Railway franchises face an uncertain future

The transport sector is having to come to terms with unprecedented challenges through the current crisis situation. However, COVID-19 seems to have achieved the transfer back into (temporary) Public Ownership of the rail franchise system.

Train operators are running a much reduced timetable, some are mothballing trains, and passenger numbers have significantly reduced as the Government pushes its essential travel only message.

So what is the position now and what is the Government’s exit strategy to return train operations to the private sector.

Rail franchises are effectively now Government controlled and operated by the private companies under a Management Contract. I understand that the arrangement gives the private companies a ‘commission’ of 2% which was based on a complex set of calculations based on franchise cost base at March 1st.

There was no option given for the private companies to remain as commercial operators. The Government apparently dictated that those that did not sign up to the Management Contract would be replaced by the Government’s own Operator of Last Resort (OLR). All signed up and the only franchises which are under the OLR are LNER and Northern.

So how long will these arrangements apply?

Initially for six months says the Government. During that time we may get to see the contents of the Williams Report which is likely to suggest radical changes to the rail franchising system. 

Couple with that the fact that whatever the date is that the Management Contracts end, se it after six months or even longer, the railway that the private companies have will bear no relation to the railway they had at the start of 2020.

Passenger numbers will no recover to pre COVID-19 levels overnight. It will take months if indeed passenger levels do return. Sure, leisure business will see a boost at people make visits to family and friends. But these are generally price-sensitive passengers who will travel at off-peak times.

What the COVID-19 restrictions have demonstrated is the ease that people can work from home given the technology that is now available. The unknown is how many companies will allow staff to work from home in the future allowing them to downsize offices and other infrastructure.

I suspect that the private companies will all want to re-negotiate their franchise going forward. Their Business Plans on which the franchise finances were based are now not worth the paper they are printed on. The difficulty for the private rail franchises is how can they prepare a new Business Case for the post COVID-19 railway when neither they, nor Government, know what the post COVID-19 railway will look like.

Will we see a queue at the Secretary of State for Transport’s door asking, nay demanding, that the Management Contract terms continue until the railway has returned to some kind of normality. Mind you, that could take years.
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We salute all key workers and that includes everyone keeping the railway running at this difficult time but is it really necessary for a train operator running a massively reduced train service with relatively few passengers to keep telling us it is achieving 100% performance. But there again it is one of the train companies operated directly by the Government’s Operator of Last Resort so it must be Government policy to push performance figures at this time….