The boss of Nottingham’s tram operator says fare dodging is costing an estimated £2m a year as it looks to clamp down “for the foreseeable” in a bid to secure the future of the network.
At the start of December a zero tolerance campaign, backed by Nottinghamshire Police, was launched to make sure people were paying for a ticket.
It is estimated roughly eight to 10 per cent of all passengers are not paying for tickets to ride the Nottingham Express Transit (NET) network.
Tim Hesketh, the chief executive officer of Tramlink, the group of companies behind the network, says its target is to get fare evasion below five per cent.
At the moment roughly £20m is brought in each year in revenue from ticket sales, however fare evasion is costing an estimated £2m.
“We’ve had a very high profile zero tolerance campaign leading up to Christmas, and that will continue for the foreseeable future,” Mr Hesketh says.
On top of the costs from fare evasion, the tram network has been through a difficult period amid the Covid pandemic and Russia’s invasion of Ukraine.
Before the invasion, energy bills for the network had been £3.5m, however at the height of the energy crisis, costs increased to almost £15m, a near 500 per cent rise.
They now sit at around £6m per year.
Incidents outside the control of the operator, such as cars getting stuck on tracks, have also led to insurance premium costs increasing by £750,000 in the last year.
Mr Hesketh says these soaring costs and “eyewateringly painful inflation” meant a restructure of loans was required so the company did not run out of money to repay them.
This restructure took two years and has now been completed.
The network first started operating in 2004, helped along by a Private Finance Initiative (PFI) deal, whereby investors put money into a public project with the promise of a financial return in the future.
Nottingham City Council and Nottinghamshire County Council were both initially responsible for the network, but when the County Council pulled out in 2015, the deal was transferred to Tramlink for 22 years.
Today, Keolis and its subsidiary Nottingham Trams Limited run the city’s network on behalf of Tramlink, under the NET name and branding.
The City Council pays its share through the Workplace Parking Levy, which equates to around £38m every year, alongside funding from the Government.
Revenue is also brought in from fare paying customers.
The City Council’s contribution funds the capital side, such as the building of the track and buying of new trams, while customer contributions pay for operations and provide a return for investors.
Mr Hesketh says specialist traffic forecasters, who predicted how many people would be using the tram over the 22-year period, and therefore how much revenue would be brought in, had been “overoptimistic from day one”.
Then, during Covid, passenger numbers plummeted to less than five per cent.
“Those have never fully recovered,” Mr Hesketh says. “The numbers today are around 80 per cent of what they were in March 2020.”
Back in 2011 loans were taken out based on the pre-Covid projections, and these were intended to be paid off by March 2030.
Due to the lower passenger numbers and higher interest rates, it has been renegotiated that the network’s loans will be repaid by 2033 instead.
After this time, the network will be passed back to the City Council.
Another pressing problem was the fact banking covenants had been broken in terms of how much cash Nottingham Trams Ltd had in the bank, so this required amount has also been reduced under the new terms.
“If you go and borrow £5,000 for a car, they do a little bit of diligence on how you can afford it, if you borrow half a million pounds to buy a house, they do a lot more diligence, if you borrow £500m to build a tram system they do a hell of a lot of diligence,” he said.
“One of the covenants of these loans is we have to maintain a minimum cash balance at every repayment date. At times in 2019, 2020 we had north of £20m sitting in the bank account, which is hugely inefficient.
“What we have done is release a large chunk of that to reduce the amount of overall debt. We have gone from over £20m to under £5m.
“Those two things together, to reduce the amount of outstanding debt and we have extended the length of the loan, has brought those six monthly repayments back down to something which is manageable.”
Mr Hesketh says while running a public transport network is a “constant challenge”, things are now looking “very positive”.
The aim over the next year is to improve performance.
Prices will go up from January 8, with an adult single ticket rising by 20p per journey to £3.20.
Meanwhile adult season tickets will decrease by £225 throughout January to encourage more people to travel.
Mr Hesketh added: “We’ve sorted out the bank loans bit, that impending Sword of Damocles has gone, but…how are we going to secure our future?
“And that is a focus on revenue growth. That comes from increasing the number of people using the trams as well as the fare matching inflated costs against fare rises.
“We’ve had a really, really challenging year with disruption to the network. Some of it of our own making like the derailment, through incidents, problems with communications, but some of it not of our own making.
“We’ve not been operating at 100 per cent, we’ve been operating around the 95 per cent to 98 per cent mark.
“Most of the time people don’t [notice]. But I got to my tram stop this morning and it was supposed to be a seven minute service but it was a 14-minute wait for the next tram.
“A lot of people go: ‘A 15 minute wait or a 20 minute walk? Well I will walk then’.
“If you start getting that more often people start to lose confidence. So a real big focus this year is in making sure we deliver the highest possible level of performance to our customers.”