END OF ARRIVA’S GRAVY TRAIN
AS RAIL FIRM’S CONTROVERSIAL WELSH FRANCHISE ENDS, FIGURES SHOW HOW PROFITS QUADRUPLED IN 15 YEARS
ON SATURDAY, Arriva Trains Wales will hand over the keys to the nation’s crumbling local commuters trains to Transport for Wales and new operator Keolis Amey.
It will bring down the curtain on nearly 15 years in which passenger numbers have rocketed, the nation’s rolling stock has got older and Arriva has reaped huge profits.
The German-owned rail firm has always defended its stewardship of Wales’ commuter services saying it has faced significant challenges but has fulfilled the terms of the contract it won way back in 2003.
It has told commuters squeezed onto dilapidated trains on morning commuter services that there are not alternative trains available.
Yet the huge profits that have been sent back to Arriva UK - and ultimately its German owner Deutsche Bahn - have rankled with those commuters.
Companies House records show the firm’s profits have more than quadrupled since it took over the Wales and Borders franchise at the start of 2004.
The German-owned firm began by making profits of around £6m a year but that has boomed to a pretax peak of £27.7m in 2017.
Arriva Trains Wales’ profit margin is now more than twice as big as similar rail operators in the north of England and Scotland.
Explaining the profit increase before tax to £27.5m from £24.3m in 2016, the latest accounts say it “was due to an increase in passenger revenue as a result of increase in passenger numbers and pricing growth, offset by an increase in maintenance and staff costs”.
Soaring profits have also enabled German-owned Arriva to pay huge dividends to its parent company.
It has handed over £20m last year - on top of £20m in 2016, bringing the total paid in dividends to Arriva UK to £173m.
The UK holding company manages rail and bus companies across the UK on behalf of its parent company, German transport giant Deutsche Bahn.
The firm has profited in a way noone anticipated when the franchise was agreed. From 2006, passenger numbers started to grow as the popularity of rail as a means of commuting across the UK grew.
In its first year, the firm made £60m from ticket sales.
That has risen every year to hit £144.5m in 2017 as the number of rail journeys has risen from 18m in 2003 to more than 30m a year.
Professor Stuart Cole of the University of South Wales said that the growth in passenger numbers had caused overcrowding problems that had not been anticipated.
He said that “by 2010 it was clear that there were not enough trains”.
Because of the terms of the franchise, he said the Welsh Government effectively had to fund the leasing of more trains at a price he described as a “premium”.
Even after those trains came into service, increasing passenger numbers meant that by 2011/12, the overcrowding had become a problem on peak commuter services in Cardiff, Swansea and in North Wales.
Prof Cole also cited Aberystwyth at weekends and Shrewsbury as areas that saw overcrowding at peak times.
Prof Cole also highlighted how Arriva Trains Wales’ profit margin in 2016 on turnover of 6.9% was significantly bigger than comparable rail operators elsewhere in the UK.
He highlighted Northern Rail and ScotRail Abellio as the two comparable, although significantly bigger operators, which had profit margins in 2016 of 3% and 2.6% respectively.
Prof Cole said: “A profit margin of 6.9% is very attractive when compared with the other rail operators.”
Prof Cole said the Department of Transport bore much of the responsibility as it negotiated the original franchise given to Arriva Trains Wales in 2003.
At that time, there was not anticipated to be any growth in rail passenger numbers in Wales.
And lack of consideration for that has enabled ATW to be the biggest beneficiary from the franchise deal.
He said: “There was never thought to be any risk of that there would be huge profits coming into Arriva Trains Wales.
“They thought passenger numbers would go down.
“A lot of the responsibility lies with the Department for Transport.
“And it is the Welsh Government that is left paying the bills.
Throughout Arriva Trains Wales’ management of the franchise, it has received huge subsidies for running unprofitable services in mid and west Wales.
Subsidies started at £133m in 2004 but dropped to £110m in 2015 - and were £113m in 2017.
The figure has fluctuated as the Welsh Government has negotiated additional deals with Arriva Trains Wales.
In total, the firm has received more than £1.8bn in subsidy from the taxpayer over the 14 years it has published accounts.
Wales’ Transport and Economy Minister Ken Skates told BBC Wales’ Week In Week Out programme last year that Arriva’s profits were “too high” .
He blamed the original franchise deal struck in 2003 which gives Arriva Trains
Wales the right to run services until 2018.
Mr Skates said: “Had it been a more robust agreement reached in 2003, based on an increase in passenger numbers, it would then have obligated the operator, in this case Arriva Trains Wales, to source more rolling stock.”
Arriva Trains Wales has provided this response in 2017 when asked about its profits. Lynne Milligan, Customer Services Director for Arriva Trains Wales said: “There are some big challenges for us as the operator in delivering the experience our customers deserve, and we were pleased to draw attention in the program to the work and investment we have been carrying out, as well as the complexity of some of the challenges.
“Our £2.8m 2017 Arriva investment plan, building on the £30m we have already invested, includes improvements to the on train and at station experience for customers as well as improve the ability for customers to buy tickets.
“We are also investing in new systems which will help us to ensure that our ageing rolling stock is as reliable and comfortable as possible.
“Our investments along with our partners have grown annual customer journeys from 18 million at the start of the franchise to around 32 million today.
“Our investment is against a requirement of only £400,000 from the original franchise agreement with no provision for growth and a fixed fleet of trains. In response to the growth in passenger numbers, we have increased the number of services we operate by around 20% above the franchise commitments, at our own commercial risk.
“We will continue to the review the feedback from programs such as these and continue to raise awareness of the challenges which our customers face every day, working with our partners in Network Rail and the Welsh Government to tackle some of the complex issues, particularly around capacity on our services.”
In its most recent accounts, the firm defends its performance.
It states: “Throughout most of the year the company has maintained train punctuality and reliability.
“The moving annual average of the Public Performance Measure has been consistent throughout the year and finished the year at 92.3% (2016: 91.3%), an improvement on the prior year despite the challenge of extensive Network Rail re-signaling works.
“Positive passenger journeys growth has been achieved throughout 2017, aided by successful marketing campaigns, yield management activity and continued investment in revenue protection initiatives.”