Full steam ahead
Ben Griffiths quizzes Chiltern FD Tony Allen about running a rail franchise.
Ben Griffiths quizzes Chiltern FD Tony Allen about running a rail franchise.
Providing universal customer satisfaction must be the goal of just about every business in the service industry.
In the railway industry it has become something of a holy grail. Last month’s railway summit, called by deputy prime minister John Prescott, put rail operators in the dock facing an ultimatum to improve customer satisfaction or risk losing their franchises.
Among those operators listed as poor performers and suffering financial penalties was Chiltern Railways, which operates between London and Buckinghamshire, Oxfordshire and ultimately through to Birmingham.
Chiltern, which is run by the last-surviving rail privatisation management buy-out, M40 Trains, was particularly stung by the public criticism.
It says its reliability and customer approval ratings were marred by a series of breakdowns on almost new trains which marred an otherwise good record.
Finance director Tony Allen says the company has set itself high standards.
A mission statement hangs on walls throughout its offices. It simply reads: ‘To be the best passenger railway in the UK’.
Last year’s penalties, including substantial refunds to passengers, has not stopped Chiltern being seen as a good investment.
Less than a month ago, OPRAF franchising director John O’Brien gave permission for construction company John Laing to increase its share of M40 Trains, from 26% to 84%.
Although the deal reduced Allen’s Chiltern shareholding from 8.5% to 2.9%, he netted a pre-tax personal windfall of #544,000.
Allen has attracted some personal criticism amid accusations that M40 directors became ‘fat cats’ at the expense of passenger satisfaction.
RMT union leader Jimmy Knapp described the deal as ‘another sordid example of a few individual railway managers making massive profits at the taxpayers’ expense’.
This is a charge Allen refutes with a vengeance. He believes those people who had been with the railway from the start deserved the payout. ‘The people who created the added value have stayed with it and have taken Chiltern through from the start,’ he says.
Allen believes Chiltern has consistently performed well since it won the franchise, although he admits there have been problems. ‘People began to experience delays in their services particularly because the infrastructure cannot cope with the demand. More and more people are switching to trains and it is getting more crowded,’ he says.
Allen believes this rise has been partly due to the government’s integrated transport policy which seeks to get more people out of their cars and onto public transport. Another reason is that petrol prices have been raised, persuading people to make more use of trains and buses.
Chiltern has experienced problems with its own equipment. Although it was the first railway franchise to order new rolling stock after privatisation, the new trains – which were for its flagship service to the West Midlands – were delivered three months later than scheduled. New rolling stock was needed urgently to cope with engine failures on the rest of its fleet which was new in 1993.
Pressure to get the new trains into service resulted in yet more difficulties.
Instead of the normal testing period for new stock, Chiltern had to get the trains straight into service and problems were inevitable.
The resulting restrictions to services affected punctuality and passengers groups were less than impressed. Yet, despite these setbacks, Allen believes the railway has performed well overall.
Instead of spending the #15m the company pledged when bidding for the franchise, Chiltern has spent #38m. The railway also employs 50% more people today than when it first took on the franchise.
‘We have not neglected the railway. We are in fact running 25% more services than we were on this route when it was run in the public sector,’ Allen argues.
By successfully managing the finances of the fledgling railway, Allen has clearly had a pivotal role in the company’s success.
His value has been recognised by the decision to appoint him as finance director for the new company, named Laing Rail, which takes over from M40 shortly.
Allen’s dedication to Chiltern cannot be in any doubt. He says that right from the start, when the company was preparing its bid for the franchise, the management team worked astronomical hours writing reports and working out their figures.
The hard work has certainly paid off; Allen argues that being rewarded for such effort should not be grudged.
The work ethic is something Allen believes in and he has risen to his current position through hard work.
After leaving Highgate School and graduating from what was to become the City of London polytechnic, he pursued a career in a range of different business environments.
Having always been interested in mathematics, he chose to train as an accountant and was taken on by Priddie Brewster. After passing his accountancy exams, he moved to a first job in industry in 1972, aged 23.
During his working life, Allen has spent time with brewery group Courage, fashion and cosmetics giant Mary Quant and was also FD for drinks company Appletize, only leaving when it was sold to Coca-Cola.
After leaving Appletize and doing nine months of internal management, Allen applied for a job with Chiltern. The business was setting up while the Railways Act was passing through government.
Thorough research into the industry and a personal affinity with managing director Adrian Shooter landed Allen the job, and he has not looked back.
‘I like working with the public and I still get out to talk to them every month,’ Allen confesses.
‘It is important to find out what people want from the service.’
This human touch is an asset in a business so dependent on the customers to balance the books each month. But a consistent number of passengers is not enough to produce increased profit levels.
As the company has no fixed assets, Allen must find innovative ways of boosting income. A gradually shrinking government subsidy has also made it a more interesting task.
From the early days of Chiltern, when Allen spent most of his time putting in place the systems to start running the business, the management team wanted complete control of its creation.
And the team has eventually got its wish. In April 1995, the company was granted a licence by the railway regulator.
The team had been unable to raise enough money to bid for the franchise itself, so it enlisted construction group John Laing to provide the financial backing. Venture capitalists 3i also came in on the deal. Bidding for the actual franchise was tough. Chiltern was put on the short list alongside Connex and Stagecoach. But Allen says he was confident it would win.
His prediction came true, and in June 1996 OPRAF awarded Chiltern the franchise, making the company the only train operator which was 51% controlled by its directors.
‘We had already proved we could do the job and we had a good record in the public sector,’ Allen says. ‘We also bid for the lowest level of subsidy and pledged a great number of investments. We placed orders for new trains, and improved existing train services.’
While Chiltern set out with high hopes for the railway and with cash to invest in the infrastructure, its main asset comes in the form of its passengers.
Accounting for such an operation could overwhelm some finance directors.
Chiltern’s costs are largely fixed and it has no easy way to cut costs in an emergency. But Allen appears supremely confident in his ability to do the job and do it well.
‘I have to find a way of generating more income. In this business, the only option you have is to find ways of driving income forward. To do this we have to get more people using our services,’ he says.
While keeping passengers and shareholders happy is of key importance, Allen believes the two are complementary.
‘For most businesses, every #1 of turnover has a cost associated with it. But for the railway business, every pound goes straight through the bottom line. It goes to the profit & loss account.’
The way tickets are sold also causes a headache. Turnover is not directly related to ticket sales at stations. Chiltern only receives a percentage from the tickets it sells, which means it only discovers its income at the end of every month.
Despite these everyday challenges, Allen believes business has been good and he is confident it will continue to be so. For Chiltern to succeed, the railway must be attractive to passengers which in turn will boost profits.
Allen points to that motto on the wall. ‘To be the best passenger railway in the UK’. His work is not yet done. While harbouring no ambitions to be a managing director, Allen is keen to see the Chiltern concept to the next stage of its life.
‘I want to see this business continue. We have started something and we want to finish it – we want to renegotiate the franchise,’ he explains.