Comment: FirstGroup ScotRail franchise hits buffers

Martin Flanagan
Martin Flanagan
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IT WILL stick in the craw of ­transport operator FirstGroup to have lost its £2.5 billion ScotRail franchise. Transport Scotland has switched the contract for the next ten years from April 2015 to Abellio, the Dutch state-owned railway operator.

FirstGroup’s chagrin, which it predictably did not hide after the change was announced yesterday, will be partly due to many independent observers believing it has done a decent job of running ScotRail since 2004.

Yes, not a few also think fares on the business’s pivotal inter-city route between Edinburgh and Glasgow are not calculated to make customers feel they have got a wonderful bargain given the length of journey.

But anecdotal evidence suggests many feel the basic First ScotRail service has been decent (even if sometimes it gets the mistaken credit for improvements such as Waverley and Haymarket stations which are the responsibility of Network Rail).

On every record, from punctuality to cancellations, ScotRail has improved in recent years, untainted by the public relations problems that have dogged FirstGroup’s largest service from London Paddington to the West Country and Wales.

However, Abellio seems to have carried the day with a more bells-and-whistles politically palatable package for Holyrood, including reduced fares for jobseekers, a quarter more carriages across the network with a third more seats, and high-speed intercity trains.

In the wider shape of things, FirstGroup’s concern must be that in terms of rail franchises it will begin to look an unlucky general. In recent months it has lost its Caledonian Sleeper franchise to Serco, failed in its bid to win the Essex Thameside contract, and lost in its effort to keep running the Thameslink network between Bedford and Brighton.

Losing ScotRail is not devastating financially for the company per se. But the cumulative impact of lucrative rail knockbacks could severely constrict its ability to pay down its £1.3bn debt mountain. That affects the investment case for financial markets.

Shares in FirstGroup tumbled more than 7 per cent at one point yesterday before closing down 4.9 per cent. This may not just be the adverse ScotRail decision, but also City fears that the company may now be tempted to overbid for two of its next big two testing points: its application to take over the East Coast service from the public sector and to gain an extension to First Great Western.

If it fails in both of those, shareholders may need tin hats.

Administering the recuperative medicine

For companies in administration it need not be the end of the world, more a phase they are going through. Jessops, the specialist photographic business, is the latest to find life after corporate death.

The business is imaginatively branching out with stores located within Sainsbury’s supermarkets – good for guaranteed footfall both for Jessops and the grocery giant.

Administrative receiverships – HMV and Game Group are others in the retail sector who have rebounded from them – can just be a way for new owners to brutally bin a business’s overreach, slash costs (including many staff), and set up again with a profitable nucleus and reduced aspirations.

It is seldom pretty, and often invidious when the private equity bogeymen get involved. But cases like Jessops show such rescues may mean a different future, but a future, ­nevertheless.