The companies are also cutting costs by scrapping restaurant cars, halving the length of trains and getting rid of hundreds of platform and ticket office staff and cleaners.

Leaders of the largest five public transport groups – First Group, National Express, Stagecoach, Arriva and Go-Ahead – held talks today with Geoff Hoon, the transport secretary.

They told him that their previous predictions of growth in passengers and fare income for the next five years were looking far too optimistic amid the economic downturn. They bid for their franchises on the assumption that the total amount collected in fares would rise by around 10 per cent each year.

But rising unemployment is resulting in a fall in the number of people renewing annual season tickets and demand for leisure travel is also weakening as people struggle to afford increases in fares of up to 11 per cent imposed this month. The companies have already announced the loss of 1,500 jobs and told Mr Hoon that many more customer-facing staff would be cut unless he grants them extra state aid.

All the franchise contracts require the train companies to operate with progressively less subsidy each year and to make up the difference by a combination of raising fares and attracting more passengers.

Last year, the eight largest franchises received a total of more than £800 million from the taxpayer. By 2012, they are due not only to receive no subsidy but pay a combined premium to the Government of more than £300million.

This is to help fulfil the Government’s aim of forcing passengers to pay three quarters of the cost of running the railway. At present, they pay half and the taxpayer pays the other half.

National Express East Coast received a subsidy of £7 million in the first five months of its franchise, which started in December 2007. This year, it is due to pay a premium to the Government of £85 million.

South West Trains (SWT) received £28 million this financial year but is contracted to pay £36 million next year.

SWT is cutting the length of 100 trains in order to reduce its electricity and maintenance bills. Many 10-carriage trains will have only five carriages.

The company said that all the cuts were to off-peak services but these are often almost full, meaning that many more passengers are likely to have to stand even when travelling mid-morning or after 7pm.

SWT is also making dozens of platform staff redundant and telling drivers to use CCTV instead to check that no one is trapped in the doors.

National Express is removing five out of every six restaurant cars it runs on the East Coast Main Line only a year after promising to protect the service when it won the franchise. It is also considering introducing a £1 fee for reserving a seat in order to raise a few million extra pounds a year.

A senior rail industry source said: “We have very little room for manoeuvre in our franchise agreements and we are therefore very exposed to a long downturn. The Government specifies how many trains we run and we cannot cut services without breaching our contracts.

“If we show we are all facing the same difficulties, the Government is more likely to accept a change in our terms. It will not want to end all our contracts because that would effectively renationalise the railway.”

A Department for Transport spokesman said: “A range of issues was discussed including the fact that passengers and operating companies are facing uncertain economic times.”

The DfT has said many times before that it will not renegotiate franchises. It did not repeat that commitment today.

The RMT rail union criticised companies for cutting jobs and reducing the quality of services only months after most had reported increased profits.

It said that dividends paid to shareholders of the big five companies increased last year by between 10 and 33 per cent.

Bob Crow, the RMT union general secretary, said: “The big five monopoly operators have been minting it at the public's expense for more than a decade, handing over tens of millions of pounds in dividends to shareholders on the back of public subsidy, overcrowding and massive fares hikes.

“Revenues, profits and dividends have been rising steadily, but at the first hint of a slowdown they want to slash services and sack staff when that is the reverse of what the economy and environment need.”

See also:

Railway firms ask Hoon for state aid as years of growth hit the buffers

Guardian: 21 January 2009
Dan Milmo, transport correspondent

Britain's train operators face a "potentially devastating" blow from the economic downturn and need government assistance to stave off disaster, public transport chiefs warned ministers yesterday.

The heads of the five largest train companies – Stagecoach, National Express, Go-Ahead, Arriva and FirstGroup – urged the transport secretary, Geoff Hoon, to consider shortening trains, rewriting the financial terms of franchise agreements and putting up state funding for an extra 1,000 staff across the rail network.

The unprecedented call for state help came in a meeting with Hoon in which the rail operators warned that rail contracts forged during an economic boom could soon become untenable. Under that scenario, the government would be forced to strip train operators of their contracts and take control of the franchises.

According to a briefing document seen by the Guardian, the industry expects passenger volumes to fall over the next two years, bringing years of growth to a sudden halt. An industry source said some franchises had seen falls in season ticket renewals of up to 10% in January.

"The more pessimistic forecasts will result in significant impacts on all train companies," reads the briefing document.

"At the most pessimistic end of the range, the severity of the downturn would be completely unprecedented and have potentially devastating effects on the finances of some train companies. Given that forecasts seem to be continually worsening, this must be a material risk."

According to the document, the rail executives want the Department for Transport (DfT) to fund 1,000 extra "customer-facing" staff for the railways, in the same month that the industry has announced plans to shed 1,500 people.

The most critical section of the document lays out "contingency plans" for a "very challenging environment", which include: shortening off-peak trains by removing carriages; easing borrowing rules so train operators can offset poor ticket sales; demanding that the government shoulders a larger share of losses on contracts; and requiring that Network Rail cuts some of the costly expansion programmes.

The contingency plans are likely to cause controversy among passenger groups and commuters with their suggestion that trains could become smaller despite years of protests over overcrowding. It also poses a serious challenge to ministers by explicitly asking for a renegotiation of franchise terms – taboo at the Department for Transport.

The government is determined the train operators should honour contracts that, in some cases, are worth more than £1bn each to the transport ministry. National Express East Coast, South West Trains and First Great Western have pledged at least £1bn each to the government over the next decade, but the latest industry data indicates that they face a struggle to meet the payments.

Passenger growth slowed sharply last year, according to figures revealed to the Guardian, with commuter numbers increasing by less than 5%, down from 7.8% in 2007. Fare income has risen by just 4% in recent months, far below the double-digit increases that are thought to be vital for some franchises to meet their financial targets.

The DfT has the right to strip a train operator of all its contracts if it defaults on a single franchise. Between them, the so-called "big five" train operators control most of the UK rail network, so under that scenario, the state could effectively renationalise the franchise system.