Let's do some numbers. First are going for an average of 10.4% growth.
Simplistically, this means in 7 years they need to DOUBLE the passenger numbers on the West coast main line or hike fares.
Actually based on a steady 10.4% it would be a doubling of Passenger REVENUE. Growth is 5.8%. But it's not steady; we have the (almost traditional for First bids) hockey stick shape. The biggest growth is in the last 5 years of the franchise (including the possible extension). I'm guessing that the start is all about ramping up the growth, and then they start to increase the yield (IOW up prices). So make hay with the cheaper fares while that sun shines...
I make that assumption, because even with the extra capacity there is no way they can carry over double the passengers by 2027. They will have to price off demand on the busiest services. Good luck in doing that on a Sunday afternoon though.
This is considering:
- Virgin did that comparing it to BR days but only after very substantial investment in the WCML, including much higher train frequencies and much shorter journey times.
- We are in a recession, and depending on the Euro crisis and other factors, it could get a lot worse
- The airline industry is lobbying for a reduction in APD, which if they succeed may affect traffic on the northern half of the line
- Some of the new flows they are taking on were basket cases in BR days: Shrewsbury and Blackpool.
- Peak time traffic is already fairly close to capacity, much new growth will need to be off peak.
- First group are heavily in debt, their share price has fallen 26% percent in the last few days.
- Virgin have a much stronger brand than First.
I'd agree with almost all of this. The share price has not fallen 26%, and in any case the fall followed a much larger rise; First shares are trading a lot higher than before the rumours of their win started.
Shrewsbury & Blackpool may have been a basket case in the says of BR, but that was then; now I reckon that most, if not all, the bidders would have had plans for them. Certain other locations are more dubious - MK is clearly an ORCATS raid (but opens them up to some big split ticketing issues unless other changes are made, dependent on DfT approval - possibly already made though), Nuneaton is probably more about PR (they have a very vociferous lobby) than revenue (there are better locations to stop in the area), and there's not much in Bangor apart from a few impoverished students.
As I pointed out earlier, ICWC actually helps their debt line, as it generally gets cash up front of having to pay bills.
Note that if the general economy suffers then they would probably be in Revenue Support by the time their line really takes off. The bigger risk comes from the government going back to a policy of regional redistribution of wealth, i.e. taking money from London, which drives most of the WCML revenue, to give to Wales, Scotland, North East, etc.
The only way this bid makes sense is if they have looked at all the possibilities for those latter years (could be in support, might have had change, maybe the economy booms again) and decided that the risk is worth it. As reported in City AM, they have said to the market that their risk is capped at £265m. But that £265m could be after already having taken £500m+ out in profits.
