News that Stagecoach is having to set aside £84.1m for losses at its’ East Coast rail franchise sets alarm bells ringing. The company says it is hoping to successfully renegotiate its East Coast rail franchise with the Department for Transport.
Stagecoach says it is negotiating the terms of its East Coast franchise with the DfT as a result of lower than expected revenue and profits against the original franchise agreement and what it says is uncertainty over Network Rail’s planned route upgrades.
The hope is that Stagecoach will secure a franchise that from 2019 will give it a profit margin at least in line with that of a direct award franchise.
So what has gone wrong. Neither Stagecoach or the Department for Transport is giving away much detail.
Whilst the East Coast rail franchise has been seen as a must have at any cost by rail franchisees at least two - Sea Containers (GNER) and National Express - are aware that setting earnings expectations too high can mean that the business cannot be sustained. Let’s hope Stagecoach and its partners at Virgin are not heading that way.
Stagecoach says it hopes to finalise new contract terms within the next year.