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B.A. (Hons) International Business Management
DISSERTATION
A Comprehensive Analysis of the British
Passenger Railway Transportation Market
in the Post-Privatisation Era
By
Nikita Andreevich Cherkashin
Module: 6BU001 - Researching Business and
Management Issues
Student Number: 1718889
Word Count: 10,042

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Table of Contents
1. Chapter One - Introduction ............................................... 3
1.1. Summary......................................................................... 3
1.2. Summary of Literature Review........................................ 3
1.3. Importance of the Rail Transportation............................. 3
1.4. Research Questions........................................................ 3
2. Chapter Two - Literature Review ...................................... 4
2.1. Rail Industry Context and Structure ................................ 4
2.2. Economic Theory Applied ............................................... 4
2.3. The Economic Thought of Privatisation .......................... 6
2.4. Strategic Management Theory........................................ 8
3. Chapter Three - Methodology ......................................... 10
3.1. Research Overview....................................................... 10
3.2. Data Sources and Analysis Method .............................. 10
3.3. Limitations ..................................................................... 10
4. Chapter Four - Strategic Business and Industry
Analysis ................................................................................. 11
4.1. Management Analysis of Govia Thameslink Railway
Train Operating Company .................................................... 11
4.2. Sectoral Analysis........................................................... 17
4.3. Vertical Integration as a Solution................................... 23
5. Chapter Five – Research Conclusion............................. 24
6. Bibliography ..................................................................... 25

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1. Chapter One - Introduction
1.1. Summary
This dissertation aims at assessing the current state of the railways in the United Kingdom,
with a goal of assessing what would make it better for businesses and people. The study is
extremely important especially today, since the Labour Party has proposed renationalisation
(BBC, 2018), which would be a dramatic change for the businesses operating in the industry.
The study identifies the problems that exist within the industry, which affect businesses and
general public in negative way. The work analyses the railroads industry in the UK with a
focus on franchised passenger train operators. The research was conducted to evaluate the
impact of privatisation, suggestions were also made concerning possible improvements. The
work analyses the industry both from the perspective of public and the business, but it
predominantly focuses on the strategic management issues.
1.2. Summary of Literature Review
The work utilises data from official industry sources like Office of Rail and Road in order to
produce a comprehensive analysis of the main industry features. A number of academic
studies has been used in order to assess the impact of proposed policies on the industry.
Non-academic sources such as newspaper articles were used as well. Expert opinions were
analysed as well. The problem of vertical separation is covered by the existing literature,
however the study was intended at linking business management strategy issues with the
problems identified by the existing research in the area of transport economics.
1.3. Importance of the Rail Transportation
British railways are the oldest in the world, historically, railroads provided greater mobility to
people and facilitated trade, which shaped the history of England as major economic
powerhouse and cultural centre. To this day, railways have strategic significance for the
national well-being of the United Kingdom. Rail transport connects people, businesses and
communities around the country, supporting sustainable economic growth. It is an important
objective for the British government to ensure that the rail system is operated in the best
interest of society. The rail infrastructure could be compared to arteries, any clots will have
devastating consequences. The railway industry is also a major employer and therefore any
problems within the industry will result in unemployment and social unrest. Railroads also
have socio-historical importance, since the rapid growth of rail industry in 1820–1850
concentrated wealth (Perloff, 2012), thus ingraining inequality in the capitalistic western
society.
1.4. Research Questions
The research questions of this dissertation are:
1. How strategically attractive is the post-privatisation rail industry for businesses?
2. What are the problems that businesses face under current industry structure?
3. What are the possible policies that could be implemented in order to increase both
the public welfare and advance business interests?

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2. Chapter Two - Literature Review
2.1. Rail Industry Context and Structure
History and Privatisation
The world’s first intercity rail connection was established between Liverpool and Manchester
in 1830, the railroad system in the UK was predominantly shaped during the Victorian era by
private businesses (Booth, 1830). During the nineteenth century major projects were
completed including London Underground (Wolmar, 2004). However, after the World War II
the cabinet of Clement Attlee carried out nationalisation of major industries, including the
railways (GOV.UK, 2018). According to data by the Office of Rail and Road (2018), during
the state-control era rail industry experienced recession and rapid decline in passenger
kilometres travelled. Under the premiership of John Major, The Railways Act 1993 was
passed, which restructured the industry and privatised state-owned British Rail. Privatisation
was intended to revitalise the industry and improve efficiency (Poole, 1997).
Industry Overview
In 2018 the industry has a semi-private ownership. The infrastructure is owned by the
Network Rail, which is a not-for-profit organisation with debts being recognised as
government obligations (Network Rail, 2018). The trains are owned by private rolling stock
companies, that lease out the equipment to private train operating companies and freight
operating companies (ORR, 2016). According to ORR’s industry overview, the train
operating companies are subject to passenger rail franchising, which is a system that allows
the Government to grant the right to service a particular route to private companies for a
specified period of time. The Labour Party nationalisation proposal implies that the
Government will take control over the franchises when the service agreements come to end
(BBC, 2018).
Franchising is an extremely important for the British railway industry. Franchising is a
situation when the Government and a private train operating company arrange a contract
that specifies overall performance objectives, necessary investments and upgrades,
timetables, fares and so on (Parliament, 2017). Price competition by franchised TOCs is
limited due to restrictions imposed by franchise specifications (CMA, 2016).
2.2. Economic Theory Applied
Market Mechanisms
The concept of competition and free market is crucial for understanding of economic
processes. Adam Smith (1759) believed that people who engage in free trade will
unintentionally make others better off by pursuing their own self-interest, he used the phrase
“invisible hand” to describe this phenomenon, the result of free-market transactions is a self-
organising social order. In Smith’s view the free-market price mechanism is the best system
for the distribution of scarce resources in the economy to the benefit of all, both producers
and consumers. Smith opposed intervention in the free market, for example, in the Wealth of
Nations he argued that protectionist policies are either useless for the economy, since the
same goods could be produced at home at the same cost or hurtful for the economy if the
goods could be imported at lower costs (1776). Contemporary economic theory defines the
market structure as the ability of individual firms to influence the prices in the market, if
individual companies do not have power over prices at all the structure is called perfect
competition. This situation occurs when there are many firms that are selling the same
product and described as price takers, the demand curve for these firms is flat (Lipsey &
Chrystal, 2015, p.125). However, most of the real markets are not perfectly competitive. On
the other spectrum of the market structure there is monopoly, a market structure in which
there is only a single firm and the barriers to entry are insurmountable for competitors to
enter the market. Competition forces producers to be more efficient in allocating the capital,
develop new technology, constantly improve the product and set lower prices, it is in the best

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interest of public to support competition between service providers. However, for producers
competition means harsher business conditions, therefore every company strives to become
a monopoly and avoid competition.
The self-organising order of the free-market is believed to be efficient in allocating
scarce resources but according to Karl Marx this system leads to accumulation of wealth in
the hands of a small number of people and thus a new conscious system should be
implemented, a command economy or communism (Lipsey & Chrystal, 2015, p.7).
According to Cheremukhin (2013) Stalin’s communist economic policies led to a welfare loss
of 24 percent of consumption prior to the World War II but increased it post-war by 16
percent, which indicates a net loss of 8 percent, the research does not account for the loss
of welfare due to repressions, otherwise we would expect an even higher net welfare loss.
Monopoly
If a perfectly competitive market is in the equilibrium then both the producers’ and
consumers’ surpluses are maximised. Diagram 1 shows that competitive equilibrium (Ec)
results in surplus of (E) and (D) for producers and (A), (B), (C) for consumers. However, if a
monopoly emerges and sets a new price, the equilibrium shifts to (Em) and consumers lose
surpluses represented by (C) due to lost output and (B) due to price increase, the monopoly
loses surplus (D) but gains surplus (B) from consumers. As a result the society as a whole
experiences a deadweight loss represented by areas of (C) and (D).
Diagram 1: Area of C and D - deadweight loss caused by allocative inefficiency of monopoly
The deadweight loss (illustrated in Diagram 1) is defined as a situation when a shift from
market equilibrium leads to a decrease of surplus of one group which is not compensated by
the addition to the surplus of other group (Perloff, 2012).
Natural Monopoly
Lipsey & Chrystal (2015, p.161) describe the state-owned British Rail as a monopoly and
pointed out that it had allocated resources inefficiency due to government restriction on price
discrimination. Price discrimination is a situation when output is maximised by the
adjustment of prices for different consumers, for example, a company may discriminate
customers by charging higher fares on the routes where people have higher demand for rail
services and lower fares on the less popular routes. The British Rail was not allowed to
charge different fares, since the price was fixed by the government around the country,
which led to the complete closure of several lines and resulted in deadweight loss for
society. A famous Dr Beeching report (1963) indicated that British Rail must dispose of the

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significant share of its network in order to avoid severe losses. Often public utilities such as
rail transportation are categorised as natural monopolies. Perloff (2012) defines a natural
monopoly as a situation when a single firm can fully satisfy demand in the market at a lower
cost than several firms would have otherwise did it. However, a study conducted by Mark
Fagan (2007) argued that complete deregulation can turn a market dominated by a natural
monopoly into a highly competitive one. Fagan’s study focused on US rail freight industry,
which was in major decline since 1950s due to pressure from other means of transportation
like lorries. Staggers Act of 1980 deregulated the industry allowing rail firms to freely enter
and leave the market with no restrictions from the Government, which led to the industry
revival. Companies started to make profit and rail transportation captured 40% of the freight
market by 2007. The case of the American rail freight industry illustrates how a seemingly
natural monopoly could be transformed with deregulation, competition and good business
sense, increasing productivity and maximising welfare of the society as a whole. Perloff
(2012, p. 374) also indicates that despite the fact that a natural monopoly produces at the
lowest cost possible, it is likely that the welfare would be maximised if many companies
produce at higher cost, since the price would drop due to competition.
Price Elasticity
Another important concept that is going to be used in this work is price elasticity of demand
or PED. Perloff (2012) defines price elasticity of demand as the percentage change in the
quantity demanded when there is a given percentage change in the price. This concept
could be illustrated by the decision of San Francisco municipality to increase the price of
tickets for the cable car rides by 60%. This step was motivated by poor financial condition of
the municipal railway system. San Francisco cable car is a major tourist attraction and thus
people who are traveling to San Francisco have inelastic demand for this service, meaning
they are not very sensitive to the price and are prepared to spend a lot. Extreme examples of
inelastic demand would be a patient in desperate need of a drug or a person suffering from
dehydration in the desert, both would be prepared to pay as much as they have to acquire a
certain good.
2.3. The Economic Thought of Privatisation
The history of rail privatisation could not be fully understood without mentioning the figure of
1974 Nobel Prize winning economist Friedrich August von Hayek. Austrian-born British
economist is especially relevant to the story of British rail privatisation because he
significantly influenced Margaret Thatcher views and advised her concerning several
economic policies that shaped political, social and economic landscape of Britain (The
Economist, 2013). Hayek rose to prominence after publishing his famous work - The Road to
Serfdom (1944), in which Hayek explained the nature of socialism and outlined his
fundamental views concerning the free-market economy. Hayek saw a fundamental
contradiction in the idea of socialism, he believed that people are individuals with their own
goals, want and aspirations, which could be different depending on a person. The
Government has a very limited information concerning each individual’s needs and wants
and thus attempts to organise a social institution and order are doomed to fail. F. A. Hayek
observed the rise of national-socialism in Germany and realised that there is a direct link
between socialism and oppressive totalitarian state power. In the Road to Serfdom Hayek
argues that even when the Government planners want the best for the society the nature of
socialism will corrupt their noble ideas and morph into an uncontrollable and unaccountable
monster like it happened in Germany with the rise of Hitler. In 1944 Hayek was concerned
that British academia doesn’t understand the nature of socialism and the dangers associated
with leaving economic freedoms for the promises of welfare state. In 1947 the Government
of Clement Attlee nationalised the railroads in the United Kingdom (GOV.UK, 2018). The
Attlee’s Cabinet did exactly what Hayek was afraid of, it started expropriating private
property and thus depriving people of their lawful rights of ownership. The Government also

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created National Health Service, and nationalised several other industries like coal and
utilities. The Government began intervening in economy when it took control over railways
during the Great War of 1914 - 1918, then the HM Government passed the Railways Act of
1923 or the Grouping Act, that consolidated 120 British rail companies into just four. After
Second World War ended the government of Clement Attlee decided to take over railways
and several other industries such as coal under control (GOV.UK, 2018).
Hayek had very strong free-market views and considered market as the best welfare
system ever invented, he received Nobel Prize for the development of the business cycle
theory, which is especially interesting because the mainstream economists and policy
makers of that time were paying close attention to another famous British economist John
Maynard Keynes, who was much popular than Hayek and had opposing views. Keynes
(IMF, 2014) viewed a country’s economy as a car which could be accelerated by the
Government with increases of money supply or stopped by various interventions. Keynes
also relied on extensive mathematical apparatus and believed that the Government has the
power to steer the economy in the right direction ensuring full employment (BBC, 2011).
Keynes advocated an idea that the Government should increase spending during recession
in order to bring the market to full employment. Hayek on the other hand believed that
recessions were caused by distortions in the capital stock and therefore increasing money
supply would further distort the market, Hayek believed that left with no intervention the
market will reach equilibrium faster thus ending the recession (Britannica, 2018). Basically,
Hayek saw a recession as a consequence of malinvestment, a situation when people either
don’t want to buy goods that are produced or they already bought them and don’t want more
of them, if the Government in this situation continues to inject money into the economy the
goods that nobody wants would be produced for a prolonged period of time, making collapse
even more destructive.
Hayek also believed in the importance of price mechanism as a way of
communicating the value to all market participants. Essentially, when the Government
nationalises a whole industry, fixes prices and sets supply objectives, it distorts the market.
People can no longer get adequate representation of railroad transportation value, which
used to be reflected in the market price. The price in a nationalised industry is set by the
Government and therefore represent planners’ view of what the people want, which could
not be correct because the planners do not have all available information and even if they
would have, it would be an impossible task to incorporate all available information in one
single number, the price of a service, on a daily basis. Hayek went as far as proposing
privatisation of local governments, which he thought coupled with completely borderless
world will allow free-market competition between local authorities to significantly improve
lives of people.
Even though Keynes and Hayek had opposite views on many critical issues, Keynes
didn’t propose nationalisation, he believed that the Government do not have to intervene in
the industries which are served by the private people, even if the service may seem
inefficient or costly, the Government has an obligation to intervene only into the markets that
private corporations will not serve, so called public goods like national defence. Hayek also
supported the idea of national healthcare system despite popular belief of his opposition to
any sort of government intervention.
The main concern of Hayek in the Road to Serfdom (1944) was that the post-war
government will try to hold onto the powers it acquired during the war. Government control
and command economy proved to be effective in the short-run during the war period,
because it allowed the government to mobilise the country for defence purposes. However,
the example of Soviet Union illustrated that the system is not sustainable in the long-run and
does not allow the welfare to be maximised. Hayek believed that little government and
planning will inevitably lead to more government and planning. Big governments in Hayek’s
view tend to be totalitarian and oppressive, an observation he made about the Hitler’s
national-socialist Germany.

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2.4. Strategic Management Theory
Porter’s 5 Forces
This strategy tool was developed by Michael Porter (1979), it is widely used to analyse the
business attractiveness of various industries. Companies that operate in the industry or
consider entering it have to consider several factors that in Porter’s view ultimately define the
attractiveness. The competitive forces include the intensity of rivalry among the existing
players. Threat of new entrants is determined by capital intensity of industry, barriers to
entry, licences and other government policies that may prevent new players from entering,
for example, in the rail industry train operating companies have to obtain a permission to run
a franchise from the Government (ORR, 2016). Threat of substitutes is determined by
customers’ ability to switch to other services, for rail transportation that would be coaches.
Bargaining power of suppliers is determined by the availability of inputs a company needs to
obtain in order to continue operating. Bargaining power of customers is determined by how
much influence customers have over a company, for example, if there are only few
customers in the market they will have high power.
PESTLE
PESTLE framework is an acronym for Political, Economic, Sociological, Technological,
Legal, and Environmental. According to the Chartered Institute of Personnel and
Development (2017), this strategic management tool helps managers in decision-making
process by structuring their approach in evaluation of external factors that may influence an
organisation. This framework allows us to better assess most important external factors that
are influencing companies in the rail industry. This dissertation will take a perspective of a
train operating company, thus PESTLE analysis will provide us with a comprehensive
understanding of key trends in the industry that are going to influence our company.
SWOT
SWOT is an acronym for Strengths, Weaknesses, Opportunities and Threats. The
framework is used in strategic planning in order to assess what are the company’s internal
capabilities - strengths and weaknesses, and what is the external situation in the market -
opportunities and threats (David, 2011). Managers could develop different strategies aimed
at improving overall strategic position of a company. David emphasises that managers
generally want to use strategies that exploit external opportunities by leveraging internal
strengths. However, often it is necessary to first overcome significant weaknesses by
utilizing external opportunities. Companies also can use their strength to lower the impact of
threats or avoid them at all. When a company has several major weaknesses as well as
threats it makes it vulnerable and the management should do everything possible just to stay
in business.
Experience Curve
An important concept to consider when evaluating firm’s competitive position and its
strategic perspective is the experience curve. In order to understand the experience curve
we have to define marginal cost first. According to Perloff (2012) marginal cost is the change
in cost divided by the change in quantity; marginal cost provides information whether it is
cheaper or more expensive to produce an additional unit of output. The concept of
experience curve was popularised and applied to business strategy by Bruce Henderson
(1968), a famous management consultant and found of the Boston Consulting Group. The
experience curve concept suggests that the marginal cost of output decreases as the
company produces more and more. Henderson argued that accumulation of production
experience lead to indefinite and inevitable decline in cost. Henderson argues that every
time the production experience is doubled there is a 20 to 30 percent decline in cost.

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The Three Horizons of Growth Framework
The three horizons of growth framework was developed in order to help executives manage
innovation and cultivate sustainable growth of their organisations, while not losing positions
in the present. Coley (2009) described the framework’s first horizon as the one focusing on
the present, what brings the most value to a company right now, what activities bring the
most cash flows. Second horizon represents future trends and opportunities, such as
emerging technologies, innovation and substantial improvements to the existing business.
Third horizon is for future opportunities that are not as significant as second, for example,
small scale improvements, and minority stakes in other companies and so on. Applying this
framework to a company in the rail industry we will be able to understand what managers of
a train operating company can do right now and in the future in order to facilitate growth and
development.
Vertical Integration
According to Malcolm Rifkind, privatisation was not conducted in an economically and
business sensible manner, since splitting infrastructure, rolling stock and train operating
companies makes little sense (Independent, 2016). Rail historian and expert Christian
Wolmar supports the view that the passengers mostly suffer from delays, lack of information
and other problems that were caused by fragmentation of the industry (Financial Times,
2018). Research (Van Der Velde, 2008) proves this point, since vertical separation has high
average costs if the density of freight is high, which is the case with rail network in the United
Kingdom. Several other works have also provided evidence on adverse effects of vertical
separation. For example, Merkert (2012) found that vertically separated companies incur
transaction costs of up to 10% of operating costs.
Vertical separation of infrastructure manager and train operating companies leads to
several major conflict areas. A study (Bouf et al, 2005) identified these potential conflict
areas as the changes to network, access and timetable, delays and disruption, safety.
According to this study infrastructure investments and rolling stock investments have to be
closely coordinated due to the nature of industry, any changes to the rolling stock will impact
the infrastructure and thus should be discussed with the infrastructure manager. Also any
investments into the network have to be coordinated with the train operators to make sure
passengers benefit from this investment. It is also very important for separated infrastructure
manager to balance interests of different train operators in terms of access to the network,
charges levied and timetabling. Maintenance conducted by the network owner should be
carried out in close cooperation with train operators, since TOCs have better understanding
of the potential impact on operations and passengers. In terms of safety, it could be unclear
who is bearing the risks, infrastructure owner might try to shift risks to train operators, for
example, via specific rolling stock requirements, thus imposing additional costs on TOCs.
Bouf et al (2005) also note that contractual framework is extremely important in resolution of
these conflicts between vertically separated entities. The research indicates that in the UK
disputes are resolved with the help of industry wide committees, as the study indicates this
approach is more likely to suppress competition and encourage establishment of cartels.
Nash (2008) argues that all above mentioned transactions would be conducted more
efficiently in a vertically integrated rail company, since the negotiations would take place
between agents with the same ultimate goal of maximising the profitability of their company,
therefore high transaction costs will be avoided. However, not everything is as
straightforward in the rail industry, for example, a study conducted by Kim (1987) indicated
that it is 41% more cost efficient to transport passengers and freight separately due to
diseconomies of scale, therefore we can conclude that separating passenger franchises and
freight operating companies was a good idea.

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3. Chapter Three - Methodology
3.1. Research Overview
The purpose of this research is to understand how the current railway industry functions with
a particular focus on train operating companies. In order to gain a comprehensive overview
of the industry secondary data sources were used; quantitative data for statistical research
purposes was sourced from the Office of Rail and Road databases. Additional information
and evidence was collected from the Department of Transport. Qualitative research was
conducted based on critical evaluation of industry experts’ opinions, professional
publications and other academic research conducted on the issue. Statistical analysis was
presented in the form of graphs and charts in order to make it easier to read and understand
the situation in the industry. Quantitative and qualitative data was then synthesised to
produce a critical representation of the industry. Positions of a particular company were then
analysed in order to understand the perspective of business managers in the context of
industry. Academic research and expert opinions were utilised in order to produce a reform
recommendation for the Government.
3.2. Data Sources and Analysis Method
Quantitative Data
The secondary data analysed in this work is mainly collected from industry governing bodies
such as the Department for Transport and Office of Rail and Road. The governing bodies
have the most reliable and consistent high quality data, because it has been collected for
extensive periods of time, the collected metrics were defined consistently and adjusted when
appropriate. Most of the quantitative data analysed in the research was provided by the
ORR. For the purpose of readability and better visual presentation, the statistical analysis
was illustrated by the graphs and charts produced with the Microsoft Excel software.
Passenger satisfaction data was sourced from the National Rail surveys and the number of
complaints provided by the train operating companies.
Qualitative Data and Analysis
Qualitative data was collected from various sources such as the House of Commons
briefings, academic research, industry research, Government and expert reports. The final
recommendation is based on a critical evaluation of different opinions in the industry and
academia. The recommendation was supported by qualitative analysis of the strategic
position of a particular firm.
3.3. Limitations
The major limitation of this research is heavy reliance on secondary data sources. However,
in the context of this dissertation such an approach would be justified and even preferable
since it lowers the chances of non-representative data samples, thus in order to produce the
best quality of analysis reliable secondary data sources was chosen. The secondary data
analysis was sufficient to achieve the main goal of the research, which is to understand the
industry and analyse its major problems, which make the industry less attractive for
businesses and lowers welfare for the society. The research had a complementary nature to
an already existing body of knowledge. The purpose of providing strategic business analysis
in the context of rail industry was achieved. Even though conducted business analysis was
not supported by the management’s perspective, which would make it much better and
insightful.

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4. Chapter Four - Strategic Business and Industry Analysis
In order to better understand the management perspective of train operating companies the
biggest TOC was chosen as an example. Govia Thameslink Railway experienced serious
backlash due to its Southern Railway subsidiary problems with overcrowding and low quality
of service (The Guardian, 2017). One may argue the problem is the private system itself, but
experts’ report jointly published by Department for Transport and Office of Rail and Road
(2011) indicates that it is the fragmentation of the industry that creates the trouble for
businesses, passengers and taxpayers. In 2017 Govia Thameslink Railway was the biggest
player in the market by passenger train kilometres (ORR, 2018). The company’s strategic
position will be analysed in the following chapter.
Figure 1: Passenger Train Kilometres by Train Operating Company in 2017 (Data source:
ORR, 2018)
4.1. Management Analysis of Govia Thameslink Railway Train
Operating Company
Porter’s 5 Forces
Threat of New Entrants

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The industry is extremely capital intensive, which is the determining factor for ease of entry.
It is very unlikely that a new company will be able to enter the market. There are also
regulatory barriers to entry, hence smaller players have almost no chance to enter this
market. Train operating companies (TOCs) have to comply with extensive Government
regulations, for instance, even to make a franchise bid a TOC has to spend around £10
million (The Economist, 2014). Govia Thameslink Railway (GTR) has a significant advantage
being an incumbent in the industry with high barriers to entry.
Bargaining Power of Suppliers
Considering that the rail infrastructure in the United Kingdom is owned by a single quasi-
state enterprise, Network Rail (NR), the track supplier has an extremely high degree of
power over TOCs like GTR (Network Rail, 2018). Another problem is that the rolling stock is
owned by separate companies (Rolling Stock Operating Companies - ROSCOs), only 11%
of fleet is owned not by ROSCOs, TOCs have to lease the trains, which also increases the
pressure on GTR, TOCs paid 12% of total expenditures to ROSCOs in 2015/16 in fact more
than for access to tracks (Butcher, 2017).
Rivalry
According to the study conducted by Competition & Markets Authority (2016) there are two
types of competition between TOCs ‘for’ market and ‘in’ market rivalry. ‘For’ market
competition manifests itself in the franchise bidding competition, while ‘in’ market competition
happens when two or more TOCs compete for passengers on same city pairs or same
routes, TOCs also compete with open access operators (OAOs) that are not subject to
franchising and just purchase access to the network for a specified time. The study indicated
that the number of franchises has been reduced by the Government since 2001 and thus
intensity of competition declined. The ‘in’ market competition isn’t fierce since at the moment
there are only two OAOs, the number of overlapping and parallel routes has declined, thus
lowering overall competition (CMA, 2016).
Threat of Substitutes
Same research by CMA (2016) indicated that despite relatively low competition in the
market, TOCs face significant pressure from local coach companies on the short distance
routes and from airliners on the long distance routes like that between London and
Edinburgh. Rail usage significantly grew during the past years but vast majority of trips are
done by buses, cars and vans, rail accounts only for 2% of trips in the UK (DfL, 2017).
Therefore we can conclude that competition from coach companies and airliners is the
biggest threat for TOCs. However, GTR operates several routes that people use to commute
to London from places like Sussex, due to parking fees, travel time considerations and
congestion charge, commuters have low elasticity of demand and therefore GTR has a
significant advantage over other TOCs.
Picture 1: Rail usage grew during 2002 - 2016 (Department for Transport, 2017)
Bargaining Power of Buyers
As discussed above commuters often have rail as the only viable option to reach their work,
which makes demand significantly less price elastic. People don’t have much power in this

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situation but in the same time collective action and protests will make it harder for a
company to acquire franchises in future. A part of GTR, Southern Railways manage busiest
routes in Britain, the company faced widespread criticism from public due to delays and poor
service quality (The Guardian, 2017). Southern Rail suffered significant damage to its brand
image and GTR as the owner of the franchise has suffered reputational damages as well.
Therefore, we can conclude that passengers have a medium power over TOCs, if the route
is operated by a single company, but when there is parallel or overlapping competition
passengers are free to choose another operator or use other modes of transportation.
Conclusion on Porter’s 5 Forces
The industry is attractive for GTR due to its high barriers to entry, declining competition and
inelastic demand on several commuter routes. The major threats are coming from suppliers
notably ROSCOs and substitutes like intercity coaches. Incumbent position allows the
company to have significant power and influence in the industry.
PESTLE Framework Analysis
Political
The major political concern for TOCs in the UK is the possibility of renationalisation. Labour
Party has repeatedly claimed it is going to bring the railways under the state control. For
GTR it would mean end of business, the worst case scenario. The probability of Labour
winning elections is very high and considering party’s determination for rail nationalisation
GTR should be very worried about this risk. Whitehall has the power over all players in the
rail market and directs the industry. Other political threats include changes within existing
industry structure, for example, further regulations and intervention concerning fares and
service standards. According to ORR data the industry also heavily rely on subsidies and
government support. For instance, Virgin Trains East Coast, a joint venture of Stagecoach
and Virgin, had overbid for the franchise and now has to end its contract three years earlier
than expected, the Government will not receive premiums from private TOCs and the former
Labour Transport Secretary Lord Adonis called it a bailout (BBC, 2018).
Economic
Future economic condition of the UK remains uncertain due to Brexit. Weakened pound
sterling made it harder for TOCs to purchase equipment from abroad. The Government
expects inflationary pressure caused by Brexit, which in turn will make TOCs increase fares.
Around 45% of fares are subject to regulation by the Secretary of State and are linked to the
Retail Price Index (Butcher, 2018). Overall performance of the British and global economy
remains solid. Interest rates remain historically low, which makes it a good time for GTR to
borrow and invest more in rolling stock and other projects. However, in 2018 LIBOR climbed
up and the Bank of England is expected not to rise interest rate further (The Guardian,
2018).
Sociological
In social and demographic context GTR has to pay close attention to such trends as ageing
population, use of personal vehicles, travel and overall mobility of people. Considering the
fact that Britain is leaving the EU, it is probable that the immigration will decline, which in turn
will adversely impact the demand for rail transportation. If EU citizens will have to acquire
visas to enter the UK it will significantly lower travel from the EU countries and further
deteriorate demand. However, all in all people travel around the UK more, for instance, a
travel trend report by the Office for National Statistics (2016) indicated that there were 37.6
million visits by foreigners to the UK in 2016, which is 4% higher than a year before.
Technological
Technology is extremely important for rail companies. All players in the market invest in
development of new technologies that should make rail transport safer, cheaper, more

14. 14
reliable and efficient. For example, Network Rail invest in electrification of tracks,
development of new digital management systems and other innovation (Network Rail, 2018).
GTR and other TOCs invest in development of new trains and renewal of the existing fleet
(ORR, 2018). There is a potential threat for rail companies from the development of
driverless cars, which will make it easier for people to travel long distances by car without
getting tired from driving the vehicle. Electric cars will also impact the demand for rail
transport, it is already cheaper to own and run electric cars than petrol and diesel ones (The
Guardian, 2017). Driverless electric transport poses a significant threat to the rail industry in
the long run.
Legal
Current legislations are very restrictive to TOCs. For example, the 45% of fares are
regulated by the Government (Butcher, 2018). The House of Commons briefing paper also
indicated that currently the rail industry is governed by four packages passed by the
European Railway Agency (ERA), the technical side of running the railways is governed by
Technical Standards of Interoperability (TSI). In spite of Brexit Her Majesty’s Government
considers implications of participation within ERA. There are instances of dissatisfaction with
EU laws governing transport and leaving EU will give HM Government more freedom in
choosing what is best for the British industry. The Government could also significantly
improve franchising system by making it less prescriptive and by giving more freedom in
terms of running the franchise to TOCs to allow them to react to market changes
appropriately (CMA, 2016).
Environmental
Environmental factors are very important for the rail industry. Weather conditions often
cause delays of GTR trains, which in turn affects brand image of the company (Evening
Standard, 2018). Weather also impacts demand for travel and therefore demand for rail
services. Environmental factors also can accelerate wear of track and rolling stock, leading
to higher depreciation, maintenance and repair costs. GTR should develop better control
measures in order to mitigate the risk of delays caused by unfavourable weather conditions.
According to ORR data GTR had one of the worst services in the industry in 2017, only
74.2% of GTR trains arrived within 5 minutes of scheduled time, compared to the industry’s
average of 87.1%.
Figure 2: Percentage of Trains Arriving on Time in 2017 (Data source: ORR, 2018)

15. 15
Conclusion on PESTLE Analysis
In general the external conditions for TOCs are favourable, especially for the GTR.
There are several risks that the industry is facing, namely economic uncertainty caused by
Brexit, political risk of nationalisation and technological development of personal transport
such as electric driverless cars. GTR remains an incumbent of the industry and operates
busiest routes which makes the company more resistant to the external pressures and risks.
SWOT Analysis
Strengths
The major strength of GTR is its diversification. The company consists of Great Northern,
Gatwick Express, Southern and Thameslink (GTR, 2017). According to company’s
sustainability report a significant investments have been made during the past years. GTR
operates the most congested franchise in the UK, therefore the company heavily invested in
new fleet. To be precise it invested £500 million, more than all other TOCs combined. This
investment in rolling stock resulted in 9000 additional seats, which will help company to
better service a very busy franchise. Another important point is the company’s human
resource management, currently GTR has the largest driver recruiting and training
programme in the UK. GTR is also the biggest player in the passenger rail transportation
market, which allows it to have available resources to bid for new franchises and win
competition in existing ones. The company also has an innovative approach to customer
service, it compensates delays of 15 minutes, while other TOCs compensate delays of 30
minutes. Other strategic advantage of GTR is strong relationships with airports, the company
operates Gatwick Express. Also GTR services major commuter routes to London,
passengers on those routes have much less elastic demand and thus could be charged
more.
Weaknesses
One of the major weaknesses of GTR is its public relations and customer satisfaction. The
company has one of the worst reputations among TOCs due to overcrowding of its Southern
Railway trains and delays. According to the rating assembled by the consumers’ association
Which? (2018) the worst train operating companies are Southern Railway and Thameslink &
Great Northern with respective customer scores of only 28% and 39%, both companies are
owned by GTR. The same report indicated that customers are least satisfied with
punctuality, reliability and value for money, thus we can conclude that the company should
concentrate on these areas of improvement. The problems on the South East Route were
caused by inadequate capital allocation, the busiest route didn’t receive enough funding
which resulted in delays and cancellations (Network Rail, 2018). Even though it was not
GTR’s fault it could have invested in the infrastructure itself not relying on the track provider,
however bearing the risk of investing into the infrastructure it doesn’t own would impose
unnecessary constraint on the company. Another significant problem is labour costs in the
UK. A study by Civity Management Consultants (2012) indicated that train drivers are paid
sometimes twice as much as drivers in other European countries, even though driving time
is also higher, the cost per driving hour is till higher in the UK, which could be attributed to
union movements.
Opportunities
The major opportunity for GTR and other TOCs is the growing demand for the passenger rail
transportation services. British rail network was severely reduced during 1960s after the
Beeching report was released by the British Transport Commission, the report proposed
mass-closures of the routes that are not profitable and using rail freight transport only for
coal and other minerals (1963). The rail usage was declining in the mid-twentieth century
and only after privatisation railways started to gain in popularity. The opportunity for TOCs is
tremendous, the current trend is persistent and if the industry will manage to expand
capacity and efficiently maintain the existing network it is going to gain even larger

16. 16
economies of scale. There is a possibility that the Government will further liberalise the
industry, potentially privatising the rail tracks and allowing companies to get involved in
building the infrastructure and owning it, for instance, diesel trains are less cost efficient than
electric, therefore electrification of routes could a great opportunity for TOCs to decrease the
costs (Steer Davies Gleave, 2015).
Figure 3: Number of Franchised Passenger Kilometres Travelled in 1947 - 2018 in billions of
km (Data source: ORR, 2018)
Threats
Rail Supply Group’s research (2015) identified several major threats for the rail companies.
GTR could be affected by the changes in travel preferences and reversal of the positive rail
usage trend. However, threat is also coming from insufficient investment in the rail network
capacity and rolling stock, which will result in overcrowding and customer dissatisfaction.
Even though Foreign Direct Investments are considered as opportunity for the rail industry,
but in the same time it is a threat, since foreign companies often do not invest in
development of new technology in the market but instead bring technology from overseas,
which can potentially could slower the growth of British companies. RSG’s study have also
indicated that harmonisation and overall simplification of standards is required in order to
bring innovation to the market, failure to improve the standards will impose the threat on
GTR and other players. Other threats include competition from coach companies, airliners
and development of personal transport technology such as driverless and electric cars
(CMA, 2016).
Three Horizons of Growth Framework
The three horizons of growth framework is going to be utilised in order to summarise what
are the growth opportunities for the train operating companies. GTR has to focus on
maintaining its current leadership position, which is supported by the Gatwick airport
franchise and its troubled yet profitable Southern Railways. First of all, the company should
solve its existing problems with overcrowding and delays by upgrading the already existing
fleet and improving the cooperation with Network Rail in terms of access and timetabling.
The company should concentrate on overcoming adverse effects of industry fragmentation,
for example, by developing more efficient cross-organisational communication systems. The
ultimate goal in short-run is to build brand loyalty and improve company’s image. However,
the company also has to innovate in order to maintain its positions. For the second horizon
GTR should strive to vertically integrate with either rolling stock companies or the Network

17. 17
Rail, preferably both, since it will bring significant economies of scale and is going to save a
lot of money which are otherwise would be lost as transaction costs. Possible areas of
technological innovation include the development of driverless trains, which is going to save
a lot of money for GTR, since currently train drivers in the UK are compensated above
European average, thus automation of driving function is a reasonable cost-cutting move.
Driverless trains will also improve safety since the automated systems will not be affected by
fatigue and human errors. Collecting data on wear and tear of its fleet by implementation of
Internet of Things solutions will allow the company to decrease the probability of accidents,
breakage and damage to the infrastructure. IoT solutions will help GTR to manage its
existing fleet more efficiently and also to build better predictive models based on the
collected data. An example of IoT solution would be installing wear tracking sensors to
moving parts of a train and monitoring the condition of a train in real time. The third horizon
of growth represents the action that GTR could undertake in parallel with working on its long
term projects of vertical integration and development of driverless trains. GTR should
acquire more franchises to service other key routes. The company could also start joint-
ventures if it is not able to bid for a franchise alone. If GTR will see that any other company
in the industry has serious financial troubles and is disadvantaged, it would be a wise
decision to acquire competitors to lower rivalry, thus occupying even more dominant
position. Finally, GTR has to lobby the Government because the power of TOCs in the
industry is very limited and long-term objective of vertical integration could not be achieved
without political action.
Diagram 2: Three Horizons of Growth Framework (Based on McKinsey & Co., Framework)
4.2. Sectoral Analysis
In order to make proposals regarding the policies we first have to conduct statistical sectoral
analysis. The following section is going to give an overview of the train operating industry
from a higher level perspective, not just one company. Despite widespread criticism of the
privatised rail industry, statistical analysis indicates that the rail sector is recovering from
decades of decline under nationalised system and shows the signs of high profitability
potential. Office of Rail and Road tracks major industry indicators that help us to better
understand the dynamics of the industry. After privatisation the revenue of franchised train
operating companies steadily grew (ORR,2018), reflecting strong demand and overall
favourable business conditions. In fact revenues have more than quadrupled since 1994/95.

18. 18
Figure 4: Total Franchised Passenger revenue in millions of pounds (Data source: ORR,
2018)
ORR divides rail industry into three major categories London and South East, long distance
and regional operators. The fact, that London and South East is significantly busier than any
other sector, explains why Govia Thameslink Railway is the biggest TOC, GTR services
major franchises in London and South East region.
Figure 5: Number of Passenger Journeys by Sector (Data source: ORR, 2018)
Private companies were criticised for not investing into the infrastructure and industry as a
whole. ORR data indicates that private investments are very cyclical and were relatively low
during the last five years. However, now we can observe steady growth.

19. 19
Figure 6: Private investments in the Rail Industry, without Network Rail Investments (Data
source: ORR, 2018)
From the passenger’s point of view the industry has significantly improved over the past
years. In order to measure how satisfied with experience passengers are, the study used
two metrics: National Rail passenger survey scores, and the number of complaints per
100,000 passenger journeys. Satisfaction survey indicated sharp increase since 2003 from
73% to 85% in 2013. However, the growing satisfaction was reversed and declined slightly
over the past couple of years.
Figure 7: Survey of Passenger Overall Satisfaction in Percents (Data source: ORR, 2018)

20. 20
Figure 8: Complaints per 100,000 Passenger Journeys (Data source: ORR, 2018)
Figure 8 illustrates that the number of complaints filed by passengers steadily declined
during the privatisation era, which indicates overall improvement of service.
Figure 9: Number of Passenger Fatalities and All Injuries (Data source: ORR, 2018)

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Statistical data also proves that railways became not only better in terms of customer service
but have also become safer. Figure 9 shows that the number of fatalities dropped from 17 in
2002/03 to 5 in 2016/17. Considering tremendous growth of passenger kilometres that
number indicates that TOCs and other industry members have made great progress to
reduce life-threatening dangers on the railways. The total number of incidents has risen from
5500 to just below 7000, which could be attributed to overall growth of the rail usage.
The Civity’s study (2012) showed that overall costs for British train operating
companies were lower than benchmarked European operators, despite higher drivers’
overhead costs and significantly higher rolling stock maintenance costs which could be
explained by higher proportion of diesel trains that are less cost efficient.
Fragmentation
Business analysis of the GTR indicated several problems that prevent the industry from
reaching its full potential, both in terms of profitability and welfare provided to society in
terms of customer satisfaction. Inadequate investment into the network capacity especially
on the South East Route caused problems for both TOCs and their customers, it is clear that
Network Rail and private train operating companies like GTR have a trouble cooperating.
Several regulating bodies add even more complexity to already very complex industry.
According to Dr Wellings (2013) historically rail industry was highly vertically integrated,
meaning that a single company owned the infrastructure, trains and ran the operations. Right
now the industry is fragmented due to the way privatisation has been implemented. The
Government’s decision to separate infrastructure owner, rolling stock owner and train
operators proved to be ineffective, it significantly raised transaction costs for all participants.
This separation approach has been criticised for bad business and economic sense, notably
by Malcolm Rifkind, former Conservative Transport Secretary (The Independent, 2016).
Christian Wolmar (2011) gives a perfect example of how the fragmentation breeds
inefficiencies and waste in the industry. Virgin Rail, a private train operating company, got
compensated by the Network Rail because it has to close a West Coast Main Line in order
to conduct planned upgrades to the tracks, which resulted in faster services, higher
customer satisfaction and thus higher revenues for Virgin. Such a system produces wrong
incentives and lead to waste. According to Financial Times (2018) the unit costs per
passenger kilometre didn’t change since 1996 and stayed at the level of roughly 20p. This
fact contradicts a famous concept of experience curve developed by Bruce Henderson
(1968), the doubling of output was supposed to bring 20-30% decrease in marginal cost. The
absence of the experience curve effect could be explained by fragmentation that allegedly
was supposed to bring higher specialisation, but apparently brought inefficiencies, higher
transaction costs and skewed incentives.
Government Involvement
Currently the Government provides more subsidies than it used to do before the industry has
been privatised. According to ORR data in 2015/16 Department for Transport granted £3.8
billion to Network Rail, which represents 58% of NR’s income. Various government bodies
also provided £2.4 billion to franchised train operators, which represented 19% of their
income. The industry heavily relies on subsidies and the role of government is very
significant, especially the Network Rail. The peak state contribution to the industry took place
in 2006/07, since that time Government support gradually decreased. Sixty percent of
Britons support renationalisation, people believe the fares are too expensive and unfair,
especially during peak hours (The Economist, 2014). People also complain about Southern
Rail overcrowded trains during peak hours. Trains from East Grinstead to London Bridge
carry more than twice as many people as they were designed to carry (The Guardian, 2017).
However, it is not clear how renationalisation will solve these problems. Department for
Transport already has the right to regulate and cap fares (The Economist, 2014). However,
capping fares will further lead to overcrowding due to excessive demand. Even if
nationalised the state rail operator will have to face a trade-off, high fares or overcrowding.

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Data by ORR suggest that 5 major train operators ranked by passenger kilometers have
relatively low punctuality. Second TOC ranked by passenger kilometers is Northern,
however it is only seventh by percentage of trains that arrive within 5 minutes of schedule
time. This could be explained by reverse correlation between the amount of service the
company provides and the quality of that service.
Figure 10: Payments made to or from the Government on the rail network (Data source:
ORR, 2018)
Despite significant government involvement, train operating companies get most of their
income from fares. ORR data indicated that in 2015/16 TOCs earned £9.2 billion form fares
which is 74% of the total income, TOCs also earned £0.8 billion from other services like on-
board catering which represents 7% of total income. All in all, TOCs contribute to the
Government more than they receive from it. Payments of £3.0 billion to the Government
represent 25% of operators’ total expenditures. Thus, all TOCs combined contributed £600
to the Government. Half out of 20 TOCs were net contributors to the Government. This
approach to redistributing TOCs’ money is anti-competitive in nature, since the companies
that operate their franchises in the most efficient and therefore profitable manner are not
rewarded by Government but are punished, while companies that struggle with managing
their costs and getting profits receive help from the Government. This redistribution system
leads to the market distortion and inefficiencies, Dr Richard Wellings (2013), Head of
Transport at the Institute of Economic Affairs, argues that increased subsidies could be
explained by Government’s malinvestments in not profitable infrastructure projects with
intention to decrease car usage. Wellings also emphasizes that many fares are regulated,
which means TOCs cannot use price mechanism in order to solve the problem of
overcrowding during peak hours. The deployment of price mechanism to curb overcrowding
was partly restrained by the Government, thus operators were disincentivised from better
and more efficient use of the existing infrastructure. TOCs were forced to increase capacity
and build new infrastructure in order to accommodate excessive demand. Dr Wellings

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indicates that private sector is not willing to invest into unprofitable projects, which leads to
unsustainable network expansion funded by taxpayers’ money.
Figure 11: Real Terms Change in Average Price of Unregulated Fares by Ticket Type and
Rail Sector from 1995 to 2018 (Data source: ORR, 2018)
4.3. Vertical Integration as a Solution
According to Nash (2008) the existing system of vertical separation and franchising was
created in order to facilitate competition and prevent infrastructure owner from favouring one
train operator over another. However, Nash provides several successful examples of vertical
integration in the rail industry based on regional parameter, for instance, in Japan separate
companies operate fully vertically integrated franchises in different parts of the country.
A report conducted by Civity Management Consultants (2012) indicated that British
train operating companies like GTR have higher costs of maintaining their rolling stock as
compared to other European companies, since benchmarked firms are vertically integrated
and maintain their rolling stock in-house. The evidence from this study indicated that rolling
stock expenses on commuter routes were 45% higher for British TOCs, for regional routes
the gap is even higher at 65%. Such a huge difference was attributed to differences in age of
leet, structure and other factors, however vertical separation was also influencing the cost
structure.
Pittman (2005) provided evidence that there is a strong connection between
infrastructure and train technology. If the infrastructure and train operations are separated
the growth and innovation will be harder to achieve because management of different
organisations will have different objectives, for example, if a TOC wants to upgrade rolling
stock to high speed trains on a certain route but the track is not suitable for operation of such
trains the TOC management will have to cooperate with infrastructure owner to upgrade the
track, if companies would be vertically integrated this wouldn’t be a problem. Vertical
separation can result in infrastructure underfunding of new capacity and maintenance as well
due to distorted incentives.
Vertical integration provides serious economies to the rail industry (Abbott, 2017),
thus it would be reasonable to vertically integrate British rail companies to achieve higher
cost efficiency. Maximising cost efficiency will make the industry more profitable overall, thus
attracting new competition via open access and improving society’s welfare as a result.

24. 24
5. Chapter Five – Research Conclusion
The research is limited by its focus on the business management perspective, it does not
present the public point of view as extensively. In order to assess the impact of proposed
measures on the society as a whole it is necessary to evaluate many other dimensions apart
from economical. It would be reasonable to conduct other study from the society’s point of
view. However, conclusions are likely to be similar, because business perspective also takes
into account what people demand. The study has analysed the most critical issues and
relied on representative data collected by the industry’s most reliable bodies. This research
provided me with the understanding of interrelationship of the Government policies and the
impact on the business. I also realised that what is called privatisation and deregulation by
the media was in fact a mere act of outsourcing of certain parts of the public supply chain to
private contractors. Largely the industry still is very dependent on the Government.
After analysing quantitative and qualitative data, the overall state of the British
railway industry was evaluated. After privatisation there was a major growth of demand for
rail transportation, whether the growth could be attributed to the privatisation is debatable,
since the Government discouraged car use, which is a substitute for trains. However, it is
undisputable fact the railways became safer and the customer satisfactions significantly
improved since the privatisation of British Rail. Analysis of the industry also allowed us to
identify the major problem of the industry.
Train operating companies in the United Kingdom often have problems due to
overbidding for franchise contracts and then struggling to stay profitable. Franchise contracts
are restricting and TOCs have little power over how to actually run their business. Restrictive
measures could benefit passengers in the short term but it requires the Government to
provide a lot of subsidies to all the market players, especially the Network Rail.
Experts agree that the railway industry in the United Kingdom is too fragmented.
Fragmentation brings extra costs, inefficiency and distorts incentives of the market players,
which leads to the loss of welfare for society. Train operating companies have historically
been vertically integrated, which makes it clear that vertical integration would improve
profitability of companies, safety and quality of service. Capacity growth and innovation are
hindered by vertical separation imposed on the industry by the Government as an attempt to
facilitate competition in a newly privatised industry in the 1990s.
Today, the industry still suffers from the decisions made by Conservative
Government in the 90s during privatisation. In order to overcome hurdles that prevent the
industry form reaching its full potential the Government should fix several problems with the
industry. First of all, industry should be vertically integrated. The appeal of vertical
integration for the industry is clear. Vertically integrated companies don’t have transaction
costs that are currently imposed on train operating companies and other players. Vertical
integration will lead to lower costs and higher efficiency. The Government should also
simplify the industry. Complexity adds unnecessary costs and makes it harder for all market
participants to collaborate and bring value to passengers and country. Part of that complexity
is added by vertical separation, but also by excessive number of regulating bodies. It is also
important for the Government to decrease the reliance of the industry on subsidies.
Taxpayers expected privatisation to lower the burden but in fact the opposite is true. Train
operating companies should be allowed more flexible conditions of the franchise contracts,
since currently companies often fail to meet the bidding agreements, which results in lost
revenue for the Government and losses for TOCs.
All in all, the major problems have structural nature and could not be solved without
the help of Government, therefore the industry should be restructured in a way that all
benefits brought by privatisation would be maintained while the costs of fragmentation would
be eliminated. To summarise, the research shows that the industry has to be reformed by
the Government in order to allow companies to maximise their profit while benefiting the
society, overall privatisation improved the industry both for business and people but it still
requires reformation to reach its full potential.

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