Quite remarkable really:
Yet the British have rediscovered the urge to travel by rail. If the parameters are not changed and demand for rail travel doubles over the next 20 years, as is forecast, the subsidy and public debts of the rail industry will become unsustainable. Something must change.
I think we\’re beginning to understand why the Work Foundation went so gloriously bust (has that liqudator\’s report come out yet?).
Willy\’s telling us that when sales at a company, when revenues from the customers, go up, so does the requirement for subsidies. Quite remarkable.
The economics of railways are odd but quite simple. You\’ve got monstrously high fixed costs. Not just the track, the rolling stock, but you\’ve got to run the trains whether they\’re full or not. You can\’t just cancel the last late night service because there\’s only three people on it: that would mean that your train and carriages are in the wrong place to start the whole thing off in the morning.
Not much point in running the Plymouth to Edinburgh cross country train if as a result of cutting the late train means that your engine and carriages are actually in Edinburgh not Plymouth.
So for any particular structure and timetable, you\’ve got huge fixed costs.
Your variable costs are by comparison almost trivial. Bit of staff, bit of fuel and that\’s pretty much it.
So what happens to the need for subsidy in such a system as passenger levels rise?
That\’s right, we\’re getting more revenue with almost no increase in costs. So each extra ticket sold reduces, not increases, the subsidy required.
If rail\’s economics worked the other way around, that variable costs are greater than the revenue from each extra ticket then Willy would have a point. But not even the British Railways are that screwed up are they?
At the time, it was clear to the non-devout that the rail system could no more be successfully fragmented as the price of privatisation than the armed services or the National Trust could be broken up successfully to compete with former parts of the integrated whole.
You what? Please, can anyone give me even a smidgeon of a reason as to why looking after old houses is a natural monopoly? Or even would function best as a created monopoly?