Abellio UK

Reforms in the sector

In May 2021, the British government published the long-awaited White Paper on major railway reforms. This so-called ‘Williams-Shapps Plan’ for UK Rail has far-reaching consequences for the railway sector, including Abellio.
According to the plan, railways in the United Kingdom will come under one new supervisory body: Great British Railways (GBR). GBR will own the infrastructure, receive the fare income, run and plan the network, and set most of the fares and timetables. Network Rail will be included in GBR. GBR will produce a long-term plan and will be accountable to the government. In order to decentralise decision-making, GBR’s regional divisions will work together with local authorities to enable local and regional authorities to do more themselves.
The new GBR aims to achieve tangible results in terms of fares, ticket sales and the shops. The fares and the season tickets will be simplified. There will be straightforward, uncomplicated payment options for every journey, with digital tickets available throughout the network. The option of paying per journey is being extended outside London to make train travel easier.
The plan also sets out a 30-year investment strategy with priorities such as digital signalling and the reduction of CO₂ emissions.
The White Paper also lists £ 1.5 billion of annual cost savings in the UK rail sector.

For rail operators, the next generation of Passenger Service Contracts (PSCs) is an important part of the Williams-Shapps Plan. Although the plan stipulates that the rail operators will play a role in this, the details of the PSCs, the risks, the compensation and the incentives are yet to be agreed upon.

Abellio UK will contribute to the financial sustainability of the sector by means of its available skills and expertise. The priorities are cost management, revenue growth, customer service and railway operations. To this end, attention should be focused on specific sector-wide training programmes, a comprehensive review of fares and ticketing, cost-effective infrastructure delivery, a national rolling stock plan and timetable reform.

Public investment

The number of rail passengers in the United Kingdom increased during the year. In the autumn, however, the numbers decreased again, partly as a result of the government’s advice to work from home. The government contribution to the railways will be capped at £ 5.7 billion over the next three years, while emergency funding since the first lockdown in March 2020 amounted to £ 12 billion. In the short term, the prospects for passenger numbers remain uncertain. It seems, however, that passenger behaviour has been permanently altered by the pandemic. In order to get the passengers back, a nationwide advertising campaign was launched in the summer of 2021. This lasted until the autumn when restrictions were once again introduced. Abellio also introduced new flexible season tickets in 2021.

To strengthen the regions, the UK government is allocating £ 5.7 billion over the next five years to modernise local transport networks in urban regions, with Manchester, Liverpool and the West Midlands benefiting from new schemes. In addition, a further £ 1.2 billion will be made available for cheaper and more frequent bus services. For Abellio Bus, Abellio UK continues to look for franchising opportunities in regional areas outside London.

New contract forms

Throughout the year, Abellio UK negotiated contracts with the UK Department for Transport (DfT) and Transport Scotland (TS).

Greater Anglia and West Midlands

Greater Anglia and West Midlands signed a National Rail Contract in 2021. This is a management contract whereby the British government assumes the majority of the revenue and cost risks and finances the investments of the operators. This is therefore different from the current franchise agreement. These NRCs are effective from 19 September 2021

and have a term of five years, until September 2026. The Department for Transport has the option of applying a cancellation clause after three years. The transport companies receive a fixed management fee of approximately 0.5% of the operational costs for running train services, plus a performance fee of up to approximately 1.5% of the operational costs. This is linked to various performance indicators in the field of customers, operational and financial aspects, business management and investments.

The NRCs replace the ERMAs in Greater Anglia and West Midlands, thus formally ending the franchise agreements, which were no longer viable due to the pandemic. The Parent Company Support (PCS) guarantee that was required in the franchise agreements will be replaced by substantially lower guarantees totalling £ 12 million per NRC.

As a condition of switching to NRCs, Abellio UK reached an agreement with the Department for Transport on termination fees for the franchise agreements with West Midlands paying £ 90.5 million (NS share 70% - £ 63.4 million) and Greater Anglia paying £ 30.5 million (NS share 60% - £ 18.3 million). These amounts are significantly lower than the provision of approximately £ 433 million included in the 2020 Annual Report, which was based on preliminary calculations by the DfT. The reduction is a significant factor in Abellio UK’s total 2021 profit.

East Midlands

East Midlands is still operated on ERMA land. No termination fee has to be paid when the underlying franchise agreement expires. In September 2021, the Department for Transport extended the East Midlands ERMA until 16 October 2022. It was initially to end on 31 March 2022. East Midlands is expected to be covered by an NRC with a basic duration of four years and a possible extension of another four years from 16 October 2022. The award process is currently ongoing.

ScotRail

In March 2021, the Scottish government announced its intention to transfer ScotRail’s operations to a public operator on 1 April 2022, the date on which ScotRail’s current franchise agreement expires. The Abellio ScotRail contract will therefore be terminated, but we are pleased that the Scottish government has again selected the Abellio Shared Services Centre as the service provider for the new public operator, until January 2025. The current EMA expires on 27 February 2022, after which a Temporary Measures Agreement will be concluded with Transport Scotland, which will last until 31 March 2022. 

UK rail franchises and bus services

Abellio operates five UK rail franchises and around 8% of London bus services with a combined revenue of approximately € 3.3 billion (excluding Merseyrail). The company operates East Midlands Railway, ScotRail, Greater Anglia as a 60/40 venture with Mitsui, West Midlands as an 85/15 venture with Mitsui (prior to 19 September 2021, West Midlands was operated as a 70/15/15 venture, with JR East also holding 15%. On 19 September 2021, Abellio acquired JR East’s interest in West Midlands) and Merseyrail as a 50/50 joint venture with Serco, as well as a profitable bus company. Abellio Bus operates 764 buses on 49 routes in London, or 9% of the capital’s market, for Transport for London (TfL).

Key figures for Abellio UK rail franchises and bus services

Financial result

• * Intercompany financial result consists of interest on shareholder loans and guarantee fees
• ** The PCS facility for Greater Anglia will be reduced to £ 100 million in the first quarter of 2022, with an NS share of £ 60 million (€ 71 million at year-end at an exchange rate of € 1.19/£ 1) and the PCS facility for West Midlands will be reduced to £ 77 million, with an NS share of £ 54 million (€ 64 million).

Operational performance

In the UK, there was an increase in services in 2021 compared to 2020: more trains were running and more passengers were being carried than in the earlier stage of the pandemic (from March 2020). Based on the ERMAs and NRCs, various performance indicators were introduced. However, the Public Performance Measure (PPM) is relevant to all TOCs (train operating companies) and remains a key performance indicator for them.

• 1 This table shows the performance of the UK’s franchised TOCs (MAA = Moving Annual Average) for Period 10 of the railway calendar for 2021 and 2020. Eleven of these franchises were contracted by the Department for Transport. ScotRail and Caledonian Sleeper are contracted by Transport Scotland and Transport for Wales Rail Ltd is franchised by Transport for Wales. Merseyrail, London Overground and TFL Rail have a franchise that is contracted by the local authority. LNER, Northern Trains and Southeastern are operated directly by the Department for Transport. The main reason for the decrease is an increase in services: more trains ran and more passengers were transported than in the earlier stage of the pandemic from March 2020.
• 2 PPM is the standard industry measure of train punctuality when a service arrives within 5 minutes of time advertised, or 10 minutes for long distance services.

The table below shows the cause of delays for Abellio’s TOCs in 2021 by category, with delays attributed to Network Rail still the main cause:

• NR on TOC: delays attributed to Network Rail (infrastructure) on train operating companies, including extreme weather conditions.

• TOC on Self: delays attributable to a TOC itself.

• TOC on TOC: delays attributable to another TOC.

Abellio as an employer

Abellio UK is a major employer with around 16,000 employees at all TOCs. Abellio continues to invest in the development and welfare of its staff. During the year, Abellio invested in new educational platforms and online programmes. Employees could receive support and the communication and consultation with managers were strengthened. This year, Abellio once again focused on learning processes: more than 250 colleagues started such a process in positions ranging from bus driver and train driver to customer service employee, engineer or manager.

Furthermore, Abellio continues to work towards a more diverse and inclusive workforce. To this end, it is setting up forums in all companies to increase the number of people from ethnic minorities and women in leadership positions, to create opportunities for young people and to increase understanding of the benefits of an inclusive workforce.

Abellio has played an important role in the cooperation with the main railway trade unions as chair of the sector-wide Rail Industry Coronavirus Forum and the Rail Industry Recovery Group. This initially involved coordinating the management of the pandemic and subsequently the financial aftermath due to the significant loss of revenue.

Outlook 2022

The National Rail Contracts, the new management contracts, represent a fundamental change in how train operators work together with the Department for Transport. To this end, Abellio UK has changed the way it works in order to meet the five performance criteria set out in the contract: operational performance, customer satisfaction, service quality standards, financial performance and business management. Abellio will also help to implement changes in the sector.

Abellio UK will prepare for the transition from the ERMA to a directly awarded contract for East Midlands in October 2022. Whether this is successful depends on the success of the negotiations with the Department for Transport.

Abellio UK also aims for a smooth transfer of ScotRail services to the Scottish government’s new public operator, ScotRail Trains Limited, which will commence operations from 1 April 2022.

Abellio Bus will continue to make strategic bids for routes in London and to electrify the depots there. Abellio will also add more electric buses to its fleet. Abellio Bus will also explore franchise opportunities in other urban areas (outside London) and seek to expand train replacement services.