Trainline shares tumble as government’s overhaul of the railways threatens revenues

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Trainline PLC (LON:TRN) was putting a brave face on things after the government unveiled plans for a railways ticket website and app.


The website and app, under the auspices of a new public body with the strangely familiar-sounding name of Great British Railways, would complete directly with Trainline’s core offering.


The details were published in something called the Williams-Shapps Plan for Rail.


Trainline, which was around a third of its stock market value wiped off on Thursday morning, said it was supportive of the Williams-Shapps Plan’s findings and recommendations, which were broadly in line with its expectations.


Trainline expects that the plan’s proposals, which will need to be developed and subsequently implemented over the next several years, will improve the experience for rail passengers and drive efficiency for the wider industry.


The company said it believes the proposals will provide Trainline with new opportunities to innovate for the benefit of customers and further grow its business.


“Trainline has a long track record in leading the way on innovation in the sector and Keith Williams highlighted Trainline as an important innovator and partner for the rail industry when he initially announced the direction of the review. Grant Shapps, in his statement to Parliament this morning, said ‘We’ll welcome independent retailers continuing to compete in the retail ticket market, particularly where they can grow new markets, recognising the value of private sector innovation’,” said Trainline’s chief executive, Judy Ford.


In other words, bring it on!


“We are hugely encouraged by the commitment to digital ticketing, which Trainline has championed over the last several years, and the introduction of flexi tickets and digital season tickets which will provide new growth opportunities in the evolving commuter market,” Ford said, dialling the optimising knob up to 11.


“Our presence in the market for over 20 years provides us with an innate understanding of how people travel. During this time, we have built knowledge, scale, partnerships and technology capabilities to provide customers with a simple, consistent and friction-free travel booking experience via our 4.9-star app, which we believe is a huge differentiator and difficult to replicate. As a long-term partner and technology provider to the UK rail industry, we look forward to working with the government in formulating the detail around future ticketing proposal,” she added.


Peel Hunt appeared to be taking a similar line to Trainline’s management, saying: “There appear to be positives and negatives for Trainline.”


“Positives include flexi-tickets and a push for more e-tickets; upsides to the story. Negatives appear to include the eventual launch of a website/app under the Great British Railways brand and a need to simplify tickets. One that doesn’t appear to be here is a single brand for the trains themselves. We included the Williams Review as a potential negative in our 2019 Hold initiation. We will collect our thoughts, but claim neutral ground for the time being,” the broker said.


A new app and/or website, if done well, could have an impact on Trainline’s fortunes, as getting information would be straight from the horse’s mouth, so to speak.


“But we remind investors of National Rail’s 2-star app versus Trainline’s 4.8and the years of investment Trainline has made and will continue to make. GBR [Great British Railways] could also just plug into Trainline’s API, as building a good app take time and by then, Trainline will have moved up. It also spoke about simplifying tickets. This is the unknown quantum and part of the value add at Trainline,” Peel Hunt ventured.


As for flexi-tickets for hybrid commuters, these could present a significant opportunity for Trainline, which is not really in the commuter game to a significant extent, “mainly because season tickets were physical and, before Covid-19, commuting was fie-days a week,” Peel Hunt noted.


The Williams-Shapps Plan published today noted that before the pandemic, more than half of all national rail journeys in Britain still used paper tickets. The report claimed the paper-based ticketing systems cost more than half a billion quid to administer.


“Great British Railways will simplify the current confusing mass of tickets, standardising mobile and online ticketing, and bringing an end to the need to queue for paper tickets,” the report claimed.


“New products, such as flexible season tickets aimed at those commuting for two or three days a week, will be introduced to reflect new working and travel patterns. Trains will be better coordinated with other forms of transport, such as buses and bikes,” it added.


The Williams-Shapps Plan for Rail promised more than just a shake-up of the ticketing system; the centrepiece of the proposed changes to the whole rail network was the creation of a new public body, Great British Railways, which will own the infrastructure, receive the fare revenue, run and plan the network and set most fares and timetables.


Network Rail, the current infrastructure owner, will be absorbed into this new organisation, as will many functions from the Rail Delivery Group and Department for Transport.


Franchising will be replaced by Passenger Service Contracts, a new approach that will include strong incentives for operators to run safe, high-quality, punctual services, manage costs, attract more passengers and innovate. Where and when it represents value for money and is financially sustainable, operators will have more commercial freedom, particularly on long-distance routes, the authors of the plan asserted.


Although on the face of it, the proposals look like a return to the days of British Rail (formerly known as British Railways), the report banged on for page after page about how Britain’s railways “s improved dramatically under privatisation” and that there have been significant successes “for which the privatised railways do not get enough credit”.


The report conceded, however, that the Great British Public (formerly known as the man on the Clapham Omnibus) never really accepted the privatisation of the railways “because its failings have remained all too obvious”.


The report concluded that the structure “has had its day”.


“Even before the pandemic, it was clear that this system was no longer viable. Such competition as there was had diminished, and UK companies were increasingly reluctant to even bid for franchises. Two franchises failed and were taken over by the government’s operator of last resort, whilst others were heading the same way. Other franchise competitions were delayed or never progressed, and direct awards made instead. Since 2012, around two-thirds of contracts have been awarded without competition,” the report noted.


While Trainline’s share price performance today has been, to use a well-known phrase, a bit of a train wreck, the shares of those reluctant franchisees were little changed.


Shares in Stagecoach Group PLC (LON:SGC) were up 0.2% at 90.2p; FirstGroup PLC (LON:FGP) was 2.0% firmer at 83.7p; Go-Ahead Group PLC (LON:GOG) was 0.4% weaker at 1,279p while coaches operator National Express Group PLC (LON:NEX) was 0.3% weaker at 284.04p.


“The White Paper seeks to put the customer at the heart of this change, while aiming to achieve significant improvement to the cost of running public transport, with the re-integration of track and train. Further, with a single organisation acting as the guiding mind for the rail industry, there should be better opportunity to direct rail investment which is consistent with government priorities around levelling up as well as Net Zero,” said Maniosh Gupta, a Transport Partner at EY.


“While some of the implementation is already underway in the franchising system, there remains a huge amount of work to successfully implement the change – and transition pathway through the interim period between now and 2023 or so, before the railways gets to the true end state. Franchises and train operating companies can now focus heavily on customers and service delivery, and not be over-burdened with onerous and inflexible franchise arrangements that carry significant market risk and challenging contractual provisions,” Gupta suggested.


— adds comment from Peel Hunt and EY —

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