Consequences for station projects and shop rental
The COVID-19 crisis had little or no negative impact on station renovation projects. Indeed, in several projects the decrease in passenger numbers actually had positive consequences. For example, it enabled us to carry out far more construction work during the day rather than at night, with less nuisance for local residents. The fall in passenger numbers also allowed us to carry out relatively small repair works in less time, bringing he costs down. One example is the entrance to Utrecht CS on the Jaarbeurs side.
COVID-19 has had a huge impact though on the turnover of retail tenants at the stations. Where necessary, we entered into special agreements with them tailored to their needs. Our aim was to prevent vacancy of retail spaces as much as possible.
At the low point of the crisis, we carried only 10% of the normal number of passengers. The figure for the other months of the year was not much better, at 40%. We sold fewer train tickets, many passengers suspended their season tickets and retail sales at the stations also plummeted. We do not expect to see the first modest recovery in passenger numbers until 2022, and are aware that some changes in passenger behaviour may well be permanent. For example, we expect that people will continue to work more from home, be more likely to commute by bike (or e-bike) and less keen on international travel than before the crisis. These changes will result in a downward adjustment of our passenger volume forecasts. In addition, the expected economic downturn will also affect railway travel. And as passengers who will continue to travel by train are more likely to do so outside of peak hours and at reduced rates, the impact on NS’s income will be all the greater. As a result, financially we will continue to feel the pressure in the years to come. We expect to lose approximately €4.7 billion in revenue between 2020 and 2024.
To mitigate the huge loss of income for 2020 and 2021, the government has pledged an availability payment (beschikbaarheidsvergoeding) for the period until October 2021, amounting to €818 million. This payment, which will cover up to 93% of our costs on the main rail network (after deduction of passenger revenues), is an important short-term solution. Along with the Temporary Emergency Bridging Measure for Sustained Employment (NOW) of €24 million claimed by NS Stations, it will reduce the financial deficit in this year's operating result by €842 million. However, the availability payment offers no long-term solution. To recover our financial health, we will have to economise and adapt our business. That is the only way to keep train fares affordable and to keep the country accessible in the future. Up until 2025, NS will implement cost-saving measures worth €1.4 billion so as to permanently reduce the level of costs and investments in light of the adjusted passenger volume forecasts. The measures will affect all business units and initiatives of NS. We have also taken a critical look at our investments and have decided, for instance, to order fewer new extra trains. All projects will also be reviewed in this light.
To regain our financial health, we will have to slim down and become more agile and effective as a business. We will have to carry out more work with fewer people: 2,300 jobs will disappear over the next few years, both among internal and external staff. This will bring our head office costs down by 25%. We aim to improve results, digitise faster and respond more flexibly to changes in our environment. To achieve that, we are transforming NS into a smaller and more agile organisation that will enable smarter and more effective collaboration, strengthen our self-confidence and fuel our willingness to change.
Over the next few years, approximately 2,500 NS employees will retire. However, the jobs that will be lost or changed cannot be offset against those that will become available due to retirement, as they do not always concern the same positions.
Consequences for our foreign operations
In the United Kingdom, the COVID-19 pandemic caused a sharp fall in passenger revenues from the Abellio franchises. Except for Merseyrail, all existing franchise agreements in the United Kingdom were amended effective 1 March 2020 by temporary emergency agreements, in which the British government pledged to take over all revenue and cost risks and offered carriers the prospect of a 1% to 2% management and performance fee. In 2020, Abellio received an additional grant of €1.5 billion from the British government in return for the continued provision of railway services.
In Germany, the direct financial impact of COVID-19 on our franchises remained limited. This is because the public transport authorities in Germany, which are Abellio's client, bear the loss-of-income risk.
The influence of COVID-19 on the annual report
As a result of COVID-19, 2020 was completely different for NS than other years. Obviously, this is also reflected in the results. KPIs such as seat availability and customer satisfaction have suddenly acquired a different dimension. For example, several franchise KPIs have lost all relevance, albeit temporarily, while other results can no longer be compared with those of previous years. This is why we have decided not to report on a number of results in this annual report, or to report less extensively or differently compared with previous annual reports. Where results have changed significantly, we only provide explanatory notes if the changes are attributable to causes other than COVID-19. By avoiding such repeated references to COVID-19 as the cause of major changes, we have been able to produce a report that is still pleasant to read.