Franchises which failed to turn a profit

[WillPS]

Which franchises have/are set to not turn an overall profit over the franchise period?

Obviously there's National Express East Coast, but is there any others? CrossCountry was described as "on the brink" when I first arrived here, and that was when it was subsidised.

How about GNER's final franchise period?

One would hope that Connex didn't walk away with any sort of financial reward either... but did they?

 

[TheWalrus]

FGW didnt do very well due to operating costs rising

 

[WatcherZero]

Great Western wouldnt have been for the next three years if they had taken the optional extension because the main franchise payments were rear loaded, subsidy in the early years which gradually reduced then increasing franchise payments.

At the time East Coast was handed back 5 of the 15 were said to be 'failing and seeking to renegotiate' according to the inquiry into East Coast collapse, though exactly which 5 im unsure of. The report found renogiating all the contracts would have cost the Dft £200-400m.

 

[WillPS]

Could failure include stuff like EMT though, who were failing on the grounds of lack of capacity?

 

[Skimble19]

During GNER's final period (the management contract) it was making a profit, I believe there's a press release on the Sea Containers website about it.

 

[starrymarkb]

Wasn't it more the parent company going bankrupt due to problems on the shipping side that meant GNER were stripped.

 

[Skimble19]

Strictly speaking GNER wasn't stripped of the franchise, they tried to re-negotiate but instead ended up with a management contract for the franchise which they ran until NXEC took over. But yes, it was due to Sea Containers financial troubles from the shipping business that it happened.

 

[ApAp]

Strictly speaking GNER wasn't stripped of the franchise, they tried to re-negotiate but instead ended up with a management contract for the franchise which they ran until NXEC took over. But yes, it was due to Sea Containers financial troubles from the shipping business that it happened.

I'd blame the overbidding for the franchise caused by the auction process that was more concerned for the highest bidder rather than the company that'd deliver the best service.

I believe GNER were highly profitable until the 2005 new franchise.

The fact that NXEC made an even higher bid and the government were stupid enough to accept it shows that lessons were not learned.

 

[northwichcat]

Strictly speaking GNER wasn't stripped of the franchise, they tried to re-negotiate but instead ended up with a management contract for the franchise which they ran until NXEC took over. But yes, it was due to Sea Containers financial troubles from the shipping business that it happened.

When the franchise was rewarded to GNER it was a bit of a surprise choice because it was public knowledge that Sea Containers were already in financial trouble. The new franchise required the franchisee to pay a higher rate to the government than the rate paid for the old franchise. GNER thought the solution would be fare rises to Advance tickets. However, that didn't work and GNER gave up the franchise. NXEC took the franchise over on similar terms and came up with the solution of charging £1 for seat reservations. However, NXEC broke the terms of the franchise and it was taken off them.

 

[WatcherZero]

There were rules about the solvency of parent company (and maintaining a bond), as far as I know the franchise itself was doing fine but because the parent became insolvent and couldnt maintain the bond it invalidated the franchise agreement.

 

[tbtc]

Great Western wouldnt have been for the next three years if they had taken the optional extension because the main franchise payments were rear loaded, subsidy in the early years which gradually reduced then increasing franchise payments

I have a bit of a problem with the way that some franchsies are "loaded" like this.

There's a huge subsidy paid in the first few years, which may turn into a negligible subsidy/ net payment to the Government by the end of the franchise.

However, the revenue for the TOC isn't going to fluctuate *that* much over a ten/fifteen/twenty year period. It should go up, of course, especially with annual ticket price increases, but certainly be nothing like as dramatic a "curve" as some of the subsidy profiles.

The trouble is, this gives the TOC an incentive not to continue with the franchise, or to try to renegotiate part way through. Soak up the subsidy in the early years, then try to avoid having to pay any revenue back later on...

 

[SteveP29]

Personally, I think the franchising system is flawed anyway.

It encourages companies to bid way over what they can afford to ensure they get the franchise, then complain at the fact they can't operate at a profit or keep service levels/ quality up for the revenue they make, hence National Express just handing back the franchise (with, from what I can see, no penalty for doing so, correct me if I'm wrong)

 

[WatcherZero]

Its upto the government really, they make their revenue predictions and business plan in the bid document. If the plan is incorrect it should be the bid reviewers that call them on it. In part it hasnt been the franchises fault, they overpaid yes but they based their models on the passenger projections and predicted revenue flow given to them by the government and with the 2008 world recession passenger numbers fell and though theyve started rising again they arent where the model predicted they would be.

 

[BestWestern]

I have a bit of a problem with the way that some franchsies are "loaded" like this.

There's a huge subsidy paid in the first few years, which may turn into a negligible subsidy/ net payment to the Government by the end of the franchise.

However, the revenue for the TOC isn't going to fluctuate *that* much over a ten/fifteen/twenty year period. It should go up, of course, especially with annual ticket price increases, but certainly be nothing like as dramatic a "curve" as some of the subsidy profiles.

The trouble is, this gives the TOC an incentive not to continue with the franchise, or to try to renegotiate part way through. Soak up the subsidy in the early years, then try to avoid having to pay any revenue back later on...

You are absolutely spot on!! *thinks immediately of some TOC's **** poor revenue collection efforts :roll:*

 

[Xenophon PCDGS]

Strictly speaking GNER wasn't stripped of the franchise, they tried to re-negotiate but instead ended up with a management contract for the franchise which they ran until NXEC took over. But yes, it was due to Sea Containers financial troubles from the shipping business that it happened.

How matters have changed since private railway companies prior to the amalgamations of the 1920's, were able to cope with other interests that they owned, when drawing up their annual balance sheets.

The Lancashire and Yorkshire Railway had the largest fleet operated by a railway company with services to Europe, but unlike Sea Containers, these vessels ran at a profit for the railway company.

 

[Skimble19]

Personally, I think the franchising system is flawed anyway.

It encourages companies to bid way over what they can afford to ensure they get the franchise, then complain at the fact they can't operate at a profit or keep service levels/ quality up for the revenue they make, hence National Express just handing back the franchise (with, from what I can see, no penalty for doing so, correct me if I'm wrong)

Well, they haven't qualified for the next (pathetically short) East Anglia franchise.. that leaves them with c2c, whether they'll keep that after the extension is up I'd love to know..