16 February 2009

The looming issue on the railways

The FT has picked up on what will become a huge issue for the Train Operating Company’s (TOC’s) and the Government.  It is their franchise agreements and fall in revenues:

A further problem for the operators is that the franchise agreements are tough. Some of them, negotiated during the economic boom, assumed double-digit passenger revenue growth and steep falls in the government subsidy regardless of economic conditions. They also determine the number of trains and carriages, which leaves operators with little room for service cuts.

Faced with an unpleasant cocktail of falling passenger numbers and flat or falling fares in the next 18 months, some rail operators are likely to press the government for either a softening of franchise conditions or a change to the way ticket prices are calculated.

If the franchises can’t be renegotiated, the operators will just walk away, and could, in the ultimate, mean the renationalisation of the train operators.

Watch this space.  I think this will become rather an issue in the not too distant future.

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