SOUTH WESTERN Railway’s owners FirstGroup and MTR have cast doubt over the future of the franchise, suggesting it may not be financially sustainable in the long-term.
The companies took over the South Western franchise from Stagecoach in August 2017 in a seven-year deal. In its accounts for the year ending 31 March 2019, published on 3 January, SWR reported an operating loss of £137.8 million, compared to a profit of £9.6 million during 32 weeks of trading in the previous year. The loss includes an onerous contract provision of £145.9 million made by First and MTR against the franchise due to uncertainties facing the business.
The accounts state that the company has continued to be loss-making and current forecasts indicate the losses ‘will exceed the amount of the onerous contract provision within 12 months from the date of approval of these accounts’ with committed support from First and MTR used up.
The strategic report highlights that there is ‘considerable uncertainty about a number of factors affecting the performance of the franchise, including infrastructure reliability, timetabling delays and industrial action’ It says potential commercial and contractual remedies are being discussed with the Department for Transport.
Whilst the company says these discussions are ‘constructive’ without resolution it says the company’s ability to continue operating the franchise remains ‘uncertain’ In the directors’ view, potential outcomes include the company being asked to submit proposals for a short-term management contract for the continued operation of franchise train services or termination of the contract and a transfer to a publicly-owned operator. However, it adds that the directors have ‘a reasonable expectation’ that discussions with DfT will have a positive conclusion and that the company will continue to operate ‘for the foreseeable future’
Since the franchise began, SWR has faced a series of challenges. These include performance difficulties, with suggested remedies set out in detail in a review by Sir Michael Holden. Industrial action has been a key issue, and series of strikes culminated in a 27-day walkout by members of the RMT union during December, while the company’s new Bombardier Class 701 trains for suburban routes have been delayed, as have its refurbished Class 442 EMUs.
The financial results were released as Mark Hopwood took over as SWR Managing Director on 6 January 2020, replacing Andy Mellors. On taking up the role, Mr Hopwood said: ‘It’s my mission to drive through change and make a positive impact for South Western Railway passengers. Frankly, our service has not been good enough in recent months and years. I also know that the recent strikes have had a very significant impact on our passengers and staff and I am determined to find a resolution. We will focus on changes that can make an immediate difference to the number of trains running on time. SWR says it has brought together performance, operations and customer experience functions under Chief Operating Officer Mike Houghton as part of an effort to turn performance around.
Mr Hopwood has moved from FirstGroup’s sister company GWR on an interim basis, with Matthew Golton acting as GWR’s MD.