Responding Slowly to Change? Passenger Rail Demand in Great Britain
Matthew Shepherd, Oxera Consulting Ltd, Andrew Meaney, Oxera Consulting Ltd, Remi, Martins-Tonks
How do passengers respond to changes in economic factors such as employment or income? The understanding of this key question has implications for local and national transport policy, as well as the operation and design of transport networks.
How passengers respond to changes in economic factors such as levels of employment or income is one of the main factors affecting the operation of transport networks. For example, the level of demand for transport generated by employment and income defines the base level of demand, which determines key policy actions and infrastructure requirements of particular regions or countries. While there is a considerable literature in this area, much of it is based on old data or relatively unsophisticated analytical techniques.
This subject is particularly important in the context of the rail industry in Great Britain which has, despite a recession and subsequent stagnation in economic activity in the UK, continued to grow considerably since 2007, with a CAGR of 5.0% in journeys and 7.6% in revenue between 2007 and 2012.
In addition, a recent review of how rail franchises operate in Great Britain suggested that the UK Department for Transport should change the way in which macroeconomic risk is shared with the franchised train operators. In order to allocate economic risk as accurately as possible, it is important to understand how changes in the economy such as employment and income affect the demand for passenger rail travel and how this evolves over time.
This paper would set out an economic framework to explain why passengers may take time to respond to changes in key macroeconomic factors such as income or employment. It would draw on the extensive literature on the topic, and discuss reasons such as labour market frictions—ie, lags between changes in employment patterns and changes in travel patterns, and the source of any income changes.
Following this, the paper would draw on publicly available data on rail demand and explanatory factors in Great Britain to assess the extent to which the demand for rail travel relates to a number of macroeconomic factors such as income, employment, and the mix of employment.
We believe that this paper would provide a valuable contribution to the current literature and political discussions by providing a timely and informative view on which economic factors are most likely to affect rail demand, how rail demand changes with these factors (both in total and over time), and whether these changes have varied over the years under consideration.
Association for European Transport