2. Simply franchises. Not anything physical.
The return of around 3% is not commercially interesting to UK▸ companies hence the lack of bids!
correct, but it isn't the rate of return per se that is the problem it is the revenue risk that makes it unattractive.
For example, American Express make less than 3% profit on turnover if you calculate their turnover as the total spend on Amex credit cards. But that is a very attractive market for them to be in. If Amex spend drops by 5% (say in a recession) they can cope with that because they can scale their cost base back by 5% fairly easily (have 5% fewer people in their call centres to answer 5% fewer customer calls for example). But if the farebox falls by 5%, the ToC still has to hire and run the some number of trains cos it is in their contract and so they go from a 3% profit to a 2% loss. Now if you are running coaches and the farebox drops by 5% you simply recast the timetable, withdraw unprofitable routes, sell off a few buses, put up fares or whatever your commercial experience tells you is necessary to reduce your costs. It is easy to see why NX is sees running coaches is more attractive. You can also see why NX might still see foreign railways attractive because usually their the revenue risk lies elsewhere (the London Overground model).
A 5% margin would make the franchises more attractive but would cost the tax payer an extra £200 million per year.
