New West Midlands rail franchise will devolve suburban services

The DfT has issued the prospectus for the new West Midlands (WM) rail franchise, which commences in October 2017, and also extended the existing franchise – held by a joint Go-Ahead/Keolis (65:35) venture and marketed as ‘London Midland’ – by direct award until that time.

The new franchise will run for between seven and nine years; the main change is the requirement that a new business unit be set up for the West Midlands travel-to-work area. It would identify revenue and costs and have a separate brand identity, and would probably be spun off as a separate franchise in its own right when the next West Midlands franchise expires.

This is broadly in line with the current trend towards rail devolution; the West Midlands Rail consortium was set up in 2014 by Centro and various local authorities and it is working to this agenda.

Apart from this, the geographic area will remain largely intact, though there may be some ‘re-mapping’ of English services and stations from the current Wales & Border franchise should more powers be devolved to the Welsh government.

The DfT would also like to ‘encourage’ more reliable Sunday service workings and it hopes that prospective bidders will ensure a ‘more appropriate staff presence’ on trains and at stations to re-assure passengers.

Incumbent operator London Midland (LM) has operated the current franchise since 2007. In 2014/15, it carried 65.3 million passengers and earned a total revenue of £337.9m (excluding subsidises), of which £287.5m was derived from passenger train operations. Since 2009/10, LM has seen a compound annual growth rate of 9.0% in nominal passenger revenues and 4.5% in passenger journeys.

The franchise links London with the two largest English conurbations (the West Midlands and Greater Manchester), which collectively make up around 22% of the total UK population. It serves 170 stations and operates over 1,300 weekday train services. The rolling stock is mainly electric and consists of 551 vehicles, of which 78% is compliant with the (PRM TSI) disability regulations.

LM/WM serves three main markets: the London commuter belt; the West Midlands regional & local area; and long distance services on the West Coast mainline. These contribute to 60%, 26% and 15% of total ticket revenues respectively; and 37%, 52% and 11% of total passenger journeys respectively.

The subsidy paid to the current WM franchise has declined 38% between 2009/10 and 2014/15. The prospectus does not indicate what the future level of funding (if any) will be. In 2014/15, the farebox: taxpayer revenue split had been reduced to 85:15.

Capital requirements for the new franchise are expected to include a season ticket bond of at least £16m, and a performance bond of £15m. A fixed PCS (parent company support) £20m for the EOI (expressions of interest) is also expected, plus an undefined variable component. In addition, the new franchise will be required to assume some of the obligations of the incumbent franchisee, which are valued at between £9m and £14m. The DfT is considering a revenue risk transfer agreement and a ‘revenue risk contract mechanism’ for the new franchise.

The bidding process starts this month and the successful ones will be shortlisted in April 2016. Invitations to tender (ITTs) will be issued in July 2016 with the contract awarded in June 2017, and starts in October 2017.

687/Dec 15





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