How Avanti may profit from misleading the public about the chaos on their lines
Introduction
It is three years since Avanti took over the West Coast franchise, on December 8th 2019. Since that date West Coast services have descended into chaos.
Avanti’s Executives have recently launched a PR offensive which seeks to paint this as an unprecedented result of the actions of their drivers. Initially, they referred to it as ‘unofficial industrial action’ in claims repeated by then Secretary of State Grant Shapps. This has been subsequently toned down but the company still claim that this is the result of an ‘unprecedented’ cessation of rest day working by their drivers.
As this briefing shows, Avanti is making deeply misleading claims in public and this is likely to stem from its application to the DfT to have its cancellations ascribed to ‘force majeure’.
This would entail the DfT agreeing that what is happening on Avanti is essentially industrial action which was beyond the company’s control and removing these cancellations from any calculation of their performance. This would in turn enable FirstGroup and Trenitalia to access their maximum possible fee and pass it on to the owning group as a dividend.
RMT is writing to the National Audit Office and the Public Accounts Committee to protest against this.
In this briefing, we expose the realities of Avanti’s mismanagement that lie beneath its PR spin and show how the system is rigged to enable continued profiteering in the context of farcical public service failure.
“We had no problem at all before July”
At the Transport Select Committee on 12th October, Richard Scott, Director of Corporate Affairs, West Coast Partnership made two questionable claims. Firstly, he claimed that Avanti had no problems before July 2022:
“WehadnoproblematallbeforetheendofJuly,whentherewasthesudden dropoff,with90%ofdriverssuddenlysayingtheywerenotavailableforrestday working”.1
The message that there were ‘no problems’ at Avanti before July was also repeated by First Rail Managing Director Steve Montgomery at a Transport for the North Rail Committee meeting on 15th November 2022.
Yet this is not true. ORR data on trains planned and cancellations does show a peak of problems in July, but it also shows that Avanti had significant problems before July. While cancellations peaked in absolute terms in the period beginning 26 June, Avanti were fully or partly cancelling more than 10% of their trains in the period before that and more than 7% of their trains in the period starting 1st May 2022.
This throws into question Scott and Avanti’s claims that they had no problem before July 2022 and throws doubt on the government’s public explanation that ‘Avanti experienced an unprecedented, immediate and near total cessation of drivers volunteering to work passenger trains on their rest days.’2
The numbers tell a different story. Avanti did not have a sudden drop off, it had a growing problem over the course of 2022 which peaked in July.
1 https://committees.parliament.uk/oralevidence/10943/pdf/ 2 https://hansard.parliament.uk/Commons/2022 09 07/debates/2E4865FD BF83 4C0B BCA7 8C51F8CE8071/AvantiWestCoast
3 https://dataportal.orr.gov.uk/statistics/performance/passenger rail performance/table 3124 trains planned and cancellations by operator and cause periodic/
At the same Committee meeting Scott told MPs that “AsIsay,thenumberofcancellationsasaproportionofourserviceshasreduced asaresultoftheactionswehavetaken…Weareincreasingthefrequencyonan almostweeklybasisincrementallyandworkingtowardsDecember,whichisthebig stepupandwillseeareturntonormalityforourcommunitiesalongthewest coast.”4
But the ORR data in Table 1 demonstrate that, at the very least, Scott is stretching a point. The reduced timetable has resulted in fewer trains being planned in every period since July. In the last period, Avanti ran 30% fewer trains than in July.
While Scott is right that the number of cancellations has fallen in absolute and relative terms from the July peak, Avanti are still cancelling just under 10% of their reduced number of planned services.
Furthermore, the proportion of cancelled services actually rose in the last period. It remains higher than at any point prior in 2022. On this measure, Avanti’s service is arguably still deteriorating.
Yet the government has given them an extension to their contract.
At the All-Party Parliamentary Group for the West Coast Partnership on 16th November, Richard Scott made the claim that operating companies had no incentive to cut costs in operating their franchises. This is simply not true.
Avanti’s contract is an Emergency Recovery Management Agreement (ERMA) in which the government assumes all the risk for falling ticket revenue and the operator continues to get paid, being rewarded for managing the franchise with a fee. This comprises a flat ‘guaranteed’ fee of 0.5% of pre pandemic costs, combined with an extra 1% that is paid according to a series of performance criteria: operational performance, customer experience, financial performance and collaborative behaviours.
One of the key ways in which Avanti can demonstrate ‘good financial performance’ is through cost cutting. To score highly, Avanti must detail “theactionstheFranchiseehas takentoreducecostsandimproveefficiency,andtheeffectthoseactionshavehadon costs.”5
To score a ‘Good’ in Financial Performance, which would maximise their fee, Avanti must “substantially reduce the costs of operating the franchise and/or improve its cost efficiency (while avoiding material adverse impacts on passenger outcomes or revenues)”.
4 https://committees.parliament.uk/oralevidence/10943/pdf/
5 THE SECRETARY OF STATE FOR TRANSPORT and FIRST TRENITALIA WEST COAST RAIL LIMITED EMERGENCY RECOVERY MEASURES AGREEMENT ("ERMA") (publishing.service.gov.uk), p. 344.
“We are increasing the frequency on an almost weekly basis incrementally”
‘We’ve got no incentive to cut costs’
In 2020 21, Avanti in fact scored a 2, meaning their financial performance was ‘Acceptable’. This means that Avanti provided evidence that it has ‘robustly controlled costs’. This is described in the contract as follows:
“InrobustlycontrollingtheFranchisee'scosts,theFranchiseehas:(i)putinplace internalprocesseswhicharecomparableto(orbetterthan)thoseadoptedbythe FranchiseepriortotheEMAStartDateandwhichhavebeeneffectiveinmanaging theFranchisee'sexpenditureacrossallareasofthebusiness,soastoimprove efficiencyandguardagainstunnecessaryorexcessivespend;and(ii)implemented suchfurtheractionsasmayhavebeendirectedbytheSecretaryofStatewitha viewtocontrollingcosts,whilealsocontinuingtoincursuchexpenditureasis reasonablynecessarytomeettheFranchisee’sobligationsunderthisAgreement andtoprotectthelongtermfinancialinterestsofthefranchise(bothduringthe FranchiseTermandinthelongerterm).”
Scott is completely wrong to say that there is no incentive to cut costs on Avanti West Coast and we believe it is disingenuous of him to suggest this during parliamentary business. The very reverse is the case.
Avanti are directly rewarded for cutting costs and presumably, in 2020 21, musthave providedtheDfTwithevidencethat they had done so.
Avanti have 12% fewer staff than in December 2019
The truth is that Avanti have mismanaged the franchise since they took over in 2019 and this has resulted in a loss of staff and of goodwill.
The deterioration of relations between staff and managers at Avanti started when they took over the franchise. Relations with Train managers have also broken down with disputes over the disciplining of a rep and the imposition of rosters on staff.
Since they took over the franchise in 2019, Avanti have lost 12% of their staffing complement. There are 446 fewer FTE than in 2019. This is likely to be mainly a failure to replace leaving staff.
There are frequent instances of Avanti failing to open ticket offices for their advertised hours, and this is a result of staff shortages. The company has failed to fill vacancies, and as a result there are insufficient staff remaining. This understaffing is putting increased pressure on remaining staff with high workloads and low morale.
Avanti are also in chaos over their catering provision. Despite promising enhanced catering services on the franchise when it took over from Virgin, Avanti West Coast has cut 175 catering jobs which has led to staff shortages, plummeting levels of service and massive uncertainty.
Avanti are reported to have recruited “Just under 100 additional drivers” who will enter formal service “between April and December this year.”6 But this will not cover all the lost
staff or repair the goodwill that has been lost by mismanagement of this franchise.
Table 2: Avanti Full Time Equivalent Staff7
Time period Avanti West Coast
As of 31 March 2011 2,913.0
As of 31 March 2012 3,104.0
As of 31 March 2013 2,914.0
As of 31 March 2014 2,999.0
As of 31 March 2015 3,114.0
As of 31 March 2016 3,391.0
As of 31 March 2017 3,510.0
As of 31 March 2018 3,581.0
As of 31 March 2019 3,724.0
As of 31 March 2020 3,383.3
As of 31 March 2021 3,326.0
As of 31 March 2022 3,278.6
FirstGroup profiting from failure
Avanti took over the franchise in December 2019 and they didn’t let a little thing like the pandemic stop them paying out dividends to their owning groups.
As their accounts show, Avanti made a profit for the year of £13.4 million and paid out a dividend of £11.5 million to FirstGroup and Trenitalia in the financial year March 2020 21.8 While passengers have endured a deteriorating service, FirstGroup are very pleased with the financial operation of their franchises, even boasting about them to shareholders:
“AstheUKpassengerrailindustrycontinuesitsevolutiontoamoresuccessfuland sustainablerailwaysystemthatworksbetterforallparties,wearewellplacedboth todriveincreasedpatronageandtogenerateresilientandconsistentreturnsfor shareholders.”9
Farce Majeure
Avanti’s misleading claims that it has been subject to an ‘unprecedented’ and ‘sudden’ drop off in drivers willing to work their rest days is clearly part not only of aits PR operation but its application to be able to classify any cancellations classified as results of a ‘force majeure’ event.
Avanti are likely to be firmly focused on securing the Operational Performance element of
7 https://dataportal.orr.gov.uk/media/2110/2233_fte_employees_by_operator.ods
8 https://find-and-update.company-information.service.gov.uk/company/10349442/filing-history 9 https://www.firstgroupplc.com/~/media/Files/F/Firstgroup Plc/reports and presentations/press release/21 12 09 fgp rns h122.pdf
their Performance Based fee. Avanti’s ERMA stipulates that evaluation of the Operational Performance element (25%) of their Performance Based Fee will include consideration of the number of cancellations. The DfT has confirmed that Avanti has made an application for ‘force majeure’ in relation to its cancellations.
Force majeure is defined in Avanti’s contract as including any ‘act of God, war damage, enemy action, terrorism or suspected terrorism, riot, civil commotion or rebellion’ and ‘any strike or other Industrial Action by any or all of the employees of the Franchisee’.10
As we’ve seen, Avanti Executives almost immediately described their problems in July as the result of ‘unofficial industrial action’ by drivers, a line condemned as a lie by ASLEF but repeated by the then Secretary of State Grant Shapps. Although both Avanti and the government have retreated from this line, they persist in describing it in very similar terms as the result of ‘an unprecedented, immediate and near total cessation of drivers volunteering to work’, a description that indicates that both parties appear close to classifying it as ‘force majeure’.
In answers to questions tabled in Parliament, the Department has made it clear that it is regularly meeting with Avanti West Coast to discuss the issues of traincrew availability:11
“DepartmentofficialscontinuetoreviewandscrutiniseAvantiWestCoast's(AWC) performanceandmonitortheoveralldeliveryofthecontractfor passengers.OfficialsmeetwithAWCtointerrogatetheissuesandchallenges, particularlyconcerningtraincrewavailabilityandtimetablerecovery.”
If the government has decided already that this is a question of unofficial industrial action constituting ‘force majeure’, then Avanti might well get to discount cancellations that are a consequence of their disastrous mismanagement of the contract and this would enable them to claim their full performance fee for the franchise, continuing in the process its record of profiting from failure.
This is in essence repeating what Govia Thameslink Railways did in the Southern dispute and as the National Audit Office noted in 2018, the form of the contract that these operators are now on – essentially management contracts - means that the companies have less incentive to resolve any issues with staff because they continue to be paid regardless of the level of service. If they succeed in getting their problems ascribed to force majeure, there will be little or no pressure on Avanti to improve their service.12
Farce majeure indeed.
10 https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file /869244/west-coast-partnership-franchise-agreement-vol2.pdf
11 Written questions and answers Written questions, answers and statements UK Parliament
12 In 2018, the NAO wrote that “this franchise contract, which was different from other franchises in that fare revenue was received by the Department rather than the operator, meant that Govia Thameslink may have less incentive to avoid strikes than other operators.” https://www.nao.org.uk/wp content/uploads/2018/01/The Thameslink Southern and Great Northern rail franchise.pdf