What exactly are Govia getting out of running the Southern franchise?

[Bungle73]

All their revenue goes to the DfT, so what's in it for them? :?

 

[CosherB]

Looks like there is good money in it to me ....

https://www.theguardian.com/business/2016/sep/02/southern-rail-owner-reports-99m-pounds-profits-go-ahead

 

[Bungle73]

Looks like there is good money in it to me ....

https://www.theguardian.com/business/2016/sep/02/southern-rail-owner-reports-99m-pounds-profits-go-ahead

Did you actually read that? Southern itself are making a LOSS.

 

[HH]

That was Southern, which no longer operates as a company. GTR should be making a profit.

 

[OwlMan]

That was Southern, which no longer operates as a company. GTR should be making a profit.

Try reading the article linked to.

Southern’s operating company, Govia Thameslink Railway (GTR), made a single-figure million loss and will remain in the red this year and next.

 

[talltim]

All their revenue goes to the DfT, so what's in it for them? :?

Management fee

 

[Bungle73]

Govia Thameslink Railway (GTR), made a single-figure million loss and will remain in the red this year and next.

.....

 

[BigCj34]

Presumably DfT pays a flat fee to the lowest bidder, which Govia won. The idea is for it to be higher than their operational cost. This would be a reverse to a franchisee that collects ticket sales revenue, who would be the highest bidder to a franchise and thus hope to recuperate that from ticket sales.

However it appears that GTR Southern is losing money, so maybe they're overspending somewhere than what was on the original tender. Mind this is just a shot-in-the-dark guess however, I could be completely wrong.

 

[Bungle73]

Management fee

Ah, thanks. So is that a set fee or does it vary deepening on how much they hand over to the DfT?

 

[ainsworth74]

My understanding is that usually this sort of thing involves a flat fee and they can get bonuses if they meet certain criteria. Could be performance related or revenue related or similar but if they meet those criteria then that'll trigger extra payments.

 

[northwichcat]

Normally if the franchise makes it loss they can apply for revenue support but if they make more than expected (like old Northern always seemed to) they have to refund part of the subsidy/pay an additional premium.

 

[thelem]

From their results LAST year (before all this blew up):

Following the year end, Southern and Gatwick Express were integrated into GTR. This franchise continues to incur incremental costs as a result of operational challenges and changes in its operating network. This may lead to lower margins in the short to medium term but any shortfall in profit is expected to be recoverable over the life of the franchise as normal industry contract remedies are employed to help mitigate these costs over time.

In other words, they are fine with making a small loss while staff contracts and responsibilities are renegotiated, because they expect to make it back in the following years and/or from adjustments to amounts paid to/from the government.

 

[LNW-GW Joint]

GTR revenue is about £1.3 billion pa.
Govia planned to make 3% profit on that, or about £40m.
With Southern performing so badly, the margin for GTR is more like 1.5% or £20m.
So Southern seems to be costing Govia £20m per annum at the moment, which comes out of their overall rail portfolio (includes SE and LM, which are doing well).
You can't easily separate out the position of Southern from the rest of GTR.
The Govia figure then divides into Go-Ahead (65%) and Keolis (35%).
http://www.go-ahead.com/en/media/news/2016/pre-close-trading-statement.html

GTR gets a management fee for running the service.
All revenue goes to DfT, but the costs lie with GTR.
Their costs will be higher than expected, because of the extra resources (mostly staff) needed to run the Southern service with all the current levels of disruption.

 

[HH]

The profit was based on costs, not revenue.

Outside that % they also have a number of performance regimes which can pay bonuses or cost penalties. We have no visibility of how those regimes are performing, but it seems likely that it's less well than they bid. There were also possible stage payments for achieving Thameslink Programme milestones. What they bid and how they've performed is not known either.

Costs are at bidder's risk, and there are a number of reasons to expect that they may be higher than bid.

Whether GTR can turn their results around depends on a number of factors, such as resolving their various industrial disputes, the performance of the economy and the pound. OFC they are going to sound bullish; it's what companies do.

 

[WatcherZero]

Yeah its pretty hard to digest, they aren't publishing the performance of the individual rail divisions only their pre-tax change over the previous year.

South Eastern +£14.9m
London Midland +£7.6m
GTR/Southern -£13.6m

Franchise bidding costs £5.3m including £2m in Germany (down £4m)
Central Costs down £2.4m

Total rail profit £57m, margin 2.3% up from 1.7%
Franchise payments to Dft £222.4m
South Eastern management contract generated a £39.9m excess profit for the Dft
Estimate of 1.5% lifetime margin on GTR unchanged

Chief exec was paid 40% less than last year (bet you don't see RMT mention that!)

 

[FordFocus]

They need to cut costs to boost their profit margins. Any additional revenue through ticketing goes to the DfT as per their contract. How do you cut costs though? Cutting staff in ticket offices, gate line staff, removing guards on trains, a freeze on driver recruitment. Then there is a reduction in maintenance of trains, outsourcing customer services, agency staff and other ancillary items.

If GTR are needing a bonus from targets like what HH mentioned and don't achieve it then I would have thought that Govia would seriously consider pulling the plug. It would be a interesting move though. On one hand Govia could potentially be out of favour for the LM franchise renewal and SE would look to be on shaky ground. The other side of coin tells us that the DfT are already struggling for bidders on some franchises, SWT in particular so wouldn't want an established bidder to be banned from bidding.

Pay talks may get tasty, in particular with ASLEF after recent events with GTR and High Courts.

 

[Bungle73]

So is this deal for the whole GTR franchise or just for the Southern bit?

Quite frankly the whole thing is confusing, because as far as I'm aware Southern, Thameslink and GN are all supposed to be one franchise now, right? Yet they all still appear to be run as if they are separate. I mean the Southern dispute isn't affecting any other part of the company, TL are having their own separate dispute, and things like the Thameslink-only tickers are still around.

 

[D365]

I mean the Southern dispute isn't affecting any other part of the company, TL are having their own separate dispute, and things like the Thameslink-only tickers are still around.

I thought the fallout from the Southern disputes has been linked to the significant increase in Great Northern weekend cancellations.

Also the franchise will most likely be split again when Thameslink is finally operating at full capacity.

 

[Class 170101]

Also the franchise will most likely be split again when Thameslink is finally operating at full capacity.

I can only see a spin off of Southern Metro to TfL and Kings Cross to Kings Lynn / Cambridge / Peterborough services not part of Thameslink happening.

What else could be spun off away from the enhanced Thameslink franchise?

 

[43074]

I can only see a spin off of Southern Metro to TfL and Kings Cross to Kings Lynn / Cambridge / Peterborough services not part of Thameslink happening.

What else could be spun off away from the enhanced Thameslink franchise?

GN Moorgate services are more likely to be spun off than the Peterborough/Kings Lynn services - probably to TfL - does it really make sense to have Kings Cross to Peterborough & Kings Lynn as a separate franchise? Work at Peterborough & Cambridge traincrew depots will likely be split between Great Northern & Thameslink services.

I hope the Gatwick Express brand will be dropped altogether, there's no reason it's main purpose couldn't be covered by Southern Mainline services.

 

[HH]

GN Moorgate services are more likely to be spun off than the Peterborough/Kings Lynn services - probably to TfL - does it really make sense to have Kings Cross to Peterborough & Kings Lynn as a separate franchise? Work at Peterborough & Cambridge traincrew depots will likely be split between Great Northern & Thameslink services.

I hope the Gatwick Express brand will be dropped altogether, there's no reason it's main purpose couldn't be covered by Southern Mainline services.

GN 'locals' are certainly a TfL target, as well as Southern Metro. As for the rest you really have 3 distinct services - Victoria, Thameslink & Kings X. I don't think Kings X is big enough to sit on its own and splitting small depots at P'bro and Cambs doesn't make much sense. One idea might be to add the GN rump to ECML...

As for Gatex; I agree, but there are two bodies with an interest in seeing the status quo remain - Gatwick Airport, who see the service as putting them on a par with Heathrow (which is important to their corporate ego) and DfT, who like the extra revenue fleeced from unsuspecting tourists.