First Transpennine Express - Loss making contract

[BeHereNow]

First Group announcement today has lots of news in, not least regarding Tim O'Toole.

"

However our TPE franchise was loss-making, and we have taken the decision to provide for forecasted losses of up to £106.3m over the remaining life of the contract. This does not affect our plans for the remainder of the franchise to increase capacity on the TPE network by more than 80% and create a true intercity railway for the North."

It certainly sheds some light on things, considering current performance troubles and lowest ever passenger satisfaction scores. It seems odd considering they said they would never over-bid.

A link to the document is here http://otp.investis.com/clients/uk/first_group/rns/regulatory-story.aspx?cid=858&newsid=1035076

 

[Killingworth]

A political point being made here perhaps. £106.3 million sounds like an opening shot in an attempt to negotiate some form of amelioration in the contract terms. If others can do it they must at least give it a try!

 

[Jonny]

It looks like First Group has "taken the hit" (at least on paper) for a large number of exceptional items at once. Net debt is down by just over £200 million and cashflow is good.

 

[LNW-GW Joint]

Operating loss on TPE was £6.5m last year and £106m forecast till franchise end in 2023, ie about £21m a year.
Troubling but not terminal.
Passenger growth last year was 10%, but short of expectations.
Payment profile with DfT is unchanged.
I think it might explain the reluctance to get the MK3s into service, though.

However, wider events at FirstGroup make the headlines, with the departure of Tim O'Toole after big losses at Greyhound.
Tim is the sort of person who might reappear in a top rail job.

 

[YorkshireBear]

So this will be another one of those greedy private companies making a fortune out of passengers?

 

[Moonshot]

So this will be another one of those greedy private companies making a fortune out of passengers?

Ironic isn't it, but my understanding nowadays is that TPE is pretty much subsidy free

 

[Bletchleyite]

However, wider events at FirstGroup make the headlines, with the departure of Tim O'Toole after big losses at Greyhound.

Interesting - are Megabus/Bolt Bus trouncing them? It's good old Stagey vs First, just like in the UK

 

[47421]

Just looking at the info First put out when the franchise was awarded, see below. This means First Group plc has agreed that, if required by the subsidiary company that entered into the franchise agreement with DfT (eg because the franchise underperforms), First Group plc will lend the subsidiary up to £189m to cover those losses. £84m bonded means that a bank has provided a guarantee/bond so that if First Group plc goes bust the subsidiary franchise company will always have access to the £84m. Subordinated means it is repayable by the subsidiary company to First Group plc only after the subsidiary has paid the debts the parent company loan is subordinated to. I would need to delve into the docs to understand precisely what the priority debts are, possibly all other liabilities of the subsidiary other than to the parent co, but certainly all premium payments due to DfT under the franchise agreement.

So on the face of it in this case the agreements are working exactly as they should from the point of view of DfT, the Parent Company support is enough to cover the franchise losses so DfT gets all the premiums it was promised, First Group Plc / its shareholders shoulder the losses.

"Parent company support:

−Up to £189m subordinated contingent loan facilities, of which £84m bonded. Not expecting to be materially drawn"

 

[_toommm_]

I wouldn’t be surprised they lose money - with how cheap some of their advance fares are MAN-SHF it’s almost laughable how cheap I can get them.

 

[Robertj21a]

Operating loss on TPE was £6.5m last year and £106m forecast till franchise end in 2023, ie about £21m a year.
Troubling but not terminal.
Passenger growth last year was 10%, but short of expectations.
Payment profile with DfT is unchanged.
I think it might explain the reluctance to get the MK3s into service, though.

However, wider events at FirstGroup make the headlines, with the departure of Tim O'Toole after big losses at Greyhound.
Tim is the sort of person who might reappear in a top rail job.

Ah yes, fails to turn round a major PLC - so put him in another top role......

 

[Smidster]

I wouldn’t be surprised they lose money - with how cheap some of their advance fares are MAN-SHF it’s almost laughable how cheap I can get them.

I would take the opposite argument.

Given how extortionate their fares are I find it amazing they have managed to lose money.

 

[al78]

I would take the opposite argument.

Given how extortionate their fares are I find it amazing they have managed to lose money.

It is a balancing act. Make the fares too cheap and you get lots of passengers but low revenue. Make the fares too high and you lose passengers which has the net effect of reducing revenue more than raising the fares brought in. There is likely a revenue optimal level somewhere between the two extremes.

 

[johntea]

The Leeds to York fare alone should mean a healthy profit!

 

[NickBucks]

Whoever takes the top job at First Group has a number of issues to contend with . I wonder to what extent bidding for new or expiring franchises will now receive lower priority unless the takeover of the company rejected a few weeks ago is resurrected ?

 

[OxtedSignaller]

It just highlights how the franchise system is flawed in this country. The government is letting us all down with its highly prescribed tenders and Requests/Requirements. Wouldn’t surprise me if we see more companies follow the example of National Express and focus more o. The European market. Yes passport holders may be up, but that just means that they can bid if they choose too. They may just be waiting for the whole system to be reformed.

 

[_toommm_]

I would take the opposite argument.

Given how extortionate their fares are I find it amazing they have managed to lose money.

I will admit, the fares around Leeds and York are rather large, but for me, the fares on the WCML aren’t too bad (bearing in mind though I get 50% off the fares with the 16-18 discount)

 

[InOban]

Interesting - are Megabus/Bolt Bus trouncing them? It's good old Stagey vs First, just like in the UK

Airfares in the USA are now so low that the pax are deserting the buses.

 

[Dentonian]

It is a balancing act. Make the fares too cheap and you get lots of passengers but low revenue. Make the fares too high and you lose passengers which has the net effect of reducing revenue more than raising the fares brought in. There is likely a revenue optimal level somewhere between the two extremes.

Usual problem of inconsistency. Notwithstanding current reliability issues, you have a choice between Piccadilly and Wigan of ATN or TPE. TPE trains are obviously superior; they are also quicker, and yet they are cheaper! This is based on "Walk up" Off peak Day Returns, btw.
Then again, rail passengers will always complain about fares - even if they are cheaper than the parallel bus service. Albeit, that normally applies to much shorter journeys than Leeds-York mentioned above.

 

[Dentonian]

Airfares in the USA are now so low that the pax are deserting the buses.

Hmm, shame we can't get Spirit, Southwest or Frontier (fantastic wildlife tail fins, btw) to come to eastern GM (lol)

 

[Ianno87]

The Leeds to York fare alone should mean a healthy profit!

Shared with XC, Northern and (a tiny bit) VTEC. And it's a long expensive way to cart a train from Liverpool to Newcastle to pick up a Leeds to York fare.

 

[Killingworth]

I wouldn’t be surprised they lose money - with how cheap some of their advance fares are MAN-SHF it’s almost laughable how cheap I can get them.

The Northern stopping service that takes 25-30 minutes longer used to be more expensive, but competition is kicking in and they've just introduced some advance saver fares at £4.50 single.

 

[WatcherZero]

Operating loss on TPE was £6.5m last year and £106m forecast till franchise end in 2023, ie about £21m a year.
Troubling but not terminal.
Passenger growth last year was 10%, but short of expectations.
Payment profile with DfT is unchanged.
I think it might explain the reluctance to get the MK3s into service, though.

However, wider events at FirstGroup make the headlines, with the departure of Tim O'Toole after big losses at Greyhound.
Tim is the sort of person who might reappear in a top rail job.

Get the feeling looking at the figures its not so much lack of revenue but higher than expected capital costs of meeting its franchise obligations (and the bills for investment fall mainly this financial year), which means they book an exceptional loss then in future years can post profits again.

 

[jayah]

The Northern stopping service that takes 25-30 minutes longer used to be more expensive, but competition is kicking in and they've just introduced some advance saver fares at £4.50 single.

The worm may be about to turn.

It must be time for some franchise consolidation meaning higher fares if TPE merge back with Northern and stop this cut throat Fare competition between them.

 

[Starmill]

Apologies for picking but...

There is no company running trains by the name of ATN.

TransPennine Express do not serve Wigan.

 

[cactustwirly]

Apologies for picking but...

There is no company running trains by the name of ATN.

TransPennine Express do not serve Wigan.

Even the Manchester - Scotland services?
Or have they switched to via Bolton now?

 

[Leigh White]

Even the Manchester - Scotland services?
Or have they switched to via Bolton now?

TransPennine still go via Wigan NW, but wizz straight through.

 

[js1000]

So this will be another one of those greedy private companies making a fortune out of passengers?

I think TPE provide a decent service. I consider the reinvigoration of the trans-pennine franchise of the past 15 years as one of the few positive rail stories in the North.

Their entire fleet is modern and interiors are generally well presented which is a rarity in the north. First have done a good job cultivating a coherent brand and direction for the what the franchise does over the past 15 years - long distance inter-city routes across the north and Scotland. It's just a shame the revenue doesn't quite cover expenditure.

I remember 10 years ago the railway franchising were perceived as a "license to print money". The struggles numerous franchises face as a result of more demanding DfT franchise requirements is perhaps a good thing for the taxpayer.

 

[jayah]

TransPennine still go via Wigan NW, but wizz straight through.

Northern sometimes run a Wigan - Piccadilly service when it isn't cancelled.

 

[Leigh White]

Northern sometimes run a Wigan - Piccadilly service when it isn't cancelled.

I bet it caught a few folk out jumping on a TPE at Preston heading for Wigan without checking this week.

 

[jayah]

I bet it caught a few folk out jumping on a TPE at Preston heading for Wigan without checking this week.

Poor old Liverpool has been thoroughly stitched up every which way with this new timetable. I wouldn't put it past them the shut down Lime Street next.