FirstGroup shares sink as TPE decision leaves £416m hole in revenues

FirstGroup shares fell sharply on Thursday after the Department for Transport revealed it would bring the TransPennine Express National Rail Contract under Government control.

Transport Secretary Mark Harper highlighted ‘continuous cancelations’ as he opted not to renew or extend the TPE contract, which will be brought under the ‘operator of last resort’ from 28 May, joining London North Eastern Railway, Northern and Southeastern services.

In a statement to investors on Thursday, FTSE 250-listed FirstGroup blamed TPE’s cancellation levels on ‘circumstances not wholly within the operator’s control’ such as disputes with unions.

TPE contributed £415.8million of FirstGroup’s £4.6billion in revenues in 2022, as well as £13.2million of adjusted operating profit and £8.9million of attributable net income.

Cancelled: FirstGroup’s TPE contract has not been renewed 

FirstGroup shares fell 5.4 per cent 116.7p in early trading on Thursday, limiting 2023 gains to 13.4 per cent.

The company, which also runs management fee-based train operating companies Avanti West Coast, GWR and SWR, said it was ‘disappointed’ by the Department of Transport’s decision ‘given the investment and improvements we have made to the service over the years’.

According to FirstGroup, TPE’s passenger numbers grew from 14 million in 2004 to more than 29 million in 2019.

The Department of Transport intends to eventually return the company to the private sector.

It said: ‘TPE’s service levels declined due to circumstances not wholly within the operator’s control, mainly the challenging industrial relations environment including the withdrawal of longstanding industry-standard overtime arrangements while undertaking unprecedented driver training requirements due to infrastructure upgrades.

‘Following the introduction of an agreed recovery plan in February 2023, cancellations have fallen by approximately 40 per cent and will continue to do so as more drivers become available over the next few months.’

FirstGroup lifted profit expectations for 2023 in March, following a spike in demand for its bus and train services over the last three months.

The company, which operates around a fifth of local bus services in the UK, said passenger numbers have now recovered to 83 per cent of pre-pandemic levels.

FirstGroup is said to be weighing a takeover bid for the UK bus and trains businesses of Arriva, which is currently owned by Germany’s Deutsche Bahn.

Chief executive Graham Sutherland, FirstGroup Chief Executive Officer said: ‘We have operated TransPennine Express and its forerunners since 2004, and are very proud to have served the communities across northern England and into Scotland, carrying millions of passengers and introducing new trains, new routes and more seats for our customers.

‘Our team have worked extremely hard to improve services, including by recruiting and training more drivers than ever before. 

‘We have also worked closely with the DfT and Transport for the North on an agreed recovery plan as well as an improved offer on overtime working for our drivers.’