In March 2020, in light of Covid-19 outbreak in the UK, the Department for Transport took swift action and agreed temporary 6-month Emergency Management Agreement contracts with the train operating companies. These contracts essentially nationalised the revenue risk and temporarily change the structure of the franchises to short-term, highly prescriptive management contracts for the TOCs due to the enforced lockdown across the UK.
All of these Emergency Management Contracts are due to expire on 20th September 2020 and the future of all bar two (GWR and LNER) of these franchises is still up in the air. Railway Gazette has reported that some TOCs have been resistant to the terms of the successor ‘Emergency Remedial Measures Agreements’ proposed by the Department for Transport as the profit incentive is too low so we may well see certain TOCs decide to walk away and hand back the keys. It has also been reported DfT’s Operator of Last Resort has already established sufficient shadow businesses to take over all of the TOCs if required.
With the government’s advice at the start of lockdown for people not to travel by public transport the farebox and season ticket refunds have taken a huge hit and will continue to do so for the foreseeable future. Given the well documented issue with many employees now switching to working from home for at least part of the week, the impact on season ticket sales and also leisure travel is significant and will also be hugely difficult to accurately predict passenger demand in the short-medium term future. It would be difficult to envisage a TOC switching straight back onto their original franchise agreement with passenger demand currently being so low when compared to pre-Covid levels.
In some ways the Covid-19 lockdown and the Emergency Management Contracts give the rail industry the best opportunity for structural reform which is (or was) widely expected to be espoused by The Williams Rail Review. If the next wave of contracts are staggered with different expiry dates then it will tee the sector up for the next round of competitive tendering as they will keep the industry in a holding pattern for the next 12-24 months whilst allowing passenger confidence and demand to steadily build back up again.
We have definitely already seen some significant changes within the market from a recruitment perspective. Most notably we have seen three key trends:
1. Rail Consulting
There has been a short-term boost in the need for rail consultancies as they assist with determining an agreement between train operating companies and the Department for Transport.
2. Less Movement
There has been a noticeable reduction in movement between people within TOC’s. Many recruitment plans have been paused while they await the outcome of the upcoming decision.
3. Less Head Office Staff
Transport owning groups are looking to reduce overheads wherever they can while times are tough. Unfortunately, this has meant a reduction in head office staff, most notably within bid teams as there will be little to no need for bidding activity (at least in the UK) in the near future.
This month is a critical one for the future of the UK rail industry and it will be fascinating to see how it plays out.