Estimating the profitability of the British east coast main line

Abstract

Successful railway franchising requires both bidders and tendering authority to have a good understanding of the underlying economics of that part of the railway. However, an earlier franchise contract for Britain's east coast main line franchise was terminated early by the government in 2006, while a more recent franchisee has recently passed the franchise back to the government, having suffered unduly during the recession of 2008–2009. Both bidders made very significant (and, it would appear, unsustainable) promises to government in terms of paying a premium to operate the services concerned, but such premia inevitably derive from the competitive situation of franchising. This paper sets out some indicative analysis of train operator profitability in Britain which provides some guidance as to the appropriate level of premium for this – and other – franchises, with some more general conclusions.