The East Coast has once again proved that the railway from Scotland to London is not lined with gold for private operators. This week’s collapse of the Virgin Trains East Coast (Vtec) franchise marks the third time in a little more than a decade that a train company operating on that line has failed to meet its contractual obligations. The decision to return the service to the public sector for the time being was made by Chris Grayling, the transport secretary, as a precursor to a new public-private partnership.

Its collapse has been described as a“bailout” of Vtec’s owners, Stagecoach and Virgin, and has been widely criticised.

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It has also prompted questions about what it means for other firms that may have overbid for their franchises and, amid declining passenger numbers and lower revenues, may be struggling to meet their payments.

The transport secretary insists that no other company is in a similar position and the Department for Transport has been looking to reduce the risk taken by bidders in subsequent contracts.

Analysts and industry observers have identified four franchises that may be facing trouble:



TransPennine Express

When FirstGroup retained the rights to operate this fast train service, which links cities across the north via Manchester, the chief executive, Tim O’Toole, was keen to stress it was a “disciplined” bid.

The group had lost a string of rail franchise competitions and was widely viewed as desperate to retain the route it had operated since 2004, previously in partnership with Keolis.

State takes back control of east coast mainline Read more

In December 2015, having bid for the renewal separately, FirstGroup won it outright. It then emerged that the £313m the company had promised to pay the government over seven years was far more than other shortlisted bidders had offered: in fact, the third-place bidder said it would require a large subsidy – of £410m – to run the service.

To make the franchise pay, FirstGroup needs passenger numbers to grow rapidly. Passenger numbers should be boosted by the introduction of a new fleet of trains but in its first two years it has stagnated.

Greater Anglia

The Dutch state-owned Abellio retained this franchise in 2016 with a commitment to pay an overall £3.7bn over nine years, a figure that was substantially higher than other bidders – including FirstGroup – thought feasible.

For the third shortlisted firm, National Express, once the largest player in UK rail, it was the moment when the chief executive decided that the market was unsustainable. He sold off the C2C Essex commuter service and refused to bid for any more franchises.

Passenger numbers are static and the service has also had to cope with RMT strikes. But Abellio insists that investment in new trains and a wholesale replacement of the existing fleet will reduce costs and bring in more passengers. The firm has also hedged its bets by selling a 40% stake in the line to Mitsui in 2016.

Northern

Like TransPennine Express, this was another franchise that rival firms battled to run. It was awarded to Arriva in late 2015, who took over just before the EU referendum.

The Deutsche Bahn subsidiary asked for a £1.4bn subsidy over nine years to operate the franchise – a whopping £800m less than the third-placed shortlisted bidder.

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The German parent company may have deeper pockets than some but the service has been beset by strikes over the future of guards, and passengers have complained about delays, cancellations and overcrowding.

This week, the mayor of Manchester, Andy Burnham, demanded an investigation into Northern’s “unacceptably poor” service.

South Western Railway

FirstGroup won this major commuter service a year ago – pledging £2.6bn to the government over seven years – in a joint-venture with Chinese operator MTR. But this franchise is another potential source of problems for the company.

While the contract has a clause that would cut payments if the economy tanks, First told investors its plans were based on annual passenger growth of almost 7%.

Instead, South Western has seen an unprecedented fall in passenger numbers: 16.3 million fewer people took SWT train journeys in 2017 compared with the year before. Some of that decline was the result of major engineering disruption but the rapid decline in season ticket sales was a surprise.

• This article was amended on 24 May 2018 because an earlier version misnamed Mitsui as Matsui.

