In a statement this morning, National Express said it expected the London-Edinburgh franchise to record a £20m+ first half loss due to a decline in passenger journeys and lower yield growth as a result of ‘significant’ down trading from full and first class fares.
‘Discussions with the UK Department for Transport have not secured an improved outlook for the East Coast franchise,’ the company added.
‘As a result, the loss-making East Coast rail franchise will continue to be supported by National Express in line with its franchise support commitments until the committed funding is fully utilised, expected to be later in 2009.’
National Express had been licensed to run the franchise until 2015.
Following the company’s statement, the DfT announced that the Government's ‘first and overriding obligation’ was to ensure continuity of service for passengers, and in view of this it had set up a publicly owned company to take over the franchise.
Transport Secretary, Lord Adonis, said: ‘A company which had defaulted in the way National Express now intends would not have pre-qualified for any previous franchises let by the Department.
‘I note that the parent groups of previous franchise failures are no longer in the UK rail business.
‘It is simply unacceptable to reap the benefits of contracts when times are good, only to walk away from them when times become more challenging.’
The Government plans to tender for a new East Coast franchisee from the end of 2010, with the process including consultation with passenger groups, parliamentarians and the Scottish Executive.
Lord Adonis added that while National Express said it did not intend to default on its two other rail franchises – East Anglia and c2c – the Government ‘believes it may have grounds to terminate these franchises, and we are exploring all options in the light of the group's statement this morning’.
National Express also announced that Richard Bowker, group chief executive, intends to leave the company on 31 August to become chief executive designate of Union Railway in the UAE.
John Devaney, currently non-executive chairman, becomes executive chairman, and Ray O'Toole, currently chief executive UK division, chief operating officer, as a successor to Bowker is sought.
See also:
NatEx profits up 10% but rail faces more cuts (26/02/2009)
NatEx cuts costs to counteract slowdown (17/12/2008)