Demand-based rail fares: how will fluctuating ticket prices work and will it cut travel costs?

Rail fares will fluctuate based on demand under a new trial announced by Transport Secretary Mark Harper.

The Secretary of State also said that he would enhance private involvement in the running of the railways, which he described as currently “not fit for purpose” and “financially unsustainable”.

Harper announced the trial of demand-based fares, similar to the system used by airlines, during the annual George Bradshaw address to rail industry leaders in London. It is thought that it will operate in similar way to “surge pricing”, which is run by mini-cab apps like Uber.

He also confirmed that Great British Railways – a new public sector body to oversee Britain’s railways – will be launched and the location of its new headquarters revealed by Easter. Under the trial, the cost of travel on some LNER services will change to be more or less expensive depending on how many seats have been filled. The Department for Transport said that the system was an attempt to better manage capacity while also raising revenue.

The move has been welcomed by industry observers but some have warned it must not create a new peak time pricing structure “by stealth”.

Harper also set out an extension of pay-as-you-go ticketing for train journeys across south-east England and confirmed that a trial to replace return tickets with single-leg fares would be extended. The scheme has already been tested on some LNER routes but will now be rolled out across the publicly-owned operator’s entire network, which runs between London King’s Cross and Scotland via the East Coast Main Line.

It means the cost of a single fare will always be half the equivalent return ticket and addresses ticketing anomalies that mean some single fares are only £1 cheaper than a return. The DfT said it will consider rolling out the system across all of Britain’s rail network depending on the success of the extended pilot scheme.

Mark Plowright, director of Virgin Trains Ticketing, said more competitive and transparent ticket pricing was good news for passengers. He said: “The UK needs a simpler approach to rail fares and the extension of the LNER trial is a positive step in the right direction. Virgin Trains Ticketing would like to see the trial extended to operators in the shorter distance, commuter space to understand how more passengers could benefit.”

However, he expressed concern that on-demand pricing could be abused by rail operators, commenting: “[We] hope it will remove the peak/off peak cliff edge currently seen in ticket costs. However, we hope train operators don’t use demand-based pricing to increase fares on busy services – creating a peak time pricing structure, by stealth.”

Harper told rail leaders that he wanted private companies to be involved “not just in running services but in maximising competition, innovation and revenue growth right across the industry”.

He said: “The railways, quite frankly, aren’t fit for purpose. Currently mired in industrial action, routinely letting passengers and freight customers down, and historically unable to deliver major improvements at good value for the taxpayer. Britain is yearning for a modern railway that meets the needs of the moment.”

The minister told the audience that the coronavirus pandemic “has made a bad problem worse”, with season ticket sales at just 28% of pre-virus levels. He said: “The impact on the industry’s bottom line has been stark, with revenue around £125-175 million lower each month as costs keep rising year on year.

“Any other industry would have collapsed years ago. But the railways have only survived due to the public purse – the source of over 70% of income over the past two years, at a cost of £1,000 per household.

“I won’t mince my words: operating the railways is now financially unsustainable.”

Andy Bagnall, chief executive of industry body Rail Partners, described Mr Harper’s speech as “a needed push to reinvigorate rail reform”. He added: “Radical change to the fares system is an idea whose time has come. Industry has been pushing for reform for many years so that rail fares reflect the changing ways people are travelling, accelerated by the pandemic.”

Nigel Harris, managing editor of Rail magazine, said reforming ticketing is “the right thing to do”, while plans to reduce Government intervention in how services run are “a great idea”.

However, Labour’s shadow transport secretary Louise Haigh said the government had presided over “13 years of failure”. She said: “Whichever ticket you buy, passengers are paying more for less under the Conservatives’ broken rail system.

“Thirteen years of failure has seen fares soar, more services than ever cancelled, while failing operators continue to be handed millions in taxpayers’ cash.”