Posted 12th October 2020 | 2 Comments

Monday essay: Paying the bills

The latest operator to be threatened by the coronavirus pandemic may be Eurostar. Sim Harris wonders how far our government would help.

RAILWAY operators are now in a curious position, but they are not all in the same boat.

The franchised TOCs are continuing to provide services as government contractors under the terms of Emergency Recovery Measures Agreements, under which their costs are paid and the government takes the revenue, less a 1.5 per cent management fee.

This state of affairs is not perhaps easy to understand – or explain. It is not quite nationalisation, because the government does not own, say, FirstGroup nor (which is more to the point) does it own the individual operating companies which won the franchises in the first place.

Instead, the commercial risk for these companies has been removed for the time being by the costs/revenue arrangement with the government, which is now set to continue (potentially) until 2022, having been revised and renewed last month.

There is a certain amount of misunderstanding in the public arena about these ERMAs. For instance, City AM this morning used the phrase ‘with the government already having taken ownership of the country’s train companies’, which as we have just discussed is not the case.

Owning a company and acting as a guarantor for its activities are not the same things (as a newspaper like City AM surely ought to know).

But at least the TOCs which had possessed franchises are more or less home and dry, for the time being at least.

That is not the case in the world of open access, where there is no contract with government and no franchise agreement.

There is no shortage of open access advocates, who sometimes claim that, for example, turning over intercity routes to several competing oa operators would do passengers the world of good.

What these advocates tend to overlook is that a purely open access matrix would be pretty uncertain. Open access operators cannot, by their nature, claim any revenue support from the government and if rough times come can only stop trading.

This is what happened to Wrexham & Shropshire almost a decade ago, and its services just disappeared from the timetables. Franchised operators may be better off, but they are certainly not immune. 

Just a few years earlier the second GNER contract had also had to cease – a victim of optimistic premiums combined with lower than expected revenue and a financial crisis at its parent Sea Containers. In this case, however, its services did not cease. GNER relinquished its contract but kept running the trains for another year under a government management contract – an early form of ERMA, if you like. A new franchise holder then took over.

This year, the difference between open access and franchise operators has been painfully demonstrated. Both Grand Central and Hull Trains had to suspend their operations in the spring as lockdown took hold, and although they have now returned their positions are far from certain if lockdowns and travel restrictions return, as it seems likely that they will.

Meanwhile, another open access operator has just about kept going until now, although with a skeleton timetable.

That operator, Eurostar, may now be facing its own crisis – and fairly soon the trains between London and the continent could stop altogether. 

The chief executive of High Speed One, Dyan Crowther, is reported to have said that no Eurostar paths have been booked for December, which is normally a peak month for the operator. This year, it is very unlikely that people will use Eurostar to flock to the usually-popular Christmas markets in Germany and elsewhere, or visit friends in other countries over the festive period – whatever that turns out to be like.

With Eurostar set to buy just a fraction of the 17,000 paths it purchased last year, Ms Crowther is quoted as saying that ‘long term funding solutions’ are required, which could mean state support. But British state support for an open access operator owned by foreign third parties (the UK sold its stake in Eurostar a few years ago) is going to be a big ask, as the saying goes.

If it happened, you can expect Hull Trains and Grand Central (Hull Trains has British owners, although Grand Central’s are German) to extend their begging bowls in short order, saying ‘If it’s good enough for Eurostar, it’s good enough for us’, or something very like it.

The British government is not the only one which could be asked for help by Eurostar, because its trains serve France, Belgium and the Netherlands as well. But that is looking a little ahead: Eurostar has not apparently asked for any support – yet.

A company spokesman said: ‘As with all international operators, travel restrictions have impacted demand and we are running a minimal service at the moment to enable customers who need to travel to do so in a safe way.

‘The current environment is very unpredictable, which means we have to monitor demand and update our timetable in response.’

Our own Department for Transport, meanwhile, has said that it will ‘continue to engage’ with Eurostar ‘as part of our efforts to support the recovery of international travel’. That might mean that the minister is ready to consider opening the Departmental cheque book, and it might not.

Trains to Paris this Christmas? Don’t count on it.

The current print edition of Railnews, RN284, was published on 1 October. The new edition and some previous issues can be obtained by calling 01438 281200 from UK numbers or +44 1438 281200 internationally, and selecting Option 2.

Reader Comments:

Views expressed in submitted comments are that of the author, and not necessarily shared by Railnews.

  • david c smith, Bletchley

    Indeed, yes , national crises aren't all the same. WW 1 and 2 , for example were different to COVID 19 now , with different financial situations ; it seems though , these crises have a common neccesity for state direction, something that doesn't appear to work well in "normal" times ( could be due to the population having different priorities at crisis times ?)

  • david c smith, Bletchley

    In crisis times ( the two world wars, for example), it seems the railway companies , both here and in the US , temporarily came under state control .
    I would think this type of intervention could apply to open access operators as well as ex - franchisees ?
    In normal times, when the criteria of financial and social benefit / cost efficiency are the aim, I'd be generally opposed to central government command & control, but a temporary departure from this could be instituted , until the crisis passes.
    [I would suggest that there was one important difference during the world wars -- the railways were very busy and did not need government financial support.--Ed.]

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