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Concern over state rail operator proposal
From the Financial Times of Sun, 17 Aug 2014 10:02:41 GMT
London Bridge

Go-Ahead's new Thameslink franchise contract involves overseeing the overhaul of London Bridge station

Transparency would be a key concern if a future Labour government allowed a state operator to compete with private train companies for rail franchises, said David Brown, chief executive of the UK bus and rail operator Go-Ahead.

“They would have to prove that there is a transparent process in place,” he told the Financial Times in an interview, pointing out that the government would be both referee and bidder.

In addition, preparing a bid cost about £5m, he said, questioning where the government would find the money. “Where’s your cost of capital,” Mr Brown asked, “and if you bid incorrectly, who’s picking up the bill?”

Unions and Labour politicians have held up the example of the state-backed body Directly Operated Railways successfully running the East Coast line between London and Edinburgh as proof the state can run a railway.

But Martin Griffiths, chief executive of the rail industry body the Rail Delivery Group and head of transport group Stagecoach, warned last month that Labour’s plan would deter train companies from bidding and could drive them to look for opportunities elsewhere.

Go-Ahead has yet to decide whether it would bid for franchises if it had to compete against a state operator.

“My view is, what problem are they [Labour] trying to solve?” asked Mr Brown. “If it’s about competitiveness, there’s already competitiveness. If it’s about trying to take away profits, there are very low profit margins on the railways. Whatever it is, I don’t see that the answer is Directly Operated Railways.”

Go-Ahead’s profit outlook was revitalised by its securing of the Thameslink franchise, the biggest UK rail franchise, which it will take over next month as Govia, its 65-35 per cent venture with Keolis, a subsidiary of French state operator SNCF.

The contract, which comprises the commuter routes bisecting London and running in the southeast, makes up 23 per cent of the UK rail market and will generate £1.2bn in annual revenue. The complex management contract involves overseeing £6.5bn of engineering works, including an overhaul of London Bridge station.

Go-Ahead also runs the Southeastern and London Midland franchises, as well as Southern, which will merge with Thameslink next year.

The win is set to benefit shareholders, with analysts predicting an increase in the dividend, which was 25.5p a share when the group posted first-half results to the end of last year. Mr Brown confirmed the group was reviewing its plan on its dividend, which it had promised to do in the event of franchise wins.

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