Government steps in to take cost risk off train operators and keep trains running

The government has announced that, due to the current Coronavirus (COVOD-19) pandemic, it is taking emergency measures to support and sustain necessary rail services as operators face significant drops in their income.

The Department for Transport will temporarily suspend the normal franchise agreements it has with the train operating companies and transfer all revenue and cost risk to the government for a limited period, initially six months.

Train operators will continue to run services day-to-day for a small predetermined management fee.

The government’s intention is to make sure that trains necessary for key workers and essential travel continue to operate.

The railways have already seen up to a 70 per cent drop in passenger numbers. Rail fares revenue has also reduced, as people increasingly work from home and adopt social distancing, with total ticket sales down by two-thirds from the equivalent date in 2019. 

It has already been announced that fewer services will operate over the coming months, and the likelihood is that train operators would not be able to sustain viable businesses given the fewer trains running and the vastly reduced number of passengers. However, allowing operators to enter insolvency would cause significantly more disruption to passengers and higher costs to the taxpayer.

Government believes that the management fee mentioned above will allow operators to act in the national interest in tackling Covid-19. Fees will be set at a maximum of two per cent of the cost base of the franchise before the Covid-19 pandemic began. This move is intended to incentivise operators to meet reliability, punctuality and other targets.

The maximum fee attainable will be far less than recent profits earned by train operators. In a veiled                 threat, the DfT warns that, in the event that an operator does not wish to accept an Emergency Measures Agreement, the Government’s Operator of Last Resort (OLR) stands ready to step in.

DfT OLR Holdings Limited, known as DOHL, is already running the former East Coast (LNER) and Northern franchises.

While trains will continue to run, the government is urging non-urgent travellers to stay at home. Pre-purchased advance tickets will be refunded in full for those who cancel their plans, and season-ticket holders will also be able to claim a refund for the portion of the ticket that remains unused.

Commenting on these moves, Secretary of State for Transport Grant Shapps said: “We are taking this action to protect the key workers who depend on our railways to carry on their vital roles, the hardworking commuters who have radically altered their lives to combat the spread of coronavirus, and the frontline rail staff who are keeping the country moving.

“People deserve certainty that the services they need will run or that their job is not at risk in these unprecedented times. We are also helping passengers get refunds on Advance tickets to ensure no-one is unfairly out of pocket for doing the right thing.

“These offers will give operators the confidence and certainty so they can play their part in the national interest.” 

Paul Plummer, chief executive of the Rail Delivery Group, added: “The rail industry is working together so that people and goods can keep making essential journeys during this unprecedented national challenge, getting key workers to hospitals, food to shops and fuel to power stations.

“The industry strongly welcomes the Department for Transport’s offer of temporary support and while we need to finalise the details, this will ensure that train companies can focus all their efforts on delivering a vital service at a time of national need.

“We would like to thank our people, who continue to do an incredible job in difficult circumstances.”

Franchise included in today’s government offer include:

• Chiltern Railways
• CrossCountry
• Greater Anglia
• East Midlands Railway
• Great Western Railway
• South Eastern
• South Western Railway
• Govia Thameslink Railway (including Southern and Great Northern)
• Transpennine Express
• West Coast Partnership
• West Midlands Trains
• c2c

Franchises in Wales and Scotland are the responsibility of their devolved governments. Open-access operators such as Grand Central, Hull Trains and Eurostar operate under different arrangements.