Payments to passenger rail operators, March to June 2020

[Clarence Yard]

Correct, absolutely nothing. Hence the phased return for both HT and GC. It's real world decisions for them.

The franchised TOC companies are basically bankrupt without Government support. Without that support they would be handing back the keys in days, if not hours in some cases. No owning group could ever make up the shortfall - the numbers are huge.

At the moment the least worst option for the Government is the EMA support. It's effectively a form of OLR as the DfT are now making all the decisions and paying a relatively small management fee, just like they do with OLR.

I don't think the Government has any intention of buying owning groups. Don't look at just the share price - the market cap of the organisations is what you really need to look at if you want to compare the strength of OG's.

 

[LNW-GW Joint]

As i say i believe DofT won't want the keys back yet but the endgame is coming so they might as well squeeze them especially First group who they could then buy up for next to nothing and then lose its US operation.

Are the Government (taxpayer) having to fund these payments because the shareholders of the various companies won't put their hands in their own pockets? If that is the case then consider using the OLR plan as the way forward.

You can't just trash private businesses like that, and I doubt DfT actually wants the private owners off the premises anyway - it's not Corbynrail!
I'd expect some terms will relate to the implementation of the next step in reorganising the franchise system.
I doubt it will just continue as now for 18 months, the Treasury hasn't got the cash to fund the railway at 20% capacity for that long.
Whether DfT has the faintest idea what to do next is another matter, however...

 

[Starmill]

The government have clearly chosen to offer at least two full years funding from March 2020, at least in the cases of the 14 contracts the Department are managing.

This will be conditional for those with agreements expiring in September. I would suggest that, as yet, we do not know what those conditions are or if any of the 12 contractors are unprepared to accept them. It seems unlikely that any would walk, but who knows. The government haven't actually announced their specific intentions clearly.

The Northern Ireland Executive can set the budget for Translink to fund Northern Ireland Railways.

Treasury hasn't got the cash to fund the railway at 20% capacity for that long

They do! They've got the cash to fund it for thousands of years at that rate if they want to. It is barely noticeable as a proportion of the total government budget. Perhaps sensibly though they're asking searching questions and it's clear that they feel the current bills are much, much too high. They will require the subsidy to be cut significantly, probably starting in September. If the cut they impose is big, and there's no scope to raise significantly more revenue, the railway will have to cut operating expenditure. It looks very unlikely that Transport for Wales or Transport Scotland will be driving at that particular point in the case of their three contracts. The other outliers are Mersrail, TfL Rail and London Overground who have little choice but to hope for Treasury benevolence towards Merseytravel and Transport for London.

 

[Steddenm]

They get nothing as far as I'm aware. Hence the reason some where quick to shut up shop.

Thats understandable. I am sure that i read somewhere that Translink was getting some funding from the NI Assembly and the Enterprise was being co-funded by the UK and Irish governments to keep it running.

 

[millemille]

Are the Government (taxpayer) having to fund these payments because the shareholders of the various companies won't put their hands in their own pockets? If that is the case then consider using the OLR plan as the way forward.

My understanding is that if an operator makes more money than they expect to make then the government claw some of that money back but if they sell fewer tickets than they expected to sell then they give support to that operator. Realistically if the government want the shareholders to bail out operators who get in to trouble then they can't claw back money when they make more than expected.

When I was at Southeastern it wasn't "money" it was passenger numbers that triggered money changing hands between TOC and DfT.

The franchise went out to tender with a passenger growth model for the duration of the franchise from DfT, which the tenders used as the basis of their business model.

For Southeastern, during the previous franchise, there was a +/- 3% window around the franchise model passenger numbers at any given time; if the passenger numbers were below 100% and above 97% the operator had to suck up any losses. If the numbers were above 100% and below 103% the operator got to keep any extra profit.

If the passenger numbers went above 103% the extra profit went to the DfT.

If the passenger numbers went below 97%, as happened post 2009, the TOC received income support from the DfT to make the shortfall in income up to 97%*.

I was involved, as a consultant, on a later tender for Southeastern and as it was explained to me the DfT view is that +/-3% is the maximum variation the TOC can generate in passenger number due to their own performance, any greater variation than that is down to wider socio-economic influences not of the TOC's making so why should they be penalised by others failings, or benefit from others efforts?

I would presume that every franchise has a variation of this and the DfT would have been on the hook to every TOC to make up passenger number shortfall without the EMA's anyway.





*Being in income support triggered all kinds of clauses within the TOC; one that affected me and prompted me to leave was that all grades which didn't have collective bargaining powers when it came to pay rises - basically all management grades - had their pay rises capped by the DfT because it was their money which was being spent on the pay rises. As a management grade I was getting less than 1% pay rise but the production grades I managed were getting, thanks to the union doing the collective bargaining on their behalf, 3% or more. You have that situation for a few years and the pay gap between top production grades and bottom, and even middle, management grades disappear and your succession and internal development planning ceases to exist.

 

[millemille]

If the cut they impose is big, and there's no scope to raise significantly more revenue, the railway will have to cut operating expenditure.

And that's the million dollar - literally - question. What can the TOC's actually do to cut op ex that significantly?

 

[Horizon22]

Figures are adjusted for actual receipts in arrears and also include capital expenditure for some so aren't a direct reflection of actually ridership but C2C looks the most cost effective. Im sure the Treasury will be questioning the scale of support for IC TOCs.

And C2C also being one of the smallest and most compact TOCs

 

[Starmill]

And that's the million dollar - literally - question. What can the TOC's actually do to cut op ex that significantly?

This is a big topic in itself and it has been discussed here: https://www.railforums.co.uk/threads/how-can-the-railway-cut-operational-expenditure.205973/

 

[millemille]

This is a big topic in itself and it has been discussed here: https://www.railforums.co.uk/threads/how-can-the-railway-cut-operational-expenditure.205973/

Excellent, many thanks. I shall head over to that thread now...

 

[dk1]

I suppose the Open Access operators have furloughed staff too try to save money through lockdown. This is in contrast to TOCs where I know of no furloughed staff personally. Even catering staff at mine with no work whatsoever have been accommodated into additional customer facing duties and light cleaning to keep them on & on full pay.