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Post by blackhorsesteve on Jun 21, 2016 22:09:07 GMT
Just thinking, as TfL are using the advertising slogan "TfL don't make a profit as....", does the Underground (and TfL as a whole) make money from ticket sales, advertising, branded items, etc., or does it rely on government funding to make up any shortfall? I'm not looking for numbers, just a general idea. The number of factors are just too large to get my head around!
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class411
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Post by class411 on Jun 22, 2016 7:43:00 GMT
In at least one respect they get some government funding (local, I think), as they are compensated for people using Freedom Passes, and, almost certainly, many of the journeys made with those would not be made if the holders had to pay the cost themselves.
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Post by stapler on Jun 22, 2016 13:21:15 GMT
I don't think LU are compensated by HMG for Freedom Pass use. I think that is the responsibility of London local authorities
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class411
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Post by class411 on Jun 22, 2016 13:49:06 GMT
I don't think LU are compensated by HMG for Freedom Pass use. I think that is the responsibility of London local authorities That was my thought, too, but I was not 100% sure. |
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Post by domh245 on Jun 22, 2016 14:00:57 GMT
This isn't LU specific, but TfL's funding is listed here. The largest source is fares, but I found this quote about the DfT Grants quite interesting |
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Post by grahamhewett on Jun 22, 2016 14:40:30 GMT
To be profitable, the Underground would - like any other business - have to cover not only its operating costs but also its capital costs. It falls well short of that, however you like to define the correct capitalisation of its assets. In a word the answer to the original question is "no"!.
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Post by snoggle on Jun 22, 2016 18:13:17 GMT
The Underground earns more revenue than it costs to operate the system so there's a notional "operating profit". However, as Mr Hewett says, it is incapable of funding the entirety of its investment needs. It appears from the business plan / budget documents that some of the "surplus" funds a small slice of the capital budget. However I expect that this is all rather notional and all the money goes into a giant TfL "pot" rather than being retained in the operating businesses. Other sources of TfL revenue include Revenue Grant from government - to be phased out in 2018 rather than the planned but unpublicised date of 2020 Investment Grant from government - this is at lower levels than TfL wanted A share of business rates - previously this was dedicated to TfL funding but new govt rules mean that City Hall will be free to use this for other purposes in future which TfL is naturally very nervous about. The TfL precept - part of Council Tax paid by Londoners. Only raises a measly £6m - barely enough for the Directors' / Senior Officers' bonuses  Fares revenue - from tube, bus, DLR, Overground, cycle hire Charges - from things like the low emission zone, parking / camera enforcement, congestion charge Third party monies - rental income / advertising revenues / land sales Freedom Pass payments - in effect "compensation" for lost revenue based on analysis of use by borough of the bus, DLR, Tube, overground, NR services. The London Councils website has papers on it that explain how the numbers are crunched and what they cover. Overground grant - DfT currently pays about £24m a year in respect of the old Silverlink Metro services. DfT have indicated that this will be phased out by 2020 as they expect the network to cover its operating costs by then. No monies are received in respect of the transferred West Anglia / Shenfield services. Borrowing - TfL is able to borrow additional funds within limits set by the Dft / Treasury. However interest has to be paid on this and eventually it has be paid back. TfL has to maintain good finances to keep its debt funding affordable / credit rating good. Worth looking at the most recent Funding Letter to see what Uncle Patrick and Bozza have bequeathed the current Mayor. |
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Post by phil on Jun 23, 2016 18:25:30 GMT
In answer to the original question, it depends on what you mean by profit - and more importantly whether that 'profit' is sustainable
For example the InterCity business sector of British Rail was, in the last few years of life, the only European rail operator to return a modest profit - in other words income from fares, advertising, etc was sufficient to pay staff and keep the existing operation going. Ministers were very proud of this and expected NSE to do the same in future years....
However, the reality was somewhat different as this profit was only achieved by ignoring (as in not spending money) on several 'elephants in the room' things - namely
(i) the increasingly obvious need for new rolling stock for the WCML, MML & GWML
(ii) the looming need to spend significant money in renewing the 1960s era power signalling on the WCML / GWML
(ii) spending on big ticket infrastructure maintenance deferred where possible
(iii) A significant contraction in the number of routes and places served compared to the pre 1992 InterCity network.
Thus while TfL and the Underground may on the surface be 'profitable' organisations - I very much doubt that remains the case once you factor in the big spending required on stuff like new buses / trains / station improvements is factored into the mix....
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class411
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Post by class411 on Jun 23, 2016 18:34:07 GMT
For example the InterCity business sector of British Rail was, in the last few years of life, the only European rail operator to return a modest profit - in other words income from fares, advertising, etc was sufficient to pay staff and keep the existing operation going. Ministers were very proud of this and expected NSE to do the same in future years.... Just out of interest, why are Network South East, in particular, expected to be vaguely profitable? |
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Post by phil on Jun 23, 2016 18:51:58 GMT
For example the InterCity business sector of British Rail was, in the last few years of life, the only European rail operator to return a modest profit - in other words income from fares, advertising, etc was sufficient to pay staff and keep the existing operation going. Ministers were very proud of this and expected NSE to do the same in future years.... Just out of interest, why are Network South East, in particular, expected to be vaguely profitable? I'm talking historically - and that aim is mentioned in correspondence between the then head of the Network SouthEast business sector and the SOS in Whitehall. Of course with the Conservatives wining the 1992 general election, privatisation was suddenly on the agenda and became the favoured method of achieving profitability - with many of the initial franchise winners soon finding themselves in difficulty as a result of the franchise terms which continued to work towards this 'profitable' status. It was only when several came close to bankrupcy that the DfT finally conceded that an element of taxpayer support would continue to be required indefinitely |
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Post by norbitonflyer on Jun 23, 2016 21:31:06 GMT
Just out of interest, why are Network South East, in particular, expected to be vaguely profitable? History lesson. Network South East should not be confused with the South Eastern franchise. NSE was one of the five busoness sectors into which BR was divided in its last decade or so of existence. They were Freight Parcels and mail Inter City - the bits that were expected to make a profit Network South East - all other passenger services operating out of London (which unexpectedly almost broke even) Regional - everything else. NSE's tentacles stretched as far as Kings Lynn, Banbury, and Exeter (via Honiton) |
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class411
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Post by class411 on Jun 24, 2016 9:32:24 GMT
Just out of interest, why are Network South East, in particular, expected to be vaguely profitable? History lesson. Network South East should not be confused with the South Eastern franchise. NSE was one of the five busoness sectors into which BR was divided in its last decade or so of existence. They were Freight Parcels and mail Inter City - the bits that were expected to make a profit Network South East - all other passenger services operating out of London (which unexpectedly almost broke even) Regional - everything else. NSE's tentacles stretched as far as Kings Lynn, Banbury, and Exeter (via Honiton) Yes, I was aware of all that. My question was why (somewhat unexpectedly, from my POV), anyone thought it would it might be profitable. Of course, there are many different definitions of 'profitable'. From the point of view of any franchise operator, a government subsidy is income, just as much as fare revenue, so it can operate 'profitably', even if the fares do not cover operating costs, let alone the full cost. Clearly the same applies to a group of franchises. |
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Post by snoggle on Jun 24, 2016 10:04:15 GMT
My question was why (somewhat unexpectedly, from my POV), anyone thought it would it might be profitable. Of course, there are many different definitions of 'profitable'. From the point of view of any franchise operator, a government subsidy is income, just as much as fare revenue, so it can operate 'profitably', even if the fares do not cover operating costs, let alone the full cost. Clearly the same applies to a group of franchises. Mr Hewett will no doubt leap in to correct me but if I recall his past remarks correctly I think the view was that NSE had a reasonably high base income relative to its costs because of the strong commuter flows across most of its network. At the time its investment needs were relatively modest but there were serious bits of work needed on Chiltern and C2C. Ironically we can see the benefit of a lot of that investment being coupled with later additions like new rolling stock. NSE also had the benefit of being able to grow its off peak travel fairly substantially with things Network Card being launched and a willingness to bolster off peak frequencies to keep rolling stock busy. As Mr Hewett has said frequency is a key driver of patronage and revenue growth. All that extra off peak revenue is just extra bunce in the piggy back as the marginal cost is low given you've got sunk costs in terms of rolling and infrastructure maintenance. What we now have is obviously rather different with a changed industry structure and cost base but we also have even stronger commuter flows (to the point where we can't cope), very very strong off peak demand, policies which have largely restrained car use in London *and* we have more economic activity across the day *and* in some places strong contra peak commuting flows too. All this means vastly more money coming in and much much better utilisation of fixed assets. Allocating infrastructure costs to TOCs is a black art and it's unlikely to be strictly "accurate" but the growth in passenger revenue has been such that a few operations like the old First Capital Connect and SWT were earning enough to cover operating costs and the "cost" of the block grant from DfT to Network Rail. The government are proposing to go back to the old system of all access charges being channelled via the TOCs to NR so presumably there will be a restructuring of TOC finances so they "earn" enough overall to pay fully "commercial" access charges to Network Rail on a customer / supplier basis. What all that will do to a concept of "profitable" TOCs is anyone's guess. I certainly haven't seen anything in print that suggests how this might be achieved in a practical, working sense but I assume recently awarded franchises plus any new ones coming up will have taken this into account in some way. |
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Post by phil on Jun 25, 2016 12:19:26 GMT
At the time its investment needs were relatively modest but there were serious bits of work needed on Chiltern and C2C. Ironically we can see the benefit of a lot of that investment being coupled with later additions like new rolling stock. Ahh but this ignores the elephants in to room i mentioned earlier. For starters what about replacement of the slam door stock used for services to the Kent, Surrey, Sussex and Hampsire? Just like InterCity could cope in the short term with its mixed Mk2 / Mk3 fleet on the WCML, NSE could (and their successors did) keep the Mk1 EMUs going, but even back in the early 90 it was obvious that time was running out for them, yet there was nowhere near enough 'profit' to do anything about procuring replacements. The Chiltern lines did indeed get some serious cash spent on them in NSE days, with both infrastructure and new trains - but this was funded not out of profit but by an increase in Central Government funding who were persuaded to invest. It was the same with the DC Networkers on SE services - they were not funded out of profit, but by a extra dolop of central Government funding (which InterCity was also unsuccessfully bidding for to upgrade the WCML). Further on what about things like the signalling replacement on the LTS line or the WAML? both very much needed projects that did not actually start to happen until after Privatisation - again the funding wasn't there to do them in BR days without extra Government cash. Thus even if TfL is 'profitable' on a day to day basis that doesn't translate into it being a profitable enterprise overall, as in truly commercial setup, that 'Profit' coming in must also pay for the timely renewal of business assets as necessary. The worst situation is, as with the later days of BR when someone like central Government uses the 'profitable' angle to reduce investment and thus delay the renewal of the assets that generate said profit. |
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Post by Deleted on Jun 25, 2016 17:03:36 GMT
On a related note, one measure enacted in 2009/2010, was the abolition of single zone travelcards, in order to help raise funds to build the Crossrail One Elizabeth line, and the legal requirement imposed, whereby Travelcards MUST increase in price by at least One Percent every January, even when inflation is less than zero - it had happened once around 2009/2010.
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Post by snoggle on Jun 25, 2016 22:02:04 GMT
On a related note, one measure enacted in 2009/2010, was the abolition of single zone travelcards, in order to help raise funds to build the Crossrail One Elizabeth line, and the legal requirement imposed, whereby Travelcards MUST increase in price by at least One Percent every January, even when inflation is less than zero - it had happened once around 2009/2010. Can you point to some evidence in support of single zone Travelcard seasons being abolished to fund Crossrail? First time I've heard this and I've never seen any official statement that cites it. There is no legal requirement to increase Travelcard prices every January. Government *policy* has been variously RPI+1%, RPI+3% and RPI only depending on how close an election was. TfL's planning assumption for fares has variously been RPI+2%, RPI+1% and presumably now 0% for some fares but not Travelcards. |
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Post by snoggle on Jun 25, 2016 22:07:24 GMT
At the time its investment needs were relatively modest but there were serious bits of work needed on Chiltern and C2C. Ironically we can see the benefit of a lot of that investment being coupled with later additions like new rolling stock. Ahh but this ignores the elephants in to room i mentioned earlier. For starters what about replacement of the slam door stock used for services to the Kent, Surrey, Sussex and Hampsire? Just like InterCity could cope in the short term with its mixed Mk2 / Mk3 fleet on the WCML, NSE could (and their successors did) keep the Mk1 EMUs going, but even back in the early 90 it was obvious that time was running out for them, yet there was nowhere near enough 'profit' to do anything about procuring replacements. The Chiltern lines did indeed get some serious cash spent on them in NSE days, with both infrastructure and new trains - but this was funded not out of profit but by an increase in Central Government funding who were persuaded to invest. It was the same with the DC Networkers on SE services - they were not funded out of profit, but by a extra dolop of central Government funding (which InterCity was also unsuccessfully bidding for to upgrade the WCML). Further on what about things like the signalling replacement on the LTS line or the WAML? both very much needed projects that did not actually start to happen until after Privatisation - again the funding wasn't there to do them in BR days without extra Government cash. Thus even if TfL is 'profitable' on a day to day basis that doesn't translate into it being a profitable enterprise overall, as in truly commercial setup, that 'Profit' coming in must also pay for the timely renewal of business assets as necessary. The worst situation is, as with the later days of BR when someone like central Government uses the 'profitable' angle to reduce investment and thus delay the renewal of the assets that generate said profit. I don't think I said that "profit" was used to fund all investment for NSE or for TfL or LU. Obviously it is funded by government to some extent and farepayers for the rest. Rolling stock on NR is difficult because its deployment is controlled by DfT despite their endless denials and replacement is linked very heavily to franchise renewal which allows the assumptions on costs and revenues to be reset in order to cater for increased leasing costs as new stock comes on stream. DfT also allows new TOCs to "adjust" a whole range of things to do with fares and terms and conditions including revised peak fares, pricing up the shoulder peaks and removal of "generous" T&Cs on leisure fares, railcard discounts and a vast range of other things in order to screw more money out of people's pockets. |
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Post by phil on Jun 25, 2016 23:23:51 GMT
Ahh but this ignores the elephants in to room i mentioned earlier. For starters what about replacement of the slam door stock used for services to the Kent, Surrey, Sussex and Hampsire? Just like InterCity could cope in the short term with its mixed Mk2 / Mk3 fleet on the WCML, NSE could (and their successors did) keep the Mk1 EMUs going, but even back in the early 90 it was obvious that time was running out for them, yet there was nowhere near enough 'profit' to do anything about procuring replacements. The Chiltern lines did indeed get some serious cash spent on them in NSE days, with both infrastructure and new trains - but this was funded not out of profit but by an increase in Central Government funding who were persuaded to invest. It was the same with the DC Networkers on SE services - they were not funded out of profit, but by a extra dolop of central Government funding (which InterCity was also unsuccessfully bidding for to upgrade the WCML). Further on what about things like the signalling replacement on the LTS line or the WAML? both very much needed projects that did not actually start to happen until after Privatisation - again the funding wasn't there to do them in BR days without extra Government cash. Thus even if TfL is 'profitable' on a day to day basis that doesn't translate into it being a profitable enterprise overall, as in truly commercial setup, that 'Profit' coming in must also pay for the timely renewal of business assets as necessary. The worst situation is, as with the later days of BR when someone like central Government uses the 'profitable' angle to reduce investment and thus delay the renewal of the assets that generate said profit. I don't think I said that "profit" was used to fund all investment for NSE or for TfL or LU. Obviously it is funded by government to some extent and farepayers for the rest. Rolling stock on NR is difficult because its deployment is controlled by DfT despite their endless denials and replacement is linked very heavily to franchise renewal which allows the assumptions on costs and revenues to be reset in order to cater for increased leasing costs as new stock comes on stream. DfT also allows new TOCs to "adjust" a whole range of things to do with fares and terms and conditions including revised peak fares, pricing up the shoulder peaks and removal of "generous" T&Cs on leisure fares, railcard discounts and a vast range of other things in order to screw more money out of people's pockets. No you didn't say "profit was used to find all investment", but that wasn't what I was trying to highlight. What I was trying to highlight is lots of things might be called 'profitable enterprises if you are sufficiently selective about what is included. for example quite a few heritage railways in the UK actually return a fairly reasonable profit - if you just look at ticket sales, shop sales, catering sales, day to day staffing costs and consumables. However things rapidly change when you factor in the money that needs to be spent overhauling engines and carriages so that you actually have the ongoing means to make that day to day profit in the first place. Of course outside of Government circles anything not being profitable tends to go bust very quickly unless it gets donations (e.g. in the case of a heritage railway, to overhaul a popular engine) or grants to make up the difference. Thus the answer to the question "Is the Underground profitable" depends on how truthful you are. With the Underground I'm sure it is profitable on a day to day basis (just like InterCity was in the final years of BR), but once you factor in the need to spend large quantities of money in the coming decades on things like new trains, new signalling, new escalators and rebuilt stations to generate said day to day profit, then the reality is the Underground runs at a loss - just as InterCity would have done if it had been setting aside money every year to replace the WCML locos, coaches, signalling, etc. The problem then becomes one of convincing the Politicians of this situation - i.e. that true profitability does actually include being able to replace assets as and when necessary, and that describing something as 'profitable' (when it truly isn't) should not be used to cut back on financial support. |
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Post by melikepie on Jun 26, 2016 8:40:13 GMT
I bet if the underground was based on financial profit, whole swathes of stations of around a million or less would close, leading to e.g. A faster service on the Hainault loop, Mill Hill becoming more isolated, same for Ickenham, Ealing, parts of Three Rivers etc
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Post by countryman on Jun 26, 2016 14:58:33 GMT
As an ex Londoner, I haven't got a clue where Three Rivers is!
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Post by John Tuthill on Jun 26, 2016 15:09:36 GMT
As an ex Londoner, I haven't got a clue where Three Rivers is! It's the area around Rickmansworth. |
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Post by theblackferret on Jun 26, 2016 15:41:44 GMT
As an ex Londoner, I haven't got a clue where Three Rivers is! It's the area around Rickmansworth. As opposed to Chelmsford, where lived, when active in this country, native American wrestler Billy Two Rivers. He was rather profitably employed in the ring from 1959-1965, apart from becoming the father of fashion designer Wayne Hemingway in 1961, before returning to the Mohawk nation in Canada, where he has yet to open a Tube network, profitable or not. |
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Post by nickf on Jun 27, 2016 6:33:34 GMT
So...Wayne Two Rivers, then?
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