Rail needs a rethink to get light at end of the tunnel
Barely a week goes by at the minute without further evidence of the embarrassing mess that Britain’s railways are in. After Virgin and Stagecoach had the East Coast line seized from them by ministers, it was the turn of bumbling transport operator Firstgroup last week, as it reported a whopping £106m hit on the Transpennine Express line.
Despite continued complaints about the quality of the service, which operates three routes out of Manchester, the franchise has achieved 10pc like-for-like passenger growth over the last year. Commuters it seems are not voting with their feet when it comes to our dismal railways, perhaps because of a dearth of alternatives.
Which makes the horrendous write-down all the more calamitous. How can you notch up such big losses when passenger numbers are surging?
The cock-up rightly proved to be the final nail in the coffin for hapless boss Tim O’toole who has been forced to stand down.
Many of its problems were self-inflicted but don’t expect the Transpennine fiasco to be an isolated case. As we report today, Britain’s rail operators are facing further losses of as much as £1bn across a string of struggling franchises.
How come? Over the last few years, the government has allowed aggressive, over-thetop, high-risk bidding to repeatedly occur.
Senior industry sources blame the growing prevalence of overseas state-backed bidders, which have waded in, snapping up big chunks of the UK rail network at silly prices. One in two of the 1.7bn passenger journeys made in the UK each year will be on trains operated by foreign firms. With a very low cost of capital and a willingness to accept high-risk profiles, they have been able to easily outbid domestic operators.
The problem is that many will never get close to their ambitious targets. Take Abellio’s Anglia franchise. The Dutch firm will need about 8 to 9pc growth in passengers to hit budgeted revenue growth of 10 to 11pc per annum. Last year, the rate was running at just 3.6pc – so it is well short. Losses could be as much as £270m.
Arriva won the contract to run the Northern service with a bid that was hundreds of millions above anybody else’s, fuelling expectations that it too is set for a hefty hit. Firstgroup’s write-downs on Transpennine could eventually double, while it may also run into trouble on South Western Railway.
The franchise model is deeply flawed. The government needs to come up with an alternative. Meanwhile, O’toole is set for an exit package of £700,000.
‘Commuters it seems are not voting with their feet when it comes to our railways’
Pester looking precarious
Having correctly called the pending departure of Tim O’toole last week, I’m going to double down and take a bet on who is next for the boardroom chop.
There is no pleasure in seeing chief executives fail. Contrary to the prevailing narrative being peddled by Corbyn and comrades, business is largely a force for good. When a company thrives everyone benefits: employees; suppliers; shareholders; the taxman; and wider society. Success should be cheered, failure mourned.
Perhaps the media is probably all too often guilty of focusing on the cock-ups, but it is our job to hold those in power to account and scrutinise mistakes, and few have got it as spectacularly wrong as Paul Pester at TSB. The bank’s IT meltdown should become a lesson in how major crises can spiral out of control if handled in a ham-fisted way.
The decision to rush a project of that scale was horribly reckless and no doubt fuelled partly by both greed and pressure. Incredibly he was in line for a £2m bonus once the new system was in place. Meanwhile, the fees that TSB was paying to former parent Lloyds had doubled. Pester was a man in a serious hurry.
He also ignored best practice, which is to stagger such massive tech upgrades. Customer livelihoods were threatened after being frozen out of their accounts for days, even weeks in some cases.
But it was his bungled handling of the affair that was truly unforgivable. Pester not only initially refused to apologise but also played down customer claims that the problems hadn’t been fixed.
This week he faces another grilling by MPS, while the FCA is considering its own investigation. If Pester survives it will be a miracle.