viewStagecoach Group PLC

End of the line for railway franchising system

Today's Queen's speech is expected to pledge a white paper based on recommendations from a rail review by former British Airways CEO Keith Williams.

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It is the end of the line for the controversial railway franchising system in Britain if leaked reports are to be believed.

Newspaper reports suggest that today’s Queen’s Speech in parliament, in which the monarch will relay the government’s legislative plans, will contain plans to scrap the franchising system and replace it with one focused on “performance and reliability”.

The franchising model was introduced in the nineties and has had its fair share of controversies, including instances where the government has had to resume control of rail networks after the franchise owners either walked away or had control taken from them.

The East Coast mainline franchise, in particular, has proved troublesome, with three franchise operators failing to make a go of it.

In 2005, GNER gave up the ghost just a year after signing a £1.35bn 10-year deal to run the line; in 2007, National Express backtracked two years after taking on the gig and then in 2015, a joint venture between Stagecoach Group PLC (LON:SGC) and Virgin Trains took the poisoned chalice, only for the government to step in and take back control in June of last year.

The former boss of British Airways, Keith Williams, has undertaken a review of the UK railways system and has proposed that an independent agency, headed by a "Fat Controller" figure (a reference to the Thomas the Tank Engine series), should be in charge of day-to-day operations, rather than the Department for Transport.

In Williams’s views, the government’s involvement in the rail franchises should be restricted to high-level policy and budget decisions.

He is on record as being in favour of the franchise terms running for longer as this would encourage the operators to invest more for the long term.

Quick facts: Stagecoach Group PLC

Price: 46.14 GBX

Market: LSE
Market Cap: £253.92 m

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