London Midland franchise extension

[sd0733]

Not sure of any more details other than the dates but The LM franchise has now been extended by 6 months from September 2015 until March 2016. There will then be negotiations for a directly awarded franchise which would run from April 16 through to June 2017 when the next competed franchise begins. Not seen it mentioned anywhere or anything more than the dates but can't see being much if any changes for such a small period of time.

 

[Simon11]

I would be very keen to find out who is getting the best deals with these awards, TOCs or DfT? My bet would be on TOC's getting a good deal and I wonder how much money this whole franchising error has cost.

 

[Bald Rick]

I would be very keen to find out who is getting the best deals with these awards, TOCs or DfT? My bet would be on TOC's getting a good deal and I wonder how much money this whole franchising error has cost.

A moot point. Clearly the TOC owning groups will have done alright cashwise. However there is potential upside that is difficult to quantify in maintaining continuity of operator and avoiding, or at least deferring, the upheaval that goes with a franchise.

I think GoAhead took the brass neck award for stating in their annual report that Southeastern was losing money, but they expected that following the expected agreement of the direct award it would return to full profitability. Probably why there has been no announcement on that one yet!

 

[SF-02]

A moot point. Clearly the TOC owning groups will have done alright cashwise. However there is potential upside that is difficult to quantify in maintaining continuity of operator and avoiding, or at least deferring, the upheaval that goes with a franchise.

I think GoAhead took the brass neck award for stating in their annual report that Southeastern was losing money, but they expected that following the expected agreement of the direct award it would return to full profitability. Probably why there has been no announcement on that one yet!

Is there a provisional date for when southeastern's extension will be annouced?

Ideally negotiations will be going badly with SE asking for more money so the DfT give the metro routes to TfL like GA routes were.

 

[Bald Rick]

Ideally negotiations will be going badly with SE asking for more money so the DfT give the metro routes to TfL like GA routes were.

That simply won't happen as a) those rebuilding London Bridge will tell you that the last thing they need in the next 4 years is another train operator, and b) TfL can't afford it.

 

[3141]

I would be very keen to find out who is getting the best deals with these awards, TOCs or DfT? My bet would be on TOC's getting a good deal and I wonder how much money this whole franchising error has cost.

It's all extremely complicated. Many TOC have been receiving revenue support payments because receipts were below their forecasts. The payments don't cover the full shortfall so they may welcome a direct award which sets new levels of premium (or greater subsidy) and new expectations of income. But the DfT has been having to make the revenue support payments and won't have to once there's a new direct award. During the negotiations I expect both sides produce forecasts showing what they think future profits or losses might be if the terms of the franchise weren't changed. But no-one actually knows, so both sides may actually welcome a new agreement based on current realities.

How much has the franchising error cost? Obviously, Inter-City West Coast would have provided large premium payments over fifteen years, if it had gone ahead. I'm not sure that subsequent franchises would have produced so much, however. Bids would very likely have been on a more modest scale as bidders realised how dangerous a very optimistic bid might prove to be, and they'd be committed to it for up to fifteen years. The two West Coast bidders who came third and fourth are reported to have thought that both First and Virgin had overdone it.

In the present round of extensions and direct awards, there is of course the threat of Directly Operated Railways, though I suspect DfT has been told the government doesn't want them given a new lease of life this side of the next general election.

 

[WatcherZero]

Some of these extensions have been management contracts rather than traditional franchises (easier to arrange for the short timescales involved), the Tocs only get a flat % (e.g. 3%) of total revenue and then whatever is left after their corporate costs is profit. Though ive heard grumblings from some that the management fee isnt fully covering their costs.

 

[Carlisle]

That simply won't happen as a) those rebuilding London Bridge will tell you that the last thing they need in the next 4 years is another train operator, and b) TfL can't afford it.

So if TFL can't afford it now ,how come they have shown a lot of interest in taking over these inner suburban services in the recent past ?

 

[Tetchytyke]

Though ive heard grumblings from some that the management fee isnt fully covering their costs.

Poor fat cats ad:

They can always hand the keys back and let DOR do the job instead. Of course they won't, they don't want to hand back the keys to a cash cow. Go-Ahead's profits in the first half of the 2013/14 financial year are 56% higher than they were for the same period in the 2012/13 financial year. Chin chin.

I know it won't happen.

DOR is doing better on the ECML than any of the previous commercial franchisees, and that's terribly embarrassing to a Government who want to sell anything (at mates rates) that's not nailed down.

 

[Bald Rick]

So if TFL can't afford it now ,how come they have shown a lot of interest in taking over these inner suburban services in the recent past ?

Because they didn't know how much it would cost!

 

[Simon11]

Poor fat cats ad:

They can always hand the keys back and let DOR do the job instead. Of course they won't, they don't want to hand back the keys to a cash cow. Go-Ahead's profits in the first half of the 2013/14 financial year are 56% higher than they were for the same period in the 2012/13 financial year. Chin chin.

I know it won't happen.

DOR is doing better on the ECML than any of the previous commercial franchisees, and that's terribly embarrassing to a Government who want to sell anything (at mates rates) that's not nailed down.

Please explain how Go-Ahead are a cash cow with huge profits in rail? On revenue of £973m, their profit was £10.5m, only 1.1%. That is a pretty poor return! If anything their bus division looks to be very healthy! Consider this, that it could cost around £10m to put in one rail bid and they may not win! There goes all the profit!

As my director says, there is very little money in rail TOC's after all costs have been paid.

Can you provide evidence that DOR is performing better than previous commercial franchisees? Just because it is giving alot of profit to the government does not indicate that it is doing a better jobs than a commercial franchisee.

 

[David]

Poor fat cats ad:

They can always hand the keys back and let DOR do the job instead. Of course they won't, they don't want to hand back the keys to a cash cow. Go-Ahead's profits in the first half of the 2013/14 financial year are 56% higher than they were for the same period in the 2012/13 financial year. Chin chin.

I know it won't happen.

DOR is doing better on the ECML than any of the previous commercial franchisees, and that's terribly embarrassing to a Government who want to sell anything (at mates rates) that's not nailed down.

Very selective reading there, and not the first time you've used this argument ....

If you looked at the financials properly, you would have seen the profit from bus operations is nearly 4 time greater than profit from rail operations, despite the fact that revenue (total income) from bus operations was only about 40% of what their income from rail was .....

 

[SF-02]

So if TFL can't afford it now ,how come they have shown a lot of interest in taking over these inner suburban services in the recent past ?

I think TfL looked at it and were willing to take the revenue risk as they were confident enough that they could improve revenue. Given the very large levels of fare evasion it's a fair assumption if they staff London SE stations like the LO/southern routes are.

I think there´s large scope for improving revenue and TfL would be in a good position if they could get it.

The question is why Southeastern don´t? Well all this franchise upheavel probably shows a large part of why.

 

[Tetchytyke]

If you looked at the financials properly, you would have seen the profit from bus operations is nearly 4 time greater than profit from rail operations, despite the fact that revenue (total income) from bus operations was only about 40% of what their income from rail was .....

Please explain how Go-Ahead are a cash cow with huge profits in rail? On revenue of £973m, their profit was £10.5m, only 1.1%. That is a pretty poor return! If anything their bus division looks to be very healthy! Consider this, that it could cost around £10m to put in one rail bid and they may not win! There goes all the profit!

And?

The TOCs are falling over themselves to be awarded these franchises, look at how hard First and Go-Ahead fought for the Thameslink award. Why do we think that they are doing this? Are you trying to claim that the big cheeses at Grey Street have suddenly discovered philanthropy, or is the real reason that it's easy money for old rope?

As I said: if the TOCs don't like the margins, they're free to focus on the buses. If the returns are as appalling as they try and whinge, why are they not doing so?

Can you provide evidence that DOR is performing better than previous commercial franchisees? Just because it is giving alot of profit to the government does not indicate that it is doing a better jobs than a commercial franchisee.

DOR are handing back more money to the taxpayer than any of the commercial operators ever did. DOR, even more to the point, haven't taken their bat and ball home because projected revenues were down, unlike both Sea Containers and National Express.

How else should we determine taxpayer value? According to Passenger Focus, East Coast have a higher customer satisfaction survey than any of the other intercity franchises.

 

[pemma]

Is there a provisional date for when southeastern's extension will be annouced?

It'll be announced as soon as it's agreed which could be tomorrow or could be 1 week before the current franchise expiry date.

 

[3141]

And?

The TOCs are falling over themselves to be awarded these franchises, look at how hard First and Go-Ahead fought for the Thameslink award. Why do we think that they are doing this? Are you trying to claim that the big cheeses at Grey Street have suddenly discovered philanthropy, or is the real reason that it's easy money for old rope?

As I said: if the TOCs don't like the margins, they're free to focus on the buses. If the returns are as appalling as they try and whinge, why are they not doing so?

DOR are handing back more money to the taxpayer than any of the commercial operators ever did. DOR, even more to the point, haven't taken their bat and ball home because projected revenues were down, unlike both Sea Containers and National Express.

Interesting that you don’t answer the points others make, you just shift your position and invent things the others didn’t actually say.

Of course companies will fight to get business, especially when franchises are for limited periods and they may not retain the ones they’ve got. In most franchises there is only a small margin and additional income above that is shared with the DfT.

DOR are operating in a different environment from Sea Containers and National Express. And you must know that as they are a government company appointed to run a particular franchise the option of “taking their bat and ball home” doesn’t exist, so the fact that they haven’t done what they could not possibly do isn’t relevant.

Why do you think a 56% increase in profits is so awful? Do you think the actual amount of profit in the previous year is of no relevance?

How else should we determine taxpayer value? According to Passenger Focus, East Coast have a higher customer satisfaction survey than any of the other intercity franchises.

As you might put it, AND?

 

[Simon11]

Quote: "How else should we determine taxpayer value? According to Passenger Focus, East Coast have a higher customer satisfaction survey than any of the other intercity franchises."

Well lets chuck that poor argument out of the window. If you look as the last NPS survey (Autumn 2013) at http://www.passengerfocus.org.uk/re...rail-passenger-survey-autumn-2013-main-report

You will find East Coast on 91% for overall customer satisfied or Good. Virgin Trains have the same score at 91%. If you consider Grand Central, a Long Distance TOC according to ATOC, they are on 95%. Thus your argument of East Coast having a higher customer satisfaction is not true.

 

[Bald Rick]

The TOCs are falling over themselves to be awarded these franchises, look at how hard First and Go-Ahead fought for the Thameslink award.

To make that assessment, you must have read the bids?

 

[David]

And?

The TOCs are falling over themselves to be awarded these franchises, look at how hard First and Go-Ahead fought for the Thameslink award. Why do we think that they are doing this? Are you trying to claim that the big cheeses at Grey Street have suddenly discovered philanthropy, or is the real reason that it's easy money for old rope?

As I said: if the TOCs don't like the margins, they're free to focus on the buses. If the returns are as appalling as they try and whinge, why are they not doing so?

The reason they fight so hard for franchises are quite simple. Firstly, it get's their brand name out in the public domain, which raises awareness of the company as a whole. Secondly, they fight for franchises as they enhance returns for shareholders*. Franchises increase a companies revenue (income) and profit, albeit very slightly (as the figures which you posted for Go-Ahead showed).

* Sharehold returns consist of share price growth and income from dividends.

PS. If you invest in a UK based investment fund, then there's a strong possibilty that you are (indirectly) a shareholder in Go-Ahead. So instead of slating them for trying to please shareholders, shouldn't you be praising them?

 

[DarloRich]

There is a touching level of faith bordering on naivety relating to group company financial statements at times on this board!

 

[Tetchytyke]

You will find East Coast on 91% for overall customer satisfied or Good. Virgin Trains have the same score at 91%. If you consider Grand Central, a Long Distance TOC according to ATOC, they are on 95%. Thus your argument of East Coast having a higher customer satisfaction is not true.

You will find that Grand Central are not a franchise.

My point is that DOR are operating a service that a) makes more money and b) has more satisfied customers than any of the private companies. So much for all that private "innovation" and "efficiency" that we're told about.

Interesting that you don’t answer the points others make, you just shift your position and invent things the others didn’t actually say.

I'm skeptical about the 1% margin, and wonder what group overheads they are hiding within the rail sector, but that's by the by.

Other people are saying that 1% profit margin (if that is indeed the case, even ATOC reckon it is typically 3%) is so poor as to not be worthwhile. I'm saying that if it's so terrible as to not be worth getting out of bed for, why are TOCs continuing to play the game?

Marketing? Please. TOCs are routinely slated every January, far more than the bus operations are. It's not as though "Worst Late Western" is a brand that a company truly wants.

Why do you think a 56% increase in profits is so awful? Do you think the actual amount of profit in the previous year is of no relevance?

I think a 56% increase in profits- regardless of the base figure- indicates that GoVia are ripping their passengers off and ripping their staff off. The cost of Anytime returns into London, and the shenanigans with Gatwick Express tickets, just proves that. Not to mention the fact that London Midland have sacked huge numbers of their ticket office staff, to the extent that my local station hasn't been open for the whole published opening times in a day for as long as I've been using the station. It was closed again today, for the record, with no explanation.

PS. If you invest in a UK based investment fund, then there's a strong possibilty that you are (indirectly) a shareholder in Go-Ahead. So instead of slating them for trying to please shareholders, shouldn't you be praising them?

My savings return is less than the 3% that my train fare- now well over four grand for a 23-mile journey- went up last year.

It's nothing against the staff who work for the TOCs, my issue is with the way that the whole system is essentially about giving free money to private companies for doing stuff all. With these "management contracts" there wasn't even a competitive tender.

 

[Old Hill Bank]

I would be very keen to find out who is getting the best deals with these awards, TOCs or DfT? My bet would be on TOC's getting a good deal and I wonder how much money this whole franchising error has cost.

The six month extension is as it implies a straight extension of the current financial agreement, the direct award that follows we be "negotiated" so both parties will be looking for a better deal!

 

[3141]

You will find that Grand Central are not a franchise.

My point is that DOR are operating a service that a) makes more money and b) has more satisfied customers than any of the private companies. So much for all that private "innovation" and "efficiency" that we're told about.

True, Grand Central isn't a franchise, but it is a private company.

I'm skeptical about the 1% margin, and wonder what group overheads they are hiding within the rail sector, but that's by the by.

Of course you can be sceptical if you wish, but that doesn't prove the figures produced by Go-Ahead are wrong.

Other people are saying that 1% profit margin (if that is indeed the case, even ATOC reckon it is typically 3%) is so poor as to not be worthwhile. I'm saying that if it's so terrible as to not be worth getting out of bed for, why are TOCs continuing to play the game?

In the link you provided ATOC are clearly using 3% as the margin TOCs might generally make. No-one on this thread has claimed TOCs generally make only 1%. There's no contradiction for you to try to disprove here.

I think a 56% increase in profits- regardless of the base figure- indicates that GoVia are ripping their passengers off and ripping their staff off. The cost of Anytime returns into London, and the shenanigans with Gatwick Express tickets, just proves that.

That's a pretty illogical viewpoint, and the cost of Anytime returns doesn't prove it.

With these "management contracts" there wasn't even a competitive tender.

TSGN will be a management contract and it has been competitively tendered, so I look forward to seeing how you accommodate that to your interesting opinions.
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There is a touching level of faith bordering on naivety relating to group company financial statements at times on this board!

Nice to know that you find it touching, but I don’t think you need to.

A good source of information about a company is its balance sheet. That ought to be accurate and it will have been audited by independent accountants.

We know that in fact some balance sheets contain inaccuracies. That may be deliberate or it may be the result of incompetence. We shouldn’t assume everything we read is accurate.

But the balance sheet remains a good starting-point.

On the other hand, if our starting-point was to disbelieve everything in the balance sheet, where would that get us? It certainly wouldn’t tell us the true facts. We could believe whatever happened to suit our prejudices, but overall we’d be less well-informed than if we had accepted that the balance sheet was probably accurate until evidence emerged to show it wasn’t.

 

[A0wen]

The reason they fight so hard for franchises are quite simple. Firstly, it get's their brand name out in the public domain, which raises awareness of the company as a whole. Secondly, they fight for franchises as they enhance returns for shareholders*. Franchises increase a companies revenue (income) and profit, albeit very slightly (as the figures which you posted for Go-Ahead showed).

* Sharehold returns consist of share price growth and income from dividends.

PS. If you invest in a UK based investment fund, then there's a strong possibilty that you are (indirectly) a shareholder in Go-Ahead. So instead of slating them for trying to please shareholders, shouldn't you be praising them?

Just picking up your last paragraph - I'd go further, if you are a member of a private pension scheme then that almost certainly has shares in at least ONE of the private rail operators - therefore better returns = better pension. So it's not just a case of 'directly' owning shares, there are other ways you may well have an interest in these companies paying out to shareholders.

 

[Tetchytyke]

TSGN will be a management contract and it has been competitively tendered, so I look forward to seeing how you accommodate that to your interesting opinions.

TSGN is a new franchise, and as such was competitively tendered. The arrangements for that franchise are irrelevant.

Direct awards and contract extensions are not competitively tendered. Hence why the taxpayer is currently receiving exceptionally poor value from the likes of Virgin Trains.