FirstGroup shares sink as transport secretary seizes TransPennine Express under government control – leaving a £415.8m gap in revenue
- Department of Transport chooses not to renew the TPE contract in case of cancellations
- TPE falls under the ‘operator of last resort’ from May 28
- FirstGroup blames ‘circumstances not entirely within operator’s control’
Shares of FirstGroup fell sharply on Thursday after the Department of Transport revealed it would bring the TransPennine Express National Rail Contract under government control.
Transport Secretary Mark Harper highlighted ‘ongoing cancellations’ as he chose not to renew or renew the TPE contract, which will be placed under ‘operator of last resort’ from May 28 and join London North Eastern services Railway, Northern and Southeastern.
In a statement to investors on Thursday, FTSE 250-listed FirstGroup blamed TPE’s cancellation levels on “circumstances not entirely within the operator’s control,” such as disputes with unions.
TPE contributed £415.8 million to FirstGroup’s £4.6 billion in 2022 revenue, as well as £13.2 million in adjusted operating income and £8.9 million in attributable net income.
Cancelled: FirstGroup’s TPE contract has not been renewed
FirstGroup Shares fell 5.4 percent 116.7p in early trading on Thursday, limiting 2023 gains to 13.4 percent.
The company, which also manages fee-based train operators Avanti West Coast, GWR and SWR, said it was “disappointed” by the Department of Transport’s decision “given the investment and improvements we have made in the service over the years have made’.
According to FirstGroup, TPE’s passenger numbers grew from 14 million in 2004 to more than 29 million in 2019.
The Department of Transport plans to eventually return the company to the private sector.
It said: ‘TPE’s service levels declined due to circumstances not entirely within the operator’s control, primarily challenging labor relations, including the withdrawal of long-standing, industry-standard overtime arrangements, while unprecedented driver training requirements were imposed as a result of infrastructure upgrades.
“Following the introduction of an agreed recovery plan in February 2023, cancellations have dropped by about 40 percent and will continue to do so as more drivers become available in the coming months.”
FirstGroup raised its 2023 profit expectations in March, following a spike in demand for its bus and rail services over the past three months.
The company, which operates about a fifth of the UK’s local bus services, said passenger numbers have now recovered to 83 per cent of pre-pandemic levels.
FirstGroup is said to be considering a takeover bid for Arriva’s UK bus and train operations, currently owned by Germany’s Deutsche Bahn.
Chief executive Graham Sutherland, FirstGroup Chief Executive Officer said: ‘We have been operating TransPennine Express and its predecessors since 2004 and are very proud to have served the communities of Northern England and Scotland, transported millions of passengers and introduced new trains, new routes and more seats for our customers.
“Our team has worked extremely hard to improve service, including by recruiting and training more drivers than ever before.
“We have also worked closely with the DfT and Transport for the North on an agreed recovery plan and an improved overtime offer for our drivers.”