Railway Industry Market Review August 2006

Released on = April 16, 2007, 4:33 am

Press Release Author = Bharat Book Bureau

Industry = Marketing

Press Release Summary = Executive Summary

The value of the market covered in this Key Note Market Review was an estimated
6.29bn in the year ending 31st March 2005, a rise of 7.1% on 2004.

Press Release Body = Railway Industry Market Review August 2006

Executive Summary

The value of the market covered in this Key Note Market Review was an estimated
6.29bn in the year ending 31st March 2005, a rise of 7.1% on 2004. This figure
represents the value of the services provided to the passenger and freight customers
of the railway system of Great Britain at current prices. Turnover for
contracted-out services and other products, including investment in the
infrastructure of track, signalling and stations, as well as locomotives and other
vehicles, was valued at 9.02bn in the year ending 31st March 2005, down by 11.8% on

The railway industry, as defined in this Review, comprises all the major railway
services in the UK, both passenger and freight, including those provided by
underground, metro, light rail and tramway systems. In addition, the international
rail services provided by companies such as Eurotunnel and Eurostar are included.
The activities of railways that are tourist attractions rather than transport
operations are not examined. The main market sectors, which are covered in separate
chapters of this Review, are: infrastructure providers; passenger train operating
companies (TOCs); rail freight operating companies (FOCs); urban rail transport
operators, including underground, metro, light rail and tramway systems; and
suppliers and contracted-out service providers, which include rolling-stock
companies and providers of engineering services and equipment. In 2005, passenger
TOCs made up the largest sector of the market - with the exception of
business-to-business markets - although, in terms of growth, this sector was
outperformed by rail freight.

Under the terms of the Railways Act 2005, the Strategic Rail Authority (SRA) was
abolished and many of its functions, including the key role of awarding operating
franchises to TOCs, were transferred to a new Rail Group within the Department for
Transport (DfT). These changes became effective in April 2006, and it remains to be
seen how far this transfer of responsibility for national rail strategy from a
semi-autonomous body to a government department will change the strategic direction
of the rail industry.

Both the passenger and freight transport markets are, to a large extent, dependent
on the level of activity and the rate of growth in the UK economy. The present
economic climate remains favourable for companies operating in the market, with
economic growth steady, and both inflation and unemployment levels relatively low by
historical standards. Rail passenger markets benefit from the fact that work-related
trips, both the journey to work and trips undertaken as part of business activity,
are likely to be relatively inelastic to short-term changes in the economic climate.
Rail freight, which serves markets for the carriage of industrial materials, is
likely to be relatively unaffected by any short-term fluctuations in consumer

Safety and security issues continue to be at the forefront of public concern
following several high-profile rail accidents between September 1997 and May 2002,
resulting in many fatalities, as well as the terrorist bombings on the London
Underground in July 2005. However, the evidence is that the railway industry\'s
safety record has been consistently far better than that of road transport over many
years. In addition, even terrorist attacks, which are seen by many security experts
as almost inevitable, are likely to have only a short-term effect on many of the
markets considered in this Review, since much rail travel is associated with the
journey to work or other essential trips.

Another concern of rail passengers and consumer groups is train punctuality. This
has been improving, especially over the past 3 years, as a result of action taken by
both Network Rail and the TOCs.

Recent government policy has sought to bring about a reduction in the number of
franchises and to create a closer match between these franchises and Network Rail\'s
route structure. This policy has started to take effect, with the granting of
several new franchises effective from April 2006.

Although efforts to stimulate freight transport by rail have been made on many
occasions in the past, rail has not been able to counter the competitive advantages
possessed by road transport. The future of rail freight depends on a resolution of
the problem that freight consignments by rail inevitably require at least some
carriage by road, and hence require effective inter-modal transfer arrangements. If
these issues can be addressed, the decline in both the volume and share of rail
freight may be halted.

In recent years, most metro and light rail systems in the UK have experienced
increased patronage. However, many projects that seemed well on the way to being
implemented have been cancelled for a variety of reasons, mainly relating to the
increasing costs of such projects.

Forecasts for the UK economy to 2010, assembled by HM Treasury, suggest a scenario
of little change compared with the previous 5 years, and are broadly favourable to
the continued growth of the UK rail transport sector. Although some areas of
uncertainty remain, including those associated with the national and international
security situation created by the threat of terrorism, in the absence of an actual
attack, such concerns are likely to have only a minimal impact on economic growth or
demand for transport.

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