Overseas operators step in as British TOCs deem profit margins too low

Trenitalia and Mitsui are the latest two companies to enter the UK franchise market, as British firms back away due to the high risk of low profit margins.

THE expense and expertise involved in franchise bidding has generally deterred foreign railway companies from participating and, until recently, they have preferred to form partnerships with British-based companies and act as a minority owner.

This has changed, however, with takeovers such as the acquisition of Arriva by Deutsche Bahn – which immediately gave the German national railway control over CrossCountry, Arriva Trains Wales, Chiltern, Grand Central and more recently the Northern franchise.

The latest acquisition is the sale by National Express of the c2c franchise to Trenitalia, a railway company owned by the Italian Government. The deal requires approval by the Department for Transport (DfT), but this is unlikely to be withheld as Trenitalia is a ‘passport’ holder in the scheme to evaluate the suitability of potential franchise bidders at the pre-qualification stage. This means that the company is already judged to have sufficient financial resources and operational experience to successfully run a franchise.

National Express will receive £70 million, which it will use to expand European activity in the bus market, where profit margins are higher. It was speculated at the time the c2c franchise was won that National Express would make a very small, if any, profit over the life of the 15-year contract that commenced in November 2014.

Read more in the March issue of RE – out now!

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