UK - rail passenger growth boom may end

[John Ashworth]

Go-Ahead's rail passenger growth slows sharply as experts warn boom may end

* Dan Milmo, transport correspondent
* The Guardian, Friday 24 April 2009

Britain's busiest train operator has reported a sharp slowdown in passenger growth on its main commuter franchise, providing further evidence of the weakening rail market.

Go-Ahead Group said passenger numbers on its Southeastern service have grown by 0.7% since the start of the year, down from 2.7% in the final three months of last year. "Clearly there has been a fall-off in demand," said Keith Ludeman, Go-Ahead's chief executive.

The slowdown in rail passenger numbers across the UK has been most marked in the south-east and London, where more than two-thirds of all rail journeys begin or terminate. It has provoked a dispute between another major commuter service, South West Trains, and the Department for Transport, as SWT seeks extra subsidy from the government to cover potential revenue falls.

However, Ludeman said Southeastern was performing better than expected after it cut 300 jobs earlier this year in anticipation of passenger traffic falling by 3% in the six months to June. Southeastern's passenger numbers are defying that forecast, although analysts warn that customer growth could be nearing a tipping point. "Over the rest of this year we may see it slip into negative territory in terms of passenger volumes. They may be shrinking already," said Gert Zonnefeld, an analyst at Panmure Gordon.

Southeastern, which operates trains from Kent, Sussex and south London into the centre of the capital, was also buoyed by a rise in fare revenues of more than 5% so far this year, as ticket price increases compensated for the slower passenger growth. "We are still above our revenue targets to date," said Ludeman.

The Go-Ahead boss added that the group had "no need" to hold talks with ministers about Southeastern and its two other franchises - Southern, which operates the London-to-Brighton route, and London Midland. Southern reported passenger growth of 3.7% in the same period as Southeastern, albeit down from 5.2% in the previous quarter, while London Midland saw passenger numbers grow by nearly 5%. All three franchises, which carry a total of 900,000 passengers a day, reported increases in revenues, with Southern's rising by 6.7% and London Midland's by nearly 10%.

The pressures on the rail market are having different effects on operating groups according to the scale of their payments to the government, their markets and whether they qualify for extra subsidy to cover revenue shortfalls.

Go-Ahead's rail business is causing less concern for analysts because Southeastern is close to qualifying for revenue support and none of its franchises have pledged significant sums to the DfT.

National Express's and Stagecoach's rail operations are attracting the most scrutiny from investors because they include franchises tied into expensive contracts that were struck before the credit crisis. Stagecoach's SWT franchise is committed to paying the government £1.2bn over the course of its contract, while National Express has pledged £1.4bn for the London-to-Edinburgh east coast route. Shares in Go-Ahead rose nearly 3% to £12.35 yesterday.