Companies profit at the expense of passengers

Someone once said there are two sure things in life, death and taxes. Well I can now tell you that there is a third – train operating company profits - which will come as no surprise to passengers who are having to pay ever increasing fares..

Over the last month two of the principal Groups owning train operating companies have reported enhanced revenues and profits, with a third publishing increased revenue figures and looking forward to better than expected profits.

The latest company to declare profits is Stagecoach – operators of South West Trains and East Midlands Trains – who have just released their financial results for the year ending 30th April 2011.

The Group’s UK Rail Division’s profits have increased by 16.3% to £48.4m in the latest year compared with £41.6m in 2010. These profits come as revenue for the company has grown by 4.2% to £1.07bn and are attributed to more people using trains because of increasing fuel prices and road congestion.

I expect that those higher fares of an average of RPI+1% from January 2011 also had a hand.

Regulated fares increased by 5.8% at the beginning of this year but according to a South West Trains (SWT) press release from the time many of their fares actually went up by 6.5%. Indeed, commuters on the Bournemouth to London route would have been paying an extra 6.8% making their annual season ticket cost £5,424 per annum.

Even with East Midlands Trains (EMT), which Stagecoach said did not make a profit, fares went up between Derby and Nottingham by a staggering 8.7%.

And as if that wasn’t enough, both SWT and EMT, under the terms of their franchise agreements, qualify for revenue support from the government because the level they have achieved is not up to what was forecast in the contracts signed with the Department for Transport.

Do I hear you saying, “Run that past me again?”

It’s true. The company makes a big profit on an enhanced revenue but as that isn’t up to the anticipated levels, the government steps in with subsidy payments. The first was paid to SWT in March 2011 and EMT is due to receive one in November of this year. Daft? Unbelievable? Well, its true and all in the Stagecoach results.

But there’s more. Stagecoach is also 49% owners of Virgin Trains and so have made a further £28m worth of profits from that concern, up by 55% compared to 2010. These figures are their share of Virgin Trains so there is no need to do complicated sums to work out the cut with Virgin.

Now, in fairness Stagecoach are not the only ones making a killing at passengers’ expense.

We ran a story recently about First Group (“First Group profits at your expense”) and in which we highlighted how the Group’s Rail Division had announced a 23% increase in profits, amounting to a total of £108.7m up to the end of March 2011. At the same time, First Group has avoided a massive premium payment to the government by dropping out of the First Great Western Franchise three years earlier.

And then there is the Go-Ahead Group that has a majority ownership of Govia, which owns three train operating franchises. Go-Ahead has released figures for the year to July ahead (no pun!) of their full year results published in September, and that show revenues up in Southern (9%), Southeastern (9%) and London Midland (8%). With this performance they are anticipating a full year operating profit beyond their previous expectations solely because of the strong rail performance and despite 80% revenue support for Southeastern.

Looking forward, passengers will be hearing more of train operators’ profits as the government agreement to a formula of RPI + 3% commences in January 2012 and continues each year for three years until 2015.

How is that fair on passengers, many of whom are now paying as much on travel as they do for their mortgage or rent?

And who said the railways weren’t profitable?

That’s why all those former bus firms are keen to be in the railways and why they are so supportive of the government’s McNulty Report which will see the train operators given more freedoms to enhance profits and less restrictions around the service they provide.

Because what the government want to do is reduce their subsidy to the railways and the only way they are going to be able to do that – apart from cutting large numbers of staff – is to pass the cost of the railways onto the passenger through increased fares. If you don't believe me, read the McNulty Report - or look at the commentary within Stagecoach's results.

Of course, they’ll dress it up as a Fares Review but to keep the train operators on side, any change will have to guarantee a profit.

Fair it isn’t and that’s why we are calling on people to write to their MPs and get them to sign up to Early Day Motion #1577. Follow the link to our Early Day Motion story and take action today. And whilst you are doing so, let us know your views.