The overall outlook for rail for the financial year to June 2010 remains in line with our previously reported expectations. We believe our three franchises are relatively robust given their focus on high density, urban commuter markets. However, we continue to assume that underlying demand (before new services and initiatives) will slow in line with the recent half year trends.
Changes to regulated fares will be based on the July 2009 RPI of -1.4% compared to our previous assumption of -3%. This means regulated fares in January 2010 are expected to reduce by 0.4% in Southern and London Midland and increase by 1.6% in Southeastern.
In combination, we are not expecting underlying passenger revenue growth (before new services and other initiatives) to be significant to June 2010.
Southern
In Southern, our existing franchise operates until 20 September 2009. During this period, we expect to maintain earnings at similar levels to the equivalent period last year – in part due to the profit share regime which allocates 60% of any incremental profit or loss to the DfT until the end of the franchise. The new franchise aims to improve the underlying revenue trends by 4-5% to June 2010 through initiatives which were not financially viable under the profit share regime. We are well progressed with mobilisation for the new franchise and with preparation for these initiatives, which include improvements to timetable, revenue protection and train and station investment.
Southeastern
In the first half for Southeastern, we expect benefits from our restructuring programme to offset broadly the adverse trends in passenger revenue growth. Results for the second half will largely depend on the success of the new timetable and high speed rail services from 13 December 2009. To date, the public reaction to the preview of the high speed service has been excellent. The high speed fares will average 20-30% above the current fares. This increase is generally perceived to be reasonable by passengers given the significant reduction in journey times. Whilst difficult to predict, at this stage we are targeting a mid single digit percentage increase in overall passenger revenue growth for the year as a result of the new timetable and services, with revenue support from the DfT available from 1 April 2010 if the revenue growth is below this level.
London Midland
In London Midland, our new management team will aim to offset the impact of lower revenue growth through operational improvements, restructuring programmes and further investment in revenue enhancement projects including gating and car parking.
Overall
Our rail operations should deliver a good level of profitability in the year ahead, albeit below the level achieved to June 2009.
New Southern Franchise
We were delighted to have been awarded the Southern franchise for a second term.
- Start of franchise: 20 September 2009
- Franchise renewal: July 2015*
- Eligible for revenue support: 21 September 2013
- Approx. 50% of passengers are commuters
- Regulated (peak-time) fare increases: RPI* +1%
- *With a two year extension at the discretion of the DfT.
- **Annual regulated fare increases are set by the DfT at Retail Price Index (RPI) as at July of the previous year.
