- Transport secretary Grant Shapps’ proposals could severely hit companies that have long profited from the UK’s flawed train system
- Trainline’s shares shed a fifth of their value on the day of the announcement
In 1994, the Conservative government began the rapid privatisation of the British train system. Now the party of Margaret Thatcher is bringing the railways back under state control.
On Thursday, transport secretary Grant Shapps unveiled his grand plan to end “three decades of fragmentation”, absorbing the network under a single brand, Great British Railways. The public body will set timetables, fix fares and simplify ticket booking by introducing new ways to pay.
His plans may have been accelerated by the devastation of the transport sector during lockdown, but an overhaul such as this has long been on the cards. The UK’s mismatch of private operators has always made booking travel across the country a logistical headache; for years, complaining about repeated delays on train journeys has been something of a national pastime.
Shapps now says the shake-up will deliver a network “with a strong focus on customers”. But what will the impact be on the companies that profit from the current system?
Trainline sent off the rails
Since the privatisation of the rail network, franchise holders including London-listed FirstGroup (FGP) and Go-Ahead (GOG) have found it easy to renew their licence to run the rail networks year-on-year. But the government now wants to make the bidding process more competitive, meaning the incumbents may have to compete once again with smaller rivals for market share.
It envisions a system like the one in the nation’s capital, where networks like the London Overground are absorbed into the state-backed Transport for London brand. FirstGroup has recently invested a substantial amount in building its Great Western Railway trademark; if all networks are subsumed under Great British Railways, the return on that investment could be diminished.
Shares in FirstGroup and Go-Ahead have not taken a hit, however. Investors have long accounted for the risks of regulation; FirstGroup also makes a significant part of its profits outside the UK.
But the same cannot be said for ticketing site Trainline (TRN), which has built its business on simplifying the complex process of buying tickets for UK trains.
The company’s shares shed more than a fifth of their value on the day of the announcement; our sell recommendation earlier this month turned has proved prescient. A number of short sellers, including George Soros’ SFM UK Management, may now be counting their winnings.
The government has proposed to “simplify the confusing mass of tickets” by introducing more convenient ways to pay online, ending the “uncertainty about whether you are travelling with the right train company”. If it follows through, Trainline’s USP as a one-stop-shop for train passes could be undermined.
On Thursday, the company sought to assure investors that it could play a part in the plans, pointing to the government’s desire to encourage private sector innovation in the industry. It has also outlined its intentions to expand in Europe, where it says competition between private rail operators is growing.
But for a business that only recently became profitable, the rehaul of its dominant market has the potential to be devastating. If required to compete with a state-backed initiative, the Trainline brand may struggle to do so. Even if its platform is integrated into the government’s plans, the amount of money Trainline makes in commissions is likely to be limited, M&G (MNG) fund manager Randeep Somel pointed out in an interview with the BBC Today programme.
Light at the end of the tunnel?
Thatcher herself, who sold off most of the UK’s state-owned industries, once said the railway system would be “a privatisation too far”; it was the government of her successor, John Major, that decided private companies could deliver for Britain’s commuters.
The party of liberal economics now recognises that this has not happened, but also stresses that the biggest overhaul of the rail network since privatisation does not represent “renationalisation”. Instead, the government suggests the new system will allow capitalism as Adam Smith intended it to thrive, spurring competition and making operators more accountable to their customers.
Politicians have a habit of not following through on their grand plans for the country. But it seems like the companies that have long profited from the UK’s flawed rail system may soon have to up their game; time will tell if they can.
This article has been updated
