How much cash is LNER making?

[Sebastian O]

LNER is the one TOC that the DFT daren’t interfere with the rolling stock plan for. It makes them far too much money for them to risk it, even the DFT aren’t mad enough to try it.

Following on from this comment, is it widely available or known how much profit LNER is making?

This comment is interesting as I know the previous incarnation of DOR prior to Virgin taking over the ECML was returning a lot of cash to the treasury - is this still the case and if so, how much and why?

 

[LNW-GW Joint]

There's this thread from 2020 (concerning 2018/19 results):

LNER vs VTEC financial performance

LNER's first set of accounts are out; which shows the following: Turnover: £695m Operating profit: £52.5m DfT premium: £128m This compares to VTEC the year before: Turnover: £842m Operating profit: -£20m (a loss) DfT premium: £334m Not entirely sure how like for like these numbers are, but...

www.railforums.co.uk

You won't find much sensible data since, because of the pandemic and its aftermath.
Because of their route and service structure you'd expect LNER to be making a decent profit, but probably not as much as the VTEC franchise was supposed to deliver.
Any profits go to subsidise the rest of the industry which is heavily loss-making.

There is some investment in progress for NR CP6 (eg power supply upgrades), still incomplete and key to additional services north of York.
LNER has not had its enhancement proposals approved (eg 80x replacements for remaining 225s), and the proposed ECML timetable rewrite has been deferred.

 

[ainsworth74]

Following on from this comment, is it widely available or known how much profit LNER is making?

Not really as our information lags quite considerably. The most recent account (available on Companies House) are for the year 1 April 2020 to 31 March 2021 and as you might imagine show LNER haemorrhaging money. We're due the next set of accounts (1 April 2021 to 31 March 2022) any time now as LNER, on past performance, publish them around this time of year (and in any event they're due no later than 31 December). Those will probably be healthier but obviously the start of 2021 wasn't all that positive and we had the cracking issue as well with Hitachi fleet to worry about. The current year (1 April 2022 to 31 March 2023) will probably more illustrative (though of course the impact of strikes will be visible in those accounts) but we won't have sight of that until this time next year!

I'm sure LNER and the DfT will know what's going on with their finances and I would suggest, judging from loadings, that the position is much healthier than it was. But we won't have hard information for at least a year I'd suggest.

 

[800001]

Weekly emails from the MD say that LNER have not yet returned to profit, as while passenger numbers at times are back to 100% or sometime higher, the revenue they take is still only at about 80-85% of precovid levels.

Last week revenue reached 97% of precovid levels, which is the highest level since post-covid.

 

[Watershed]

You can't just look at the operator's balance sheet to determine whether their operation is profitable. The government pays Network Rail billions a year in subsidy, despite the significant fixed track access charges that "franchised" TOCs pay.

Once this subsidy is divided up, I suspect you'd find that no operator is truly "profitable" at the moment.

 

[DanNCL]

I would suggest reduction in season ticket numbers, lack of any drive to actively encourage new custom (there’s only so many “look at our ‘new’ liveried 91!” posts they can make on Facebook and Twitter before the general public get bored) and competition from Lumo are likely all significant factors here. It also wouldn’t surprise me if the IEP contract is part of the problem too.

 

[43066]

It also wouldn’t surprise me if the IEP contract is part of the problem too.

Yes. I’d certainly be interested to know how much profit the relevant ROSCO is making…

 

[josh-j]

Quite why it matters for a route to be commercially viable is beyond me. How profitable is the NHS? How profitable is the government's road building programme? They're public services, the benefit is the service they provide not the profit they make.

If all public services had to make a direct profit there would be pretty much no services at all of any kind.

I think the solution to current funding issues is NOT to try to make continual cost savings, but to tackle head on the argument that funding has to be cut at all.

 

[Dr Hoo]

Yes. I’d certainly be interested to know how much profit the relevant ROSCO is making…

I thought that the DfT contract with Hitachi meant that there wasn’t a ROSCO for LNER’s IEPs.
Have I misunderstood?

 

[DanNCL]

Quite why it matters for a route to be commercially viable is beyond me. How profitable is the NHS? How profitable is the government's road building programme? They're public services, the benefit is the service they provide not the profit they make.

If all public services had to make a direct profit there would be pretty much no services at all of any kind.

I think the solution to current funding issues is NOT to try to make continual cost savings, but to tackle head on the argument that funding has to be cut at all.

The difference is this can make a profit without being damaging the service it provides to the public. It’s silly not to make it profitable for the taxpayer.
The NHS on the other hand cannot make a profit without charging patients.

I thought that the DfT contract with Hitachi meant that there wasn’t a ROSCO for LNER’s IEPs.
Have I misunderstood?

The ROSCO is effectively Hitachi, under the name ‘Agility Trains’, and under a non-standard arrangement that’s considerably more expensive than a conventional lease.

 

[Trainbike46]

The ROSCO is effectively Hitachi, under the name ‘Agility Trains’, and under a non-standard arrangement that’s considerably more expensive than a conventional lease.

What was the reasoning behind the unusual arrangement?

 

[DanNCL]

What was the reasoning behind the unusual arrangement?

Government incompetence is probably the best way to put it!

 

[43066]

The NHS on the other hand cannot make a profit without charging patients.

It rather depends what you mean by “the NHS”. Off topic but both GP practices and pharmacies are private profit making businesses. So are the various agencies providing staff at all levels, and other companies providing services.

The issue with rolling stock leasing is that the leases tend to be more favourable than commercial leases and of course benefit from the railway’s “too big to fail” status so lack any commercial risk. ROSCOs have consistently enjoyed higher tax-payer subsidised profits than TOCs since privatisation. Something that isn’t talked about anywhere near enough on here, in my view!

 

[LNW-GW Joint]

What was the reasoning behind the unusual arrangement?

To get the lifetime risk off the government's books and make Hitachi (and its banks) responsible for performance.
Hitachi is taking a big hit over the cracking issue (across all 80x).
Otherwise the TOCs would be responsible for the impact and repairs.
It's now common for manufacturers to take a sizeable stake in the maintenance and performance of their trains.

 

[Kilopylae]

How profitable is the government's road building programme? They're public services, the benefit is the service they provide not the profit they make.

I agree with you entirely. But I think you underestimate how much the profit mentality has infected public services. A road-building programme would not commence without a 'business case' purporting to show that it would be profitable in the long term.

Indeed, as 43066 points out, 'even' the NHS has heavily relied on profit-motivated businesses for some time.

 

[tbtc]

I know the previous incarnation of DOR prior to Virgin taking over the ECML was returning a lot of cash to the treasury

My understanding was that GNER returned “surplus” to the treasury, NXEC returned “surplus” to the treasury, VTEC’s contract promised to return “surplus” to the treasury (albeit they were stopped part way through the franchise duration, as were National Express)

franchises generally tended to promise higher returns in the the second half of the agreed period, normally the initial years were spent investing in new/additional trains, and therefore the TOC was in healthier position to return surplus in the later years (or, to be blunt - spend your money on new trains and expansion in the early years, use the increased revenue to return more £££ to the government in the later years) - the same applies to most of the subsidised franchises, where the subsidy was intended to reduce over the duration of the contract

Of course, a cynic would say that some franchises were set up like this to give an incentive to walk away part way through - e.g. First had the Great Western franchise with the option of a two year extension after the initial period, but declined to take this up, presumably in part because the onerous terms that came with the extension period weren’t particularly attractive

There was criticism of just how ambitious Stagecoach were promising to be in terms of the surplus that they said they’d return, but the government were happy with the numbers so obviously expected Souter’s company to pay the surplus that has been agreed - presumably there’d similarly have been criticism of the winning bidder if they had only offered to return a tiny amount to the treasury - people who were against privatisation would find any excuse to moan

However it’s important to note that the Government controlled “East Coast” and the current Government controlled LNER didn’t promise any specific level of surplus, so there’s no benchmark. Yes, they returned money to the treasury, but even Trotters Independent Traders would make some surplus from running this lucrative line - its a lot harder when there’s an amount that you *have* to return each year (and financial Penalties for failing to do so) - the government controlled operators are playing on a much easier setting than the tougher terms that they expected Sea Containers etc to comply with

 

[DoubleO]

My understanding is that the cost of the Hitachi/IEP contract is the main reason that LNER are likely to go elsewhere for new units to replace the 91s/Mk4s....

 

[LNW-GW Joint]

My understanding is that the cost of the Hitachi/IEP contract is the main reason that LNER are likely to go elsewhere for new units to replace the 91s/Mk4s....

If they are allowed to do so - there's been no post-covid order for new trains yet, at any TOC.
The 800/801 IEP contract was negotiated by DfT and LNER/GWR have to put up with the cost - for another 20-odd years.
More 80x would not be leased on the same basis as IEP, probably more like First's 802/5/7.
Choosing someone else's EMUs might be cheaper to lease, but brings in the extra operational costs of a separate, small fleet.

 

[DoubleO]

If they are allowed to do so - there's been no post-covid order for new trains yet, at any TOC.
The 800/801 IEP contract was negotiated by DfT and LNER/GWR have to put up with the cost - for another 20-odd years.
More 80x would not be leased on the same basis as IEP, probably more like First's 802/5/7.
Choosing someone else's EMUs might be cheaper to lease, but brings in the extra operational costs of a separate, small fleet.

Which is why I said 'likely'....

 

[Clarence Yard]

I agree with you entirely. But I think you underestimate how much the profit mentality has infected public services. A road-building programme would not commence without a 'business case' purporting to show that it would be profitable in the long term.

Indeed, as 43066 points out, 'even' the NHS has heavily relied on profit-motivated businesses for some time.

It’s always been there, since the 1950’s at least - it isn’t new - to capital fund in a public service, you have to make a return. Not necessarily a cash profit but the there must be a benefit expressed in monetary terms.

It has never been a “free gift” just because that particular service is publicly owned.

 

[markymark2000]

I would suggest reduction in season ticket numbers, lack of any drive to actively encourage new custom (there’s only so many “look at our ‘new’ liveried 91!” posts they can make on Facebook and Twitter before the general public get bored) and competition from Lumo are likely all significant factors here. It also wouldn’t surprise me if the IEP contract is part of the problem too.

Shouldn't the reduction of season tickets help revenue since most people are now buying normal on the day tickets instead which are often more expensive? If passenger numbers are at 100%, the fare being paid, should on average be higher.

 

[DoubleO]

Shouldn't the reduction of season tickets help revenue since most people are now buying normal on the day tickets instead which are often more expensive? If passenger numbers are at 100%, the fare being paid, should on average be higher.

A higher percentage of season tickets will be first class which make much more profit.

 

[43096]

The ROSCO is effectively Hitachi, under the name ‘Agility Trains’, and under a non-standard arrangement that’s considerably more expensive than a conventional lease.

The ROSCO is not "effectively" Hitachi. Looking at Companies House website, Agility Trains (East) Holdings show Hitachi as ceasing to be a person with significant control on 5 March 2021.

 

[800001]

Shouldn't the reduction of season tickets help revenue since most people are now buying normal on the day tickets instead which are often more expensive? If passenger numbers are at 100%, the fare being paid, should on average be higher.

More people are travelling off peak and with advance purchase tickets, that reduces revenue.

 

[Doctor Fegg]

My understanding is that the cost of the Hitachi/IEP contract is the main reason that LNER are likely to go elsewhere for new units to replace the 91s/Mk4s....

Just wait until the DfT-controlled LNER finds out who negotiated the IEP contract.

 

[DoubleO]

Just wait until the DfT-controlled LNER finds out who negotiated the IEP contract.

 

[Nicholas Lewis]

DfT do provide list of payments they make monthly over 25K and the last data release in Sept was for June 2022 and on that month LNER was only in receipt of 1.6m compared to the 48m its sister company Northern received. The previous month it was 7.4m which looks like what you would expect as passengers numbers were increasing going into summer. I would imagine through the summer they've been making a nett contribution to DfT but across their financial year they wouldn't have done due to covid impacts.

https://www.gov.uk/government/collections/dft-departmental-spending-over-25000

 

[josh-j]

The difference is this can make a profit without being damaging the service it provides to the public. It’s silly not to make it profitable for the taxpayer.
The NHS on the other hand cannot make a profit without charging patients.

It's entirely a political choice though. LNER isn't "really" making profit anyway even in the best of circumstances because all the infrastructure costs are paid by government. Its just down to how money is allocated between subsidies, operators and infrastructure. Some routes might not need the subsidy part but they're still subsidised anyway via the infra. And that's a good thing - "subsidy" is really a perjorative way of talking about "funding a public service".

Rail made a profit in the pioneer years with the competing companies building lines. Now it is more of a national public service and profit by route is not really relevant.

I don't mind if companies running routes make a profit but it just isn't relevant to the value of the service provided by the rail network as a whole. Unless companies start building their own lines again like a 200 years ago, I suppose!

 

[43066]

And railways generally have a poor track record of making profits, at least when they’re operated on the basis of providing anything like a useable, reasonably priced service, an issue which dates right back to the 19th century. Hence the original “parliamentary trains” which were forced on the early railway companies by the government to introduce an element of public service.

 

[100andthirty]

The ROSCO is not "effectively" Hitachi. Looking at Companies House website, Agility Trains (East) Holdings show Hitachi as ceasing to be a person with significant control on 5 March 2021.

Hitachi owns 25% of the class 800/801 ROSCO Agility Trains https://www.agilitytrains.com/about