The Elephant in the room...

There is but at least they tend not to need stripping to component parts every 10 years.

 

No they don't.

Suppose I want to see a particular railway just maintain a steady state (i.e. have all its assets in exactly the same condition this time next year as they are now). That means a certain amount of money has to be spent on maintenance - locos, rolling stock, infrastructure etc.

Now, suppose I buy a ticket. How much money goes to pay for coal, water, oil and also all the other incremental costs of the railway such as marketing, computer systems etc? I don't know exactly, but let's say £10 in every £20 ticket goes to the direct daily running cost - so there is a £10 surplus that can be ploughed back into maintenance. So it costs me £20 in order to provide £10 of "value" to my stated aim of maintaining the railway in a steady state.

Whereas if I donate - the whole of my £10 goes to the same cause. In fact it is even better, because that nice Mr Osbourne will contribute the last £2. So in fact, £8 of donation buys the equivalent benefit of £20 of fares. The figures for catering will be similar - to provide £10 of benefit to the railway, I may have to buy £30 of meals. The same £30 as a donation would provide £37.50 of benefit. So donations and ticket revenue are very definitely not the same value.

Don't get me wrong - I'm not against fares, and I'm certainly not advocating that everyone stops riding the trains and gives the cash saved as a donation instead! But equally, appeals shouldn't be seen as a dirty word. Quite apart from anything else, who is to say whether I get more or less enjoyment from my hobby because I choose to donate to a cause, rather than pay for a service?

Tom

 

I suspect at many railways tickets only ever go towards maintaining the rialway, hardly any of that money goes towards expansion or new projects etc. it's memberships and donation, from appeals or not that do that, so I agree with Tom they are 2 very different things, with tickets, you are paying for the experience. with donations, you are paying for the experience to get better, so next time you pay for the experience it is better.

 

If I viist a railway the marginal cost of providing the train is zero so all my ticket money is pure profit to the railway. Gift aid I specifically mentioned gift aid as an exception and I deliberately excluded catering although the margins on food are often rather higher than your example.

I'm not doubting some people donate as they get more enjoyment that way I personal often donate rather than travel

 

Creative accounting type of argument!

 

I am afraid that there is a vital aspect in which your analysis is incorrect, Tom - at least for fares.

If you don't travel, then that is say £20 lost but not a penny saved. Hence, each extra fare taken goes straight to the bottom line. This is unlike catering or retail, where, subject to wastage and food especially going "out of date", an item not sold to Tom could still be sold to Dick or Harry (Sorry!).

I think I have stated this on here before, but Railways have three huge levels of fixed costs:

1. The costs of having x miles of operable Railway - and it is infrastructure costs which tends to worry me most. You can't run a single train with a bridge missing or a few hundred yards of track not fit for use. Although I am not an engineer, I also would suspect that it is age and passage of time that has the biggest effect on the need for major infrastructure spend, although running big locos won't help!
2. The costs of being set up for a minimum level of service - providing depots, maintenance and storage facilities for the required number of steam locos and carriages. If you only run a multi-set service Sundays, for example, you will still need servicing facilities capable of dealing with at least 2 locos in steam and may need them at each of the line. If you find you can manage with say a maximum of 2 sets in service rather than 3, you might ask if you need more coaches than for the maximum set length, x 2 plus spares to cover overhaul and maintenance.
3. Running costs for the timetable. But that is variable, I hear you cry. Really - only until you publish it. A published train that runs empty costs pretty well as much as one that runs half full (I might accept extra wear and tear and bit extra fuel for one that is bursting at the seams, but I challenge anyone to measure the difference in real life!).

Hence, the trick with fare income is to balance unit price with demand - something upon which I bet no heritage railway has access to detailed research. The example I use is I bet Mars can give you a pretty accurate estimate of the number of Mars bars sold at each of the 1p differentiated potential selling prices, but we have only knowledge of how passengers how havebought and undertaken the journey consider value for money (if passenger surveys are done), backed up by the very pleased or very un-pleased on Trip Adviser.

Put simply, 150 passengers at £15 yields more income than £100 at £20 without affecting costs once you have advertised running the train.

Railways should not be afraid to have appeals - what attracts money from one person will not appeal to another, but something different might. Railways should aim to cover running costs and renewals from the fare-box, but never be ashed to ask for assistance.

Just out of interest, what sort of level of fare increase are the various lines making from 2013 to 2014?
Steven

 

Unfortunately on a number of railways you are paying for the decline to be slower not better.

 

Not at all - see my more detailed reply, which I was typing while simon and you replied.

No heritage railway can know how many passengers turn up on a given day - the fact that there is a pretty strong correlation to the previous year is a fact but with no logical reason why that should be the case. And, like mainline tours, on many days, it can be the last 10% who make sure that you have more than covered your "variable" costs and make contribution to the "fixed" costs except on the busiest days!

The only way to save money is to not run a train and that is the one time when you know the income that the train that isn't hasn't earned!

Steven

 

Wasn't aimed at you, I actually agree with your point of view. Every extra bum on seat is pure profit because the costs are already covered

 

Wasn't taking it as being - the accurate position is to say every extra "bum on seat" (we speak the same language on this!) improves the bottom line - whether it reduces the loss against operating cost or improves the operating profit depends on how costly/efficient the service is and the overall number of bums on seats but what it does not really affect is the level of costs for the already advertised service. I suspect all of us posting on this point are violently agreeing by saying the same thing different ways.

Steven

 

I wonder what the optimum service level and length of line is? I can't help think that some lines are planning extensions for "gricer" reasons rather than sound economic reasons.

 

I don't think it is simple as optimum length - it depends on what market each end or intermediate stations serve, as both starting point and destination, and what infrastructure is needed. 20 miles between somewhere just off the motorway or on a mainline and an attractive destination (usually on the coast) with few bridges or embankments that might work the civil engineer (and accountant!) might be cheaper to run that 5 miles of spectaularly isolated scenary with great structures and retaining walls - or, if the former is more lightly constructed than the later, may not!

Steven

 

Depends a bit on how your traffic flows.

For example, if your predominant flow is A to B and back, you can get quite long and still cope with just one set of facilities, based at A.

But if you have more equal flows from A to B and back; and B to A and back; then a survey of existing lines seems to indicate that somewhere over ten miles and you start to need two sets of operating infrastructure if you are to avoid either lots of light engine mileage; or very early starts from A to provide a suitable first departure from B.

Sample lines:

Bluebell, 9 miles, pre-EG: Almost all the traffic flow was Sheffield Park to Kingscote and return, and that could be quite easily serviced with everything based at SP. Now we are 11 miles and a more equal distribution of traffic flow from both ends - not much longer in distance, but with all our facilities still at one end, it is hard to provide a suitably early service from East Grinstead. This was discussed at some length in the Bluebell motive power thread.

Mid Hants, 10 miles, approximately similar start times from both ends. As far as I can see, with a two train service and the engines based at one location in the middle, they must end up doing the equivalent of a complete round trip in light engine mileage every day.

SVR, NYMR, WSR - all are somewhat longer than 10 miles and all effectively have to double up loco facilities, which adds to fixed costs.

So once you get over ten miles, especially if you have traffic originating from both ends, you must start having to trade the ability to run a service at suitably early times, vs. excess light engine mileage, vs. additional fixed infrastructure costs.

Tom

 

The economics of running a heritage railway are fascinatingly complex aren't they?

Total MHR light engine mileage on a 2 train day would be about 20 miles. Ropley isn't quite in the middle of the line, so the Alresford engine would book less mileage that the Alton. Overall across the year I would guess that the LE mileage is between 10 and 15% of the total. It won't be 10 to 15% of the running costs though because so much of the maintenance of a steam loco is a fixed cost. You have an annual boiler exam whether you run the engine once or daily for example.

Regarding 150 tickets at £15 (£2250). I agree that this is better than 100 at £20 (£2000), but not as good as 90 at £25 (also £2250). Bean counter's Mars observation (pardon the pun) is spot on (as usual). The HR industry lacks the information to be able to get this pricing right. Quite probably more people will come if the price is lower, but how big is the market, and how price sensitive is it?

Of the above three options the first might be the best because if the additional spend (food, gifts, donations) is £5 per head then 150 passengers is £300 more revenue than option 3. But in reality the HR all play a guessing game on fares and ticket incentives based on prior experience. This prior experience is not a great guide to the future, especially when we are just starting to recover from recession.

There is a lot of talk on this forum about how to increase sustainability. Perhaps the bigger HRs should club together and spend £150k on collecting and analysing the customer data needed to help inform their decision making? (Before everyone jumps at me, yes I do understand that each is quite different geographically etc and that the first step would be to spend some time thinking through whether the differences make such a study impossible or not).

 

The WSR have announced "...that it is holding its fares for individual travel and groups at 2012 levels during its 2014 season. General Manager Paul Conibeare commented 'We are very much aware of the continued limitations which everyone is experiencing when it comes to funding days out and that although highly enjoyable a steam train ride is not an essential purchase. The West Somerset is not immune to rising costs, anymore than other sectors of the economy, but by careful marketing and budgetary controls we have been able to exceed budgetary targets in terms of fares revenue this year and this is allowing us to absorb the increased costs for another 12 months'."

Running a heritage railway like the WSR (along with many others) is not a game for hobbyists.

Steve

 

Many thanks Steve - I will hold off telling you what the NYMR has decided until I see a few more from elsewhere - please!

Can only totally agree with the item in bold - and even if you are doing it as a volunteer, it ends up consuming A LOT of time if you aim to do it properly.

Steven

 

There are many arguments for and against duplicate facilities on the longer lines. If you look at the costs of light engine movement, and taking the NYMR as an example, the present requirement is for two locos to start their day at Pickering. Light engine running from Grosmont would thus be 72 loco miles/day. Different railways cost this in different ways but, if they were hired in locos on an agreed fee/mile it becomes an easy answer. Let's say £7.00/mile (not an NYMR figure, I hasten to add, simply illustrative) then it costs £504/day or, for a 200 operating day year, £100,800. That will soon pay for some additional infrastructure. Add to this the shorter working day and the pendulum soon swings in favour of this.
I was going to put more but SWMBO has said we're going out!

 

I would be interested to see how much commonality there is in the accounting practices of railway heritage operating companies (ie the "PLC"s. I assume there is an objective to break even to avoid paying corporation tax and there must be huge scope for depreciation of fixed assets (including the BAU rolling stock) against which any potential operating profits can be offset. However does that depreciation lead to those fund actually being banked as contingency for when the money really needs to be spent? If there are declining standards of travel on some lines it sound as though the answer is "no" and as the OP said this must surely be a major worry because the railway is effectively living beyond its means. I wonder how many lines this applies to? As a very basic formula I would guess that any line with fewer than 10,000 fare paying passengers per mile of track per annum is going to struggle. Maybe the figure is closer to 12,000?

 

Re the request for 2014 fares, the SVR full-line freedom of the line fare (paid on the day) goes up from £17-00 to £18-00, said to be as a result of the increased cost of coal supplies. Pre-booked, this fare rises from £15-50 to £16-20.
However a new innovation for 2014 is going to be "off-peak" (pre-booked five days in advance) reductions of up to 30%. Details of this deal not yet known, so I dont know if it means off-peak times of year, or "quiet" days during daily running in the main season.

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