Go-Ahead falls 7% amid emergency rail funding

Shares of Newcastle-headquartered international rail and bus giant Go-Ahead Group fell about 7% on Monday after it published details of the UK Department for Transport’s extension of emergency funding arrangements for the UK rail industry.

Analysts said train companies have been given less lucrative temporary contracts ahead of a major shake-up in the way the UK rail system operates. 

The UK government has avoided a full nationalisation but said it would eventually introduce a new model to replace the franchise system.

“The model of privatisation adopted 25 years ago has seen significant rises in passenger numbers, but this pandemic has proven that it is no longer working,” Transport minister Grant Shapps said in a statement.

Go-Ahead Group’s rail division operates two franchises in the UK, three contracts in Germany and one in Norway. 

In the UK, its Southeastern and GTR (Govia Thameslink Railway) franchises operate through its 65% owned subsidiary, Govia, which is 35% owned by Keolis.

It is the largest rail operation in the UK, responsible for around 30% of all UK passenger rail journeys through its rail franchises.

“The Department for Transport (DfT) has announced that GTR’s Emergency Measures Agreement (EMA), which ended on 20 September 2020, has been replaced by an Emergency Recovery Measures Agreement (ERMA),” said Go-Ahead.

“GTR will operate under its ERMA until the end of its contract term in September 2021, with the potential for a further extension.

“GTR’s ERMA, which generates a margin of up to 1.5 per cent, is a management contract with no exposure to changes in passenger demand or ancillary revenue, such as car parking and retail commission.

“Go-Ahead’s other UK rail franchise, Southeastern, will continue operating under its EMA until October 2021, or March 2022 if extended.

“Approximately 90 per cent of total group revenues are generated through contracts where there is no direct revenue risk from changes in passenger demand.”

Go-Ahead CEO David Brown said: “This contract reaffirms the Government’s recognition of the important role rail plays in driving economic growth and in connecting communities. 

“Independent passenger surveys have found that people who have recently travelled on our services found them to be clean, safe and reliable. 

“We look forward to welcoming more passengers back onto our trains.”

GTR CEO Patrick Verwer said: “We welcome today’s announcement and the stability this new agreement brings for our colleagues, who continue to focus on providing a safe and reliable service as we welcome back more customers.

“Going forward, we will continue to work with our partners and stakeholders across the industry to help reconnect communities, improve our performance and ensure high levels of customer satisfaction.”

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