Responding Slowly to Change? Passenger Rail Demand in Great Britain

This paper presents the results of an econometric analysis of long-distance rail demand in Great Britain. The analysis used data from Quarter 1 1998 to Quarter 4 2012 to examine why passengers may not always respond to changes in demand drivers immediately. The analysis identified how long it would take for changes in demand drivers such as fares and income to affect passenger journeys, and found that it would take approximately a year for the full effect to be felt. Other findings from the analysis included the following: (1) the long-distance rail market appears to be working in accordance with economic theory: the fare elasticity is close to one, suggesting that train operating companies (TOCs) may be pricing close to the profit-maximising position in this market; (2) performance (ie, the extent to which trains arrive on time) and income have been an important factor in determining demand; and (3) there is a continuing modal shift from cars to rail, which is possibly in response to the increasing costs of owning and operating a car. The results imply that if operators want to further increase revenues then this may have to come from higher passenger numbers rather than more expensive fares. The continuing shift from road to rail may also continue only if the cost of motoring continues to increase faster than rail fares.