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September 2022, Virtual
September 29 2022, Virtual
Business travel under threat
The possible failure of train operating companies (TOCs) in the UK could threaten business travel by rail, British MPs warn.
The business downturn is threatening the viability of several of the UK's TOCs, a cross-party committee of MPs has said.
The House of Commons' Public Accounts Committee (PAC) warned in its "Letting Rail Franchises 2005-2007" report that some of the companies are earning significantly less from their operations than they had projected and were in danger of ceasing operations.
Under the terms of the franchises, some rail operators receive subsidies from the government, while others pay significant amounts to run their services.
But both sets of figures are based on revenue projections that the current downturn have rendered unrealistic.
As a result, the PAC has warned: "In the short term, there is an increased risk of train operator financial failure."
Despite this risk of financial failure, the PAC does not believe that the Department for Transport (DfT) should allow train companies to re-negotiate the contracts.
It said: "The Department should hold train operators to their contract terms although, in some cases, including National Express's bid for the East Coast franchise, the original bid might have included over-optimistic revenue assumptions."
National Express agreed to pay £1.4bn to run the East Coast until 2015 based on a 9-10% revenue growth projection.
Yet last month it said that passenger revenues had grown by only 0.3%.
In the medium term there are provisions in the franchise contracts to allow for subsidies if passenger revenue falls below certain points.
But these will not become effective until the contracts have run for several years.
In the meantime, rail operators are likely to cut costs where they can, including delaying investing in new carriages and, in some cases, removing the buffet cars from trains. They have also raised unregulated fares to increase revenue.