major barriers to advance purchase are likely to be lack of familiarity with internet and tele-sales and concerns about card security. Saver ticket users do not differ from the average respondent in their internet usage. Table 4.22 Frequent Internet Usage Overall Yes, at home with broadband Yes, at work Yes at home (not broadband) Yes, elsewhere No Internet Note: Multiple responses permitted 74% 44% 7% 9% 6% Saver respondents 73% 40% 7% 9% 7%
4.5.3
When it comes to ticket purchasing, 29% of respondents bought their tickets by internet with a further 8% using tele-sales. We would expect this proportion to continue to increase over time as passengers become more familiar with the internet systems. Although fewer Saver fare users bought their fare over the internet, a reasonably high proportion did (23%). Some passengers may have done this for convenience (to obtain a seat reservation, or to avoid queues at the station), but it is likely that at least some may have been searching for the cheapest ticket, but found no availability for Advance purchase fares at the time they wanted to travel. Table 4.23 Ticket Purchase Location Overall At Station Internet Bought by Others Tele-sales Other Total 45% 29% 12% 8% 6% 100% Saver respondents 59% 23% 7% 8% 3% 100%
4.5.4
Of those passengers who responded that they did not regularly use the internet, 64% bought their ticket at the station, and 11% bought it over the telephone. Interestingly, 7% of people still bought their ticket via the internet, even though they did not frequently use it. The wording of the internet question was Do you frequently use the internet? Of the 9% who said they did not, at least some must still use the internet infrequently. Conclusions on access to sales channels
4.5.5
Although the most popular way to purchase a ticket continues to be at the station particularly for saver fares - the proportion of internet and tele-sales is already substantial, and we would expect it to increase further for the long-distance market. Saver fare users do not differ from passengers overall in their access to the internet, so we can conclude that their propensity to buy at the station is related more to choice than opportunity.
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4.6
Conclusions from questionnaire responses In this chapter we have looked at the characteristics of survey respondents, and Saver respondents in particular, to see if we can identify whether Saver fare users are likely to be vulnerable in the following respects: Income and socioeconomic data A lack of alternative modes Need for flexibility in departure times Lack of access to booking channels other than at stations
4.6.1
The results of the survey show that the characteristics of Saver fare users are not significantly different from passengers as a whole. We conclude that rail passengers have higher incomes than the national average. For those passengers with lower incomes, most did have an alternative and that small proportion would be expected to have no ticket choice or alternative mode. There does not seem to be evidence from this research that suggests that there are vulnerable captive Saver fares users. A reasonably large proportion of passengers can plan their journeys in advance, and many take advantage of APEX tickets. There will be some captured Saver fare users. A reasonably large proportion of these are travelling on business (and therefore not paying for their ticket), or already have access to a discounted fare using a railcard. The impression from both the questionnaire and the stated preference questionnaire is that there are a number of complicated decisions that a passenger makes in relation to their journey all of which combine with the supply side issues, such as fare, availability and time of travel. The results of the survey indicate that the picture of how passengers choose tickets will change with single leg pricing. At the moment 18% of respondents are using two single tickets. Given that only 6% of passengers are making single trips, passengers are already taking advantage of mix and match ticket opportunities to give themselves the best deal. We would expect this to increase for the following reasons: Single leg pricing (changing the relative value of return Saver fares compared to others) High internet access Evidence of intention to plan by rail users (intending to catch the train they choose) Evidence of the ability to plan journey within the timeframe for purchasing tickets in advance
4.6.2
4.6.3
Table 4.24 What ticket(s) are you using for your journey? (B3a) Percent Single Return Two Singles Total 11% 70% 18% 100%
4.6.4
In conclusion, the picture is that Saver fare users are not very different from passengers as a whole. The three main ticket products, Open, Saver and Advance offer passengers a varying levels of price, flexibility and the need to purchase in advance. Price sensitive passengers are likely to prefer the cheapest tickets, and with sufficient planning, these are already available to them.
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4.6.5
It appears that passengers are already making trade-offs between the different ticket products so that they optimise their choice for their particular journey. There is a small suggestion the discount offered by railcards might be biasing railcard users to use Saver tickets, where otherwise we might expect them to choose APEX tickets in the same way as average users. We also have some indication (from the comments in the survey as to why respondents were not travelling at their ideal time), that APEX ticket availability (or lack of it) meant that passengers were using more expensive tickets that they would have preferred. This is also suggested from the numbers of Saver ticket users who have purchased their tickets in advance. For price sensitive passengers, the Saver product is the next best ticket if APEX quotas have been used. The relationship between APEX availability and Saver fare level will be an important consideration in deciding Saver fare policy. Finally, the responses we have had from both parts of the questionnaire, show how difficult it is to isolate the combined influences affecting a particular individuals trip choices. Passengers themselves have found it difficult to answer some of the questions (for example, the cost of alternative modes, or the ideal time of departure). This is a complex area of research, of which this study provides a helpful, but not comprehensive insight.
4.6.6
4.6.7
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Modelling
5.1
Stated Preference Results and Robustness Introduction
5.1.1 5.1.2
The SP modelling attempts to estimate utility functions of the general form below: Ut1= ASCsaver + ASC advance + b Faret1 + c DispTimet1 + d Adv Purchase A utility function shows how important different variables are in determining the overall utility/disutility of different alternatives. Each parameter measures how utility changes given a unit change in that variable. The meaning of these parameters is discussed further below. Within our SP models we have four utility functions, one for each ticket type alternative: Uopen Usaver advance = = = b* b* b* OPENfare SAVERfare + c SAVERdisptime + ASCSAVER
5.1.3
ADVANCEfare + c ADVANCEdisptime + dADVANCEadvpurch + ASCADVANCE
UWouldNotTravel = Where: Ut1 Faret1 DispTimet1 ASC saver ASC advance ASCWNT = = = = = =
ASCWNT
the Utility of using ticket type 1 the Fare level of ticket type1 the displacement time of ticket type 1 Alternative Specific Constant for Saver compared with Open Alternative Specific Constant for Advance compared with Open Alternative Specific Constant for Would Not Travel
b, c, d, ASC saver, ASC advance, and ASCWNT are parameters to be estimated. Model Interpretation In the following sections a number of SP models are outlined for both the Pilot and Main survey. These models are described in terms of parameter estimates, T Ratios and Rho Squared statistics. Relative valuations described in money units are also shown. The parameter estimates indicate the change in utility arising from a unit change in the variable concerned, for example the fare parameter shows the change in utility resulting from a 1 change in fare. Associated with each parameter is a T Ratio which is the ratio of the standard error and the parameter estimate. The standard error indicates the accuracy with which the coefficient is estimated. The T Ratio indicates whether a variable adds to the explanation of the model. In order to be 95% confident that the parameter is not zero the minimum value of the T Ratio is 1.96. The goodness of fit of the model is given by the Rho Squared statistic, which is comparable with the R2 statistic in a regression model. However, the interpretation of what constitutes a high goodness of fit is less clear with Rho Squared. It has been shown - Ortuzar and Willumsen(1994) - that the minimum value of Rho Squared varies with the proportion of individuals choosing each alternative. For example a model estimated with market shares of 90%/10% giving a Rho squared of 0.55 would be much weaker than a model with a Rho Square of 0.25 with equal shares.
5.1.4
5.1.5
5.1.6
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5.1.7
The following extract from the ALOGIT V3.8 Manual makes it clear that interpretation of Rho Square can be difficult: It is difficult to give 'rules of thumb' for comparing Rho Squared values between differing models. In some cases, low values (0.05 - 0.10) can be considered to be good, whereas other choice situations can be modelled better, giving Rho Squared values of 0.40 or higher. In general, the simpler the choice that is to be explained, i.e. the smaller the number of alternatives, the higher the Rho Squared that can be expected. Experience is the only reliable guide. From our experience of developing this type of model over a large number of years a Rho Square of 0.10 is generally regarded as good.
5.1.8
In assessing the robustness of a model the following need to be taken into account: The absolute and relative size and significance of the parameter values

Firstly are the parameters of the expected sign? Are they significantly different from zero (T Ratio > 1.96)? Are the relative valuations sensible? For example are the values of time sensible, do they accord with expectations/other evidence?
The goodness of fit of the model

Does the model fit the data well? The interpretation of Rho Squared has already been discussed and interpreting Rho Squared is not straightforward. However, a value of 0.1 can be regarded as good.
Pilot Survey 5.1.9 The Pilot survey was carried out on Tuesday 27th February. Faber Maunsell professional staff administered the survey. Travellers making a journey between London and Manchester or vice versa were asked to complete the questionnaire and leave it on their seat to be collected. The survey was conducted on the following four trains. On all trains saver fares were valid:

Manchester to London departing 0845 London to Manchester departing 1235 Manchester to London departing 1445 London to Manchester departing 1835
5.1.10 5.1.11
Separate questionnaires/designs were produced for each train surveyed. There were two versions of each questionnaire A and B, each containing 9 scenarios. Approximately 230 questionnaires were handed out. 192 completed questionnaires were collected, although 16% of these (31) did not complete the SP section. This gave 161x 9 =1,449 SP choices. For the pilot survey people who did not vary their choice of ticket throughout (so called non-traders) were excluded. This was about 37% of the sample, reducing the number of observations to 788. The resulting model is shown in Table 5.1. For the Pilot model displacement time was broken down into early and late displacement time. Generally it is hypothesised that people would rather get an earlier train than their ideal departure time, than a later one. This expectation was borne out by the results of the Pilot study which gave a value of 10p per minute for early and 20p per minute for late displacement time. However, the perception of early and late time has often been viewed in the context of outward travel where there is commonly a need to be at the destination at a fixed time and there is a penalty of being late, e.g. commuting, business meeting or catch a plane. In the case of inter-urban travel with a mixture of purposes, outward and return leg journeys, longer journeys and overnight stays there is likely to be less of a difference between early and late displacement time.
5.1.12
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5.1.13
The value of advance purchase was 88p per day and the alternative specific constant (ASC) for Saver over Open was effectively zero. Although the ASC for Advance over Open was not significantly different from zero (the T Ratio was 1.4 against a minimum of 1.96), we expected that with a bigger sample it would be significant. The value of 16.12 means that people would be prepared to pay 16.12 more all other things being equal - to have the flexibility of being able to use more than one train. All the parameters are of the expected sign and their relative values seem sensible and intuitively correct. We were aware that the complexity of the exercise might affect the response rate. Nevertheless only 16% of those respondents in the Pilot study did not complete the SP part of the questionnaire. The high relative proportion of non-traders was an issue and this was a consideration for the main survey. However given the reasonable model developed from the pilot data and the short timescale available it was decided to continue the main survey based on the approach and designs used for the Pilot survey. Table 5.1 Pilot SP Model results Fare DisplacementTime (Early) DisplacementTime (Late) ADV Purchase ASC (Saver) ASC (Advance) VOT (DTE) pence per min VOT (DTL) pence per min VOT (Avd Purch) pence per day VOT (ASC Saver) Pence cf Open VOT (ASC Advance) Pence cf Open N Rho Squared Estimate -0.046 -0.005 -0.010 -0.041 -0.028 -0.744 9.81 20.59 88.04 0.61 16.12 788 0.063 T-ratio -5.8 -2.4 -6.4 -2.2 -0.1 -1.4
5.1.14
Not sig Not quite sig
Main Survey
Design Issues 5.1.15 After the Pilot study had been undertaken, the survey design was reviewed. Given the Pilot survey seemed to work well we decided to base the main survey SP designs on the Pilot design and these were developed according to the same principles. One change made was to increase the price of Saver fares in order to encourage people to choose the would not travel alternative. Although Saver fares were higher than in the pilot they were still bounded by Open tickets which were always more expensive, and Advance tickets which were always cheaper. It did not seem sensible to have Saver fares cheaper than Advance tickets. In order to try to reduce the proportion of non-traders we restricted the availability of Saver and Advance tickets so that every respondent was presented with at least one scenario which would not allow them to pick a train at the time before or after the train they were travelling on. Fieldwork Issues 5.1.18 The main survey covered a larger number of flows than the pilot survey. Overall 139 flows were covered. As in the pilot a different design was produced for each flow which again was split into an A and B version in order to present the respondent with nine rather than eighteen scenarios. There were therefore 378 questionnaire variants. Producing this many designs and questionnaires was an challenge, given the very short time available in the programme schedule between the Pilot and main surveys.
5.1.16
5.1.17
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5.1.19
In total 9,650 questionnaires were printed. Fieldwork took place on :

Friday 16th March Sunday 17th March Monday 18th March Tuesday 19th March
The survey schedule is shown in Appendix 2. 5.1.20 With a survey of this size organised in the short time available, there were some minor logistical difficulties. For example, there were problems with co-operation on some Virgin trains particularly on the Friday and Sunday. A problem with survey logistics meant that some questionnaires ended up in the wrong place so a handful of trains were not covered. However, given the time constraints the survey was generally carried out well. Data Coding, Punching and Data Checking 5.1.21 During the survey, 6059 questionnaires were handed out and 1790 were returned. This represents a response rate of 30%. The questionnaires were coded and punched. In order to check the quality of the data inputting, a small proportion of the data (approximately 200 questionnaires) were re-punched to check accuracy and few problems were discovered (less than 5% contained errors). This check also revealed that there were a number of questionnaires which contained illogical choices. For their chosen ticket respondents had not picked the train closest to their ideal time. For example, if the respondents ideal time was 1000 and they had chosen Saver, and they were being offered a Saver ticket on both a 0930 and 0900 train, we defined as illogical anyone choosing the 0900 saver ticket. This rationality test was carried forward to the computerised data checking phase, defined as odd, and later excluded see Table 5.2 Table 5.2 shows an audit trail of the number of cases rejected from the SP data. In total 1790 questionnaires were completed. This is equivalent to 9 x 1790 = 16,110 SP observations given that each respondent was offered 9 scenarios.
5.1.22
5.1.23
Table 5.2 SP data Main SP Interviews complete No SP No ideal time Odd choices rejected from manual check Excluded Therefore: Main Survey SP Data Pilot Survey SP Data Total SP Data Not Odd by Rationality Test Observations 16110 5276 1963 174 7413 Interviews 1790 586 218 19 824 33% 12% 1% 46%
8697 1266 9963 7312
966 141 1107 812
54%
100% 73%
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5.1.24
For a third of questionnaires, no SP exercise was completed, indicating that some people found the exercise too difficult to carry out. A further 12% did not give an ideal travel time. The presentation of an ideal departure time was essential for calculating the extent to which a respondent had been displaced from their ideal departure time, as a result of ticketing considerations. Ideal time was a requirement for calculating displacement time. A further 1% of respondents were identified as containing irrational choices during the manual data check as described above. Just over half of the SP data from the Main Survey was carried forward. Given the Pilot survey had worked well we added back in the Pilot SP data. However, when the computerised rationality test described above was applied, this reduced the number of observations to 7312, equivalent to 812 questionnaires. Non-Traders Some of the respondents did not change their ticket choice throughout the SP experiment and these people are referred to as non-traders. Usually non-traders are excluded from modelling because they do not tell us much about how they choose between the different tickets. However, if they are excluded any application model based on these models should make an allowance to take into account that some people are captive to particular types of ticket. This is a known difficulty of SP application, and it is acceptable to develop models based on the whole dataset which includes non-traders and to apply these models unadjusted (since the captivity of certain people to particular types of tickets is allowed for by the parameters and values derived). In our survey, a sizeable proportion of respondents chose the cheaper tickets (Saver and Advance) throughout the SP exercise. This may be seen as rational for respondents on a tight budget. In which case, keeping non-traders in the model is valid. Excluding non-traders would have reduced the amount of data for modelling to 3254 observations (362 interviews). Traderonly SP models were tested, but they produced relative values of displacement time implausibly higher than the all other data models. So these models were rejected on the grounds that the valuations were implausible. ASC Adjustment One further issue is whether the modal constants (ASCs) needed to be adjusted to take into account actual shares compared with modelled shares. Where the modelled choices are different from actual choices as shown by the relative ticket market shares, it is appropriate to adjust the ASCs in order to reflect actual shares as suggested by Ortuzar and Willumsen (1994): If the model is estimated with information from a sub area or with data from a biased sample, it can be shown that if all individuals have all alternatives available and if the model has a complete set of mode specific constants an unbiased model may be obtained just by correcting the constants according to the following expression: Ka=Ku- log (Ss/Sp) Where, Ka adjusted ASC Ku unadjusted ASC Ss Share of Alternative in sample Sp Share of Alternative in Population
References: nd Ortuzar and Willumsen (1994) Modelling Transport 2 edition John Wiley & Sons p216
5.1.25
5.1.26
5.1.27
5.1.28
Main SP Model Results 5.1.29 A number of different models were estimated. These are shown in tables 5.3 to 5.7. They were:

Overall; Employers Business v Non Employers Business; Low Income v High Income; and Short Distance v Long Distance.
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5.1.30
Table 5.3 shows the overall model. Unlike the Pilot, we were unable to distinguish between early and late displacement time separately therefore they have been combined into one single displacement time value. However, the perception of early and late time has often been viewed in the context of outward travel where there is commonly a need to be at the destination at a fixed time and there is a penalty of being late, e.g. commuting, business meeting or catch a plane. In the case of inter-urban travel with a mixture of purposes, outward and return leg journeys, longer journeys and overnight stays there is likely to be less of a difference between early and late displacement time. Consequently, we conclude that there is no bias in displacement time when considered for long distance inter-urban trips. The SP data here includes both outward and return trips. All the parameters are of the expected sign including the ASCs for Saver and Advance which have been adjusted using the Ortuzar and Williamson method described in 5.1.26. The overall model gives a value of displacement time of 16p a minute. The value of Advance Purchase is 98p per day. So, if it was necessary to buy the advance ticket 3 days in advance, this penalty would be valued at 2.94. The would not travel ASC is modelled as an alternative and is valued at 195. This means that if there was the choice between an Open ticket and would not travel, and the price of the Open Ticket was 195 the model would predict an equal split between the two alternatives. Compared with Open, Saver is valued at -27.02 and compared with Open Advance is valued at -36.87. Therefore, the relative value of Advance over Saver is -9.84. Given the only difference between Saver and Advance is that Savers can be used on any of the trains shown in the SP experiment whereas Advance tickets could only be used on the service booked, we can assumed that people would be willing to pay 9.84 in order avoid having to stick with a particular train. The goodness of fit as shown by the rho squared statistic is on the low side 0.03, but the parameter values are plausible compared with other evidence. Table 5.3 Final Model (ALL) Fare (b) T Ratio Advance Purchase (d) T Ratio Displacement Time ( c ) T Ratio ASC Saver T Ratio ASC Advance T Ratio ASC Would not Travel T Ratio Rho Squared Nobs VALUES Displacement time per min Advance purchase per day ASC Saver compared with Open ASC Advance compared with Open Would Not Travel Constant Adjusted ASC Saver Adjusted ASC Advance ASCA V ASCS 0.16 0.98 -30.20 -24.23 -195.14 -27.02 -36.87 -9.84 Parameter -0.03022 19.0 -0.02960 5.3 -0.00480 9.0 -0.91270 12.4 -0.73230 7.5 -5.89700 31.7 0.03070 7312
5.1.31
5.1.32
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Note. The parameter values in the above table are used in the utility equation from 5.1.1 as below Ut1= ASCsaver + ASC advance + b Faret1 + c DispTimet1 + d Adv Purchase Ut1 Faret1 DispTimet1 ASC saver ASC advance ASCWNT = = = = = = the Utility of using ticket type 1 the Fare level of ticket type1 the displacement time of ticket type 1 Alternative Specific Constant for Saver compared with Open Alternative Specific Constant for Advance compared with Open Alternative Specific Constant for Would Not Travel
b, c, d, ASC saver, ASC advance, and ASCWNT are the estimated parameters Business v Non Business 5.1.33 Table 5.4 shows the models split by journey purpose Business v Non Business (there were a low proportion of commuters in the data set). All the parameters are of the expected sign and as expected people on business have much higher values of all parameters than other respondents. Displacement time is valued at 36p a minute for business compared with 7p a minute for non business. The respective values found by ITS were between 50p and 71p for business and between 5p and 21p for leisure. For Advance Purchase our business value per day is 1.15 and non business value slightly lower at 1.10. ITS calculated a value for business between 3.08 and 7.10 and for leisure between 61p and 1.99. Our non-business values are comparable to the values obtained by ITS but our business values are lower. ITS included peak trains in their survey, whereas we only surveyed off peak trains on which savers tickets were available. We would therefore not have captured some of the high value peak business travellers in our sample which could explain why our values are lower. The value of would not travel is higher for business (232) compared to non business (140). The value of being restricted to one particular train as revealed by the difference between the ASCs for Advance and Saver is 20 for business compared with around 1.30 for non business. The goodness of fit for the business model is higher than that for the non business model but both are on the low side. However, the absolute and relative parameter values are sensible and accord well with other evidence.
5.1.34
5.1.35
5.1.36
Table 5.4 Final Model (Employers Business v Non Employers Business) Non Business Business Fare (b) T Ratio Advance Purchase (d) T Ratio Displacement Time ( c ) T Ratio ASC Saver T Ratio ASC Advance T Ratio ASC Would not Travel T Ratio Rho Squared Nobs -0.03496 15.6 -0.04031 4.1 -0.01253 10.6 -1.25400 11.5 -1.61700 11.1 -8.10000 18.3 0.05500 3456 -0.03620 26.2 -0.03982 5.6 -0.00269 3.8 -0.53510 10.7 0.00000 0.0 -5.05900 29.1 0.02880 3856
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VALUES Displacement time per min 0.36 0.07 Advance purchase per day 1.15 1.10 ASC Saver compared with Open -35.87 -14.78 ASC Advance compared with Open -46.25 0.00 Would Not Travel Constant -231.69 -139.75 Adjusted ASC Saver -35.49 -13.34 Adjusted ASC Advance -55.64 -14.70 ASCA V ASCS -20.15 -1.35 Note. The parameter values in the above table are used in the utility equation from 5.1.1 as below Ut1= ASCsaver + ASC advance + b Faret1 + c DispTimet1 + d Adv Purchase Ut1 Faret1 DispTimet1 ASC saver ASC advance ASCWNT = = = = = = the Utility of using ticket type 1 the Fare level of ticket type1 the displacement time of ticket type 1 Alternative Specific Constant for Saver compared with Open Alternative Specific Constant for Advance compared with Open Alternative Specific Constant for Would Not Travel
b, c, d, ASC saver, ASC advance, and ASCWNT are the estimated parameters
Income Models 5.1.37 Table 5.5 shows models split by income. The cut off between low and high was a household income of 35,000. All the parameters are of the expected sign. One would expect high income travellers to have higher values than low income travellers and this is borne out for all the parameters except Advance Purchase. High Income travellers value displacement time at 32p a minute compared with 6p a minute for low income travellers. They seem to value advance purchase slightly lower than low income travellers (94p v 1.14). They value the restriction imposed of having to use a particular train at 16.58 compared with 3.77 for low income travellers. Table 5.5 Final Model (Low v High Income) Low Income Fare (b) T Ratio Advance Purchase (d) T Ratio Displacement Time ( c ) T Ratio ASC Saver T Ratio ASC Advance T Ratio ASC Would not Travel T Ratio Rho Squared Nobs -0.03321 10.8 -0.03797 4.2 -0.00212 2.8 -0.43890 3.3 -0.05092 0.3 -5.10500 17.0 0.02750 2694 High Income -0.03205 -14.6 -0.03015 -3.5 -0.01020 -9.4 -1.15900 -11.0 -1.26500 -9.0 -6.64100 -23.3 0.04240 3564
5.1.38
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VALUES Displacement time per min Advance purchase per day ASC Saver compared with Open ASC Advance compared with Open Would Not Travel Constant Adjusted ASC Saver Adjusted ASC Advance ASCA V ASCS
0.06 1.14 -13.22 -1.53 -153.72 -14.20 -17.97 -3.77
0.32 0.94 -36.16 -39.47 -207.21 -33.065 -49.651 -16.586
Note. The parameter values in the above table are used in the utility equation frpm 5.1.1 as below Ut1= ASCsaver + ASC advance + b Faret1 + c DispTimet1 + d Adv Purchase Ut1 Faret1 DispTimet1 ASC saver ASC advance ASCWNT = = = = = = the Utility of using ticket type 1 the Fare level of ticket type1 the displacement time of ticket type 1 Alternative Specific Constant for Saver compared with Open Alternative Specific Constant for Advance compared with Open Alternative Specific Constant for Would Not Travel
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Distance Bands 5.1.39 Table 5.6 shows models split by distance band. The threshold between short and long distance was just over 2 hours (125minutes). The valuations for short distance journeys are higher than for long distance journeys, although our definition of short distance is longer than that for other studies (e.g. ITS work which took short distance to be for Southend, Upminster, Milton Keynes and Peterborough to London, which would generally be an hour or less). Very few short distance journeys were contained in our survey data, therefore breaking down the models in this way may not be sensible. Table 5.6 Final Model (Short v Long Journey Distance) Short Fare (b) T Ratio Advance Purchase (d) T Ratio Displacement Time ( c ) T Ratio ASC Saver T Ratio ASC Advance T Ratio ASC Would not Travel T Ratio Rho Squared N observations VALUES Displacement time per min Advance purchase per day ASC Saver compared with Open ASC Advance compared with Open Would Not Travel Constant Adjusted ASC Saver Adjusted ASC Advance ASCA V ASCS 0.58 3.37 -33.11 5.73 -409.26 -10.52 -27.86 -17.34 -0.00970 -3.4 -0.03274 -3.7 -0.00564 -5.9 -0.32130 -2.8 0.05556 0.4 -3.97100 -16.0 0.01010 2875 0.14 0.61 -28.57 -26.11 -198.21 -28.43 -37.62 -9.19 Long
-0.03525 -16.2 -0.02138 -2.9 -0.00481 -7.3 -1.00700 -9.2 -0.92050 -6.4 -6.98700 -22.2 0.03610 4437
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Trip Duration 5.1.40 Table 5.7 shows models split by whether people were making day trips or longer trips. Because people making day trips are likely to be more time constrained, they are likely to have higher values than people making journeys of longer than a day, which is found to be the case with our data. Day trippers value displacement time at 25p per minute compared with 12 per minute for non day trippers. They value advance purchase at 1.80 compared with 1.07. The value of having to use a particular train is 17.57 compared with 11.75. Table 5.7 Final Model (Day Trip v Non-Day Trip) Daytrip Fare (b) T Ratio Advance Purchase (d) T Ratio Displacement Time ( c ) T Ratio ASC Saver T Ratio ASC Advance T Ratio ASC Would not Travel T Ratio Rho Squared Nobs VALUES Displacement time per min Advance purchase per day ASC Saver compared with Open ASC Advance compared with Open Would Not Travel Constant Adjusted ASC Saver Adjusted ASC Advance ASCA V ASCS 0.25 1.80 -31.90 -45.34 -319.01 -17.14 -34.71 -17.57 -0.02351 -9.0 -0.04236 -4.0 -0.00595 -7.0 -0.75000 -6.5 -1.06600 -6.8 -7.50000 -12.4 0.02530 2801 0.12 1.07 -25.36 -6.47 -179.32 -32.76 -44.51 -11.75 Non Daytrip -0.02829 -13.7 -0.03015 -4.3 -0.00335 -4.4 -0.71750 -7.2 -0.18290 -1.4 -5.07300 -23.3 0.02520 4511
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Conclusions 5.1.41 The models developed during this study have parameters which are of the expected sign and their relative values are sensible and compared well (where they are comparable) with the previous results obtained by ITS. This is particularly the case for the journey purpose models. When split by distance ITS found longer distance values to be higher than shorter distance, whereas our shorter distance values were higher than our longer distance values. This may be down to the definition of short distance which in our models is anything up to 125 minutes, whereas the ITS definition was for much shorter trips. We found the values from people making day trips to be higher than those making non-day trips and generally high income travellers had higher values than low income travellers.
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5.2 5.2.1
Development of policy application model In order to test a range of alternative ticketing scenarios a policy model has been developed that can produce estimates of demand and revenue by ticket type for the following changes in the rail market:

Introduction of a shoulder saver fare on specified trains; Changes in saver fares and the trains on which they are available; Changes in the level of APEX fares and the quotas available on each of the trains for which APEX are provided; and Changes in open fare levels.
5.2.2
In order to assess the implications of what are very complex fare options with the traveller having to choose a ticket type based on the fares available on trains that are either at or close to their ideal time of travel we require a model that involves parameters relating to fares, the cost of displacement time if travelling at a time other than ideal time, the in built desire for total flexibility that certain travellers have, and the impedance of having to book in advance. The survey work undertaken in the study was designed to provide passenger valuations of each of these elements such that a modelling system could be established that would provide the allocation of passenger demand over the day based on the respective fare and availability options presented. One aspect of the stated preference work that did not result in sensible outcomes was the attempt to understand the extent to which changes in fares and availability would lead to a reduction in travel by rail. Consequently, the stated preference models described in the preceding sections cannot on their own be directly applied to predict the overall change in rail demand from alternative fare strategies. They do, however, provide the estimates of the importance of the individual parameters which can be imported into existing approaches as described in PDFH. The stated preference model can also provide estimates of the distribution of the existing rail demand as the fares and ticket availabilities change in each scenario. Ideally the stated preference work would have been extended to incorporate non rail users in the markets of interest in order to gain a fuller understanding of the potential generation effects of reduced fares in the off peak. However, this was not a practical option due to the tight study timescale as identifying and then interviewing a suitable sample would have significantly extended the study time frame which was not an option. In view of the above issues three separate approaches have been adopted in developing the policy model so that the relative merits of each approach, and their ability to integrate information and outputs, could be compared. This enables an element of sensitivity testing of the policy model outputs as the three versions will produce varying results. The three approaches used in the policy model are as follows:
5.2.3
5.2.4
PDFH based model uses PDFH recommended conditional elasticity values and diversion factors derived from market research survey data. The model converts the changes in displacement time and advance purchase effects into fare equivalents using the weights derived from the Stated Preference models. The model has been enhanced so as to reflect the effect of APEX availability and quotas on choice of ticket type; NERA elasticity model this develops from first principles an application to predict choice of train time within a ticket type based on assumed own price elasticities, and diversion factors to derive the cross elasticities of demand; and An application of the stated preference model that comprises a multi-nomial model at the lower nest to predict ticket choice and time of travel and a higher level that applies purpose based elasticities, drawn directly from PDFH, to weighted fare changes to reflect generation and suppression of rail trips.
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PDFH Based Model Application 5.2.5 The PDFH based model uses the recommended approach in the PDFH manual for the derivation of changes in ticket type usage as fares change at differential levels for each ticket type and the overall availability of each ticket type is amended. The PDFH approach is to use a set of conditional elasticities by ticket type, the base ticket type shares, the availability of each ticket type, and a set of diversion factors that dictate in what proportion each user of a specified ticket is likely to transfer to alternative tickets or to not travel by rail. The application used in the policy model has some differences to the basic PDFH model which are possible due to the additional information provided by the stated preference models and the profiling and inputs on ticket type availability. The enhancements to the PDFH approach are:
To use the stated preference estimates of the value of displacement time to convert the calculated change in displacement time to alternative ticket types as availability by train changes, into a fare change equivalent. The valuations of displacement time used from the SP data are 36 pence per minute for business travellers, and 7 pence per minute for other travellers. The overall weighting is then derived based on the proportion business and other travel that is entered into the model; and Calculate from input quotas by train the base and test scenario availability for each ticket type.
5.2.6
The PDFH approach considers changes in demand by ticket type as fares change differentially through the use of own and cross elasticities for demand. The basic functional form for predicting the demand for open, saver and APEX fares is: VOpen = AOpen * FOpen^(foo) * FSaver^(fos) * FApex^(foa) VSaver = ASaver * FSaver^(fso) * FSaver^(fss) * FApex^(fsa) VApex = AApexr * FApex^(fao) * FSaver^(fas) * FApex^(faa) Where A are constants representing the underlying different sizes of each market, F are changes in fare and f denotes own or cross elasticity. In terms of f the subscripts identify whether it is an own or cross elasticity and the ticket type combinations. As recommended own and cross elasticities are not provided by ticket type in PDFH they have to be determined by using the conditional elasticities provided in PDFH, by ticket type, and the diversion factor method. Denoting conditional elasticities by ticket type: Eopen = foo + fos + foa Esaver = fso + fss + fsa Eapex = fao + fas + faa This means that if the conditional elasticities are known then it is sufficient to know two of the three terms on the right hand side of the equation since we can use the diversion factor relationship to help deduce the own and cross elasticities. The diversion factor relationship is: Fos = -fss * (Ss / So) * Dso Where S denotes the demand by ticket type and D the diversion factor between ticket types. Therefore the above equations can be solved to provide the own and cross elasticity values for each specific corridor or flow group where the base market shares by ticket type are known, the conditional elasticities are available and the diversion factors defined. This approach is embedded in the application model developed for this study.
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5.2.7
In applying the approach detailed in PDFH it is very important to understand the constraints that exist within the mathematical approach adopted in that it is applicable for marginal changes in fare only and where very significant increases or decreases in fare are being considered then considerable care has to be taken in interpreting the results. The functional form has the property that under certain combinations of conditional elasticity, diversion factors and base market shares the change in demand predicted will begin to increase as saver fare is increased once fare increases are very large, in excess of 100% increase. This is shown in the following plot that shows all ticket type demand changes for different proportional changes in saver fares for a typical corridor. In this study therefore the range of fare changes tested has been restricted to +/- 50% of the base fares.
140 Percentage Change in Overall Demand 130 120 110 100 90 80 70 60 0.6 0.8 1 1.2 1.4 1.6 1.8 2 2.2 2.4 2.6 2.8 3 Proportional Change in Saver Fare
Illustration of the necessity of limiting fares changes tested to no more than +/- 50% of the base fares, in accordance with general advice on the application of the PDFH
5.2.8
It is extremely important to note that the outputs from the PDFH based model are directly influenced by the assumptions on the diversion factors between ticket types and would not use rail. This is particularly important in deriving the overall effect of changes in fare structures on the generation/suppression of rail trips. PDFH emphasises that diversion factors are not constant across all rail trips and indeed they can be flow group and corridor specific. The diversion factors are influenced by factors such as the strength of competing modes (air/coach/car), the proportion of the market that is business and other trips, and the length of the journey. Indeed the limited information on diversion factors provided in PDFH reflects these factors with differing values depending on the strength of air competition for example. It is stressed therefore that wherever possible some market research is undertaken for the flow groups and corridors under examination to ascertain the appropriate diversion factors for use in the model.
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NERA Elasticity Model Application 5.2.9 The NERA based elasticity model adopts the same basic principles that are recommended in PDFH for the modelling of mode or ticket type switching and applies them to the derivation of time switching effects within a ticket type as described below. In the modal choice case, it can be shown that:
[cross-elasticity of demand for mode i with respect to the price of mode j] [own price elasticity of demand for mode j] [Journeys on mode j] [diversion factor = proportion of changed demand on mode j that diverts to mode i]
___________________ [Journeys on mode i]
The equivalent equation for time-shifting is:

[cross-elasticity of demand for travel in time period i with respect to the fare in time period j] [own price elasticity of demand for travel in time period j] [journeys in time period j / journeys in time period i] [diversion factor = proportion of changed demand in time period j that diverts to time period i]
This can be shown mathematically as:
dqi p j dq j p j q j dqi = dp j qi dp j q j qi dq j
5.2.10
In the case where there are only two time periods: i and j , where i j it can be shown that the cross price elasticity of demand in time period i with respect to price in period j is denoted by
ij :
ij =
This can be equivalently written as:
dqi p j dp j qi
ij =
Note that
dq j p j q j dq i dq i p j = dp j q i dp j q j q i dq j
dq j p j = jj , which is the own price elasticity of demand at time j . Also denote dp j q j
dqi by Dij . This is the diversion factor between time i and j . This corresponds to the dq j proportion of changed demand in time period j that diverts to time period i .
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5.2.11
Suppose that the price of travelling changes in both time periods i and j . There are two effects on demand at time period i . The percentage change in demand at time period i is given by the following:
dq p dq p q dq %qi = %pi ii + %p j ij = %pi ii + %p j i j = j j j i dp q j i dp j q j qi dq j

^ ~
Denoting the new level of demand at time i by qi and the old level of demand by qi , the new level of demand is then:
qi = qi + qi %qi
In general, for fifteen time periods, where all prices are allowed to change, the new level of demand is the same as the last equation above, but with % qi defined as:
%qi = %p j ij
j =1
15
5.2.12
The above described approach to the use of own and cross elasticities with appropriate diversion factors to derive the change in time of travel, within a particular ticket type where fares are differential by time period, has been extended to incorporate the potential change in demand across ticket types using a further set of cross elasticities and diversion factors between the ticket types within each time period. The model has been implemented within the same overall framework as the PDFH based model described earlier, and draws on the same input values, which are detailed later. The diversion factors for the time shifts are then derived using the stated preference model application which provides estimates of the probability of changing to alternative time periods based on the displacement time from the current time period to the alternatives and the differential fare values. This is an example of how the different theoretical approaches are integrated to make best use of the varying strengths of each aspect of the data and techniques available.
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Stated Preference Model Application 5.2.13 The final modelling approach used in the policy model is the application of the stated preference model parameters, which have already been scaled to reflect the ticket type shares in the overall rail passenger survey data, to predict the distribution of rail demand over ticket type and time of day. The model uses a multi-nomial approach that calculates for each ideal time of travel the utilities of travelling by each ticket type in each time period in relation to the ideal time of travel. Hence, the model takes into account the displacement time to other time periods, the fare differential, and the value of flexibility and advance purchase. The probability of each option is then derived and the rail demand for that ideal travel time period distributed across the ticket types and time periods. This is repeated for each ideal travel time period and then the demands are accumulated across all periods to give an overall profile that reflects the availability and price of ticket types. The SP model is undertaken for business and other travel separately as these were shown to be distinct market sectors with significantly different values of each of the core trip attributes. As the stated preference model does not directly enable the generation/suppression of rail trips to be derived it is supplemented by the use of purpose based elasticities applied to the weighted fare changes once all time of travel changes have taken place. The own price fare elasticities used to derive generation/suppression effects at the upper nest of the stated preference model application were -0.65 for business travellers and -1.25 for leisure travellers. The default purpose-based elasticity values used in the model are taken from PDFH.
5.2.14
Policy Model Inputs 5.2.15 The policy model requires a number of parameters which dictate the responsiveness of the model to changes in inputs as shown by the following:
Inputs PDFH
Model Approach NERA Elasticity Stated Preference Yes
Ideal time of travel profiles
Yes to enable displacement times to be derived Yes based on PDFH
Yes
Conditional elasticities by ticket type Own price elasticities by ticket type Diversion factors between ticket types Own price elasticities by purpose
Yes Yes Yes Yes to provide rail generation and suppression effects Displacement time valuations Yes
Stated preference model parameters
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The source of the above are described in the following sections, with the exception of the stated preference model data which has already been described in some detail.
5.3 5.3.1
Deriving ideal departure time So that we can represent passengers preference for departure time within a model that is looking at different time availability for tickets, we needed to develop an ideal departure time demand profile. Data Sources
5.3.2
We have two sources of data: ORCATS departure time profiles and survey data on ideal departure times. ORCATS profiles differentiate by:

Ticket type; Journey duration; Week day / Saturday / Sunday; Origin / destination type.
5.3.3
The origin / destination categories are: to London, from London, to Blue Stations, from Blue Stations and Other. Blue stations are non-London attractor stations, and make up less than 10 per cent of all stations on the network. All blue stations have a blue index. For example, Liverpool = 6716; Manchester = 11584, Bradford Foster Square = 617. If the ratio of blueness for one station to its pair exceeds 10/7, then the flow is classified as to blue. For example, as the ratio of Liverpool to Bradford is 6716 / 617 = 10.9 which is greater than 10/7 = 1.4, journeys from Bradford FS to Liverpool are classified as to blue. If the ratio is less, in either direction, then flows between the station pair are classified as other. Our survey data differentiate ideal departure times by, amongst other things:

5.3.4
Journey purpose; Flow; Length of trip away; Week day / Saturday / Sunday; Outward / return legs.
5.3.5
Strengths and weaknesses of both data sources are set out in the following table Table 5.8 Critique of Data Sources
ORCATS Sample quality Good detailed profiles. The profiles are VERY OLD (dating from early 1990s we believe), this may be an advantage: less distorted by ticket restrictions or crowding No disaggregation by journey purpose or duration of trip away. Concept of blue stations potentially useful for applying our model to flows more widely. Survey Data Smaller potential for market segmentation is limited; and sample not representative: eg only surveyed trains for which Savers were valid. But data are for ideal departure times, rather than those observed. Good fully consistent
Compatibility with modelling framework
Review of ORCATS Data 5.3.6 ORCATS profiles only appear to vary by ticket type (full, reduced, season) for flows to and from London: it seems to assume that there are no ticket restrictions for reduced fares for other flows. This is potentially useful because the non-London profiles could be said to represent departure time demand in the absence of ticketing restrictions, which is equivalent to ideal departure time demand.
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Blue profiles are more relevant to ideal departure times than to / ex London profiles, because they are profiles in the absence of ticketing restrictions. Profiles vary markedly according to journey length, where the journey bands are: 0-20 Minutes; 21-50 Minutes; 51-100 Minutes; 101-140 Minutes; 141-180 Minutes; 181-270 Minutes; 271-360 Minutes; and >360 Minutes. Some weekday example profiles are shown below.
Departure Demand Profiles From Blue Stations by Journey Duration
50 45 40 Passenger Demand 35 30 25 20 15 10 5 0 0000 0500 1000 1500 Time of Day 2000 2500 3000 51-100 Minutes 101-140 Minutes 141-180 Minutes 181-270 Minutes 271-360 Minutes >360 Minutes
5.3.7
As we would expect, profiles to blue stations have marked morning peaks; profiles from blue stations have marked evening peaks; profiles to other stations (ie not strongly directional) have morning and evening peaks. These peaks are less pronounced for longer trips, and the very long flows allow for sleeper train usage. Review of Survey Data As we would expect, the survey data show markedly different profiles according to whether the journeys are for the outward or return leg of a trip, and whether they are day trips or more than one night is spent away. This is illustrated below.
5.3.8
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Ideal Departure time by Trip Duration and Journey Leg

40% 35% Proportion of Passengers 30% 25% 20% 15% 10% 5% 0% 04:48 Day, OUT Stay, OUT Day, RTN Stay, RTN
07:12
09:36
12:00
14:24
16:48
19:12
Ideal Departure Time
5.3.9
It is less clear that the profiles vary systematically by journey purpose: 57 per cent of business trips were day trips, compared to only 19 per cent of leisure trips; and once this is taken into account it is not clear that there is a systematic difference between journey purposes. It is also clear that the profiles are not strictly ideal departure times because they reflect Saver restrictions to some degree (there is a dip in demand during the middle of the evening peak because we did not survey at this time). In addition, the profiles are not fully representative: for example a disproportionately large number of return trips from London were sampled. Given the limited sample size (less than 2,000 observations), the survey data are not readily amenable to analysis by journey length.
Recommended approach 5.3.10 For the policy modelling work we will use up to eight profiles of ideal demand, broadly split by {day trips, stay away trips} x {outward leg, return leg} x {shorter trips, longer saver trips}. These are based on ORCATS profiles with some minor adjustments. We use weekday profiles and argue that they are equally valid for weekends: weekends have more stay-away trips, and asymmetric patterns of out and return legs, but this is taken into account in the proposed disaggregation. It may be argued that weekend trips have different ideal departure times from week day trips for a variety of reasons. For the purposes of this study, we do not think that they are significant factors for the flows concerned for the following reasons.
Reduced service levels, particularly on Sundays, certainly influence travel patterns: but the profiles concern ideal departure times rather than actual departure times, and service limitations would be taken account separately through measuring divergence from ideal time; Passenger perceptions that services may be disrupted due to engineering works (as well as actual service disruption but we are concerned with modelling normal service patterns) are thought by the industry to affect demand on Sundays in particular. But they are not thought to affect the time of day that people travel (under the current regime, possessions typically last all day on Sunday), and therefore there is no a priori reason to suppose that the ideal demand profiles within individual days are affected by this.18 Restricted Sunday trading hours affect travel times; but while this may strongly influence the timing of short distance shopping trips, it will have a very limited effect on the long distance flows for which Saver fares are regulated.
NERA examined and modelled the demand effects of possessions as part of a study for ORR, completed in 2007, on efficient engineering access.
18
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Friday and Saturday evenings are characterised by late night leisure activities. But although more people will travel late on Friday and Saturday evenings than during the remainder of the week, because they are not working the next day, this will tend to affect shorter distance trips rather than Saver flows.
5.3.11
The journey length varies according to whether they are day or stay-away trips. We are only interested in trips that have regulated Saver fares, so in practice this means trips of at least 30 minutes length.
For day trips, shorter trips to be those of less than 100 minutes; longer trips to be those of more than 100 minutes. For stay-away trips, shorter trips be those that can be made to arrive by mid to late morning (for which morning peak travel may be convenient), whereas longer trips require half a day travel.
The following table sets out proposals for the source of ideal departure profiles. Table 5.9 Description of ORCATS Profiles Used
ORCATS Profile Profil e Ref. 40 Orig / Dest To blue station From blue station To blue station From blue station To blue station From blue station To blue station From blue station Duratio n 51 to 100 minutes 51 to 100 minutes 101 to 140 minutes 101 to 140 minutes 141 to 180 minutes 141 to 180 minutes 271 to 360 minutes 271 to 360 minutes Take profile to 14:00 hours; thereafter assume zero Take profile from 14:00 hours only; prior to that assume zero Take profile to 14:00 hours; thereafter assume zero Take profile from 14:00 hours only; prior to that assume zero No adjustment Modification
Ideal Departure Time Profile Description Leg Outward Time away Day trip Journey length <100 minutes <100 minutes >100 minutes >100 minutes <180 minutes <180 minutes >180 minutes >180 minutes
Return
Day trip
38
Outward
Day trip
18
Return
Day trip
18
Outward
Stay away
19
Return
Stay away
19
No adjustment
Outward
Stay away
Remove trips departing between 20:00 and 02:00 hours (sleeper service) Remove trips departing between 20:00 and 02:00 hours (sleeper service)
Return
Stay away
The proposed profiles for ideal departure times are set out in the table below, and illustrated in the following charts.
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Table 5.10 Proposed Profiles for Ideal Departure Times

Hour Ending 05:00 06:00 07:00 08:00 09:00 10:00 11:00 12:00 13:00 14:00 15:00 16:00 17:00 18:00 19:00 20:00 21:00 22:00 23:00 Day Trip, Out, Short 0% 0% 2% 7% 17% 28% 20% 16% 8% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% Day Trip, Out, Long 1% 5% 15% 18% 17% 15% 11% 9% 8% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% Day Trip, Rtn, Short 0% 0% 0% 0% 0% 0% 0% 0% 0% 5% 7% 11% 19% 25% 17% 8% 4% 2% 1% Day Trip, Rtn, Long 0% 0% 0% 0% 0% 0% 0% 0% 0% 8% 13% 18% 20% 21% 11% 5% 3% 1% 0% Stay Away Short 0% 1% 6% 9% 9% 8% 7% 6% 5% 6% 7% 9% 10% 8% 5% 3% 1% 1% 0% Stay Away Long 0% 1% 3% 5% 8% 11% 11% 9% 8% 8% 8% 8% 7% 5% 4% 2% 0% 0% 0%
Outward Trips
30% Proportion of passengers 25% 20% 15% 10% 5% 0% 00:00 Day, short Day, long Stay, short Stay, long
04:48
09:36 Hours
14:24
19:12
00:00
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Return Trips
30% Proportion of passengers 25% 20% 15% 10% 5% 0% 00:00 Day, short Day, long Stay, short Stay, long
04:48
09:36 Hours
14:24
19:12
00:00
5.4 5.4.1
Elasticity Values and Diversion Factors between Ticket Types The conditional elasticities adopted as the default in the policy model are derived from PDFH and are -0.85 for open tickets, -1.2 for saver tickets and -1.5 for APEX tickets. These values can be amended by the user in the policy model if more up to date information is available. The default diversion factors for choice between ticket types used in the model are based on the same principles as those used in PDFH but modified to reflect information from the rail passenger surveys undertaken in this study and previous work by ITS that looked at diversion factors by flow group as part of the Strategic Fares Model development which show alternative tickets considered. The following tables show diversion factors for two corridors and in one corridor for flow groups over 200 miles and the other for flow groups of 100-200 miles. These show how much variance can occur in the diversion factors due to flow and corridor specific factors. It is therefore very important to bear this factor in mind when interpreting results for the models in that the outputs are very much influenced by the core judgements on diversion factors, as well as the conditional elasticity values. It is important to highlight that the diversion factors are strongly influenced by the proportion of business travel that exists in different markets as these trips are in themselves not elastic and as such they will, one, pay higher fares and have a greater propensity to switch to full or first tickets as saver fares approach full priced tickets, and two, are less likely not to travel by rail. In the following tables the diversion factors are quoted as from a current ticket type to another but the effects of the diversion factors is bidirectional when applied as a decrease in fare would cause a diversion to the ticket type where the fare changed in a similar manner.
5.4.2
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Table 5.11 Diversion Factors : Corridor A flows Over 200 Miles Ticket Type (From) Full Saver APEX First 0.11 0.19 0.11 Full 0.19 0.08 Ticket Type (To) Saver 0.38 0.25 APEX 0.15 0.39 Not Rail 0.36 0.23 0.56
Table 5.12 Diversion Factors : Corridor A flows 100 - 200 Miles Ticket Type From) Full Saver APEX First 0.18 0.00 0.05 Full 0.40 0.24 Ticket Type (To) Saver 0.38 0.42 APEX 0.23 0.38 Not Rail 0.21 0.21 0.29
Table 5.13 Diversion Factors : Corridor B flows 100 - 200 Miles Ticket Type (From) Full Saver APEX First 0.13 0.08 0.19 Full 0.22 0.00 Ticket Type (To) Saver 0.40 0.38 APEX 0.09 0.38 Not Rail 0.39 0.33 0.43
5.4.3
The issue of the business and other traveller composition and their effect on diversion factors is a particularly important one as one would obtain markedly different responses if the market was dominated by business travel, as opposed to one dominated by leisure travel. Consequently, there would be significant differences in the diversion factors for movements to/from London (with high business use) which the above figures represent, and to/from South West (with high leisure use).
5.5 5.5.1
Overall Functionality of Policy Model The policy model has an input sheet format that enables the user to specify:

Open, shoulder saver and saver fare levels; APEX fare levels by time of travel; Trains on which each fare type is available in the base and test scenarios; The proportion of seats available for APEX purchase on each train; The base demand by ticket type either over the whole analysis period or by time of day if the information is available; and Alternative values for the default elasticity values and diversion factors between ticket types can also be tested by the user.
The model enables the user to construct a complex set of scenarios where the availability of a ticket in any time period can be specified its fare and where necessary the proportion of tickets of that type which are available.
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5.5.2
The input screen for the policy model is shown in Figure *.* and provides a relatively clear description of the input data that can be entered and how alternative policy scenarios can be constructed. The primary outputs reported in the model are the base and test demand and revenue estimates by ticket type. The policy model currently presents outputs for each of the three modelling approaches that have been described in the earlier sections but it is necessary to understand that there are some limitations with the NERA and SP model approaches. The main limitation of the NERA and SP models is their current inability to model the effect of changes in APEX quota availability. The PDFH based model is therefore the only approach that enables all combinations of fare, availability and quota by each ticket type to be modelled effectively.
5.5.3
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5.6
Policy Tests Introduction
5.6.1
This note provides the results of policy tests carried out using the Saver Fares application models. Three different models have been used:
PDFH based model uses PDFH recommended conditional elasticity values by ticket type and diversion factors derived from market research survey data. The model converts the changes in displacement time and advance purchase effects into fare equivalents using the weights derived from the Stated Preference models. The model has been enhanced so as to reflect the effect of APEX availability and quotas on choice of ticket type; NERA elasticity model this develops from first principles an application to predict choice of train time within a ticket type based on assumed own price elasticities, and diversion factors to derive the cross elasticities of demand; and An application of the stated preference model that comprises a multi-nomial model at the lower nest to predict ticket choice and time of travel and a higher level that applies purpose based elasticities, drawn directly from PDFH, to weighted fare changes to reflect generation and suppression of rail trips.
5.6.2
While the models are separate they have linkages so that features of one model that can enhance the outputs of another are used to provide the best estimate of demand and revenue over a range of scenarios. In terms of the scenario tests described below the NERA and SP model currently have the limitation that they cannot take account of the quota of APEX tickets by train, although they do reflect the availability of APEX on a train but with the assumption that they are as fully available on those trains as Open and Savers. At the moment the PDFH model best incorporates the availability of APEX tickets - although theoretically, this functionality could be extended to the other versions if required in the future. In practice, though, it is unlikely that a policy model could also function as an effective yield management tool. Where one of the models is not applicable to the test being undertaken the relevant cells in the tables are shaded grey and the results omitted. Base Inputs Two corridors have been tested:

5.6.3
5.6.4
5.6.5
Corridor A an Intercity corridor of approximately 270 miles; and Corridor B an Intercity corridor of approximately 190 miles.
It is important to note that the two corridors are in some senses notional corridors in that the some of the input assumptions are drawn from actual corridors, such as fares and ticket types, but others, such as demand by ticket type and purpose splits, are indicative. No attempt has been made in either case to calibrate to actual base ticket types and hence the description of the model as a policy model to enable alternative assumptions to be tested. 5.6.6 The following base fare inputs have been used: Ticket Availability Full Fare Saver Fare Shoulder Saver Fare APEX Fare Saver Availability APEX Availability Corridor A 107.50 45.70 67.30 10.00 09:00 15:00; after 19:00 10:00 to 16:00 Corridor B 109.50 29.75 44.63 19.50 10:00 to 16:00; after 19:00 10:00 to 16:00
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5.6.7
It should be noted that this is a considerable simplification of the actual situation. In reality an APEX quota is available on most trains and there is a range of different APEX prices available each with its own quota. This should be borne in mind when interpreting the results. The base shares for the various ticket types used in the model tests are Open 32%, Saver 46% and APEX 22%. An assumption has also been adopted for the corridors that the business / non business split is 44%/56% which is derived from the surveys undertaken during the course of the study.
5.6.8
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5.6.9
Policy Tests Eight discrete policy tests have been undertaken: 1. Shoulder Saver A shoulder Saver has been implemented between 0900 and 1000 for Corridor A, 1000 and 1100 for Corridor B. 2. Shoulder Saver plus offpeak reduction As 1, plus 20% reduction in offpeak saver fare. 3. ShoulderSsaver plus offpeak reduction plus increased availability of APEX As 2 plus APEX availability increased by 20% in time periods where available. 4. Saver fare + 20% Saver fare increased by 20%. 5. Saver fare + 20% plus increased availability of APEX As 4 plus APEX availability increased by 20% in time periods where available. 6. Saver + 50% Saver fare increased by 50%. 7. Saver + 50% plus increased availability of APEX As 6 plus APEX availability increased by 20% in time periods where available. 8. Reduction in Saver availability Saver tickets no longer available between 0900 and 1100 (Corridor A), 1000 and 1200 (Corridor B)
5.6.10
Recent work by MVA indicated that elasticities should be lower than PDFH recommends. We have therefore re-calculated the conditional elasticities used within our PDFH-based model using those quoted within MVAs report and our survey responses. The MVA report quotes elasticities of -0.70, -0.75, and -1.05 for commuting, business, and leisure respectively. In our survey we had the following responses by journey purpose and ticket type: Full (Open) Commuting Business Leisure Total 24 255 129 408 Reduced (Saver) 37 210 346 593 APEX 27 153 243 423 Total 88 618 718 1424
5.6.11
This produces weighted elasticities for full, Saver, and APEX of -0.84, -0.92, and -0.92 respectively. Test Results Results of the Policy Test are set out in Tables 5.11 and 5.12 For Corridor A and Table 5.13 and Table 5.14 for Corridor B.
5.6.12
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Table 5.11 Corridor A Results: % Change in Demand Between Base and Test PDFH NERA Full Saver APEX Total Full Saver APEX Total Full
SP Model + Elasticity (V2) Saver APEX Total
1. Shoulder saver 2. Shoulder saver plus off peak reduction 3. Shoulder saver plus off peak reduction plus increased availability of APEX 4. Saver fare + 20% 5. Saver fare + 20% plus increased availability of APEX 6. Saver+ 50% 7. Saver+ 50% plus increased availability of APEX 8. Reduction in saver availability
1. Shoulder saver 2. Shoulder saver plus off peak reduction 3. Shoulder saver plus off peak reduction plus increased availability of APEX 4. Saver fare + 20% 5. Saver fare + 20% plus increased availability of APEX 6. Saver+ 50% 7. Saver+ 50% plus increased availability of APEX 8. Reduction in saver availability
Test No Test No
1.1% -6.1% -11.2% 6.5% 1.3% 15.0% 9.8% 4.5%
-12.0% 17.9% 5.5% -20.5% -33.7% -40.0% -53.2% -10.8%
0.6% -3.2% 46.8% 3.3% 53.3% 7.4% 57.4% 1.6%
-1.4% 9.3% 12.6% -6.7% -3.4% -12.0% -8.7% -3.6%
2.4% -5.3%
-9.6% 4.6%
0.0% -0.9%
-0.3% 3.1%
2.8% -10.5%
-8.8% 34.1%
2.8% -12.0%
0.0% 10.9%
8.7%
-16.0%
0.9%
-4.3%
13.7%
-28.7%
15.4%
-5.7%
21.7%
-40.0%
2.2%
-10.7%
32.4% 12.9%
-57.2% -14.9%
36.7% 13.2%
-8.5% 0.0%
Table 5.12 Corridor A Results: % Change in Revenue Between Base and Test PDFH Full
1.1% -6.1% -11.2% 6.5% 1.3% 15.0% 9.8% 3.2%
NERA Total Full Saver APEX Total Full
Saver
-12.0% -5.7% -15.6% -4.6% -20.4% -10.0% -29.8% -10.8%
APEX
0.6% -3.2% 48.8% 3.3% 53.3% 7.4% 57.4% 1.6%
0.6% -1.6% -6.1% 2.3% -3.9% 5.6% -2.1% -1.9%
2.4% -5.3%
-9.6% -16.4%
0.0% -1.0%
1.9% -5.7%
2.8% -10.5%
-8.8% 4.9%
3.1% -11.8%
1.6% -2.4%
8.7%
0.8%
1.0%
5.5%
13.7%
-14.4%
15.6%
3.6%
21.7%
-10.0%
2.4%
9.3%
34.2% 12.9%
-35.7% -14.9%
37.2% 14.7%
7.8% 2.9%
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Table 5.13 Corridor B Results: % Change in Demand Between Base and Test PDFH Full Saver APEX Total Full Saver NERA APEX Total Full SP Model + Elasticity (V2) Saver APEX Total Test No
1. Shoulder saver 2. Shoulder saver plus off peak reduction 3. Shoulder saver plus off peak reduction plus increased availability of APEX 4. Saver fare + 20% 5. Saver fare + 20% plus increased availability of APEX 6. Saver+ 50% 7. Saver+ 50% plus increased availability of APEX 8. Reduction in saver availability 1. Shoulder saver 2. Shoulder saver plus off peak reduction 3. Shoulder saver plus off peak reduction plus increased availability of APEX 4. Saver fare + 20% 5. Saver fare + 20% plus increased availability of APEX 6. Saver+ 50% 7. Saver+ 50% plus increased availability of APEX 8. Reduction in saver availability
2.9% -4.6% -9.7% 7.8% 2.6% 26.8% 21.7% 8.8%
-19.1% 4.5% -7.3% -21.1% -34.3% -52.8% -66.0% -23.3%
1.3% -2.0% 48.0% 3.4% 53.4% 11.1% 61.1% 3.8%
-2.8% 5.4% 8.7% -6.5% -3.2% -13.3% -10.0% -7.1%
3.0% -5.0%
-10.4% 3.5%
0.7% -0.7%
-0.1% 2.9%
2.2% -5.7%
-10.7% 22.3%
2.6% -6.3%
0.0% 9.6%
9.2%
-16.0%
1.6%
-4.0%
8.5%
-24.4%
9.6%
-5.7%
22.9%
-40.0%
3.4%
-10.1%
19.8% 12.5%
-49.2% -16.9%
22.8% 14.7%
-9.3% 0.0%
Table 5.14 Corridor B Results: % Change in Revenue Between Base and Test PDFH NERA Full Saver APEX Total Full Saver APEX Total Full Test No
2.9% -4.6% -9.7% 7.8% 2.6% 26.8% 21.6% 8.8%
-19.1% -16.4% -25.9% -5.3% -21.1% -29.2% -48.9% -23.3%
1.3% -2.0% 48.0% 3.4% 53.4% 11.1% 61.1% 3.8%
1.1% -3.0% -5.3% 4.0% 0.6% 11.1% 6.6% 0.1%
3.0% -5.0%
-10.4% -17.2%
0.7% -0.7%
2.4% -5.2%
2.3% -5.7%
-10.7% -2.2%
2.8% -6.3%
2.0% -2.5%
9.2%
0.8%
1.6%
6.4%
8.5%
-9.3%
9.6%
4.5%
22.9%
-10.0%
3.4%
12.8%
19.8% 12.5%
-23.8% -16.9%
22.8% 14.9%
10.4% 6.0%
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5.6.13
The first point to note from the results is that in scenarios where the individual models are considered applicable there is a reasonable degree of consistency between the scenario outputs. This provides some degree of confidence that the overall results are likely to be robust as three methods provide similar outcomes. In terms of the impact of the tests there are differences in the sensitivity of response between Corridors A and B and the primary reasons for this are the differences in fare differentials between Open, Saver and APEX tickets and their availability profiles. There is also a significant difference in the average open fare per kilometre between the two test corridors and this has a potential impact on the elasticity value to be applied in each case. Limited evidence from PDFH indicates that at higher average fare per km the elasticity should be increased using an elasticity modifier based on the equations described in section 2.4.8. There are some specific points that need to be highlighted with respect to the individual test results which go some way to explaining the main drivers of the outputs. These are summarised below and the discussion uses the PDFH based results as the basis in order to provide clarity and as this is the only approach that covers all the various test scenarios.
5.6.14
5.6.15
Test 1. Shoulder Saver A Shoulder Saver implemented between 0900 and 1000 for Corridor A, 1000 and 1100 for Corridor B. The effect of the shoulder fare is similar in each corridor with an overall small reduction in rail demand of 1.4% and 2.8% and some transfer from saver tickets to full and APEX. In revenue terms the overall effect is positive with up a 0.6% to 1.1% increase in revenue. The introduction of the higher shoulder saver fare means that some travellers will make the decision that the saving to travel at that time rather than their ideal time is no longer worth while and hence will resort to full priced tickets and hence be able to travel at their ideal time. The test results indicate that the majority of the demand that moves away from the shoulder peak time period travels later (44%) to take advantage of the saver fare and only a small proportion (4%) would travel earlier, and hence in the peak. This finding is based on an analysis of the SP model application results which predict the probability of using each train. This provides the change in demand by ticket type by time period as a result of the test fare strategy. Test 2. Shoulder Saver plus offpeak reduction As 1, plus 20% reduction in off-peak saver fare. The incremental effect of reducing the saver fares by 20% whilst introducing the shoulder saver fare is to significantly increase demand in both corridors. The effect of the 20% saver reduction is to increase demand over the Test 1 results by around 7% to 10%. However, the revenue would drop by 10.7% and 8.2% compared to Test 1. The saver fare reduction has a significant overall effect on passenger numbers and revenue and also the distribution by ticket type. The combined effect of the shoulder saver and a saver reduction is an increase in demand of 9.3% and 5.4% and a consequent reduction in revenue of 1.6% to 3.0% by corridor. Test 3. Shoulder saver plus offpeak reduction plus increased availability of APEX As 2 plus APEX availability increased by 20% in time periods where available. The incremental effect of the 20% quota increase of APEX tickets compared to Test 2 is a 3.3% increase in demand and a 2.3% - 4.5% decrease in revenue. The distribution of the ticket types is however significantly different with a substantial increase in APEX with these being drawn from both full and saver tickets. The overall effect of the test fare strategy is to result in an 12.6% to 8.7% increase in demand by corridor but with an attendant decrease in revenue of around 6%. The impact of the change in conditional elasticity values, described in section 5.6.10, was applied to this test and the impact was to marginally reduce the demand and revenue effects. A further set of sensitivity tests were undertaken on this test which related to examining the impact of the valuation of the displacement time on demand by ticket type. The results of this
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test are shown below in absolute changes in demand between three scenarios where the displacement time valuation is increased and decreased by a factor of 50%. Ticket Type Displacement Time * 0.5 Test 3 Displacement Time * 1.0 Displacement Time * 1.5
Open Saver Shoulder Saver APEX
28.2 50.3 3.0 32.2
28.4 48.5 3.3 32.3
28.6 46.9 3.7 32.4
The above shows that decreasing the displacement time value results in a reduction, compared to the central test in shoulder saver demand as the reduced displacement time value means more people would divert to other time periods, and conversely an increase in displacement time valuation causes an increase in shoulder saver demand and reduction in saver demand as less people divert from the shoulder saver time period. It should be noted that the nature of the test is such that only small impacts in terms of changes in displacement time exist in the test scenario, namely, the replacement of one time period saver with a shoulder saver. Test 4. Saver fare + 20% Saver fare increased by 20%. The 20% increase in saver fare results in just over a 20% reduction in saver demand but with a significant proportion of this moving to other ticket types with a 7% to 8% increase in full fare demand and about a 3% increase in APEX demand. The transfer from saver to full fares is consistent with the diversion factors adopted for the model run and is a reflection of the relatively high proportion of business travellers who are in the saver market, and for whom the ticket is paid for, and hence as the saver fare increases the value of delaying their travel time becomes less attractive and hence they may as purchase the flexibility of the full ticket. The inelastic nature of the business market makes this a reasonable outcome from the policy test. Overall the demand for rail reduces by 6% but the revenue increases by 2% to 4%. Test 5. Saver fare + 20% plus increased availability of APEX As 4 plus APEX availability increased by 20% in time periods where available. The incremental effect of adding 20% to APEX quotas was to add 3% to demand and reduce revenue by 3.4% 6.2% by corridor. The effects are similar to those noted in test 3 when the incremental effect of APEX quotas is examined. The overall effect of the saver fare increase with enhanced APEX availability is to reduce demand from the base case by 3% but increase revenue by 1% in corridor B yet reduce revenue by 4% in corridor A. The reason for the differential effects on revenue is the quite different ratio of the saver to APEX fares in the base data between the two corridors. In corridor B the ratio of APEX fare to saver fare is 0.67 whereas in corridor A it is 0.22. Hence, the different revenue effects despite similar overall demand changes. Test 6. Saver + 50% Saver fare + 50%. This test represents a significant increase in saver fares and the overall demand effects are significant with a 12% to 13% reduction in demand. The demand for savers decreases by 40% to 53% by corridor and there are significant increases in full fare demand as saver travellers transfer to full fares as APEX quotas remain unchanged and hence can only accommodate
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moderate increased APEX demand. Revenue would increase by 6% to 11% by corridor and again this is a function of the relative levels of saver and full fares in the two corridors in the base case. The significant transfer to full fare from saver fare is consistent with the diversion factors adopted for the model run and is a reflection of the relatively high proportion of business travellers who are in the saver market, and for whom the ticket is paid for, and hence as the saver fare increases the value of delaying their travel time becomes less attractive and hence they may as purchase the flexibility of the full ticket. The inelastic nature of the business market makes this a reasonable outcome from the policy test. Clearly if the model was able to separate out effects by the business and leisure markets then quite different impacts would be seen from the two tests. In this case, input diversion factors would be different, as would the conditional elasticity values. There is a further issue in this test that relates to the stability of the elasticity and diversion factors as fares increase significantly. PDFH evidence indicates that at higher fares, fare elasticities will be higher. There is no similar evidence on the impact of higher fares on diversion factors. Theoretically it could be hypothesised that the diversion factors would be relatively stable at the higher fares. There is no reason to expect peoples propensity to divert to alternatives will differ in terms of the proportion which divert to each alternative. However, the absolute level of diversion away from rail would be expected to increase.
Test 7. Saver + 50% plus increased availability of APEX As 6 plus APEX availability increased by 20% in time periods where available. Increasing the APEX availability enables more demand to use APEX in this scenario and consequently the demand impacts are reduced compared to Test 6 and the revenue gain is reduced. Indeed the impact on revenue in corridor A would be a reduction compared to the base of -2%. The reasons for the different responses between the corridors is a direct function of the base fare differential between saver and APEX fares which is much higher in Corridor A. Test 8. Reduction in Saver availability Saver tickets no longer available between 0900 and 1100 (Corridor A), 1000 and 1200 (Corridor B). Note that this test does not include a shoulder-peak Saver option. The reduction in saver availability reduces demand by 4% - 7% by corridor but with marginal changes in overall revenue as Saver passengers transfer to full fare tickets. A further set of sensitivity tests were undertaken on this test which related to examining the impact of the valuation of the displacement time on demand by ticket type. The results of this test are shown below in absolute changes in demand between three scenarios where the displacement time valuation is increased and decreased by a factor of 50%. Ticket Type Displacement Time * 0.5 Test 8 Displacement Time * 1.0 Displacement Time * 1.5
Open Saver APEX
32.7 42.3 22.3
33.5 39.1 22.5
34.2 36.2 22.7
The above shows that decreasing the displacement time value results in a 8% increase in saver demand, compared to the central test, as the reduced displacement time value means more people would divert to other time periods rather than not travel by rail, and conversely an increase in displacement time valuation causes a 7.4% decrease in saver demand as less people divert to other saver time periods once the saver availability is restricted.
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All the tests could be fine-tuned by adjustments to inputs which result in additional patronage and a flattening of the demand profile. For example, for corridor A in Test 3, increasing APEX fares by 20 per cent would lead to a demand increase of 5.7 per cent and a revenue increase of 1 per cent. 5.6.16 For each corridor, some general conclusions could be inferred as follows:
overall Saver fares increases would lead to an increase in operator revenue after taking account of impacts on revenue from other ticket types; and shoulder peak fares combined with either Saver fare reductions in the off-peak, or increased APEX quotas can be used as a demand management tool with potentially revenue neutral effects.
6 Pulling the Evidence Together
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Pulling the Evidence Together
6.1 6.1.1
Introduction In Chapter 1 we noted three main arguments for fare regulation in the rail industry:
To protect consumers in situations where service providers have significant market power and can use this to raise prices significantly; To promote social inclusion, in so far as high rail prices could restrict the mobility of some sections of society; and To ensure affordable tickets are retained in situations where the use of more than one operators services is required or where the constraint of being able to use only one operators services unduly restricts travel opportunities.
6.1.2
In this chapter we seek to combine existing evidence with the findings of the new research carried out during this study to assess whether these arguments apply to the regulation of Saver fares and whether abolition of Saver fare regulation is desirable. We also consider alternatives to full de-regulation. In Section 6.2, we summarise the results of the tests that were undertaken using the policy application model described in Chapter 5 to determine whether operators have significant market power. We also discuss other factors that may affect operators pricing strategy in practice before considering the social inclusion and retention of network benefits issues. Assessment of Market Power Results of Policy Tests The results of the policy tests reported in chapter 5 suggest: 1. On the basis of the two major routes modelled, we find that Saver fare increases will in general increase revenue while reducing ridership. This implies that if TOCs were to maximise revenue given the capacity they operate they would increase Saver fares. The tests which increase shoulder peak fares lead to more modest increases in revenue and reduced ridership. This applies both to Test 1 (Shoulder peak fares) and Test 8 (reduced Saver Availability in effect raising shoulder peak fares to peak levels). A policy of increasing shoulder peak fares with compensating reductions in the off peak leads to lower revenue and higher ridership than simply increasing shoulder peak fares. In each case, combining one of these strategies with increasing APEX availability leads to an increase in ridership and a reduction in revenue relative to the equivalent test where APEX availability is not increased.
6.1.3
6.2 6.2.1
2.
3. 4.
6.2.2
The policy tests also show that there is potential to increase demand while retaining a broadly revenue neutral position through a combination of shoulder peak pricing and increased APEX availability, although this may be flow specific and would require careful optimisation of the absolute and relative fare levels. These results are reasonably consistent across both the NERA and PDFH approaches and in relation to both corridors tested. The magnitude of the changes do vary depending on the initial fares and the model used, so we can have more confidence in the direction of the changes than in their magnitude when applied nationally. It has to be recognised that the policy model results are very much driven by two main factors with regard to their sensitivity in terms of rail trip generation/suppression and allocation between ticket types and these are the conditional
6.2.3
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elasticity values and the diversion factors adopted. The diversion factors are an important feature of the model structure and determine the proportion of passengers who will transfer to/from other ticket types or to would not travel by rail if changes are made in fares. Increasing the diversion factor for would not use rail increases the elasticity for the specific ticket type to which it applies. As the diversion factors reflect differing levels of competition and are influenced by journey purpose composition and journey length, they are in reality flow group specific in many cases and are judgmental in nature. 6.2.4 The existing elasticity evidence from PDFH on elasticities and diversion factors types is based primarily on ticket type, and to a lesser extent on journey purpose, and is based on all day travel. It does not directly provide evidence on the elasticities for different time periods, only by implication if the journey purpose splits are known by time of day can an approximation be made within the period when Savers are currently valid and this would still have weaknesses. It is possible that the finding that demand is inelastic is influenced by the shoulder peak, the current journey purposes, and the current evidence base on elasticity and diversion factors and it is - in reality elastic in parts of the deeper off peak. If this is the case operators would have an incentive to reduce fares at these times. With regard to the deeper off-peak, the hypothesis could be that demand will be more elastic as a result of the composition of the passenger base at those time periods with lower proportions of business travellers and higher proportions of leisure travellers and long stay trips. The former are more inelastic and the latter more elastic. As the proportional mix changes then the overall elasticity by time period could be expected to change and become more elastic towards the middle of the day when business travel is at its lowest as a proportion of overall demand. The current all day ticket type conditional elasticity values by ticket type reflect purpose splits that were inherent in the market base from which the values were derived and over time these may change and as such the elasticity values vary. More generally, this study has highlighted the complexity of the relationships between ticket types and, in particular, the relationship between time of day trade-offs. Existing general evidence on this is extremely limited. We have tried to address this in the stated preference exercise we have undertaken. Unlike commuting into London, where the market is generally fairly homogenous, the long-distance traveller has many contributory factors into why, when and how they are travelling. It has proved difficult to pin down the extent to which passengers have adjusted their time of travel in response to ticket constraints, separately from all the other factors that also influence their decision. Although the study has contributed to the knowledge of time-of day trade-offs, the results are by no means definitive. This will influence the degree of certainty that can be placed on conclusions from the work, and we must bear this in mind when offering recommendations. Implications for Competition Authorities if fare levels increase This section of Chapter 6 considers the implications of our findings on the impact of deregulation of Saver fares for the competition authorities. We have concluded that deregulation of Saver fares could lead TOCs to increase Saver fares either by means of general increases in Saver fare levels or by means of the introduction of shoulder peak Savers during certain parts of the day. We consider the implications of this for competition authorities under two headings, namely excessive fares arising from abuse of a dominant position, and investigations of future mergers in the rail industry.
6.2.5
6.2.6
6.3 6.3.1
Would fare levels be considered to be excessive?
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6.3.2 6.3.3
In section 2.7 above we described the ORRs position in regard to fare levels as set out in their policy note on the role of competition law in regulating rail passenger fares.19 Any future complaint about excessive prices that arose in the event that Saver fares rose would obviously be treated by ORR on its merits, and according to the relevant law. However, NERAs own view, based on the advice that we provided to ORR in the Virgin fares case, is that the ORR would be likely to take the following factors into account in coming to a view on whether an individual fare could be considered excessive for the purposes of competition law:

The circumstances in which longer-distance TOCs now operate (and which were relevant factors taken into account in the Regulators decision), in regard to competition in the market for franchises, with common costs spread across different services and in particular across different passengers on the same train, are the same as they were in 2001; and The level of Saver fares relative to the level of Open fares. The overall range of prices available to passengers. Relatively few passengers are ' captive ' ie with no realistic alternatives such as travelling at a different time of day or buying an advance ticket. This is against the background where the railway as a whole far from covers its costs overall; Government pays Network Rail a grant even on passenger franchises which pay Government a premium.
How would future merger investigations be affected?

6.3.4 We set out in section 2.6 of this report how the competition authorities have investigated rail mergers. In any future investigations that took place in an environment where Saver fares had now been deregulated, the investigation would need to take account of both the higher Saver fares now in operation in the market and the fact that, if the merger reduced competition, Saver fare increases would not be constrained by regulation. Therefore, for example, if a longer distance rail franchise were to be awarded to a coach operator with services in the same corridor, then the investigation would need to consider whether the merger might lead to a substantial lessening of competition such that leisure rail fares might increase further.
6.4 6.4.1
Demand Management The policy model simulates the impact of alternative pricing strategies on largely unconstrained demand and revenue. Although the model incorporates ticket availability by time periods and an estimate of APEX quotas in each time period, it has not been designed to assess capacity constraints. The model implicitly assumes the supply (capacity) is unlimited. This is clearly not the case for rail. Firstly, as in other service industries, the product (in this case a seat on a specific train on a particular day) is produced and consumed simultaneously and cannot be stored. Secondly there are significant and growing constraints on the number of trains that can be operated on the network at certain times of day, while overcrowding is becoming increasingly common. The first of these factors encourages operators to maximise load factors, while the second leads to demand management measures to encourage customers to shift their time of travel to periods when more capacity is available. In order to meet these requirements, operators have developed, and are continuing to enhance, yield management strategies. In order for these strategies to work effectively, operators need to know how many passengers will arrive for a particular train. While Open and Saver ticket users may reserve seats there is no requirement for them to travel on the particular train where these have been made. Accordingly operators have to make allowance for the number of Open and Saver ticket users who may arrive. Since demand can vary significantly and unpredictably from day to day (due to factors such as the weather) this results in a lower average load factor than might be achieved with an all advance purchase strategy, combined with episodes of overcrowding, which leads to significant customer dissatisfaction. A shift from flexible to restricted tickets would enable operators to allocate higher quotas to restricted tickets and thereby help to achieve higher average load factors. Accordingly there is an opportunity cost
19
6.4.2
ORR, Regulating Rail Passenger Fares The Role of Competition Law. Available at: http://www.railreg.gov.uk/upload/pdf/competition-briefing-note-fares.pdf
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associated with flexible tickets. This may justify pricing them somewhere above the point where they become price elastic, as the loss of revenue from this segment is more than compensated by the ability to sell more restricted tickets, albeit at lower fares. 6.4.3 We would expect operators to increase Saver fares in shoulder peak periods to assist them in managing demand more effectively and increasing average load factors, in some situations above the level at which demand becomes elastic. At particularly busy times, advance purchase ticket prices may also rise to maximise revenue within capacity constraints. This may explain why operators have not reduced Saver fares in the way that the Leeds ITS study, discussed in Chapter 2, suggested that they should. Finally, it is important to recognise that much of the revenue benefit from yield management systems comes back to DfT either through increased value when franchises are re-let or through the revenue sharing mechanisms in recent franchise agreements. This may be used either to reduce overall subsidy to the industry or to invest in increased capacity. Social Inclusion An important theme of government policy has been to promote social inclusion for disadvantaged groups. In the case of Saver fares de-regulation, the group who could be significantly disadvantaged if de-regulation led to higher fares are people:

6.4.4
6.5 6.5.1
On low incomes; With no alternative mode Paying their own fares.
6.5.2
If we define low income as those with a household income of less than 17,500, and those with no alternative mode a those who responded other train service or would not travel to the survey question about long term alternatives for their journey, the proportion of our sample at risk is only 5%. If the definition of low income is increased to those with incomes under 35,000 (which is in fact significantly above the national average), this proportion rises to 9%. In some cases, the fares of people on low incomes are paid by others (apart from employers). The person who pays may also be on a low income, for example another family member. If we include this group, the potentially disadvantaged proportions rise to 6% or 10% depending on the income threshold chosen. Some of these passengers, in practice, would first choose to use an alternative ticket type, including advance purchase. Others may be able to change their time of travel to allow them to access cheaper ticket alternatives which may be available at less busy times. Overall then, we conclude that a fairly small proportion of passengers travelling at times when Saver fares are valid are potentially at risk from deregulation. However, it is important that any changes are communicated effectively to users so that they are aware of the fares that are available. Analysis of the survey data suggests that 56% of respondents with an income of less than 17,500 are either under 26 or over 60 years of age and could make use of Young Persons or Senior Railcards20. Some other respondents may be entitled to a Family Railcard. This demonstrates that a high proportion of lower income passengers do have access, via a railcard, to reduced fares. . Overall 22% of respondents were using a railcard. Network Benefits An important feature of Saver (and Open) fares is that they are inter-available between all operators serving a flow. This is not the case with APEX tickets, which are generally operator specific. This gives rise to two potential areas of concern:
6.5.3
6.5.4
6.5.5
6.6 6.6.1
A loss of affordable through ticket opportunities where the journey requires the use of more than one operators services; A loss of choice where more than one operator serves the same flow.
6.6.2
The current fare setting arrangements within the industry make one operator responsible for setting fares for any flow, even where the use of another operators services is required. The fare setting operator typically offers their own range of discounted tickets for the full journey. For
20
Average UK household income is 27,000 (source ONS)
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example Tonbridge to Edinburgh fares are set by GNER, even though passengers would also need to use SouthEastern services in the course of their journey. The full range of GNER discounted tickets is available at prices which are typically below the cost of buying separate Tonbridge London, London Underground and London Edinburgh fares. There is no reason why Saver de-regulation would change this situation. 6.6.3 There is only one operator serving the majority of long distance Intercity flows. Accordingly, loss of inter-availability is not a significant issue on these routes. There are, however, a number of flows where different operators provide parallel services at present, or will do so in future. Examples include GNER and Virgin between York and Edinburgh; GNER and First Scotrail between Edinburgh and Aberdeen; Virgin and Transpennine Express between Preston and Glasgow/Edinburgh; and Virgin and First Great Western between Taunton and Penzance. Many of the journeys on these routes are relatively short and may be made at shorter notice than longer distance journeys. The absolute difference between Saver and Advance Purchase fares is also likely to be less. It might be thought that there would be scope for the fare setting operator (normally the one with the greatest number of services) to increase Saver fares in the expectation that this would lead to a disproportionate shift to his restricted tickets. This might be the case with walk-up fares, as choosing the operator with the higher frequency maximises departure time choice, but advance purchase passengers are likely to split between operators in much the same proportions as with inter-available tickets. It is understood that franchised operators are not permitted to sell operator specific walk-up fares. If this was allowed, there could be a benefit to some operators in providing them, at the expense of a loss of network benefits to passengers. However, the Passenger Licence and the Ticket and Settlement Agreement in place protect network benefits. Conclusions from the Evidence The evidence presented above indicates that, in the absence of regulation, a revenue maximising operator could increase walk-up fares in at least part of the period when Savers are currently available. However the extent to which fares would rise is uncertain. It is also uncertain, if TOcs were free to choose, whether fares would rise throughout the entire period for Saver fares are currently valid, or whether there are time periods in the deep off-peak where demand is more elastic. The current cap on Saver fares also constrains the level of APEX fares, so, after de-regulation, these might also rise during any times of day where demand is less elastic. In practice, given the uncertainties in the evidence and the risk of adverse customer reaction, operators might be expected to proceed cautiously and change fares in relatively modest increments, while monitoring the effect on ridership and revenue. A move to single-leg pricing could enable passengers to shop around for the cheapest fare on each leg of the journey. There would be benefits in raising shoulder peak walk-up fares to reduce the growing problem of crowding at this time and to encourage a further shift to advance purchase tickets. A higher proportion of APEX tickets would make it easier for operators to manage demand and make best use of available capacity. This has benefits both in terms of revenue to operators and in making best use of capacity. At the moment, APEX availability is limited by the requirement on TOCs to provide sufficient capacity for walk-on fares. However, placing obligations on TOCs to increase the availability of APEX fares would be a further layer of regulation. The social inclusion arguments for Saver fare regulation do not appear to be strong given that only 5% of our respondents had a household income under 17,500, no alternative mode and were paying their own fares. Relaxing these criteria would only increase the proportion that might be considered vulnerable up to 9%. Accordingly Saver fare regulation is not an effective tool for encouraging social inclusion given that it has significant costs (in increased franchise subsidies or reduced premia) and most of the benefit does not flow to disadvantaged groups. Over half low income respondents were eligible for either a Young Persons or Senior railcard. Overall, all captive passengers i.e. those who have no real choice but to pay any higher fare are a small proportion of the total.
6.7 6.7.1
6.7.2
6.7.3
6.7.4
Appendix A - List of trains surveyed
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Appendix A - List of trains surveyed

Table of train flows and trains surveyed Flow London - Stoke London - Macclesfield London - Stockport/Manchester Manchester/Stockport - London Macclesfield - London Stoke - London London - Bath London - Bristol London - Bath London - Bristol Bristol - London Bath - London Bristol - London Bath - London London - Birminghamham Int./New St. Birmingham New St/Int - London London - Solihull, B'ham Moor St/Snow Hill B'ham Snow Hill/Moor St, Solihull - London London - York London - Newcastle London - Edinburgh York - Newcastle York - Edinburgh Edinburgh - York Edinburgh - London Newcastle - York Newcastle - London York - London Birmingham - Leeds Birmingham - York Birmingham - Newcatle York - Newcastle York - Edinburgh Edinburgh - York Newcastle - York Newcastle - Birmingham York - Birmingham Leeds - Birmingham London - Stoke London - Macclesfield London - Stockport/Manchester Manchester/Stockport - London Macclesfield - London Stoke - London Train 18.35 18.35 18.35 15.45 15.45 15.45 09.30 09.30 15.00 15.00 12.00 12.00 18.00 18.00 09.40 12.00 09.50 12.52 10.00 10.00 10.00 10.00 10.00 16.00 16.00 16.00 16.00 16.00 09.03 09.03 09.03 09.03 09.03 16.05 16.05 16.05 16.05 16.05 18.35 18.35 18.35 14.47 14.47 14.47 Euston - Manchester Euston - Manchester Euston - Manchester Manchester - Euston Manchester - Euston Manchester - Euston Paddington - Bristol TM Paddington - Bristol TM Paddington - Bristol TM Paddington - Bristol TM Bristol TM - Paddington Bristol TM - Paddington Bristol TM - Paddington Bristol TM - Paddington Euston - Birmingham Birmingham - Euston Marylebone - Birmingham Birmingham - Marylebone Kings Cross - Edinburgh Kings Cross - Edinburgh Kings Cross - Edinburgh Kings Cross - Edinburgh Kings Cross - Edinburgh Edinburgh - Kings Cross Edinburgh - Kings Cross Edinburgh - Kings Cross Edinburgh - Kings Cross Edinburgh - Kings Cross Birmingham - Edinburgh Birmingham - Edinburgh Birmingham - Edinburgh Birmingham - Edinburgh Birmingham - Edinburgh Edinburgh - Birmingham Edinburgh - Birmingham Edinburgh - Birmingham Edinburgh - Birmingham Edinburgh - Birmingham Euston - Manchester Euston - Manchester Euston - Manchester Manchester - Euston Manchester - Euston Manchester - Euston Day Friday Friday Friday Friday Friday Friday Friday Friday Friday Friday Friday Friday Friday Friday Friday Friday Friday Friday Friday Friday Friday Friday Friday Friday Friday Friday Friday Friday Friday Friday Friday Friday Friday Friday Friday Friday Friday Friday Sunday Sunday Sunday Sunday Sunday Sunday
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Flow London - Bath London - Bristol Bristol - London Bath - London Birmingham - Leeds Birmingham - York Birmingham - Newcatle Newcastle - Birmingham York - Birmingham Leeds - Birmingham London - Stoke London - Macclesfield London - Stockport/Manchester Manchester/Stockport - London Macclesfield - London Stoke - London London - Bath London - Bristol Bristol - London Bath - London London - Birminghamham Int./New St. Birmingham New St/Int - London London - Solihull, B'ham Moor St/Snow Hill B'ham Snow Hill/Moor St, Solihull - London London - York London - Newcastle London - Edinburgh York - Newcastle York - Edinburgh London - York London - Newcastle London - Edinburgh York - Newcastle York - Edinburgh Edinburgh - York Edinburgh - London Newcastle - York Newcastle - London York - London Edinburgh - York Edinburgh - London Newcastle - York Newcastle - London York - London Birmingham - Leeds Birmingham - York Birmingham - Newcatle York - Newcastle York - Edinburgh Birmingham - Leeds Birmingham - York Birmingham - Newcatle
Train 16.07 16.07 19.00 19.00 12.03 12.03 12.03 17.25 17.25 17.25 10.05 10.05 10.05 13.45 13.45 13.45 11.30 11.30 09.00 09.00 15.10 18.00 15.20 18.12 13.00 13.00 13.00 13.00 13.00 15.00 15.00 15.00 15.00 15.00 07.00 07.00 07.00 07.00 07.00 09.00 09.00 09.00 09.00 09.00 13.03 13.03 13.03 13.03 13.03 15.03 15.03 15.03
Paddington - Bristol TM Paddington - Bristol TM Bristol TM - Paddington Bristol TM - Paddington Birmingham - Newcastle Birmingham - Newcastle Birmingham - Newcastle Newcastle - Birmingham Newcastle - Birmingham Newcastle - Birmingham Euston - Manchester Euston - Manchester Euston - Manchester Manchester - Euston Manchester - Euston Manchester - Euston Paddington - Bristol TM Paddington - Bristol TM Bristol TM - Paddington Bristol TM - Paddington Euston - Birmingham Birmingham - Euston Marylebone - Birmingham Birmingham - Marylebone Kings Cross - Edinburgh Kings Cross - Edinburgh Kings Cross - Edinburgh Kings Cross - Edinburgh Kings Cross - Edinburgh Kings Cross - Edinburgh Kings Cross - Edinburgh Kings Cross - Edinburgh Kings Cross - Edinburgh Kings Cross - Edinburgh Edinburgh - Kings Cross Edinburgh - Kings Cross Edinburgh - Kings Cross Edinburgh - Kings Cross Edinburgh - Kings Cross Edinburgh - Kings Cross Edinburgh - Kings Cross Edinburgh - Kings Cross Edinburgh - Kings Cross Edinburgh - Kings Cross Birmingham - Edinburgh Birmingham - Edinburgh Birmingham - Edinburgh Birmingham - Edinburgh Birmingham - Edinburgh Birmingham - Edinburgh Birmingham - Edinburgh Birmingham - Edinburgh
Day Sunday Sunday Sunday Sunday Sunday Sunday Sunday Sunday Sunday Sunday Monday Monday Monday Monday Monday Monday Monday Monday Monday Monday Monday Monday Monday Monday Monday Monday Monday Monday Monday Monday Monday Monday Monday Monday Monday Monday Monday Monday Monday Monday Monday Monday Monday Monday Monday Monday Monday Monday Monday Monday Monday Monday
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Flow York - Newcastle York - Edinburgh Edinburgh - York Newcastle - York Newcastle - Birmingham York - Birmingham Leeds - Birmingham Edinburgh - York Newcastle - York Newcastle - Birmingham York - Birmingham Leeds - Birmingham London - Stoke London - Macclesfield London - Stockport/Manchester Manchester/Stockport - London Macclesfield - London Stoke - London London - Birminghamham Int./New St. London - Birminghamham Int./New St. Birmingham New St/Int - London Birmingham New St/Int - London London - Solihull, B'ham Moor St/Snow Hill London - Solihull, B'ham Moor St/Snow Hill B'ham Snow Hill/Moor St, Solihull - London B'ham Snow Hill/Moor St, Solihull - London London - York London - Newcastle York - Newcastle Edinburgh - York Edinburgh - London Newcastle - York Newcastle - London York - London Birmingham - Leeds Birmingham - York Birmingham - Newcatle York - Newcastle Edinburgh - York Newcastle - York Newcastle - Birmingham York - Birmingham Leeds - Birmingham
Train 15.03 15.03 07.05 07.05 07.05 07.05 07.05 09.05 09.05 09.05 09.05 09.05 12.05 12.05 12.05 08.45 08.45 08.45 10.10 13.10 09.30 15.30 10.20 12.50 13.52 15.52 19.00 19.00 19.00 13.00 13.00 13.00 13.00 13.00 19.03 19.03 19.03 19.03 13.05 13.05 13.05 13.05 13.05
Birmingham - Edinburgh Birmingham - Edinburgh Edinburgh - Birmingham Edinburgh - Birmingham Edinburgh - Birmingham Edinburgh - Birmingham Edinburgh - Birmingham Edinburgh - Birmingham Edinburgh - Birmingham Edinburgh - Birmingham Edinburgh - Birmingham Edinburgh - Birmingham Euston - Manchester Euston - Manchester Euston - Manchester Manchester - Euston Manchester - Euston Manchester - Euston Euston - Birmingham Euston - Birmingham Birmingham - Euston Birmingham - Euston Marylebone - Birmingham Marylebone - Birmingham Birmingham - Marylebone Birmingham - Marylebone Kings Cross - Newcastle Kings Cross - Newcastle Kings Cross - Newcastle Edinburgh - Kings Cross Edinburgh - Kings Cross Edinburgh - Kings Cross Edinburgh - Kings Cross Edinburgh - Kings Cross Birmingham - Newcastle Birmingham - Newcastle Birmingham - Newcastle Birmingham - Newcastle Edinburgh - Birmingham Edinburgh - Birmingham Edinburgh - Birmingham Edinburgh - Birmingham Edinburgh - Birmingham
Day Monday Monday Monday Monday Monday Monday Monday Monday Monday Monday Monday Monday Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday
Appendix B - Example questionnaire
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Appendix B Example questionnaire

Saver Fares - Differentiation and Potential Deregulation

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Saver Fares: Differentiation and Potential Deregulation Final Report DfT Rail July 2007

................................................. Simon Temple

Saver Fares: Differentiation and Potential Deregulation Rev No 1 Comments Date

Appendix A - List of trains surveyed....................................................................................... 89 Appendix B Example questionnaire ..................................................................................... 93

Saver Fares: Differentiation and Potential Deregulation

Saver Fares: Differentiation and Potential Deregulation

Saver Fares: Differentiation and Potential Deregulation

Saver Fares: Differentiation and Potential Deregulation

2. Review of existing evidence

Saver Fares: Differentiation and Potential Deregulation

Review of existing evidence

Saver Fares: Differentiation and Potential Deregulation

Saver Fares: Differentiation and Potential Deregulation

NERA (2002), prepared for the Strategic Rail Authority.

Saver Fares: Differentiation and Potential Deregulation

Version 4.1, June 2005.

Saver Fares: Differentiation and Potential Deregulation

Source: PDFH June 2005, Tables B2.3 and B2.4.

Full -0.85 -0.85 -0.90 -0.90

Reduced -1.00 -1.00 -1.05 -1.05

Apex -1.50 -1.50 n.a. n.a.

-0.65 -0.65 -0.70 n.a.

Saver Fares: Differentiation and Potential Deregulation

The Wardman fares elasticity review includes the following information:

Saver Fares: Differentiation and Potential Deregulation

Saver Fares: Differentiation and Potential Deregulation

Conditional Elasticities (all public transport fares moving together)

Own-Fare Elasticities in the SFM

Saver Fares: Differentiation and Potential Deregulation

First class -0.75 -0.75 -0.85 -0.85 -0.60 -0.60 -5.30

ITS (University of Leeds) Technical Note 348, November 1993

Saver Fares: Differentiation and Potential Deregulation

For an individual flow:

Saver Fares: Differentiation and Potential Deregulation

Saver Fares: Differentiation and Potential Deregulation

Saver Fares: Differentiation and Potential Deregulation

Saver Fares: Differentiation and Potential Deregulation

Competition Commission Stagecoach and Scottish Citylink TSO, 23 October, 2006

Saver Fares: Differentiation and Potential Deregulation

Table 2.6 Competition Authority Investigations of Impact of Competition on Fares

Virgin/Stagecoach and Intercity East Coast

LYNE (DSB/EWS) and Intercity East Coast

08/12/04, not referred.

First and Greater Western

National Express and Greater Western Stagecoach and Greater Western

First and Scotrail

National Express and Midland Main Line

National Express and Scotrail

Saver Fares: Differentiation and Potential Deregulation

Table 2.6 Competition Authority Investigations of Impact of Competition on Fares

National Express and Central Trains Stagecoach and Scottish Citylink

Competition Commission report published 23/10/06

Arriva and Wales Borders

2.7 2.7.1 2.7.2

Saver Fares: Differentiation and Potential Deregulation

Conclusions from the Review of Existing Evidence

Saver Fares: Differentiation and Potential Deregulation

Saver Fares: Differentiation and Potential Deregulation

Saver Fares: Differentiation and Potential Deregulation

We also surveyed the following cross country flows:

Saver Fares: Differentiation and Potential Deregulation

Saver Fares: Differentiation and Potential Deregulation

Saver Fares: Differentiation and Potential Deregulation