Go-Ahead Group plc Up Over 8% As It Gets UK’s Largest Rail Franchise

Go-Ahead Group (LSE: GOG) — the Newcastle-upon-Tyne-based transport group, which runs services in the UK and US — is up 8.5% this morning, following the announcement that the Department for Transport has awarded the newly created Thameslink, Southern and Great Northern franchise to Govia, a joint-venture in which Go-Ahead has a 65% stake, beating the likes of FirstGroup and Stagecoach.

Go-Ahead’s minority partner in Govia is Keolis, the largest private sector French transport group. Govia already operates Southern Railways, London Midland and South Eastern train services, and ran the old Thameslink franchise from 1977 to 2006.

The new Thameslink, Southern and Great Northern rail franchise, which will start operating this September, will be the largest in the UK in terms of passenger numbers (the franchises that it’s replacing currently carry a combined 273 million passenger journeys per year), trains, revenue and staff, and Govia’s contract will run for seven years.

Go-Ahead says that it will be introducing three new train fleets (including 1,140 new Thameslink carriages by 2018), adding 10,000 peak-time morning seats, and will create 50% more passenger capacity. It will also be spending £50m on improving facilities at 239 stations.

Govia will be paid an estimated £8.9bn, to reflect operating costs, and will be working with the Department for Transport to generate around £12.4bn in passenger revenue over the lifetime of the franchise. Under the terms of the contract ticket revenue will be passed directly to the government, for (as Go-Ahead says) “the benefit of the taxpayer”.

Commenting on the award, group chief executive of The Go-Ahead Group David Brown said:

I’m delighted the DfT has chosen us to operate this important and complex franchise and to play an instrumental role in delivering the benefits of the Government’s £6 billion Thameslink Programme. 

“Our bid for the franchise was focused on improving customers’ experience and includes two new train fleets for Gatwick Express and Moorgate services, in addition to overseeing the introduction of the Thameslink trains already ordered, as well as delivering improvements at stations.

“I’m looking forward to working with existing colleagues and welcoming new staff and together delivering this transformational franchise.

At 2,105p, Go-Ahead’s share price is up 37% over the past year, during which time the FTSE has risen less than 2%.

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Jon doesn't own shares in Go-Ahead Group.