The train feels the strain

Do you remember the old adverts for British Rail Intercity? One of the advertising straplines was “The Age of the Train”. I remember seeing that on one poster inside a carriage - some wag had written underneath…“ours is about 101”. I was travelling down what has since become the most profitable rail route in the UK - the East Coast Main Line. And that very line is now the subject of some concerned investors who feel that the new operator, National Express, might have bitten off more than it can chew.

A piece in the Guardian today highlights concerns that National Express took on the East Coast train operator contract on what may prove to be very unfavourable terms. The return on investment, measured by net present value (npv) may turn out negative depending on what happens to demand over the next 5-6 years.

There is some useful business studies material in the article, particularly for Year`13 students looking at how financial and corporate strategy are so `closely connected. National Express has a diversified portfolio of travel operations. However, it may now have become too reliant on the financial performance of the East Coast route. The business plan that it put together when it successfuly bid for the contract back in 2007 now looks as though it may have made some over-optimistic assumptions about revenue growth.