Trainline, TRN, Jumps 25% On Commission Agreement – Is That Sorted Now?

Trainline (LON: TRN) shares have faced something of an existential problem in recent months. For the process of bringing the rail franchises back into direct government ownership – but still with private operators – means there is some question about whether there is still that niche for Trainline to exist within.

Yes, obviously, an online booking system for train tickets, lovely idea and all that. But why would government be all that interested in a private sector company taking that slice off the top? When there were a number of different private sector companies owning each different section of the operating system then yes, the one neutral company selling tickets makes sense. But when the franchises are back into national government hands, well, why?

So what the new agreement with both government and or the operating companies was going to be, even if there was going to be one, was rather important to the future of Trainline. That’s also why when the agreement was announced Trainline shares jumped 25%. The uncertainty over whether there was even a place in the ecosystem is now resolved.

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It’s also true that the details of the deal are good. Trainline has had to accept a reduction in the commission level, from 5% to 4.5%. Which isn’t quite what we’d like to see, of course. But on the other hand, there’s also a reduction in the charge they must pay into central costs. That shaves 0.25% off their costs – the net change in the commission level is therefore indicated at 0.25%.

This removal of uncertainty – or as Trainline itself puts it “greater certainty” – is of course valuable. From here on in, though, we still face uncertainty. For what is going to be the reaction of the travelling crowd to the end of lockdown and the full return to work?

There are different views to be held here. One is that we’ll all charge back to the office and that the work from home thing was just a blip. This would get the railways back to full capacity, which, one would assume, would be good for a railway ticket broker.

On the other hand, it’s possible that now we’ve found out that working from home can be done and done effectively that commuting becomes a rarer activity. There are indications that the two-day wfh and three day in the office type of routine is becoming more common. This is – so far at least – leading to a significant drop in the purchase of commuting tickets.

Then there’s the third and gripping hand. Who uses a broker to buy a full-year commuting ticket? The every day the same journey one? If we are all – or many of us – moving to more flexible schedules then might that actually increase the usage of a broker? Fewer set tickets being bought, more variable ones and so an increase in the usage of Trainline in order to gain deals?
Quite which way this is all going to work out is unknown, but then that’s what the trade really is. Brokers tend to do well in uncertainty because that’s when people use brokers. But less travel overall – a possibility – could also be seen to be bad for a travel broker.

Even if the level of commission is now certain for Trainline, the volume of the commission stream is still uncertain.