Abellio accuses Stobart of making excessive profits on airport station

Abellio Greater Anglia (AGA) has applied to the ORR for a new station access contract for the privately-owned Southend Airport station. The move follows months of wrangling and failure to reach agreement between AGA and the Stobart Group, which owns both the station and the airport.

AGA has accused Stobart of making excessive profits, which it claims are being used to subsidise the airport activities and give it an unfair competitive advantage over rivals, notably Stansted (which AGA also serves).

The airport station is on the Liverpool Street – Shenfield –Southend route, and was opened in July 2011 when the Greater Anglia franchise was held by National Express. Abellio took over the franchise in February 2012 (which runs to 15 October 2016). It is the only station user.

Passenger services were designated as experimental by the DfT for five years till 7 July 2016 (after which they will face review).

AGA’s submission to the ORR states: “AGA want to enter into a standard ORR approved Single Station Access Agreement which is the industry standard model. The current suite of agreements with Stobart are non-standard and was an experiment for shared income based on a ticket revenue share, with Stobart receiving 91% of all gross revenue less season tickets which equate to 73% of total revenue.

“The current agreements assigned to AGA under the transfer scheme from National Express, has provided Stobart with £6.8m of revenue since the initial franchise commenced on 5 February 2012 (when AGA took over). In the last 13 periods ending RSP (Rail Settlement Plan) 2015/P12, Stobart received £2.9m of revenue.

“At the current rate, the Stansted Airport station, which was constructed at a cost of £16m, will have been fully funded within the next three years; excludes revenue from National Express from July 2011 to 5 February 2012. The return on investment has been estimated at 1670% over 30 years.”

The agreements with National Express were assigned to AGA on 5 February 2012: “AGA issued notice to terminate the agreements on 17 September 2014, with the full support of the DfT, on the basis that the original agreement did not provide for a fair and sustainable commercial agreement between the two parties in their existing form, the agreements represented a potential call on the public purse, i.e. the cost of building the station was not intended to be funded by the taxpayer.

“However, Stobart have not been willing to negotiate with AGA as: (1) they believe there is no right of negotiation under the agreements; and (2) that the current arrangements give them a level of income that subsidises their airport expansion.”

AGA says that without a new contract, it would not be able to develop additional services or provide additional capacity to keep pace with expected airport expansion.

AGA’s accusations have been refuted and drawn an angry response from Stobart Group Chief Executive, Andrew Tinkler.  In calling on ORR to reject AGA’s application Tinkler argues:

“SRL (Stobart Rail Ltd) has taken all the risks associated with constructing and operating the station. It would be totally unreasonable for ORR to direct that the long term SACs (Stobart Access Conditions) arrangements contemplated and approved in 2011 for the five year experimental period and beyond be terminated at such an early stage.

“SRL observes that no other private railway company is likely to make a similar substantial investment in new railway facilities if the negotiated and approved mechanism for it to have a prospect of generating a return on its investment cannot even be generated for a five year experimental period.

“We submit that there is no evidence whatsoever that the station is causing any actual or potential call on public funds. The station was built and is operated entirely at SRL’s expense. The franchise is no more expensive for AGA to operate than it would have been had the station not been constructed. AGA received a 27% revenue share generated by passengers using the airport. None of this incremental revenue would have existed had not Stobart invested more than £150m in the airport and associated infrastructure.

“The income received by AGA dwarfs the costs it claims to have incurred (in strengthening some services). “There is no evidence that SRL (the station) or LSACL (the airport) is earning an excessive profit; in fact both activities are currently making a substantial loss.”

Tinkler says AGA was aware of the arrangements (with National Express) when it bid for the franchise.

“We therefore respectfully request that the application be rejected as it is inappropriate economically, legally and factually.”

JH

Stansted Airport enjoys a fast and frequent service to London Liverpool Street.

674/Jun 15

 

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