There is limited evidence of market saturation as passenger levels continue to rise on our rail network. Rail is growing at 6% per year and we are experiencing the highest passenger levels since the 1920s (we now have half the rail network we had then).
Guest blogger and rail expert Alan Marshall takes a look at forecasting methods.
A new method of forecasting rail passenger demand suggested two years ago (but not made public until now) concluded that demand for rail travel was likely to continue to increase, requiring either more network capacity or acceptance of more overcrowding.
Objectors to plans to build High Speed 2 have frequently criticised figures for future demand, based on the ‘Passenger Demand Forecasting Handbook’ — first produced by British Rail in 1986 — as over-estimates.
But now it has emerged that two leading consultancies — Oxera and Arup — were commissioned more than two years ago to review and update the method of forecasting public reactions (known as ‘elasticities’) to changes in fares linked to personal incomes, demographics and other transport modes, especially car usage.
The report was commissioned by the Department for Transport, Transport Scotland, and the Passenger Demand Forecasting Council, which commissions research into rail passenger demand on behalf of the British railway industry — “to ensure that future policy choices are made as robustly as possible, and reflecting concerns that the forecasting framework was unable to predict the strong growth in rail demand towards the end of the last decade.” (my italics)
New forecasts were based on TOAD (The Oxera Arup Dataset) which includes “more than 20,000 rail routes, covering a period of 18 years, with over 60 explanatory variables.
“The outcome of this analysis is an alternative framework which can be used to forecast the demand for passenger rail travel,” explained Oxera in an article written in August 2010 but only placed in the ‘publications’ area of the DfT’s website on 12 April this year.
According to Oxera, “one of the most important observations is that there is limited evidence of market saturation (i.e., demand remaining constant despite increases in income).
“This suggests that the demand for passenger rail travel is likely to continue to increase with rising disposable incomes. This in turn suggests that either the capacity of the network will need to be further expanded, or increased crowding will need to be tolerated on some parts of the network.
“This would be compounded if, as the analysis suggests, there is a considerable shift from road to rail, should the cost of using a car increase.”
Since the article was written in 2010, pump prices for petrol and diesel have already risen by around 50 per cent due to increases in the price of crude oil, duty and VAT — and will go up again when fuel duty increases in August.
Oxera adds: “In addition, passenger demand continues to respond to reductions in journey time and improvements in performance, suggesting that the current industry attention on these factors is justified, although there is clearly a discussion to be had about the relative costs and benefits of pushing for further improvements.”
However — while motorists switch from cars to trains — the Oxera report warns against taking existing rail passengers for granted and says they may be more resistant than before to fare increases: “The current ‘basket’ system of fares regulation — whereby different tickets can be traded off against each other — may need to be reviewed.”
Oxera concluded: “Changing forecasts can have substantial implications for business strategy and/or government policy, and new estimates may be seen as awkward or against ‘the way things are’, but updates can help avoid getting expensive decisions wrong.