Brake on rail travel to hit Arriva

Jul 1 2009 By Iain Laing, The Journal

TRANSPORT group Arriva has warned that slackening growth at its CrossCountry rail franchise will affect first-half results.

The Sunderland company’s rail franchise – which includes services from Aberdeen to Penzance and Bournemouth to Manchester – saw revenue growth slow to 2.4% in the first five months of 2009.

This compares with 4.5% reported in the firm’s last update two months ago.

Arriva, which won the CrossCountry franchise in 2007, needs passenger revenue growth of about 10% a year to maintain 2008 profits. Revenue support from the Department for Transport does not kick in until 2011.

The group said: "The results for the six months will reflect the lower revenue growth rates in CrossCountry, and are otherwise expected to be broadly in line with management’s overall expectations."

Revenues from the group’s other rail franchise, Arriva Trains Wales, also eased slightly to 8.7% from 9.7%.

The company said: "Economic conditions make it difficult to predict with accuracy the short to medium terms trends in passenger demand."

There were also signs of faltering growth in Arriva’s UK bus business, which runs services in London as well as major cities including Liverpool, Leeds, Glasgow and Newcastle.

The group said the division was trading strongly, but revenues rose 5.2%, less than the 7.1% reported two months earlier.

Arriva is also labouring under a £60m rise in fuel costs this year. The firm has cut its commercial mileage to make savings and aims to claw back £30m next year through its fuel price fixing policy. On the Continent, where revenues are more than 10% higher, the group has absorbed the higher cost of fuel and expects first-half results to benefit from the strength of the euro against the pound.

The company has 44,000 staff and operates in 12 European countries, including the UK. Collins Stewart analyst Andrew Fitchie said: "Today’s commentary suggests that consensus earnings are at least 10% too high.

"Based on current run rates it looks like there will be a £25-30m revenue shortfall – and hence profits shortfall."