Great North Eastern Railway - GNER Rising Competition and Financial Issues - B

Great North Eastern Railway - B

GNER Rising Competition and Financial Issues

In May 2006, it was revealed that GNER's parent company Sea Containers was in financial difficulties, and was rumoured to be bordering on insolvency. Questions were raised as to whether GNER could continue operating should its parent company cease trading. The company rejected this assertion, stating that its lines of credit and financial activities were "ring-fenced" away from Sea Containers, and therefore a cessation of services for this reason was impossible. It did not however stop speculation from rival TOCs (principally First) and Virgin Rail Group that they would be keen to rebid for the ECML franchise if it were put back out to tender. In July 2006, rumours began circulating that Sea Containers would be prepared to sell GNER in an effort to stave off resorting to Chapter 11 proceedings to secure itself from its creditors.

During July 2006, the High Court rejected GNER's judicial review over the Office of Rail Regulation's decision to allow rival train operating company Grand Central to operate trains along part of the ECML, - and in particular its right to call at York, one of the principal (and lucrative) stops on the ECML. GNER had made its application partly on the basis that 'open-access' train operators are not required to meet the same fixed costs for accessing Network Rail's infrastructure as train operating companies running services under a contract or 'franchise' with the Department for Transport.

GNER's case failed principally because the High Court determined that not only did European law permit the Rail Regulator to establish a charging regime for open-access operators which was different from the one which applies to franchised operators (such as GNER), in this case not imposing a fixed charge on open-access operators, but that if he had not done so, he would have been acting illegally because of the very different conditions under which open-access operators and franchised operators get access to the network. The High Court (Mr Justice Sullivan) refused GNER permission to appeal.

That same month, GNER announced that its chief executive officer, Christopher Garnett, was to step down, having occupied that position since Sea Containers had originally been awarded their first franchise. Amid growing industry speculation that Sea Containers was working towards a "financial restructuring", the company's President and Chief Executive Bob Mackenzie was named as Garnett's successor.

The firm's problems were further fuelled by GNER's poor profitability, which had been linked to the company's overbidding for the franchise coupled to what proved to be crippling premium repayments to the government. The company blamed the effects of the 7/7 terrorist attacks, increased electricity prices, and increased competition from low-cost airlines for the decline in passenger numbers. It also faced a growing challenge from the revitalised West Coast services operated by Virgin Trains. The company attempted to address the problem by waiving booking fees on internet sales, cutting staff numbers, and raising fares and car-parking charges where the market could bear it.

In a press interview in September 2006, GNER's ex-chief Christopher Garnett hinted at a bleak future for GNER and the franchising system, claiming that the trend among TOCs to overbid for the renewal of franchises would result in a financially unsustainable railway.

In October 2006, Sea Containers filed for bankruptcy protection under the US Chapter 11 process, therefore allowing the company to continue trading while it sorted out its finances. However, this meant that the company was unable to fulfil its guarantees in respect to its GNER subsidiary, greatly increasing the risk exposure of the latter's operations.

GNER Demise and Transfer

During December 2006, the Department for Transport announced its intention to strip Sea Containers of its franchise, this was reportedly due to the company's financial issues and having been overbid. Despite this announcement, GNER continued to operate the franchise under a management contract, which was extendable for up to two years, while the Department for Transport undertook the selection of a new franchisee.

In February 2007, the Department for Transport announced that Arriva, FirstGroup, National Express and Virgin Rail Group had been shortlisted to lodge bids for the franchise. In April 2007, it was announced that GNER had a 10% stake in the bid lodged by Stagecoach & Virgin. In August 2007, the Department for Transport awarded the franchise to National Express, and GNER's services transferred to National Express East Coast on 9 December 2007.

Great North Eastern Railway Overview

Great North Eastern Railway Franchise(s): InterCity East Coast
28 April 1996 – 8 December 2007
Great North Eastern Railway Main Region(s):
London
East of England
East Midlands
Yorkshire
North East England
Scotland
Great North Eastern Railway Fleet Size:
11 InterCity 125 HST sets
31 InterCity 225 sets
Great North Eastern Railway Stations Called At: 53
Great North Eastern Railway Stations Operated: 12
Great North Eastern Railway Parent Company: Sea Containers
Great North Eastern Railway Reporting Mark: GR
Great North Eastern Railway Predecessor: InterCity
Great North Eastern Railway Successor: National Express East Coast

GNER Route Map

Inverness
Perth
Stirling
Aberdeen
Dundee
Glasgow Central

Edinburgh Waverley
Newcastle
York
Leeds
Hull

Doncaster
Peterborough
London King's Cross