Avoid disruption to Trainline

Trainline makes money by taking commission on tickets from rail and coach companies as well as charging booking fees to UK consumers. It sells rail tickets on behalf of all UK rail businesses and also National Express, the UK’s largest coach company. It makes two-thirds of its revenues from selling tickets to domestic travellers split 67:37 between commissions and booking fees. It has also identified UK business-to-business and international sales as two major growth markets. These businesses respectively represented 28 per cent and 7 per cent of revenue last year, with almost all sales coming from commission.

There are certainly growth opportunities in these markets as more people look to book online and demand for train and coach travel grows. There was a 13 per cent compound annual growth rate in UK customers between the 2017 and 2019 financial years. Meanwhile, in its most recent half-year results in November, Trainline reported a doubling of its international income. Artificial intelligence is a core component of its app technology, and Trainline’s single global platform allows customers across the world to make bookings in a variety of markets, in their preferred language.

The platform sees great potential abroad. In 2017, only 39 per cent of rail purchases in the top five European markets were made online, and the growing take-up of ticketing apps suggests that this deficit represents an opportunity, rather than a lack of interest. But Trainline is having to spend heavily to make inroads overseas. In the three years prior to float, investments in technology and product rose from £12.7m, to £27.1m and then £32.4m. Trainline could also find its service is of less value in overseas markets that tend to be served by fewer train operating companies. 

Trainline's domestic position isn’t entirely entrenched, either. The company's licences with rail companies such as Virgin Rail are not provided on an exclusive basis, leaving it vulnerable to challengers as well as changes to contract terms. It will have to rebid for its Virgin contract when it concludes next year. Unlike Trainline, the National Rail Enquiries app, while less aesthetically-pleasing, does not charge train companies commission or customers booking fees. It also essentially provides customers with a very similar service. Nor is Trainline the only enterprise looking to leverage the power of artificial intelligence. Google is busy integrating a range of sectors into its Maps app. Trainline could struggle to compete with the spending power of one of the FAANGs and generate shareholder returns, should these behemoths choose to enter ticketing services.

Finally, there is the threat of regulatory upheaval. A Labour government is likely to seek to nationalise rail and bring down the cost of rail travel, which would eat into margins and throw the future of middlemen such as Trainline into doubt. Meanwhile, the recommendations of the recently published Williams Rail Review mean a Conservative government may also pose a serious threat. While the review praised the innovations made by Trainline it also recommended the industry should “move forward and make those improvements itself”.