St Pancras, we have a problem. And that problem is space… the space it needs to process passengers through the French border before they can board trains to Paris, Brussels or Amsterdam.
High Speed 1 owns and operates St Pancras International station.
Eurostar runs international trains while Southeastern runs domestic trains into Kent over HS1 tracks.
For completeness, East Midlands Railway runs trains to the East Midlands and South Yorkshire, but they are not part of this story.
It’s perhaps fashionable to look the other way when the words ‘Brexit’ and ‘problem’ come into conversations, but this is one of those times when the two are firmly linked and cannot be ignored.
HS1 Chief Executive Dyan Crowther is clear.
When RailReview asks what she would say to someone who could fix the problems that HS1 (and by extension Eurostar) faces, she replies: “You’ve got to fix the borders.
“We have a couple of things on our radar for the next 12 months. It’s what are our enablers of growth. It’s all about international. That’s where the appetite is. It ticks the box from a sustainable perspective. It ticks the box because we’ve got capacity. It just ticks the box on so many levels. But we need to fix the borders.”
Travellers to and from the European Union from Britain must now have their passports stamped on entry and exit from the EU. This process takes longer than the checks that took place when the UK was an EU member.
In one of his final acts in the post, Eurostar Chief Executive Jacques Damas wrote to the House of Commons Transport SelectCommittee on September 26. In his letter, he explained the passport-stamping problem.
“Following the UK’s departure from the European Union, additional border checks apply to UK citizens seeking to enter Schengen, as they do to all third-country nationals. Since c.40% of our customers are UK nationals, this has resulted in a significant increase in the processing times at stations. The stamping of British passports by continental police adds at least 15 seconds to individual passengers’ border crossing times.”
He went on to explain that despite adding an extra French control booth at St Pancras, the longer checks have cut capacity.
“As things stand, peak capacity through the stations is c.30% lower than pre-Brexit. Even with all booths manned, St Pancras can currently process a maximum 1,500 passengers per hour vs 2,200 in 2019.”
Were it not for COVID slashing demand, this problem would have become apparent some time ago. Eurostar’s reduced timetable mitigated the problem, but with demand now rising as the pandemic recedes, the longer passport checks show themselves in the longer queues around St Pancras.
It explains why Eurostar no longer calls at Ebbsfleet International and Ashford International stations. Damas wrote: “Reopening the intermediate stations (where demand and yields are much lower) would make things even worse, as it would take away from London vital border police resources. The reality of traffic numbers is such that a police officer controls five to ten times more passengers in our large terminals than in intermediate stations.”
Crowther explains what’s being done to cut those queues. One is to add border officers. Another is to add staff to manage the queues.
She says: “It’s given us the chance to innovate, to try different types of technology, so we’ve been working with Eurostar to try running an app-based queuing system. The whole philosophy of that is to queue on the station, in cafes, restaurants and shops, and we’ll call them up 30 minutes before departure. So, we take them out of the physical queue and put them somewhere else.
“It’s a bit like when you go to the deli counter in a supermarket and take your ticket. It’s the digital version of that. That’s been fairly successful and we’re looking to see how and when we can expand that and scale it up.
“Eurostar has also done a biometric trial where you integrate your passport information and your ticket information and all of that. So, you just walk through and an iPad scans you and goes ‘green, walk through’ or ‘red, you need to go to this side’. So, a real opportunity to innovate and use technology.”
However, the problem is going to get worse with what Crowther describes as a ‘googly’ fast approaching.
“That’s the new entry-exit system. Imagine the queue I have at the moment just to do normal processing… From May next year, which is the revised implementation date, if you’re from the UK you have to pre-register, you have to fill in various information, but more importantly you have to do a finger-print test. And you have to do that finger-print test in front of a PAF official.
“The challenge we have, and we’re working on, is where do those desks go? Because we need 24 of them, we estimate, because you’re going to have to queue people.
“We have been lobbying quite hard, as have Eurostar, as have SNCF, to say can we do the pre-registration away from the station? But all the indicators are that it’s going to be done at the station.
“So, I’m going to end up with two queues. Eurostar have done some modelling that says you are increasing the queue time, the processing time, to two minutes in total. Plus, you’re going to be running two queues which gives us operational issues, which then means for Eurostar to load a train and the way we flight trains at the moment to match the international timetable, we can probably only get a third of the people onto the train that we need to.”
A Eurostar Class 374 train can seat 894 passengers. At two minutes per passenger, passport checks will take 1,788 minutes, which when spread across Crowther’s planned 24 desks would take 74.5 minutes. If Eurostar were to run an hourly service to each of Paris and Brussels, it’s easy to see that St Pancras does not have the space to cope.
At two minutes per passenger, those 24 desks can deal with 720 passengers per hour. With two trains per hour, that implies 360 passengers per train. Or roughly 40% of the capacity of a ‘374’, which supports Crowther’s ‘one-third’ contention.
Even in normal times, that’s not economic. But Eurostar is not in normal times. It’s an open access operator, so did not receive government support during the pandemic.
In his letter to UK MPs, Damas set out the cold, hard facts of the pandemic’s impact: “We had our revenues cut by 95% for 15 months in 2020-21 and were hit hard by the Omicron wave in December 2021 and early 2022, the restrictions attached to which had a further impact of at least £50 million.
“Contrary to the £7 billion in state aid given to our airline competitors - many of whom also have overseas and state-backed shareholdings - Eurostar did not receive any state-backed loans. Our shareholders put a further £250m into the business (almost double the total historic amount ever taken out in dividends), but Eurostar needed to find an additional £500m in commercial debt in order to survive.
“This commercial debt is at considerably higher cost than the loan facility offered to the airlines and Eurostar must continue to meet the demanding financial ratios underpinning these loans.”
That’s not a situation into which half-filled trains play well. The company’s other option is to run fewer trains, but this comes up against another problem. That problem is that HS1 has the right to recover its costs and investment. It does this by charging train operators access charges. Fewer trains translates into higher charges per train, which will doubtless filter through to higher fares. And raising fares will push passengers back towards airlines. So too will a less-frequent timetable.
The obvious response is to cut HS1’s costs, and RailReview put this to Crowther. She responds: “We’ve done a lot already. We looked at the overall cost base of HS1 - be it the costs of having HS1, be it pass-through cost. So, we’ve shaken down insurance costs, we’ve challenged business rates, all of which are pass-through costs to the train operators. We’ve done a huge amount of work on our energy costs where we’ve been on the front foot, hedging how we do things. We’ve signed private purchase agreements with energy providers.
“All of that has kind of kept costs down for train operators. Or damage limitation in terms of the environment we’re in at the moment. We’ve taken £2m out of stations as well, mainly by challenging contracts, looking at specifications - and, again, this goes back to a lot of the work we were doing during the pandemic to reduce the cost base.”
Crowther continues: “We’ve had a long, hard look at some of our main contractors, the main one being Network Rail High Speed, and we’re just going into our next periodic review. We signed a revised agreement with Network Rail that enabled them to put more efficiencies on the table. So, we’ve got a broader range of efficiencies.
“We have a long-term relationship with Network Rail High Speed, and what we weren’t doing was leveraging that. Both sides were almost circling each other with handbags going, ‘Well, you go first, then I’ll go’. We just needed to get rid of that and put the customer at the forefront of what we do, because if we don’t have customers, we don’t have businesses.
“Now we’re looking at the long-term relationship and how we can push through efficiencies and productivity measures that can be passed on to the train operator. Because I’ve got the right to recover all of my costs, if that cost base is lower, it’s good news for the train operator. I don’t gain anything by charging more or charging less, so there’s no net gain or loss for me other than the strategic view of keeping the operators.”
This work has led to NR (HS) hitting its efficiency target of just under 10%. It has also put another 7.5% of efficiencies on the table for the next periodic review, which will take effect from 2025.
There’s a balance between costs and resilience, but talks with train operators have allowed it to cut some further costs.
Crowther explains: “We have a lot of feeder stations that give redundancy and protect service. So, we’ve got agreement from our train operators that we’re going to turn off one of those feeder stations. That will save them £1.2m per annum.
“What we’ve tried to do is give customers options and say the trade-off here is that you can save this much, but you’ve got a little bit less resilience, but the risk is quite low. It’s then down to them to make that decision. That’s another example of what we’ve done to really look at the ops and maintenance costs.”
HS1’s track access charges are both similar and different to those levied by Network Rail on domestic operators.
In the ‘similar’ category come the costs of operating and maintaining the network, although HS1 charges by the timetabled minute to encourage high-speed operation.
In the ‘different’ category is HS1’s recovery of the costs of future renewals. Train operators pay up front for renewals, with the money going into an escrow account as annuity payments. This allows the costs of those renewals to be smoothed over years, with escrow funds rising or falling depending on the level of renewals spending.
Crowther adds some detail: “The main objective of it is that you start paying on ‘year one’, and then that gets smoothed over and you build up money in the escrow accounts to pay for the big chunky renewals when they come.
“There are some exceptions to that in terms of definition of renewals, so (for example) some of the things that are excluded are the renewal of St Pancras roof because that would just skew the escrow payments, and it’s quite difficult to comprehend that from an economic modelling perspective. The other element that’s excluded is the replacement of the signalling system.”
So, when HS1 replaces its TVM430 signalling with ETCS, this will count as a specified upgrade rather than a renewal.
Having to pay now for future spending prompted HS1 to examine whether these payments could be deferred, to help Eurostar through the current crisis.
Once again, the detail comes from Crowther: “On the renewal costs, we led a big piece of work in the last ten months where we were working with the Department for Transport, the Regulator and the train operators to get agreement to suspend the renewal payments, which is the annuity payments. That makes up a third of the track access charge.
“Clearly, as you can appreciate, these things aren’t easy. Everybody has their red line. And what we weren’t able to do, despite giving it a good go, was get ourselves into a position where everybody was comfortable with suspending the annuity payments.
“That was a big disappointment that we weren’t able to get that across the line, because it would have provided some short-term relief, which could have enabled more trains to be run more quickly and effect that faster recovery.”
To the obvious question of what blocked this deal, Crowther replies: “There were a number of things really. At the start of the process, all stakeholders said ‘let’s get our red lines on the table’. Clearly, from the ORR perspective, it’s ‘is there a legal framework for this?’
“So, where does that fall? I think when you start trying to do these innovative, radical things, you then start unpicking contractual matrices, competition elements, and you start coming up against things that in the first place you kind of think, ‘I wasn’t really expecting that, where did that come from?’. So, there were a couple of regulatory aspects that the regulator said just weren’t in its powers to grant.
“There were then some of the elements on the DfT where it was like, well, we need to make sure that there is a value-for-money proposition in here that we’re not leaving the escrow funds short so a future operator would have to pay.”
At which point, RailReview suggests that what the DfT really means is the bill landing with taxpayers.
“Yeah. So, as you can imagine, what I’m trying to explain here is that it was quite difficult to herd all the cats. It’s not because they didn’t want herding, it’s because there’s quite a lot of policy stuff that needed to be got across the line. It wasn’t for a lack of effort. If it was easy, we’d have done it.”
There’s a balance in any risk, but it seems to RailReview that the risk of higher annuity payments in the future must be balanced against the risk of pricing trains off HS1 today, and then having an expensive asset generating bills to be spread across fewer trains.
Crowther notes: “Yes, so the overall costs don’t go up, what happens is the cost per train goes up. What you end up with if the cost per train goes up, you then have Steve White on Southeastern going, ‘Well, I can run a train on High Speed or I can run a train on domestic - flipping heck, that cost has doubled! So, to relieve capacity, I’m going to run a train on domestic.’
“Do the maths. If he has the Treasury and DfT breathing down his neck saying ‘you’ve got to take 10% out of your cost base, do it quickly. Not interested in revenue generation, only interested in you as a cost centre for the next 12 months’, what’s he going to do?”
At this point, it’s worth noting that DfT is shouldering some of HS1’s costs through an underpin arrangement that was included in HS1’s concession agreement when government sold it to private investors on a long-term lease.
This underpin agreed to pay for a minimum of 55,000 paths per year for Southeastern. Before the pandemic, Southeastern was using 57,000 paths per year. It’s now using 47,000 paths per year, which means that DfT is paying the paths of services that don’t run.
Meanwhile, Eurostar is using around 16,000 paths per year, rather than the 19,500 it used before the pandemic. That leaves an overall gap of around 5,000 paths, which is 6.5% of the pre-pandemic total.
So, if HS1 has done what it can to cut and control costs, what of the other option? What of expanding its St Pancras facilities so that there’s space for more border officers to deal with sufficient passengers to fill Eurostar’s trains?
It’s something Crowther’s team was looking at before the pandemic, when the international market was growing at 3.5% a year and HS1 was keen to add more destinations such as Geneva and Frankfurt.
“Pre-COVID, we did what we call SPICE work, which was St Pancras International Capacity Enhancement. We completed something we call Baby Spice, because we already had poor customer experience on high days and holidays when we were queuing people out of the station.
“The queues you get today, we used to get on high days and holidays. We created additional departure capability in the arrivals lounge in the arrivals area. So, there’s an additional queuing area in there that we used to trigger because Eurostar knew how many people had booked onto trains, and we could have the sensible conversation with Borders and PAF and say we need additional resources so we can manage the customer experience and keep them off the station.
“That was Stage 1 of our capacity enhancement. The bigger change we were looking at was how we could flip arrivals and departures. One of the schemes we had was looking at arrivals on the top deck, so a little bit like how they do it at Gare du Nord where you just walk to the end of the platform and depart…”
Through that great glass screen that looks so inviting, suggests RailReview?
“Yes, before you then go down the chicane. That then means the arrivals bit downstairs could be reallocated to departures so you could have more space, more lounge so you expanded the restricted zone.
“We’d have to give up some of the retail units - for example, where the Betjeman Arms is. Things like that, because that’s where you’d put your Borders people. So, you’d have to reconfigure the top part of the station. Everything that’s in arrivals at the moment you would need to move upstairs.”
So, not quite as simple as putting a door in the glass screen?
“No, it if was that simple, we’d have done it.”
The price tag of this work was £50m. It’s now likely to be a good deal more, given inflation generally and construction inflation in particular. Not something that can be put on an open access operator that is already having to cope with higher debts and their associated costs.
Put simply, it will cost money to solve the space problem, and that will incur higher charges. And, despite the work on HS1 operating and maintenance costs, it must still charge for future renewals. This produces a bottom line that HS1 is an expensive asset, and that expense is being spread more thickly onto fewer trains and passengers. This has all the hallmarks of a downwards spiral.
How can HS1 square these circles?
“I can’t. I really can’t,” replies Crowther.
“These are things that are happening outside of my control, outside of the railway’s control. It’s a combination of policy, physical interventions - it’s symptomatic of outputs coming in the system now that were just not foreseen. It’s nobody’s fault. It’s a little bit, OK, these are the challenges we’re facing at the moment, we’re not sat on our hands, we’re trying to fix it, and everyone you talk to goes ‘My God, that’s a real issue, isn’t it’?
“The further you go into it, the harder it is to unlock. We’re trying to do what we can, control the stuff that’s within our gift - putting resources into queue management, get more resources in to protect the customer experience, how we can use digitisation so that people do stuff that reduces cost. But the bottom line is that we’re facing a situation where we can’t grow.
“And if I can’t grow against a baseline that is lower than where we were pre-pandemic, that then starts to throw question marks over the many socio-economic benefits that high-speed brought.”
That’s the rub. The border controls that are coming with Brexit look almost certain to stop Eurostar recovering even to its pre-pandemic passenger numbers, let alone growing. Let that sink in…
Crowther continues: “We’re starting to talk about the opportunity that’s lost because of these geo-political challenges that we’re now facing. They need geo-political solutions. That’s not me moaning, it’s just where we are.
“I can work on the domestic side of things. We can restructure to lean into the leisure market of things. We can be agile around that.
“But on the international side, it’s been a strategic objective of HS1 for some time to get a second international operator to get more destinations. If I’ve got one operator at the moment, and growth is pretty flat because my big constraint is terminal capacity because of how we process our borders…”
Because there’s no space?
“Yeah. So, a geo-political problem which needs a geo-political solution. I think there will be one, but it’s getting stakeholders within the system to want to be able to fix the system because it affects economies, be it the economy of London, Paris, Brussels or Amsterdam, and then spills over into country economies.
“High-speed rail is being put forward as a sustainable choice, a sustainable transport mode, and I’m looking at a mode that’s going to become less sustainable because the elements needed to support it just aren’t there.”
The opportunity lost becomes very apparent when you hear Eurostar Chief Commercial Officer Francois Le Doze talk about Amsterdam.
He tells RailReview: “Our London-Netherlands route presents an exciting growth opportunity. With just three services a day, in July this year we became the third-largest operator on this route. In September, we introduced a fourth return service, and given the scale of the air market and increasing consideration of sustainable travel, we see huge potential.”
For this potential to translate into reality, you need what Le Doze describes as a “fluid border”.
But with tighter and lengthier checks coming next spring, the border will become more solid than it’s ever been. That doesn’t bode well for Eurostar or High Speed 1. ■
