Is the party over for thetrainline.com?

The proposal

The UK government’s plan to enter the online ticketing business for rail travel across the UK would at its best bring competition to the market, but at its worst would appear to have sliced right through the central part of the business model of Trainline PLC (TRN LN), the owner of thetrainline.com.

However, because Trainline is the only real player in the market of aggregating train tickets, one may be forgiven for saying that we need competition. Well, that is certainly now coming and it’s on an express train, heading straight for Trainline’s shed.

The government’s move, sponsored by the Right Honourable Grant Shapps, Member of Parliament (MP) and Secretary of State for Transport and Keith Williams, Chair of the Rail Review, has published a 114 page report. It is officially called the ‘Williams-Shapps plan for rail’, and is part of a bigger shift in how the railways are run across the UK. This is the opening paragraph of the document:

'A new public body, Great British Railways, will run and plan the rail network, own the infrastructure, and receive the fare revenue. It will procure passenger services and set most fares and timetables. This will bring the whole system under single, national leadership with a new brand and identity, built upon the famous double arrow. This will mark the end of a quarter century of fragmentation.'

Trainline shares: the future

So, Great British Railways, or GBR as it will be known, will take over from Network rail, meaning that GBR’s operational footprint will be far larger than thetrainline.com. Bringing competition to the process of selling tickets will inevitably hit Trainline’s profits, but it may also create opportunities for thetrainline.com, as the plan says it is also expected to bring clarity to the ticket offering:

'We will simplify the confusing mass of tickets, introducing far more convenient ways to pay using a contactless bank card, mobile or online. We will end the uncertainty about whether you are travelling with the right train company. Trains will be better planned with each other and with other transport services, such as buses and bikes. Affordable 'turn up and go' fares and capped season tickets will continue to be protected.'

Shapps, however, went on to say that independent ticket sellers are an important aspect to competition.

How thetrainline.com will have to adapt

Thetrainline.com has an agreed 5% commission on ticket sales and while the majority of its turnover is rail, it also sells tickets for the coach sector, a market that GBR will not be entering. What is not clear how much further GBR will be moving into ancillary sales. Trainline’s revenue model also includes: ‘ancillary services such as travel insurance, selective advertising partnerships, our multi-currency platform and through white label products developed for and provided to rail companies.’

One cannot help but feel sorry for a business that has invested in its future only to be met with a state machine that has decided, unilaterally, to enter the markets that others don’t seem too concerned about. This is what thetrainline.com says: ‘we have invested significantly in building out our inventory, which ensures our customers see all options and best prices. This scale has enabled us to amass significant data, which we use to make our operations more efficient, to inform the development of new bespoke features for our customers, and even to create bespoke and proprietary smart data features.’

How much Trainline knew about what the government was proposing is not known, but what is clear is that we still do not know what the full remit will be from GBR.

On the brightside

There are two factors that may give one hope that thetrainline.com will survive. The first is that it’s service distributing coach tickets will face no change. While this is a smaller part of its business model, it does make a profit from this part of its business. The second factor is the share price.

Yes, it has lost a quarter of its value in the space of three days, but while there may be competition afoot, Trainline’s future is not without opportunity. If you were backing a recovery from the lows, a long trade would be accompanied by a stop-loss just below the 250p support line.