Privatisation and Franchising of British Train Operations: the decline and derailment of the Great North Eastern Railway

As a result of the 1993 Railways Act, the British railways industry was privatised which resulted in the separation of ownership and control of the railway infrastructure (track, signals and stations) from that of passenger train operations. The Great North Eastern Railway (GNER), a major train operator, was unable to meet its contractual obligations shortly after successfully re-tendering for its second franchise. Within the context of incomplete contract theory, this paper discusses the main problems inherent in the franchising process and which specifically contributed to the collapse of GNER. In particular, the paper argues that the fragmented structure of asset ownership, the lack of coordination and investment incentives and flaws in the franchise method itself explain the demise of GNER and have undermined the general objectives of railway privatisation.