British Airways claimed at
the Guild of Travel Management Companies autumn conference in London on Monday that it is winning back passengers from domestic United Kingdom rail
competitors owing to rising rail fares. Virgin Trains chief executive Tony
Collins conceded at the same conference that fares are increasing because of
rising demand and limited capacity, and warned capacity problems could deter
business travelers.
Virgin Trains competes for corporate business with BA primarily on
London-Manchester and, to a lesser extent, on London-Glasgow. BA head of sales
& marketing for the U.K. & Ireland Richard Tams told the conference:
“Corporate clients are putting us back in their policy because the price of
rail has become so expensive.” In response Collins said: “If there is not
enough supply for the level of demand, prices tend to go up. Sixty percent of
our fares are regulated by the government, so we only have 40 percent to flex
around demand. We are running out of capacity. We will reach the point where
rail travel will become unattractive unless we get more capacity over the next
three to four years. There is standing room only some days.”
Virgin Trains is experiencing capacity problems in spite of trebling services
from London to Manchester and Birmingham to up to four per hour over the past
few years. It has doubled passenger numbers to 28 million since 2004, including
a 15 percent rise in 2010.
In spite of supply and demand challenges, the revelation that rail travel is
becoming more expensive for U.K. businesses is a surprise after numerous reports of average fares paid by corporate clients falling over the past two or three years. Fares have fallen, as an increasing number of companies have introduced
corporate rail booking tools—Thetrainline and Evolvi—enabling travelers to
research and book lower advance and off-peak fares and a precipitate
downgrading from first class to standard class, especially by public sector employees.
Paradoxically, it could be
the extent of downgrading to standard class which is starting to push average
fares back up again, especially for business travelers booking only a couple of
days before departure.
“We have yet to see a big difference in average ticket
value but there is a capacity issue on some routes,” said Raj Sachdave, head of
strategic business development for Capita Business Travel, a travel management
company with a high proportion of clients with U.K.-only travel. “First class
is hemorrhaging and everyone is bundling into standard class.” Sachdave’s
colleague, sales and marketing director Matt Selby, said: “My immediate
reaction was that I agree with what was said at the conference. Maybe business
travelers will start looking at air again.”
However, BA’s other principal domestic rail competitor, East Coast Main
Line, which goes head-to-head on London-Newcastle and London-Edinburgh,
rejected Tams’ remarks. “There is no evidence to support a substantial drift
from rail to air,” a spokesman said. “Since BA was affected by industrial
action in April, it has introduced some attractive pricing, but there is no
evidence it has won passengers from rail.”
The spokesman added that East Coast is “not resting on its laurels” and is
working on improving its first class product and distinguishing it further from
standard class. This will include the introduction in May 2011 of a
three-course meal for all first-class passengers. In the meantime, East Coast
is attempting to retain passengers subject to first-class policy bans, offering
a £199 standard class return package from Edinburgh and other Scottish stations
to London that includes a free upgrade to first class.
Although further fare rises are likely, especially from 2012, when the
government will allow fares to rise 3 percent higher than inflation, Sachdave
said rail should still prove the cheaper option for companies willing to impose
policy rules. “If you are prepared to fix the outbound and return journeys in
advance, you are likely to get a cheaper fare than air, and will avoid the
hassle of going to the airport and clearing security. If you apply the same
methodology to booking rail as you do air, it is still worth doing.”
East Coast head of sales Martin Turner claimed clients are doing exactly that,
taking advantage of both advance and off-peak booking. “There is definitely a
trend that businesses are booking further in advance and arranging meetings
around their travel rather than travel around their meetings,” he said.