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In the News

Caledonian Sleeper rail service to be nationalised

Geoff Riley

3rd March 2023

An important and useful applied example of nationalisation here. The Scottish Government has decided to end the contract that Serco has to run the iconic albeit loss-making Caledonian Sleeper service which connects Highland stations with London. To what extent will state-ownership under Scottish Rail Holdings bring about a change in business objectives and pricing?

Please read: Caledonian Sleeper rail service to be nationalised by Scottish ministers

More here from the BBC: Caledonian Sleeper rail service to be nationalised

The Caledonian Sleeper service is a train service operated by Serco that runs overnight between London and various destinations in Scotland, including Edinburgh, Glasgow, Aberdeen, Inverness, and Fort William. There are several reasons why the Caledonian Sleeper service may make a loss:

  1. High Operating Costs: Operating an overnight train service requires significant staffing and maintenance costs, including train crews, station staff, and maintenance teams. These costs may be higher than the revenue generated by the service, especially if there are not enough passengers.
  2. Low Passenger Numbers: While the Caledonian Sleeper is a popular service among tourists and business travelers, it may not attract enough passengers to cover its operating costs. This is especially true during the off-season when demand for travel to Scotland may be lower.
  3. Investment in New Rolling Stock: In recent years, Serco has invested in new rolling stock for the Caledonian Sleeper service, including new cabins and facilities. This investment has increased the costs of operating the service, which may take time to recoup through increased revenue.
  4. Competition from Other Transport Modes: The Caledonian Sleeper faces competition from other modes of transport, including budget airlines and coach services. These modes of transport may be cheaper or more convenient for some passengers, reducing demand for the Caledonian Sleeper.

Overall, the Caledonian Sleeper service is a complex operation with high fixed costs and fluctuating demand. While the service provides a unique travel experience, it may struggle to generate enough revenue to cover its costs, resulting in a loss for Serco.

Graham Watson's insight:

The Caledonian Sleeper service between London and Scotland is being nationalised, with the Scottish government taking over the business from Serco seven years early.

However, it's interesting to note that this decision doesn't appear to reflect a comment on the performance of the line, more the fact that Serco are trying to renegotiate the terms of the contract, because it is loss making, claiming that the service isn't "sustainable".

And that raises some interesting arguments: is there a case for the Scottish government running the service on this basis? Can it be justified because the service generates positive externalities, or at least reduces negative externalities.

Geoff Riley

Geoff Riley FRSA has been teaching Economics for over thirty years. He has over twenty years experience as Head of Economics at leading schools. He writes extensively and is a contributor and presenter on CPD conferences in the UK and overseas.

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