Green rail travel under threat

20 May 2009 by Mark Caswell

The possible failure of multiple train operators could threaten business travel by rail, MPs warn.

The business downturn is threatening the viability of several of the UK’s train companies a cross-party committee of MPs has warned. The Public Accounts Committee (PAC) yesterday warned in its “Letting Rail Franchises 2005–2007 “ report that some of the rail companies are earning significantly less from their operations than they had projected and were in danger of ceasing operations.

Under the terms of the franchises some rail operators receive subsidies from the government, while others pay significant amounts in order to offer the service. Both sets of figures are based on revenue projections that the current downturn have rendered unrealistic. As a result, the Public Accounts Committee has warned that “. In the short term, there is an increased risk of train operator financial failure.”

Despite this risk of financial failure, the PAC does not believe that the Department of Transport (DfT) should allow train companies to renegotiate the contracts, saying that  “The Department should hold train operators to their contract terms although, in some cases, including National Express’s bid for the East Coast franchise, the original bid might have included over-optimistic revenue assumptions.”

National Express agreed to pay £1.4 billion to run the East Coast until 2015 based on a 9 to 10 per cent revenue growth projection. Yet last month it said that passenger revenues had grown by only 0.3 per cent. In the medium term there are provisions in the franchise contracts to allow for subsidies if passenger revenue falls below certain points, though these will not become effective until the contracts have run for several years. In the meantime, rail operators are likely to cut costs where they can, including delaying investing in new carriages and, in some cases, removing the buffet cars from trains. As reported previously on business, they will also increase unregulated fares to try and raise more money.

Report by Tom Otley

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