Thursday, 2 July 2009

Off the Rails - 1st crack in franchise model

Yesterday the Government nationalised the East Coast Mainline rail franchise, which had been run by National Express.

As LEAP research for the RMT shows, passenger numbers, and therefore revenue, may continue to decline for several years - even after the recession ends (which as previous posts show may not be very soon) - as unemployment lags behind the GDP data of a recession.

The finances behind National Express's default highlight why several other franchises may follow suit over the coming months. Their franchise agreement committed National Express to a repayment of £1.4bn in premium payments to the Government until 2015. This included £87m this year and £140m next year. The amount was based on bullish predictions for passenger growth that would not have been achieved.

To try to protect its profit margin, National Express East Coast regulated fares had increased by 6% (7.4% for unregulated fares) in January 2009. National Express Group had previously announced a total loss of 750 jobs across the East Anglia and East Coast franchises.

And this is how private franchises will seek to protect themselves in a recession: cutting jobs, above-inflation fare increases, and cuts in services, removing buffet cars, cutting ticket office opening hours, etc.

It also goes to show, yet again, that when essential services are privatised the risk remains nationalised.

Read what RMT General Secretary Bob Crow and John McDonnell had to say about the nationalisation on the RMT website

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