31st Mar 2022 17:22
(Alliance News) - Trainline PLC investors reacted positively after the online ticketing revealed amendments to its third-party retail licence agreement, though concerns remained as the rail industry undergoes changes.
Trainline soared on Thursday after reaching agreement to amend its third-party retail licence, providing the transport ticketing platform "greater certainty" even though it is likely to see a cut in commission.
The stock closed up 20% at 237.26 pence on Thursday, the second-best FTSE 250 performer.
Trainline said it has reached agreement with Rail Delivery Group on a memorandum of understanding over the licence, and will now enter into a "collaborative phase of engagement" on new terms.
If new contractual terms cannot be agreed, under the memorandum, RDG has the right to implement a legally binding minimum set of terms. Trainline estimates this would result in a 0.25% net reduction in its commission rate, effective April 1, 2025.
The minimum terms include a 0.5% reduction in the base business-to-consumer online sales commission rate, to 4.5% from 5.0%, and an offsetting removal of central industry costs of around 0.25%.
"This is a step forward in providing greater certainty to Trainline. It allows us to invest further in product innovation and marketing to encourage more people back to rail," said Chief Executive Jody Ford.
Trainline operates under a long term licence issued by the Rail Delivery Group on behalf of the rail industry, which is part of the industry's Ticketing and Settlement Agreement.
"Trainline's slice of the pie looks like it will go from 5% to 4.5% which in the grander scheme of things is not a bad deal. The rail sector has been through very difficult times during Covid, and it would have been easy to slash commission rates to the bone, leaving Trainline in a pickle. Fortunately, the business should be able to cope with a half a percentage point decrease in the rate. Even better for its finances is the removal of central industry costs worth 0.25%," explained AJ Bell's Russ Mould.
However, Mould said there was a "bigger issue" for Trainline to overcome which is the rail industry's new ticketing platform which "poses a risk" to the platform's market share.
The UK government's Great British Railways will set timetables and prices, sell tickets in England and manage rail infrastructure. As part of these changes, the new body aims to sell tickets via a website and app.
"The best-case scenario would be for Trainline to be picked as the behind-the-scenes platform provider, effectively providing a white label version of its own website. It already provides such services for various train companies and so has proven expertise. But if these white label services move under the Great British Railways umbrella, it means Trainline will have to find a new seat at the table otherwise it could be left out in the cold," Mould added.
By Arvind Bhunjun; [email protected]
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