FirstGroup plc and MTR Corporation Limited welcome today's announcement by the Department for Transport ('DfT') of its intention to award the new South Western rail franchise to our 70:30 joint venture First MTR South Western Trains Limited (the 'Franchise Operator'). The new franchise will operate from 20 August 2017 until at least August 2024.
Over the course of the franchise, £1.2bn will be invested to raise the quality of every aspect of train journeys on the South Western network. We are giving customers and community groups a say in setting priorities for that investment by focusing on the following areas, based on their feedback:
State of the art trains: We will introduce 750 new, spacious train carriages for the Windsor, Reading and London Suburban routes by December 2020, as well as 18 additional, fully refurbished trains (90 carriages) on the London-Portsmouth route from December 2018. We shall deliver 52,000 more peak seats per day at London Waterloo compared to today's services by December 2020. The rest of our mainland fleet will be refreshed and will have free, more reliable Wi-Fi, at-seat charging points and free infotainment as well as real time travel and connection information screens.
Additional and faster services: From December 2018 our plans will deliver faster journey times to stations including Hounslow, Reading, Southampton, Bournemouth, Weymouth, Portsmouth and Salisbury; double the service to both Reading and Windsor throughout the day; double the off-peak service between Southampton and Portsmouth and re-introduce through services between Portsmouth, Southampton, Bournemouth and Weymouth to aid regional connectivity. We will also significantly improve weekend services with more than 400 extra Sunday trains across the network. Easier tickets and fares: We will introduce simpler fares with mobile and smart ticketing. These will include flexible season tickets and new lower fares for 16-18 year olds, recognising the importance of accessible rail travel. Claiming compensation will also be made simpler with the introduction of an easy-to-use 'delay repay' scheme for the first time on the network. Our new passenger app will be a key gateway to all travel options throughout the region.
Station improvement: £90m will be invested in our stations, including a major refurbishment at Southampton Central station. Car parks will be extended at key locations with at least 1,500 extra spaces and new electric vehicle charging points. We will use station buildings to host community projects and independent retailers. Passengers will also benefit from this summer's London Waterloo platform extension project that is scheduled for completion within days of the start of the new franchise. Further capacity at Waterloo will be introduced at the end of 2018 when the former Waterloo International platforms are fully redeveloped and brought back into use.
People and communities: An important objective is to increase engagement with customers, employees, local authorities and community groups to give them a real stake in the future of rail travel in their area. We will launch a £2.6m annual fund to support community projects across the franchise from April 2020. Connections between other local rail and bus services will deliver genuine joined up journeys, and we plan to introduce the biggest rail operator apprenticeship scheme in Britain.
Commenting on today's announcement, Secretary of State for Transport Chris Grayling said:
"This is great news for rail passengers. FirstGroup and MTR will deliver the improvements that people tell us they want right across the South Western franchise area, from Southampton and Portsmouth, to Bristol and Exeter, to Reading, Windsor and London.
"We are delivering the biggest rail modernisation programme for over a century and this franchise will deliver real changes for passengers, who can look forward to modern trains, faster journeys and a more reliable service."
FirstGroup Chief Executive Tim O'Toole said:
"We are delighted that our partnership with MTR has been selected by the DfT to run the South Western rail franchise, a key part of the country's railway network which millions of people rely on every day. Our successful bid will deliver the tangible improvements that customers and stakeholders have told us they want from this franchise. Passengers can look forward to new and better trains, more seats and services, quicker journey times, improved stations and more flexible fare options."
Jeremy Long, CEO - European Business, MTR Corporation said:
"MTR is known across the world for the excellent quality of its rail services, and we look forward to working with FirstGroup to provide a best-in-class travel experience for passengers in London and the South West. Together we will deliver a major programme of upgrades, including improvements to both rail services and customer experience, for passengers travelling across the South Western network."
Key franchise terms
The new franchise will start on 20 August 2017 and is planned to run for a core period of seven years, with an extension option of up to eleven months at the DfT's discretion. Under the contract, the Franchise Operator will deliver £2.6bn real NPV* in premium payments to the Government over the core period. The JV shareholders will provide a loan of up to £30m, and £88m (of which 50% is bonded) in subordinated contingent loan facilities to the Franchise Operator, as well as a £15m performance bond and a season ticket bond of up to £80m. The franchise terms include GDP and Central London Employment revenue protection mechanisms to mitigate the financial impact of exogenous economic factors outside the control of the Franchise Operator, and a profit sharing arrangement whereby a proportion of profit in excess of pre-specified thresholds will be payable to the DfT.
The franchise will benefit from investment of £1.2bn, primarily during the first four years of the franchise, leading to enhanced customer experience and passenger capacity. Approximately £80m of investment will be directly funded by the Franchise Operator. Franchise passenger revenues, which were £991m in 2015/16, are expected to increase from the additional capacity created. FirstGroup expects to achieve margins comparable with the recent overall industry average and to earn an appropriate return over the life of the contract, reflecting the franchise risk profile. FirstGroup expects a working capital inflow of approximately £100m principally relating to season ticket monies, to be treated as restricted cash.
The franchise award is subject to the customary 'standstill period' of ten days, after which formal contracts will be signed by the DfT. As with other UK rail franchise awards, the Competition and Markets Authority is also required by law to carry out a 'phase one review'. * Net present value of forecast premium payments over the seven year core franchise period, expressed in 2017/18 prices and discounted using the DfT's 'real' discount rate of 3.5%.