Transport company FirstGroup announced this morning that it has agreed terms with the Department for Transport to terminate two of its rail franchises – Avanti West Coast and South Western Railway.
This moves the UK rail network one step closer to being renationalised, with trains run by third parties under fixed fee management contracts.
As with the majority of UK rail services, Avanti and South Western services are currently operating under Emergency Recovery Measurement Agreements. These were negotiated with the Government to ensure that trains continued to run during coronavirus despite the lack of passengers.
The Avanti West Coast franchise is being terminated with no penalty fee as it had been performing profitably.
South Western Railway – which is 30% owned by MTR, operator of Hong Kong’s metro – will need to pay an additional £33 million, on top of the loss of performance bonds, to partially compensate the taxpayer for the losses it will now be taking on.
FirstGroup is not entirely out of the picture
The Department of Transport is now negotiating with FirstGroup on the terms of a management agreement for both franchises.
This would see FirstGroup overseeing South Western Railway until April 2023 and Avanti West Coast until April 2026. FirstGroup would be paid a management fee for operating the service but would take no revenue risk.
No deal has yet been agreed for the TransPennine Express franchise, also run by First Group. A penalty payment will be required from FirstGroup in return for the Government taking over the loss making service. Great Western Railway, the other First Group franchise, appears to be continuing in its current form until the existing deal expires in 2023.
There is no word on whether Nectar points will continue to be offered under the new management contracts.
The official Stock Exchange announcement by FirstGroup is here.