London's Southern Rail Crisis Sends Go-Ahead Shares Tumbling

(Bloomberg) -- Train strikes that have disrupted travel for millions of U.K. commuters sent Go-Ahead Group Plc shares tumbling 16 percent after the dispute reduced its rail earnings by more than a third in the first half.

Go-Ahead, operator of the afflicted Southern Rail network linking the counties of Kent and Sussex with London, fell 370 pence to 1,915 pence, the most since June 14, and traded 12 percent lower as of 12:11 p.m. local time.

Chief Executive Officer David Brown said he sees no quick end to the walkouts over driver-only trains, which have idled some of Britain's busiest rail terminals. Go-Ahead is also locked in government talks over its share of costs from the dispute and a botched revamp of London Bridge station that could impact full-year rail earnings by as much as 15 million pounds ($19 million).

Negotiations are continuing with the Aslef train-drivers union after members rejected a deal backed by officials, and those discussions represent the best chance of a breakthrough, Brown said in an interview. Agreeing terms with the RMT labor group, which represents train guards, seems less likely, he said.

“This isn't about safety or money,” Brown said. “This is about the RMT and their industrial muscle, nothing else. We're working hard to solve the almost intractable issues we have seen for more than a year now.”

The RMT later announced another strike at Southern to take place on March 13, saying that GTR had snubbed an offer of talks. The union said that on the same day members will also strike at the Merseyrail and Arriva Rail North franchises, which are also switching to driver-only operation. Brown said that Southern has been “unlucky” in being first to tap new technology and introduce the move.

Buses Snarled

Pretax profit at Go-Ahead, which runs the Govia Thameslink Railway franchise of which Southern is a part, fell 12 percent to 67 million pounds in the six months ended Dec. 31 as rail earnings fell 35 percent to 30 million pounds. Second-half figures will also be hit by reduced profitability at a regional bus unit as traffic jams in cities such as Oxford clip customer numbers.

The RMT has been staging walkouts since April in a dispute over plans to adopt driver-only operation, with train doors closed from the cab rather than by a conductor, and to replace ticket-office staff with “station hosts.” Aslef strikes have been even more disruptive, with commuter towns and parts of England's south coast effectively cut off from the rail network.

Improved Resilience

Brown said Southern has been bolstering its strike resilience, with the majority of trains operating during the last walkout, something he reckons should help encourage the unions to seek a settlement.

In June, the company slashed its timetable to cope with the strikes and mass absenteeism, saying costs from easing overcrowding at London Bridge would halve earnings over the GTR franchise's seven-year span. Police had to hold people back from packed platforms at the station in 2015 as a radical remodeling linked to construction of the Shard skyscraper prevented the operation of the planned 24 trains an hour.

Both the station revamp and the new working practices were specified in the terms of the Southern franchise, and Go-Ahead said it's also possible that the outcome of the government contract discussions will have a positive impact on rail profitability of up to 15 million pounds.

To contact the reporter on this story: Christopher Jasper in London at cjasper@bloomberg.net.

To contact the editor responsible for this story: Chris Reiter at creiter2@bloomberg.net.