National Express may cut rail business after profit fall

National Express, Britain's biggest train operator, yesterday admitted that it may have to slim down the number of passenger franchises it operates after reporting a 38 per cent slide in first-half profits.

The collapse in profits, before exceptional items and goodwill, from £60.5m to £37.2m was blamed largely on the poor performance of the group's UK rail business which covers nine train operating companies.

William Rollason, National Express's finance director, said it might be necessary to "reshape" the profile of its UK train business by handing some franchises back to the Strategic Rail Authority if it could not renegotiate terms.

Most at risk of the axe are Scotrail and Central Trains which still lost money in the first half despite a £56m increase in subsidies. Scotrail's sleeper service from London to Scotland is losing £20m a year alone.

National Express has restarted negotiations with the SRA about the future of the two franchises which have been hit by strike action, the continuing decline in leisure traffic and next year's 17-week shutdown of the West Coast Mainline, which will cause severe disruption to services.

But National Express's four franchises in London and the South-east – Gatwick Express, Silverlink, West Anglia Great Northern and C2C – also suffered, reporting a collapse in operating profits from £34.4m to £5.6m.

Operating profits from the UK rail division overall fell from £20.3m to £4.1m. The group blamed a £36m reduction in compensation payments from Railtrack, a £20m increase in rolling stock leasing charges and the failure of passenger numbers to recover post-Hatfield.