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Rail overhaul plan light on detail

Moves by the government to bring track and train operators closer together have been welcomed, but what will be the impact on listed players?
December 8, 2016

A sweeping overhaul of the relationship between Network Rail and train operators might be getting pitched as good for passengers, but the benefits for investors aren't necessarily so clear yet.

Stagecoach's (SGC) chief executive Martin Griffiths said he had been calling for train operators such as his to work more closely with Network Rail, which owns the country's rail infrastructure, for 15 years. He said Stagecoach had done this already to an extent on the South Western franchise and while there had been "some success" there were "things that frustrated me".

"It was a pilot, but if we are going to do it properly and we get the right structures, I would sign up for it tomorrow," he added.

And that seems to be the key point - what structure will be needed for there to be a joint management team comprising of rail operator and Network Rail staff on individual franchises - or "one chain of command", as Mr Griffiths calls it?

Transport secretary Chris Grayling said new franchises - starting with South Eastern and East Midlands (run by Go-Ahead (GOG) and Stagecoach, respectively) - would have integrated operating teams between train services and infrastructure. Interestingly, Transport for London, which recently tried to make a business case for running London's inner suburban rail services, will help develop the next South Eastern franchise which potentially signals a greater presence in the rail industry for it, perhaps at a cost to listed players.

Mr Grayling also announced the establishment of East West Rail, a new and separate organisation which will design, build and operate a soon-to-be reopened route between Oxford and Cambridge.

The MP added that greater alignment of track and train would be established when further franchises renewed and could be taken up by new joint ventures.

It's unclear at present what the impact of the establishment of new joint ventures would be. Will there be increased costs for train operators? Will they effectively have to employ Network Rail staff for the life of a franchise, or part-fund wages? Will they have to part-fund infrastructure work or forego the compensation they currently receive if a Network Rail-related issue prevents them from running services? These, and many other questions, remain unanswered - at least in public.