FirstGroup sees rail revenue growth slow after ‘disappointing’ service

Transport giant FirstGroup has revealed slowing rail revenue growth after admitting a “disappointing” service for passengers amid strike action on South Western Railway.

The group said like-for-like rail passenger revenue growth slowed to 4.2% between September and January as “significant infrastructure challenges” added to widespread disruption from the industrial dispute over guards on trains.

It said passengers were also impacted by several “operating incidents” on South Western Railway (SWR).

The revenue growth marks a slowdown on the 5.5% reported for the first six months, excluding SWR.

FirstGroup said the challenges it has been facing in rail “resulted in disappointing operating performance for passengers towards the end of 2018”.

But it added: “We are working constructively with our industry partners to improve our operating performance and are encouraged with the improvements made since the start of 2019.”

Strike action was recently suspended on SWR after the Rail, Maritime and Transport union said there had been a breakthrough in the row, following a series of strikes which caused disruption to some of the busiest services in the country.

Members of the union had been due to walk out on February 22 and on March 9 and 16.

Shares in FirstGroup lifted 2% as it said underlying group revenues rose 5.5% in the 10 months of its financial year so far.

In the last four months, it said its largest division – First Student – saw revenues rise 6.2%, while its bus arm saw revenues lift 1.3% and the Greyhound bus service in the US eked out growth of just 0.2%.

Matthew Gregory, chief executive of FirstGroup, said: “Recognising that overall conditions in our markets remain uncertain, and poor weather retains the potential to affect our performance, we are getting on with delivering plans that will improve services for customers.”

Mr Gregory took on the top job just three months ago after former boss Tim O’Toole resigned abruptly in May following results showing the group swung to a mammoth full-year loss.

But Mr Gregory’s tenure started with news in November of widening half-year losses and a warning over earnings in the rail division.

In November, FirstGroup reported interim pre-tax losses widening to £4.6 million from £1.9 million a year earlier due to restructuring and reorganisation costs from the withdrawal of Greyhound services in western Canada.

It also cautioned its rail arm, which also includes Great Western Railway franchises, would see annual underlying operating profits fall year-on-year.

The group has been hit by the SWR woes as well as industry-wide issues, such as a botched timetable overhaul and infrastructure upgrade works across networks.

FirstGroup also separately announced on Tuesday that it had agreed to sell its Queens Road bus depots in Manchester to the Go-Ahead Group for £11.2 million.

The move marks Go-Ahead’s move into Manchester for the first time.

Transport analyst Gerald Khoo, at Liberum, said: “Overall, we see the update as moderately encouraging, although it remains to be seen if the recent slowdown in rail revenue growth is a reversal of the tentative turnaround seen in the industry late last year.”