Analysis undertaken by Transport Scotland to assess the amount of money that will be lost from scrapping peak time rail tickets: FOI release

Information requested

Could you provide me with any analysis which has been undertaken by Transport Scotland to assess the amount of money that will be loss from scrapping peak time rail tickets.

Response

Please see below analysis, as requested:

Peak Rail Fares – budget analysis

Background

Analysis was undertaken as part of part of the preparations for the SG Budget 23-24 on the budget implications of removing ScotRail peak fares from the rail network. The decision to undertake a 6 month pilot scheme in 23-24, linked to the Fair Fares Review, was announced as part of the budget process with an estimated additional budget requirement of £15m.

Theory and Methodology

The removal of ScotRail peak rail fares pilot will impact on 3 main categories of users – existing peak demand, existing off-peak demand and new demand (which will itself be from 4 possible sources).

• Existing peak demand ·
• Existing off-peak demand ·
• New demand
• Additional travel
• Mode shift from car
• Mode shift from bus
• Mode shift from Active Travel

The cost estimates for the pilot were produced in the following way:

• The number of journeys and the revenue split by ticket product type (see table below) were used to calculate the current yield by ticket product type

10 Journey Flexipass	First Class	Other
50 Journey Flexipass	Group Travel	Season‐Annual
Advance‐Std	Groupsave	Season‐Monthly
Anytime Day Return	HQ Inputs	Season‐Other
Anytime Return	Kids For A Quid	Season‐Weekly
Anytime Single	Off Peak Day Return	Super Off Peak Return
Club 50 promo	Off Peak Day Single	Supplements
Concession	Off Peak Return

• The ticket product types were split into Peak (or Equivalent) [Bold and Italic] and Off-peak [default] and a weighted average yield for each category was calculated. This showed that the average reduction in yield from removing peak fares was around 1/3 across all peak vs off-peak fares. There was relatively little variation across specific comparable ticket types.
• The cost impact was calculated by applying the difference in yield to the number of peak journeys and projecting this forward based on estimates of future demand (which themselves form part of the analysis of the overall budget requirement for rail).
• A range of assumptions were made about the increase in demand generated by the change and the associated additional revenue (at the average off-peak yield) was accounted for. As such, the analysis accounts for both the loss of revenue from existing rail users and the additional revenue from journeys that otherwise would not have taken place.
• The analysis also took account of the impact of refunds based on historical levels. Season tickets were counted as peak travel.
• There is significant uncertainty around the estimates due to a wide range of factors:

1. Path of post-COVID-19 demand recovery
2. Impact and duration of industrial action across the rail industry
3. Impact of inflationary pressures on consumer behaviour
4. Impact of all of the above on parameters historically estimated within PDFH.

• There is an assumption made that no-additional services will be provided nor additional costs incurred.

Results

Based on the core parameters within the industry standard Passenger Demand Forecasting Handbook (PDFH – see About the Passenger Demand Forecasting Handbook (raildeliverygroup.com)) for a reduction in average ticket price of the differences in yield, sensible assumptions around inflation impacts and applying the 6 month assumptions around demand adjustment resulted in an estimated increase in demand of around 8% (taking into account ramp-up). This resulted in a point estimate of £21.8m as the revenue loss from removal of peak fares (before refunds). When the revenue from additional demand (£6.6m) and refunds are taken into account, £15.4 m is the point estimate of the likely level of costs in this scenario.

£m	6 periods
Revenue loss from removal of peak fares	‐21.8
Revenue uplift from new demand	6.6
Refund impact (revenue only)	‐0.11
Refund impact (costs)	‐0.10
Total revenue impact	‐15.4

A greater level of additional demand would reduce the cost of the pilot, and vice-versa, for example if there was no additional demand the cost would be almost £22m. Whilst there is uncertainty around the PDFH parameters, they remain the best source of information. As such the cost of the scheme is crucially dependant on the new demand generated which is highly uncertain but the core estimate is around £15m.

Conclusions

There is a great deal of uncertainty over the cost of the 6 month ScotRail peak rail pilot alone. This is primarily driven by the extent to which new rail journeys are undertaken and testing this is a primary objective of the pilot.

However, whilst the cost of the pilot will vary with overall patronage levels, any upward pressure on a given budget for the pilot will be offset by increased revenue more generally if patronage is greater than forecast and will help offset the impact on revenue if it is below forecast.

As such the conclusion is that the best estimate of the additional budget required is around £15m. Based on the parameters examined within this note there is still significant uncertainty around the estimate but this is primarily around the extent of additional travel that is generated.

If the pilot is successful in generating additional travel or causes significant impacts on peak services though switching from the off-peak, then it is possible that additional costs could be incurred. It is not possible at this point to estimate these costs with sufficient certainty to form part of the budgetary process and so they remain a potential risk, in financial terms. However, this is in the context of the pilot being more successful in terms of increasing rail patronage than estimated which will generate more revenue to cover any increased costs. The exception to this is a switching of travel from current off-peak to peak that would be revenue neutral but would place increased pressure on services if not offset by additional revenue from new travel.

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