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How will coronavirus change the rail industry?

Train companies may require further government backing
How will coronavirus change the rail industry?

The coronavirus outbreak has slashed passenger numbers across all forms of public transport. The government advised against all non-essential travel during the lockdown period and recommended working from home where possible. The public has heeded this guidance and this has been reflected most severely in national rail usage, where passenger numbers have fallen by around 95 per cent from pre-crisis levels. 

Go-Ahead Group (GOG) and FirstGroup (FGP) are the two listed rail operators with the gravest exposure to a slump in passengers, while ticketing company Trainline (TRN) has also been hit hard. Go-Ahead operates the GTR and Southeastern franchises, which carry 30 per cent of the UK’s rail commuter journeys. Towards the end of May, these franchises were functioning at around 75 per cent of normal service levels, as allowed by the government. FirstGroup runs four UK rail franchises and also operates rail and trams in Hull and London respectively.

The UK government responded quickly as passenger numbers cratered towards the end of March. It suspended rail franchise agreements until at least 20 September and agreed to assume all revenue and cost risk posed to operators. Operators are being paid a fixed management fee instead, which has been set at a maximum of 2 per cent of the franchise’s cost base before the crisis began. Transport minister Grant Shapps told parliament that this model would “incentivise operators to meet reliability, punctuality and other targets”.

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