Franchise trouble for operators…and ministers

 

With over 130,000 joining the dole queue in December alone, it is not a matter of whether the train operators will get into financial difficulties but when. There are, so far, conflicting reports about their current financial situation. The train companies say that so far passenger numbers are holding up although the growth rate has slowed. While the train companies apparently did not go begging for more money at their meeting with Geoff Hoon on January 20th, the following day, Mike Mitchell, the senior civil servant responsible for rail, admitted that some franchises are already in the red.

 It would not be fanciful to guess that those in trouble are the London commuter operators and possibly Great Western which, following the intervention of Ruth Kelly, committed itself to considerable extra investment last year after its performance plummeted. Keith Ludeman, the boss of Go Ahead, which has a majority stake in two of the main South of the Thames commuter franchises, has already gone on record to say that he thinks the franchise agreements are renegotiable should the downturn reduce passenger numbers dramatically.

 In a recent interview with Lord Adonis, he was unequivocal in refuting this. He told me: ‘My working assumption is that contracts should be honoured as they were signed’. However, he did add ‘that is not to say that the world could not change so dramatically that you have to consider it’ which means that the door is just slightly ajar if the recession is really prolonged.

 There is no doubt that a lengthy recession would put the whole franchising programme into question. If ministers did decide on a bail-out, then any future contracts would not be worth the paper they were printed on. On the other hand, if they stood firm, the train operators would be very reluctant to sign future franchises or would, if they did, would require far more generous terms than those to which they had previously signed up. One thing is certain. The coming year will pose the biggest test for the industry since rail privatisation. 

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