National Express Group committed to pay the Department for Transport £1.1bn over the next 15 years to avoid the loss of its only UK rail franchise

National Express Group has kept its place in the UK rail business after retaining its Essex Thameside (c2c) franchise with a bid that was over £300m ahead of its rivals – MTR, Abellio and First.

The group has committed to pay £1.1bn to the Department for Transport over the 15-year contract, raising premium payments from £20m in the first year to £150m in 2029.

The gap between NEG and its rivals was viewed in the industry as comfortably the largest, in relative terms, since the initial round of franchising at privatisation. Although Stagecoach and First were both over £500m ahead of the field when they won their 10-year SWT and Great Western contracts, revenue at both those franchises is six times greater than c2c’s £140m. “If you are trying to look for a logical answer for why the National Express premium is so high you are not going to find one,” Passenger Transport was told. “The issue for National Express was this was the only franchise they have left and they had to win.”

In a briefing to City analysts, NEG’s forecast that the new contract would provide “low profits” in the first three years when the majority of its £50m investment in stations and train refurbishment will be delivered and premiums rise at their fastest rate. It forecast “good cash returns” in subsequent years with an industry average profit margin of around 3-5% (£5-6m a year).

A spokesman said key features of the bid included capitalising on major housing developments planned in East London and the introduction of personalised customer service innovations. “As the incumbent operator we understand the revenue potential better than anyone else,” he said.

 

Further coverage on the new franchise can be found inside the latest issue of Passenger Transport:


c2c to deliver new level of customer service
NEG planning range of innovations during new 15-year contract

Metro-style service was key aspect of bid
Converted trains will run up to every three minutes

Concern over DfT process delayed award
Methodology for assessing financial risks was an issue

Analysts view win a shaving symbolic value
NEG removes lingering concern of ‘blacklisting’

 

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