No grounds to suspect Virgin of breaking competition law on West Coast fares
30 November 2001
ORR/25/01
The Rail Regulator has received a number of complaints from passengers and passenger representatives regarding the scale of increases of the unregulated fares on Virgin's West Coast Trains. The Rail Regulator has therefore been considering carefully whether it would be appropriate to undertake a formal investigation under the Competition Act 1998, and, in particular, what competition law requires to be established when looking at whether a particular fare charged by a franchise operator is excessive.
The Competition Act 1998 powers conferred on the Director General of Fair Trading, the Rail Regulator and the other sector regulators are not a means for general control of prices. Rather, they are aimed at protecting competition.
The Rail Regulator has concluded that, in the absence either of evidence of excessive profit being generated across a franchise as a whole, or of other evidence that the level of a particular fare has no reasonable relationship to the real costs or the real value of the product offered, there are no reasonable grounds for suspecting a franchise operator of a breach of the Competition Act 1998.
Against these criteria, the Rail Regulator has concluded that there are no reasonable grounds for suspecting Virgin of having infringed the Competition Act 1998. It is therefore not possible to proceed to open an investigation.
Tom Winsor, the Rail Regulator, said today: "While passengers on certain of Virgin's West Coast services are facing significantly higher prices than previously, we have no reason to suspect that Virgin is breaking competition law. The regulation of fare increases is rightly a matter for the Strategic Rail Authority, and it is clearly for the Strategic Rail Authority, on the Government's behalf, to keep the impact and extent of its controls under review."
Even where there are reasonable grounds for suspecting an infringement of the Competition Act has occurred, in exercising his functions under the Competition Act 1998 the Regulator would need to have regard to other factors, such as the seriousness of the alleged infringement, the probability of finally establishing the existence of the infringement, and the time and resources required to complete the investigation. Relevant considerations in respect of franchise operators' fares would include the fact that there are already specific controls on fares built into the Strategic Rail Authority's franchise agreements, and the practical difficulties of attributing fixed and common costs to particular fares.
The Rail Regulator's findings are consistent with the approaches in excessive prices cases taken by Office of Fair Trading and by the European Commission and Courts.
Notes for editors:
- The Railways Act 1993 and Transport Act 2000 give the Strategic Rail Authority (SRA) the power to regulate fares through its franchise agreements with the train operators, where this is in the interests of passengers. The SRA uses these powers to regulate most fares used by commuters, where rail travel has a degree of monopoly power, and long-distance 'Saver' tickets, to ensure that reasonably-priced walk-up leisure travel remains available.
Regulated fares include:
- All standard class weekly season tickets for journeys where a weekly season existed in June 1995;
- All 'Saver' tickets for journeys where a Saver ticket existed in June 1995; and
- An unrestricted standard class return, for each journey where no Saver fare existed in June 1995 (typically journeys under 50 miles, or journeys within the old Network SouthEast area);
The SRA regulates these fares by imposing a 'cap' on increases over the price that was charged in June 1995. Since January 1999, the cap has been increased by 1% less than inflation, driving a decrease in real terms for these fares.
Unregulated fares include all first class fares, which are essentially aimed at a premium market, most 'cheap day return' fares and all 'advance purchase' fares where, like airlines, train companies offer reduced-rate tickets to attract passengers to fill empty off-peak seats.
Research carried out for the SRA by AEA Technology has shown that overall, the average fare paid by standard class passengers rose by 11.03% between 1995 and 2000, against inflation of 10.8% during the same period. This contrasts sharply with British Rail practice, where between 1990 and 1995, the average fare paid (both first and standard class) increased by 28.4% against inflation for those five years of just 16.6%.
- Detailed reasons underpinning the ORR's conclusions - Virgin Fares Cases - and a copy of expert advice provided by National Economic Research Associates (NERA) (Part 1 and Part 2) are available here or in hard copy from Sue MacSwan, ORR Librarian, 1 Waterhouse Square, 138-142 Holborn, London EC1N 2TQ, tel: 020 7282 2001, fax: 020 7 282 2045, e-mail: rail.library@orr.gsi.gov.uk.
- The Regulator has today sent individual letters to all of those passengers who have complained about the fares policies of Virgin in relation to its West Coast franchise services.
- Powers under the Competition Act 1998:
The Act gives the Rail Regulator concurrent powers, with the Director General of Fair Trading, to investigate suspected infringements of the Act's prohibitions in relation to "services relating to railways" (as defined in section 67 of the Railways Act 1993, as amended):
Chapter I prohibits agreements between undertakings, decisions by associations of undertakings or concerted practices which have the object or effect of preventing, restricting or distorting competition in the UK (or any part of it) and which may affect trade within the UK (or any part of it);
Chapter II prohibits any conduct by one or more undertakings which amounts to the abuse of a dominant position in a market if it may affect trade within the UK (or any part of it).
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