LNER - Losses and subsidy increase despite increase in passenger numbers

[Darandio]

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.

Your only two posts in this thread have been about the Eleanor campaign. Your last eight posts before that were about the Eleanor campaign. Maybe it's time to get over Eleanor?

 

[MatthewHutton]

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.

I am also concerned about the £1m/carriage/year costs which sounds absolutely eye watering given a Shinkansen train costs like £2.5m/carriage total.

But in terms of profitability let’s also see when the passenger numbers stop rising where they land up.

 

[lordbusiness]

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...

​

I've heard on the grapevine that the prospect of transferring has gone down like a bucket of cold sick.
A significant proportion have taken the alternative option of moving to another department in the CS rather than go to DFTO/GBR.

 

[Royston Vasey]

I've heard on the grapevine that the prospect of transferring has gone down like a bucket of cold sick.
A significant proportion have taken the alternative option of moving to another department in the CS rather than go to DFTO/GBR.

I can't help feeling it isn't necessarily a bad thing. They're building a railway now, not a government department. Committed and interested people retained and an opportunity to recruit people who can run a railway rather than a pure bureaucracy. People who might see the horrendous false economies that have set us back for so long. Advocate and administer rolling electrification, for instance. We can hope.

 

[paulmch]

I can't help feeling it isn't necessarily a bad thing. They're building a railway now, not a government department. Committed and interested people retained and an opportunity to recruit people who can run a railway rather than a pure bureaucracy. People who might see the horrendous false economies that have set us back for so long. Advocate and administer rolling electrification, for instance. We can hope.

Quite right - the railway has been held back by DfT incompetence for a really long time, and if these people don't want to be part of the solution then it's better for all concerned if they move elsewhere!

 

[mpthomson]

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.

Profits falling/losses increasing can't be blamed on increased passenger numbers unless they've suddenly significantly increased the availability of cheap fares, which we know hasn't happened.... More passengers equals more revenue, something else is driving this.

Your last sentence is pure speculation, the number of people who decided not to use the ECML because of an advertising campaign will be zero to negligible.

 

[hwl]

More passengers equals more revenue,

Does it?
1. Split ticketing is impacting all long distance operators so more "passengers" does always mean more passengers.
2. If you have been losing some longer distance passengers and replacing then with more short hop passengers, this is very unlikely to have been good for revenue.

 

[Trainbike46]

Does it?
1. Split ticketing is impacting all long distance operators so more "passengers" does always mean more passengers.
2. If you have been losing some longer distance passengers and replacing then with more short hop passengers, this is very unlikely to have been good for revenue.

In LNER's case, wasn't the number of passenger-km up as well, though not as much as the number of passengers?

If passenger-km is increasing, there are either genuinely more passengers, or the average distance travelled is increasing. Either situation should increase revenue.

 

[Richardr]

What was the effect of strikes on the passenger numbers comparing this year v last year? Is it possible to know?

 

[mpthomson]

Does it?
1. Split ticketing is impacting all long distance operators so more "passengers" does always mean more passengers.
2. If you have been losing some longer distance passengers and replacing then with more short hop passengers, this is very unlikely to have been good for revenue.

In LNER's case, wasn't the number of passenger-km up as well, though not as much as the number of passengers?

If passenger-km is increasing, there are either genuinely more passengers, or the average distance travelled is increasing. Either situation should increase revenue.

Yes it was, my point stands.

 

[DarloRich]

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

who should run the company?

and the advertising campaign.

Lets be charitable and say that the advertisement campaign cost 500k...................

 

[Dave W]

I can't help feeling it isn't necessarily a bad thing. They're building a railway now, not a government department. Committed and interested people retained and an opportunity to recruit people who can run a railway rather than a pure bureaucracy. People who might see the horrendous false economies that have set us back for so long. Advocate and administer rolling electrification, for instance. We can hope.

Are the people who are staying really "committed and interested"? Or are they the ones that can't find another job?

 

[MrJeeves]

Lets be charitable and say that the advertisement campaign cost 500k...................

You're not being very charitable... We know it is at least £691k as per post #38.

That was just the cost of just producing the one Eleanor film and not other associated things such as the cost of the puppet, vinyl wraps for trains, photoshoots for other advertising, etc.

 

[mpthomson]

You're not being very charitable... We know it is at least £691k as per post #38.

That was just the cost of just producing the one Eleanor film and not other associated things such as the cost of the puppet, vinyl wraps for trains, photoshoots for other advertising, etc.

The cost of the puppet will be included in the advert cost as that's what it was made for (if it’s not actually CGI, either way the cost will be contained within the marketing campaign costs).

 

[MatthewHutton]

In LNER's case, wasn't the number of passenger-km up as well, though not as much as the number of passengers?

If passenger-km is increasing, there are either genuinely more passengers, or the average distance travelled is increasing. Either situation should increase revenue.

Possibly more advance tickets and fewer business tickets. Certainly since 2020 that will be the case.

 

[Haywain]

Are the people who are staying really "committed and interested"? Or are they the ones that can't find another job?

You think that people who have been running a successful train operator would struggle to find alternative employment? That is just ridiculous.

 

[Dave W]

You think that people who have been running a successful train operator would struggle to find alternative employment? That is just ridiculous.

Absolutely not. But I think it's far more complicated than a black and white appraisal of "good, now we can get on with running the trains rather than the bureaucracy".

 

[Sealink]

Sorry for repeating myself, and maybe the effect of COVID is the reason, but I thought the ECML under public ownership was returning a premium compared to the failed private operators.

 

[JamesT]

Sorry for repeating myself, and maybe the effect of COVID is the reason, but I thought the ECML under public ownership was returning a premium compared to the failed private operators.

They certainly weren’t initially. VTEC was delivering higher premiums than LNER. The issue was that those premiums were higher than the profits they were making so VTEC couldn’t afford it. Which has generally been the pattern with the ECML, the franchising system has encouraged over optimistic bids which can’t be met.

 

[Hadders]

Sorry for repeating myself, and maybe the effect of COVID is the reason, but I thought the ECML under public ownership was returning a premium compared to the failed private operators.

To summarise, the leasing costs of the new Azuma trains are much, much higher than the old trains. That is the root cause of the problem.

The procurement of the new trains was DfT led.

 

[AngusH]

Sorry for repeating myself, and maybe the effect of COVID is the reason, but I thought the ECML under public ownership was returning a premium compared to the failed private operators.

That narrative is generally understood, but the numbers are actually somewhat different.

The ORR spreadsheet shows that the franchise was paying the government right up to covid.
However the franchise payments under virgin trains were too high for the business to pay towards the end so it was making a loss.

2017-2018
1097 million operating income
430 million franchise payment to govt
87 million loss


Virgin trains gave up in about June 2018 at which point the government operator took over
and it must have been agreed that they would pay lower payments back to the government, which continued until covid started.

2018-19:
1121 million operating income
263 million franchise payment to govt
36 million surplus

2019-20
1044 million operating income
132 million franchise payment to govt
7 million surplus

2020-21 (covid)
158 million operating income
712 million subsidy
1 million surplus



In short virgin trains overbid which made the numbers not work out,
the private sector operator always paid more money to the government,
the public sector operator after virgin trains always paid lower payments.

The private operator thought that they wouldn't be able to keep going
with the promised payments (which is probably true)


The government operator never needed to pay as much so it made a small surplus.
It would have made a loss too if had needed to pay at the virgin trains rate.

I think the whole franchise system was flawed in that
the government punished a successful operation
and the bidding setup was just really bad.



Post covid it has continued to be subsidised and isn't making payments to the government.
though, as discussed, this is probably due to train leasing costs.
I'm not convinced anyone could make it as profitable as it was previously, given the current cost base.


numbers extracted from the ORR spreadsheet I posted before,
polite corrections gratefully received!

 

[fandroid]

The leasing costs make for scary reading when compared with pre-covid costs, but they shouldn't influence comparisons between 23-24 and 24-25. As GBR becomes a greater reality, it then becomes possible to see their costs as something the whole railway should bear, not as a significant albatross to be borne only by LNER. That's not to say that really expensive units shouldn't be worked for maximum potential income generation.

 

[richa2002]

All this talk of these units being expensive yet the passenger has to put up with bargain basement seats. Sums up everything wrong with the system.

 

[cats_five]

How much did the hst & 225 sets cost?

 

[YorkshireBear]

How much did the hst & 225 sets cost?

Any direct comparison there is likely to not reveal anything meaningful. Things used to be cheaper so it doesn't mean anything.

The real killer is cost versus other Hitachi fleets.

 

[Krokodil]

How much did the hst & 225 sets cost?

The capital cost of those will have been long-since paid for so you can't really compare with new units.

You can however compare five car 800s to 802s/805s, and five car 801s to 803s.

 

[cats_five]

The capital cost of those will have been long-since paid for so you can't really compare with new units.

You can however compare five car 800s to 802s/805s, and five car 801s to 803s.

I meant when they were new. They have given - and some still give - fantastic service over the past 50 years.

 

[Haywain]

I meant when they were new. They have given - and some still give - fantastic service over the past 50 years.

You still can’t compare. When they were new they were maintained ‘in house’ without availability guarantees. The only semi-reasonable comparison would be on whole life costs.

 

[LNW-GW Joint]

The leasing costs make for scary reading when compared with pre-covid costs, but they shouldn't influence comparisons between 23-24 and 24-25. As GBR becomes a greater reality, it then becomes possible to see their costs as something the whole railway should bear, not as a significant albatross to be borne only by LNER. That's not to say that really expensive units shouldn't be worked for maximum potential income generation.

The IEP contract secured the AT300 production line at Newton Aycliffe, and built strategic maintenance depots on the GWML/ECML.
That allowed lower costs for subsequent AT300 orders because the underlying infrastructure was there already for IEP.

The IEP contracts were negotiated by DfT and then novated onwards to GWR/LNER. They had no part to play apart from deciding minor features.
The final act was when the DfT confirmed an extension to the IEP order for LNER (IC225 replacement), not allowing them to consider other suppliers (Alstom/CAF).

I can't think of a reason to move the Azuma costs to other operators, or to some central "sink" fund.
It sets the cost base for LNER, just as Pendolino leasing sets the cost base for Avanti with its dedicated tilting requirements.

We'll have to see what the cost of new 125mph trains is in the upcoming orders.
We are past the era of cheap money. and a decade of manufacturing inflation will have to be paid for.

 

[thedbdiboy]

Sorry for repeating myself, and maybe the effect of COVID is the reason, but I thought the ECML under public ownership was returning a premium compared to the failed private operators.

That was the narrative pumped out by those that sought to oversimplify Rail finances to suit the 'private sector evil; public sector good' story.

That narrative is generally understood, but the numbers are actually somewhat different.

The ORR spreadsheet shows that the franchise was paying the government right up to covid.
However the franchise payments under virgin trains were too high for the business to pay towards the end so it was making a loss.

2017-2018
1097 million operating income
430 million franchise payment to govt
87 million loss

Virgin trains gave up in about June 2018 at which point the government operator took over
and it must have been agreed that they would pay lower payments back to the government, which continued until covid started.

2018-19:
1121 million operating income
263 million franchise payment to govt
36 million surplus

2019-20
1044 million operating income
132 million franchise payment to govt
7 million surplus

2020-21 (covid)
158 million operating income
712 million subsidy
1 million surplus

In short virgin trains overbid which made the numbers not work out,
the private sector operator always paid more money to the government,
the public sector operator after virgin trains always paid lower payments.

The private operator thought that they wouldn't be able to keep going
with the promised payments (which is probably true)

The government operator never needed to pay as much so it made a small surplus.
It would have made a loss too if had needed to pay at the virgin trains rate.

I think the whole franchise system was flawed in that
the government punished a successful operation
and the bidding setup was just really bad.

Post covid it has continued to be subsidised and isn't making payments to the government.
though, as discussed, this is probably due to train leasing costs.
I'm not convinced anyone could make it as profitable as it was previously, given the current cost base.

numbers extracted from the ORR spreadsheet I posted before,
polite corrections gratefully received!

The Franchising model had indeed failed by this point but Virgin's bid was dependent on Network Rail and Hitachi delivering to key timescales that were missed. This had been a repeated failure of the DfT which perpetually assumed that 'next time would be different' when accepting bid forecasts dependent on infrastructure upgrades etc.