LNER - Losses and subsidy increase despite increase in passenger numbers

[Nicholas Lewis]

The latest annual leasing costs are £397million and there are 500 Azuma carriages (plus 73 legacy Mk4s). It's madness.

That costs hasn't materially changed other than inflationary indexation yet LNER are losing more money from being the poster child post Covid.

 

[Watershed]

Doesn’t that cost in the table include everything though, so things like maintenance as well as raw leasing costs.

Yes, but even when you look at those costs combined, you are looking at the IEP trains being roughly 2-3x times the cost of the IC125/225s that preceded them.

 

[Charlie978]

Yes, but even when you look at those costs combined, you are looking at the IEP trains being roughly 2-3x times the cost of the IC125/225s that preceded them.

Oh I completely agree that the original IEP procurement is extortionate, but just not circa £1m per carriage per year extortionate.

 

[800Travel]

I'm not exactly sure how they've filmed that. The coach itself is an Azuma (could be CGI) but the seats are real, but aren't real Sophias, they look like a bit like Networker seats, I can't put my finger on what they are. They've put normal LNER cloth on but it fits poorly and is visibly baggy on the headrests in places. Anyway... deeply annoying

I cannot reference a source for this - may have been LinkenIn or X but it was a while ago, but I believe it was stated a mock up was built. Off the top of my head, I think it was also built and filmed overseas, with there being some controversy about why it couldn't have been done in the UK to save travel costs

 

[coppercapped]

The higher costs of the IEP contract have been known about for some time...

...according to Rail Business Intelligence (No 425, 1st November 2012) under the headline "IEP will cost twice as much as a Pendolino" it reports:

"Before the lengthening programme and delivery of the four new trains, Alstom was covering 48 Pendolino diagrams from 52 sets. On this basis the cost per diagrammed vehicle per month was £37,000.

"Based on the total cost in a written answer (Earl Attlee on 15th October 2012) IEP will cost twice as much per diagrammed vehicle as the Class 390."

A table in the article gave the cost per diagrammed IEP vehicle per month as £74,500. That's £894,000 per year in 2012 pounds or £1,133,000 per year in 2025 pounds.

Ouch.

 

[mikeg]

The article, and the post you're replying to, explain that there are now quite a few more passengers. So I don't think you're making the point you think you're making.

Even if there are more passengers, I've observed the following in my own travel patterns:

If there's a reasonably priced flexible ticket option and there's a chance I could do with (ie. not necesarilly absloutely need) some flexibility, I'll purchase that even if it costs a bit more. If advances are all that's reasonable, I make my plans fit. The 70minute flex is too expensive for too little added flexibility so I wouldn't buy it anyway. So is it possible that by forcing more people onto advances, they're forgoing additional discretionary spending in the form of added on flexibility paid for by passengers?

Just a thought.

 

[Bletchleyite]

Even if there are more passengers, I've observed the following in my own travel patterns:

If there's a reasonably priced flexible ticket option and there's a chance I could do with (ie. not necesarilly absloutely need) some flexibility, I'll purchase that even if it costs a bit more. If advances are all that's reasonable, I make my plans fit. The 70minute flex is too expensive for too little added flexibility so I wouldn't buy it anyway. So is it possible that by forcing more people onto advances, they're forgoing additional discretionary spending in the form of added on flexibility paid for by passengers?

Just a thought.

That's certainly true of me. At present I buy off peak returns pretty much by default. If we move to the LNER system I'll book more in advance and pay less than now.

 

[MrJeeves]

I'm not exactly sure how they've filmed that. The coach itself is an Azuma (could be CGI) but the seats are real, but aren't real Sophias, they look like a bit like Networker seats, I can't put my finger on what they are. They've put normal LNER cloth on but it fits poorly and is visibly baggy on the headrests in places. Anyway... deeply annoying

I cannot reference a source for this - may have been LinkenIn or X but it was a while ago, but I believe it was stated a mock up was built. Off the top of my head, I think it was also built and filmed overseas, with there being some controversy about why it couldn't have been done in the UK to save travel costs

A fake Azuma coach was built in Prague and filming was conducted there, with LNER staff being flown out for the shoot.

£691,449 spent on that in total.

https://www.whatdotheyknow.com/request/iet_mock_up#incoming-3152463

 

[Krokodil]

Roger Ford discussed this in Modern Railways February 2025. His basic summary was that IEP procured fleets were significantly more expensive than those procured conventionally.

Page 30

Remind me eho wrote those contracts? Oh yes, the DfT. I gather that they asked GWR not to boast about how much cheaper the 802 procurement was, as the DfT was rather embarrassed.

Now that fleets of 800s and 802s are used by public sector operators, does anyone think that a Freedom of Information request on their comparative costs would get anywhere? Assuming that would be declined under "commercial confidentiality", perhaps the Public Accounts Committee might want to probe.

 

[saismee]

How do these numbers compare to other operators new trains? How much per carriage are GA paying for their new fleets, which are also maintained by the original manufacturers?

 

[Haywain]

The whole thing is a scandal which the DfT has, so far, managed to keep quiet.

They (DfT) should expose the government department responsible for negotiating these contracts...

 

[Trainbike46]

They (DfT) should expose the government department responsible for negotiating these contracts...

The DfT should expose themselves?

 

[Tester]

The DfT should expose themselves?

I feel a 'Yes, Minister' episode coming on

 

[Gerald Fiennes]

Well, as Clarence Yard reminds us (above), this one has been in the works for a long time. c.£1m per vehicle per year seems about right for the combined leasing/maintenance costs for the IEPs: mega, but itv tems from the requirements placed on suppliers in the original procurement. (Unfortunately didn't stretch to nice seats in the case of the GW ones...!) DfT have been determined to put in place something close to the East Coast IEP timetable (3tph to Newcastle, 4 hours to Edinburgh) envisaged in the procurement (note that the trains are effectively on a 'take or pay' basis, ie. no money back for running fewer or for less miles, for the next 15 years or so) to justify the contract. The operational cost (staff, variable access, juice) per extra train-km in the Dec 25 implementation is not cheap so one would perhaps imagine widening losses for some time.

The thing to consider is that, given that track access rates and IEP lease charges are essentially fixed (nothing much that LNER can do about them), the more useful measure could be the amount of revenue they can earn compared with staff, EC4T, catering and other directly variable opex. That's really where the idea that 'LNER is paying its way' is coming from (and is broadly correct if fixed costs are disregarded).

Worth noting that if you look at all of the TOCs combined, based on the ORR data set, the extra revenue that's come in for the past 15 years has been more than matched by extra operating costs by TOCs (new trains, staff levels, pay rates, EC4T, maintenance of their stations, paying NR for use of the major stations). Much of the increase has been about providing a better quality (better trains, much more visible staff, cleaner stations/trains and better info through websites, apps and station displays) but this hasn't been matched by more demand so, given GBR seems is expected to improve quality further (certainly a valid choice to make, surely?) one perhaps might expect the net cost of passenger rail to increase a bit more yet....

One thing going the other way is saving the need to pay Corporation Tax: once LNER (and other operators) get absorbed into GBR, its passenger operation will presumably be substantially loss making overall and therefore will no longer be liable for this....

 

[Tetchytyke]

The whole thing is a scandal which the DfT has, so far, managed to keep quiet.

What's insane is that the current eye-watering prices are actually lower than what was originally agreed. Agility Trains lowered the price after the 2011 spending review and after the National Audit Office had expressed serious misgivings about how the contract was awarded.

Google Gemini tells me that Agility Trains East, which manages the leasing but not the maintenance, had a turnover of £240M for the year ending 31/3/24, and an operating profit of £204M. The operating profit is before debt payments are made so the gross profit will be much lower, but if we take the average ROSCO average profit margin of 19% then we're still talking £50M a year going out of the franchise just to the lessor.

One presumes that the maintenance contract will account for the other 50% of LNER's rolling stock expenditure. If that contract also has the average ROSCO profit margin of 19% then there's your £100M. Nice work if you can get it.

One also presumes that the various contracts, particularly the maintenance contract, will have an inflationary increase baked in. If they use RPI rather than CPI then that will account for the huge increase in costs over the last few years.

 

[Megafuss]

As an aside, I've enjoyed reading this thread while waiting for my train at York this morning and witnessing a horde of southbound LNER Azuma trains with only between 40% and 60% of the seats occupied

 

[ainsworth74]

As an aside, I've enjoyed reading this thread while waiting for my train at York this morning and witnessing a horde of southbound LNER Azuma trains with only between 40% and 60% of the seats occupied

In fairness those trains are going to be much busier later on with leisure travel.

 

[LNW-GW Joint]

They (DfT) should expose the government department responsible for negotiating these contracts...

No doubt some of the civil servants involved will be among the 200-odd DfT rail staff being transferred to DOHL/GBR imminently (DfT announcement today).
Plus ça change...

​

 

[GuyGibsonVC]

In fairness those trains are going to be much busier later on with leisure travel.

Indeed, so. I’m currently at Darlington watching them go North and they are pretty much full.

 

[dk1]

As an aside, I've enjoyed reading this thread while waiting for my train at York this morning and witnessing a horde of southbound LNER Azuma trains with only between 40% and 60% of the seats occupied

That’s quite normal for a Friday morning.

 

[Tetchytyke]

No doubt some of the civil servants involved will be among the 200-odd DfT rail staff being transferred to DOHL/GBR imminently (DfT announcement today).
Plus ça change...

It's twenty years since the IEP started being developed, and almost fifteen years since the contracts were signed. The people responsible will be long gone.

Which is a big part of the problem.

 

[Krokodil]

It's twenty years since the IEP started being developed, and almost fifteen years since the contracts were signed. The people responsible will be long gone.

At least two I could name who were involved in the IET specs are dead, though I don't know if they had a role in the contracts themselves.

 

[crablab]

For those looking for more details on the IEP procurement and (scant) information on costs and contract formalities, I recommend reading:
- Foster Review
- 'Procuring new trains' - NAO

These have come up on the forum before, but posters who weren't around at the time (like me!) may not be familiar with them.

The calculations that the IEP is around 2-3 times as expensive are acknowledged - it appears to be a 'feature', not a bug. There's some explanation in the reports as to why that is the case.

 

[HSTEd]

And the lesson here is that these sorts of outsourcing contracts rarely end well for the taxpayer.

I always find it silly that a railway industry with turnover of around £25bn can't find the capital for a few hundred vehicles per year.

 

[The Foghorn]

It's interesting to read that people are opting for flexible tickets when advances offer little real saving despite their inherent restrictions. Advance tickets filter all the income to LNER, whilst flexible tickets get the income divided under the ORCATS formula. This may be having an impact on their income stream.

 

[fandroid]

As an aside, I've enjoyed reading this thread while waiting for my train at York this morning and witnessing a horde of southbound LNER Azuma trains with only between 40% and 60% of the seats occupied

That’s quite normal for a Friday morning.

Even so, that's a massive income opportunity being ignored. Even if all those empty seats were filled with passengers paying £10 each that extra income would be pure bunce for LNER (and it sounds as if they need it!)

There's something completely absent in in the modern railway marketing mind. They appear to be wedded to desperately complicated pricing "models" and really afraid to to try anything outside those. After all LNER have been completely freed from observing the traditional ticketing policies, but still seem unable to fill seats.

I feel that Virgin (or Ryanair, or even BA) would have have found a way.

 

[AlterEgo]

Even so, that's a massive income opportunity being ignored. Even if all those empty seats were filled with passengers paying £10 each that extra income would be pure bunce for LNER (and it sounds as if they need it!)

There's something completely absent in in the modern railway marketing mind. They appear to be wedded to desperately complicated pricing "models" and really afraid to to try anything outside those. After all LNER have been completely freed from observing the traditional ticketing policies, but still seem unable to fill seats.

I feel that Virgin would have have found a way.

Why? Virgin was renowned for running quite a few fresh air expresses in its day.

You can't just sell all your distress inventory extremely cheap because this cannibalises your market.

 

[dk1]

Even so, that's a massive income opportunity being ignored. Even if all those empty seats were filled with passengers paying £10 each that extra income would be pure bunce for LNER (and it sounds as if they need it!)

There's something completely absent in in the modern railway marketing mind. They appear to be wedded to desperately complicated pricing "models" and really afraid to to try anything outside those. After all LNER have been completely freed from observing the traditional ticketing policies, but still seem unable to fill seats.

I feel that Virgin (or Ryanair, or even BA) would have have found a way.

Even under BR trains like the flagship 3h59 06:00 Edinburgh to Kings Cross would load to around 100 in first class but sometimes only in double figures in standard on departure from York.

 

[mpthomson]

Oh who would have thought that splashing thousands upon thousands on an irritating ad campaign would boost profits...as well as their suicidal pricing policy

Just a shame that passenger numbers have increased, isn’t it?

 

[moleman212]

Just a shame that passenger numbers have increased, isn’t it?

While profits are falling faster than Keir Starmer's popularity. Hardly something to shout about.

Haven't the number of passenger seats on services also increased?

Perhaps profits would be a bit higher if it weren't for all the Virgin Managers that were kept on and the advertising campaign.