Light at the end of the tunnel
27 April 2009

30 April 2009 | Amon Cohen

Rail prices have proved a difficult area for value and negotiation, but advance buying and improvements in policy and communication are offering new directions

The name Scheidt & Bachmann is one buyers should be praising at the moment. The German firm is indirectly responsible for a happy trend in corporate rail purchasing towards lower train fares.

Scheidt & Bachmann makes dispensing machines from which travellers can collect tickets booked in advance. Rail remains an aspect of corporate travel where supplier negotiation is rare, and so the key to purchasing success is directing travellers towards lower fare types. There are several factors which help push down average ticket price, including travelling off-peak, but time and again travel professionals report that the most important one of all is buying before departure. The message is getting through, according to Raj Sachdave, strategic business development manager for the corporate rail booking tool Railooto.

"Since last year there has been much more of a push to improve compliance on rail," he says. "If you book even one day before [advance booking is available until 6pm on the day before departure], you can save 25-40 per cent. It is now becoming standard procedure for business travellers to buy two singles in advance."

Numerous sources confirm that average rail fares paid by business travellers are falling, in spite of the annual published increases imposed by train operating companies.

Improving rates

According to Thetrainline, which offers a corporate rail booking tool in addition to its consumer website, the average fare paid by corporate customers in January 2009 was 12.5 per cent lower than the same month in 2008. Advance purchase tickets accounted for 24 per cent of Thetrainline's corporate sales in January 2008 but rose to 37 per cent in January 2009. Jamie Hindhaugh, head of sourcing for production resources, logistics and operations for the BBC, says the corporation's average fare fell from £86 in 2003 to £55 in 2008.

In part, this is a result of buyers improving policy and communication around rail, but as all purchasers know, travellers are notoriously hard beasts to drag to water. Making them drink is where Scheidt & Bachmann and its rival manufacturers come in. Several technological and process improvements in the past couple of years have made advance rail booking much easier and ticket on departure machines are one of these. According to Thetrainline, there are now 526 of them in UK railway stations. In 2006, the figure was a mere 58. Another recent step forward has been that ticket on departure machines, also known as FastTicket machines, are now used by Railooto as well, and also by Evolvi (Railooto is owned by Capita and made available to customers of subsidiary Capita Business Travel, whereas Evolvi is a version of the same tool that Capita markets through rival travel management companies).

More innovations are on their way. Virgin Trains and Cross Country are piloting a system that allows travellers to print their own tickets on plain paper. E-ticketing is scheduled to be made available to corporate travellers for advance purchase fares on all inter-city routes from next year. There are also plans to introduce smart ticketing along the lines of London Transport's Oyster card, with travellers able to upload ticket purchases on to the cards through their own computers. Uploading tickets on to mobile phones is also under development.

Rail booking tools are going from strength to strength. Adrian Watts, director of sales & distribution at Thetrainline, estimates that 38 per cent of corporate rail tickets are now bought online. Paul Tilstone, chief executive of the Institute of Travel Management, confirms their growing ubiquity. "The capture of the business travel market by Evolvi and Thetrainline has increased dramatically," he says. "A lot of our members are using them."

Rather than contracting directly, most corporate customers take on a rail booking tool as part of their relationship with their TMC. It is the ability of TMCs to handle rail cheaply via this method which provides yet another reason why companies are finding themselves able to manage train expenditure much more effectively. The growth of TMC involvement came across clearly in figures from the Guild of Travel Management Companies (GTMC) for the fourth quarter of 2008. While air transactions handled by GTMC members were down 6 per cent on the same period in 2007, rail transactions were up 18 per cent. "When I worked for a TMC 15 years ago, we were telling customers to buy their tickets at the railway station because it was too much of a pain in the neck for us," says Watts. "Now they can do it much more efficiently."

TMCs have also been helped by a newly achieved ability to book UK rail and Eurostar through the same global distribution systems they use for booking air, car hire and (most) hotels. As a result, TMCs are now able to compare air versus rail on the same screen for trips from London to Paris and Brussels.

There is potentially a fly in the ointment, however, which is the question of remuneration. The cost of handling rail transactions is still subsidised by the commission that train operating companies (TOCs) pay to TMCs, even though this dropped from 9 per cent to 5 per cent last year. Some industry observers believe it may fall again in 2010 or even be eliminated entirely.

"If commission were to drop, it would hurt the whole sector," says Sachdave, but Watts does not believe it will be cut and does not think the knock-on in cost would be damaging if it were. "After the last cut, there was no evidence of a diminution in appetite for TMCs to get involved in rail, and for corporates the savings from booking online far outweigh whatever reductions there are in commission," he says.

Extracting benefits

If a commission cut were to put up TMC fees, it could make buyers look even harder at trying to extract negotiated agreements with the TOCs. Hindhaugh says the BBC has "done some route deals", but at present it tends only to be large customers able to deliver extra market share which are able to extract discounts. What is more, the TOCs are often only prepared to deal on off-peak services, and even then the concessions may be in the form of soft benefits, such as meal vouchers or use of the first-class lounge for standard ticket holders, says Sachdave.

However, some TOCs, most notably Virgin Trains, are increasing their frequencies this year, leading to more spare capacity and perhaps a greater potential for negotiation. With competition from airlines on some of those routes, the TOCs may yet have to come to the table, in spite of falling average ticket prices. "The comment we continue to get from members is that rail remains quite expensive," says the ITM's Tilstone. "The TOCs still have to support branch networks as well as popular business routes, so things may not change unless the franchises are structured differently."

CASE STUDY: Rail Costs at the BBC

Average ticket price: 2003 - £86, 2008- £55

Transaction fee: 2003 - £10, 2008 - £0

Ticket distribution costs: 2003 - £500,000*, 2008 - £30,000**

*Courier and postal costs

** Maintenance of self-service ticket printers in BBC offices

Corwen / Cynwyd / Deeside - North Wales
Ifor Williams Trailers
GBP40000.00 - GBP50000.00 per annum +
CIPS Knowledge
Find out more with CIPS Knowledge:
  • best practice insights
  • guidance
  • tools and templates