Business Analysis: How rail got back on track in its battle with the airlines

The Hatfield train crash in 2000 not only took the lives of four people, it caused almost as much damage to the rail industry as the Luftwaffe did under Hermann Goering.

In the wake of the disaster, the privatised infrastructure company Railtrack underwent a corporate nervous breakdown and insisted on emergency speed restrictions throughout the network.

All over Britain trains crawled at walking pace for fear that the phenomenon which caused the accident in Hertfordshire might cause similar crashes elsewhere. Tens of thousands of the company's employees tested rails for the so-called "gauge corner cracking" which caused the derailment of the northbound express train operated by Great North Eastern Railway (GNER) nearly five years ago.

After months of investigation and massive disruption to services, they found nothing to justify the huge inspection of the network.

But the speed restrictions and a new nervousness about the safety of the system had a dramatic impact on the business. Passengers took to other forms of transport or stayed at home and the revenue of the fragile industry, sold off the by the Government four years previously, plummeted.

The industry gained a reputation for hopeless unreliability and incompetence from which it is only just recovering. One of the starkest effects of the Hatfield disaster was seen on the lucrative north-south services operated by Virgin on the West Coast Main Line and GNER in the east.

But over the past few years the business community, the backbone of the inter-city routes, has taken a fresh look at the much-maligned rail network. Executives who took to the air or to their cars to travel between London and the big northern cities have switched back to trains in their tens of thousands.

The new revenue gratefully accepted by the airlines five years ago is evaporating. No longer do executives automatically think of airlines when planning journeys between the capital and the north. Nigel Schofield, who runs Uniglobe Diamond, a travel company specialising in corporate customers in the north-west of England, especially in the business belt of Cheshire, has seen a substantial change in the market. The number of customers opting to fly has dropped "very significantly", by nearly a third in a year.

In the first quarter of last year, some 28.6 per cent of his company's business involved corporate air travel. In the first three months of 2005, that total had slumped to 20.8 per cent.

Mr Schofield said there had been a gradual realisation that rail timetables were not necessarily complete works of fiction. "The message has been transmitted by word of mouth. There is now a half-hourly service from London to Manchester with a slight chance of delay, rather than the situation a few years ago when there was an hourly service with a substantial risk of delay."

Other travel operators report that business people have become increasingly frustrated with the time it takes to travel to and from airports, the insistence that passengers have to check in at least half an hour before flights and the constant disruption to departure times.

At the same time, the rail industry seems to have got its act together. While Virgin encountered substantial reliability problems after the introduction last September of the new Pendolino tilting trains, punctuality is gradually improving. The London-Manchester route in particular has also benefited from the multi-billion pound improvements to the infrastructure on the West Coast Main Line. Work is still being undertaken on the northern reaches of the route, which will enable the new trains to reach 125mph and improve reliability north towards Glasgow.

There are about 40 aircraft a day operating between the four main London airports and Manchester, although it is understood British Airways may be about to start using smaller aircraft for some services.

According to the Civil Aviation Authority (CAA), the number of passengers travelling on flights from Manchester to London has dropped nearly 12 per cent from 180,802 in March 2004 to 159,269 in the same month this year. Virgin reports that while 104,304 took the train service from Euston to Manchester in March 2004, a year later the figure had risen 36.7 per cent to 142,640.

Arthur Leathley of Virgin Trains says there are now half-hourly services on the route on a journey taking two hours and 15 minutes. He says the frequency of the services and the ability to work throughout the trip makes the difference.

Yesterday Sir Richard Branson sent out an internal letter to Virgin staff saying that British Airways and bmi were "hurting" on the route between Manchester and the capital. He believed Virgin would start to take a bigger share of the market on the Glasgow run when a new timetable was introduced in December.

The renewed attraction of trains has been helped on both the west and east coast lines by the increased efficiency of the state-backed Network Rail. Management at GNER also asserts that it is improving its market share at the expense of airlines. John Gelson of GNER said it was outperforming airlines because of off-peak discounting, on-board services and the fact that business people can use the internet throughout their journeys.

Despite the substantial switch from air to rail, the train is highly unlikely in the foreseeable future to replace the plane on the longer-distance routes from London to Scotland. It will probably require the construction of a dedicated high-speed route like the TGV in France before there is a seismic shift in market share on trips between England and Scotland.

However, after years of trauma it seems that rail services between the major cities in Britain are gradually getting their act together.

And the trend has received the endorsement of no less a figure than Sir Rod Eddington, the chief executive of BA. "Rail makes sense for any journey which lasts for less than three hours," he said. There could be no greater endorsement.