National Express East Coast - Demise

Demise

By 2009 NXEC was under increasing financial pressure due to rising fuel prices and the economic downturn. Instead of projected increases in revenue from the franchise, in the first half of 2009 NXEC ticket sales income decreased by 1%.

Due to the revenue shortfall, NXEC introduced a charge of £2.50 per leg for seat reservations.

In April 2009 National Express confirmed that it was still pursuing talks with the government over possible financial assistance with the franchise, either through a reduction in the premium due, or other assistance.

In July 2009 it was announced that National Express planned to default on the franchise, having failed to renegotiate the contractual terms of operation, with National Express stating that it would not provide any further financial support necessary to ensure NXEC remained solvent. This meant NXEC would run out of cash by the end of 2009. As a result, the Department for Transport announced it would establish a publicly owned company to take over the franchise.

In prior negotiations, the Group had reportedly offered to pay over £100 million in order to be released from its commitment to operate the franchise. Transport Secretary Lord Adonis had rejected this on a matter of principle. He stated: "The government is not prepared to renegotiate rail franchises, because I'm simply not prepared to bail out companies that are unable to meet their commitments". In defaulting on the franchise, under the franchising system, National Express only directly incurred losses of £72 million by forfeiting bonds.

The franchise failure sparked public and industry calls for the permanent public ownership of the InterCity East Coast franchise, or even the complete scrapping of the entire franchise system. In response, Lord Adonis reiterated the findings of a 2008 National Audit Office report, which had concluded that the rail franchising system delivered good value for money and steadily improving services.

National Express East Coast continued to operate the franchise until 23:59 on 13 November 2009, when the Department for Transport took over through its East Coast subsidiary.