National Express pulls out of UK rail operations

[whole diary]

[grahame]

From London South East

Public transport operator National Express Group PLC on Wednesday agreed to sell its only rail operation in the UK^▸ (United Kingdom) and said it will instead focus on bidding for rail franchises in Europe and North America.

National Express said it has agreed to sell the c2c rail franchise in the UK to Trenitalia, the passenger rail transportation company arm of Italian transport company FS Italiane Group.

National Express ran the Wales and West franchise, which became the Wessex Trains franchise.  Thames, Wessex and Great Western merged into Greater Western for the franchise that started in April 2006 - National Express was one of the three bidders for the enlarged franchise which, however, was awarded to the First group and so we got First Great Western.

From the text above, the sale of c2c looks like a strategic business decision - the departure of a long standing group in the UK franchising market from that market, rather than a simple commercial sale.

[ellendune]

So thats:

Arriva Wales, London Overground, Arriva Northern, Arriva Cross Country , Chiltern
ScotRail, Greater Anglia
C2C

All wholly government owned

And
Southeastern, GTR and London Midland Partly government owned


I recall National Express got badly burnt on the East Coast Franchise - handing in the keys in breach of contract (not just using a break clause in the contract).  They obviously decided UK^▸ (United Kingdom) rail is too risky.

Not sure whether that is good or bad. 

[JayMac]

And
Southeastern, GTR and London Midland Partly government owned

Merseyrail is also partly government owned.

[stuving]

This was predicted last year. With TOCs^▸ (Train Operating Company) only getting an average of 2% on their bottom lines, accompanied by significant risks of doing worse, only those most committed to the field would want to play. Hence competitions with only two bidders, and now this withdrawal.

In this context this is "a government", not "the government", and all these offshoots operating trains abroad are meant to be commercial (in some sense). So why do they think this low level of return is attractive? Or do they think they can do better?

Either way, if they provide whatever a TOC's parent does provide, under the same conditions, but for less money than privately-owned companies, why would we object?

[grahame]

This was predicted last year. With TOCs^▸ (Train Operating Company) only getting an average of 2% on their bottom lines, accompanied by significant risks of doing worse, only those most committed to the field would want to play. Hence competitions with only two bidders, and now this withdrawal.

Completely away from transport, a comment as a business which has (regional - unitary) government amongst its (potential) clients ... we usually walk away from work offered to us by that authority because we feel it's so unattractive that it's not worth the hassle.  We have better things to do with our resources.   Words from the authority are "we want to support and do business with local companies" but deeds often don't reflect an implementation of those words.

Sorry - post struck a raw / sore point.   I expect that's how some companies feel about being franchise TOCs

[stuving]

Governments of all kinds can be very bad customers, but central government is particularly bad. It's not so much that politicians make the decisions, more that they don't follow their own rules. I've never heard mention of "political risk", but I think it does affect TOCs^▸ (Train Operating Company).

What I mean is that not only do you get a change of politicians, in the same party or another, but a politician can change his mind. Your contract may not always protect you, especially if the media and politicos goad each other into demanding something. A small example would be: more standard class seats - NOW!

[Tim]

In this context this is "a government", not "the government", and all these offshoots operating trains abroad are meant to be commercial (in some sense). So why do they think this low level of return is attractive? Or do they think they can do better?

I don't think it is the level of return that is the factor here, as I have said elsewhere, the margins do not need to be high because the franchisees put very little capital at risk,  so much as the risk of contractually having to continue to run a franchise which is making a loss.  Governments are better able to take on that risk than a private company which, because of the way franchises are set up, is very thinly capitalised and therefore don't need much of a downturn to push them into bankruptcy.

The loss doesn't have to be very large (only a couple of a percent of turnover for a few months) to do for a private company with very little capital to back it up.  Foreign governments are not charities, but they  can weather that kind of down-turn much better until the revenue picks up again.
 

[Tim]

This was predicted last year. With TOCs^▸ (Train Operating Company) only getting an average of 2% on their bottom lines, accompanied by significant risks of doing worse, only those most committed to the field would want to play. Hence competitions with only two bidders, and now this withdrawal.

Completely away from transport, a comment as a business which has (regional - unitary) government amongst its (potential) clients ... we usually walk away from work offered to us by that authority because we feel it's so unattractive that it's not worth the hassle.  We have better things to do with our resources.   Words from the authority are "we want to support and do business with local companies" but deeds often don't reflect an implementation of those words.

Sorry - post struck a raw / sore point.   I expect that's how some companies feel about being franchise TOCs

Completely echo your views.  Working for a firm providing legal services to businesses, the overhead of dealing with some parts of the public sector have made us very wary of tendering for work from them.  Life is too short and there are private sector clients who's demands extend no further than proving excellent service for a fair price (which we can do) whereas the public sector places all sorts of extra demands on us none of which benefit either them or us.   

[Richard Fairhurst]

Agreed. I no longer bid for public sector work unless it's an organisation with which I already have a relationship. Been burned in the past by putting in detailed bids for work only to find that the public sector body in question had already chosen its contractor, and was just going through the procurement motions because they had to.

[grahame]

Comment from the RMT^▸ (National Union of Rail, Maritime & Transport Workers) union posted at http://www.firstgreatwestern.info/coffeeshop/index.php?topic=17844.msg208074#msg208074 a it's more general in relating to the franchising market rather than this specific transfer.

[eightf48544]

Another example of the Wolmar question.

"What are franchises for?"

[Tim]

Another example of the Wolmar question.

"What are franchises for?"

The only real advantage that I see is that spending tax payer's money with the private sector is seen as more politically acceptable than paying it to the public sector and so this weird structure keeps the public sector money taps more fully open than BR^▸ (British Rail(ways)) was ever able to achieve. 

For example, £300 million leaving the industry every year as ToC profits is seen somehow seen as politically more acceptable to the press, politicians and the public, than BR making £300 million pa as a loss would have been.  The former is seen as reasonable and necessary to keep the show on the road, the latter would be seen as proof that BR was incompetent and inefficient.