"Handing the Keys Back"

[William Dargan]

"Handing the Keys Back" seems to be a phrase heard alot in the past two weeks.

Drivers and Guards are talking about massive management cuts (see the job cuts thread: rtrevithick.proboards92.com/index.cgi?board=maincommuter&action=display&thread=82), Sources are telling tales of Southeastern HQ looking like a warzone, with remaining staff worried that they're going to be next in the rounds of redundancies... moral at an all-time low, budgets for even the smallest things (like a ream of paper to print Traincrew Diagrams) nonexistant - middle management infighting, train maintenance suffering due to overtime bans on the Engineering side.... people with 30 years+ service on the railway given 15 minutes to clear their desks and handed their P45s!

The general consensus of the operational staff (platform, guards, fitters, drivers.etc) is that they've seen it all before, in the last dark days of Connex....

I'm told that southeastern and southern are on the 'red light' status list that the DfT are spending so much time to try and hide for "commercially sensitive reasons", and that the figure of £20m in the red for the southeastern franchise, plus the enforced removal of Govia's bid for the re-franchise of southern is very much on the cards...

So the question is, how long will it be before the DfT is 'handed the keys back' of the southeastern franchise, and will anyone miss Govia?

[heofgreatwisdom]

Ouch! That's a bit heavy for very early on a Wednesday morning.

HOGW

[paolo]

I for one won't miss them, the service as been apalling since Christmas. It has got to the stage where I dread turning up at Charing Cross for fear of what problems there will be, indeed last night, more failed units, then the train I did catch was on a go slow.
Makes you realise that the stop gap of SET were pretty good actually, at least they did apologise when the trains turned up late at your local station, not this lot.

[trainplanner]

I would wait and see what thier next quarter earnings are going to be, any major drop in revenue will surely have shown itself in thier next set of results.

As for when the keys are handed back, i suspect that if the operators go back and say please can we renogiate the franchise (possibly around the time of the next quarterly result sbeing published) then the keys will go back in. As i reckon only govia and one other can actually afford to hand the keys back..

[chapelwood]

Feb 24, 2009 12:54:38 GMT trainplanner said:

As i reckon only govia and one other can actually afford to hand the keys back..

I think it is unlikely that any TOC will 'hand the keys back.' If a company has more than one franchise it will be stripped of all its franchises if it hands one back, and will almost certainly be disqualified from bidding for future franchises. Anyway, most franchises have 'cap and collar' arrangements under which the Government takes an extra share of the profit if the TOC does too well, but the TOC is protected to a considerable extent if revenue falls below expectations.

[trainplanner]

Chapelwood,

I am aware of the requirements regarding the handing of keys back, hand back on hand back all. I suspect that in govia's case, they are possibly looking at serious shortcomings anyway across all franchises, and may wish to get out of trains as the demands of the premium payments get to much. At least with buses it's mostly subsidy.

As for the Cap and collar arrangements as i understand it, these don't kick in on most franchises till year 4 of operation, and i am not aware that either southern or south easternn have yet reached that point so are effectively on thier own. However it is a valid point, but will they decide to wait till that point and let the shareholders take the hit?

[O.V.S.Bulleid]

Friends

I have a couple of thoughts about handing the keys back...

It has been reported in the Media that the Southern franchise has five bidders of which four gained their other franchises when the railway was expanding continually upward in potential revenue. Now things have changed and of those four: -

National Express - said to be £1b down at present.
Stagecoach - now has Brian Souter (founder of Stagecoach) running it after the MD left.
GoVex - Two franchises - Southeastern and London Midland

The fourth and most likely winner I would guess is - Nederlandse Spoorwegen (the one that is government owned - by the Dutch)...

Both Southeastern and London Midland are commuter train companies and as such have most of their income from commuters - about 75%. Unlike the long distance operators there isn't much that they can do towards generating extra peak hour passengers - otherwise they would be there now - and off peak it would be expanding the 25% which is a low base.

The "Man on the Clapham Omnibus" suggests that the way that it might go is that next January (if they can hold out that long) the fares might have to go down as inflation may be in negative figures - except that the DfT may turn to passengers and say that the lowest that fares can rise is 0+3% - negative inflation not being catered for.

It is going to be interesting to see how high the premium fares will in fact be on ChavLine trains - and indeed if the original service specification still holds good. Maybe, just maybe, GoVex might wish more passengers will travel on the cheaper classic trains as this might actually remain just viable to passengers, might reduce their higher CTRL track access charges and allow them to continue some of the classic faster off-peak services at prices that customers might buy.

(...or they could hand the keys back as operating rail services is no longer a good business for them.)

Yours sincerely
O.V.S.Bulleid

[O.V.S.Bulleid]

Friends

Interesting words coming out from Lord Adonis - reported in the press this morning.

Last evening I suggested that fares would not be allowed to go below 0+3% in the case of Southeastern - and I suggest that this is still likely. Lord Adonis has said that if the rate of inflation drops below 0% (and into negative) then the contracts will continue to find the allowable increases.

It is now 25th February 2009 and fares will not be set for many months within which time a lot may happen - this is simply Lord Adonis' current negotiating position with the train companies. All he is really saying is that this is the contract that you have signed.

Taking a train company view, each financial year is bound by its income and outgoings leading to annual accounts and a dividend payment to shareholders. What really counts is that solid cash that companies have retained in the bank accounts and the access to bank loans to finance such business as they need it.

If we have a privatised railway then the company will expect to make a profit and pay dividends. If we have a nationalised railway then we lose the profit motive and probably a lot of investment as well when government funds are scarce - such as now. British Rail was much, much cheaper to operate but suffered from the planning cycle being one parliament and funding being at the behest of HM Treasury and whatever politics are the order of the day - no matter which political party was in government.

I believe that the Man on the Clapham Omnibus may be proven to be correct. The implication of Lord Adonis saying that rail companies should volunteer to lower fares to get more passengers was one area that I covered last evening - they have most of their income from commuters and it is that traffic that controls how many coaches have to be provided and registered with Notwork Rail, then they have to pay track access charges, keep to station refurbishment programmes and so on. It actually comes down to the point that government may have got it wrong in originally placing an RPI+3% for fares to increase in order to change the balance between fare box and tax payer. It does not apply evenly across the country as other UK cities have much lower fares than London commuters are charged.

I'll wager that the train companies will come back to Lord Adonis and suggest that he will get the keys back unless he changes some elements on their cost/benefit case. To be a spirit on the wall will be interesting when they do as he doesn't have that much room to manoever without, himself, having to renegotiate the contracts which he has intimated he will not do. He will also have to consider the cost to the tax payer if one of the operators does hand back the keys as he will then have to operate the services of all of its franchises - which will place him in the same position as them (assuming that any share dividend payments this year will be minimal). He will also have to find very senior professional railwaymen to take up those nationalised rail businesses and they may not be easy to find if they don't have a hope of being able to successfully do the job using both hands although the previous franchise conditions would be out of the window and lower off peak fares could be part of a new one with the taxpayer sharing the cost to a greater extent - or he could negotiate the same outcome with the present train operators and avoid the hastle.

Of course we may also have a election later in the year...

What would you do - responses are very welcome so why not take part in the debate.

Yours sincerely
O.V.S.Bulleid

[heofgreatwisdom]

Dear OVS et al; Interesting to say the least. My belief is that the present economic situation is so fluid that no-one, certainly not those with an economic leaning, have any real idea of what is likely to happen tomorrow, let alone a month or six months hence. It is obvious that the present government is floundering and policy changes follow daily in an attempt to keep up with this ever changing scenario.
I should imagine that the very last thing the government needs is control of failing franchise operations. I expect therefore that there will have to be some "freedom" in the elements on the cost/benefit case. What we don't know is how many TOC's are in a serious financial situation? Government can hardly give freedom to Govia because they are the ones who appear to be in the most serious financial hardship whilst giving nothing to those who are managing their franchise successfully. Robbing Peter to pay Paul springs to mind.
Interesting times ahead.

HOGW

[trainplanner]

Since this last posting we have seen national express cut it's dividend to shareholders, and some of the major tocs admitting that growth is flat or falling compared to last year. I think it is definately the case that He of great wisdom is right in that no-one knows what will happen, and the government needs to stand firm in these troubled times as it effectively cannot afford to be seen to be bailing out another troubled private company who have made a fortune from the public. Could we have a publicly run railway on our hands again, i wouldn't rule it out.

Regards

TP