National Express is set to make about £140m in profits from an agreement signed yesterday to take on the new Greater Anglia franchise.
In return, the bus and rail operator has agreed to give the Government £500m in premium payments over the seven-year life of the franchise, which includes the London-Norwich line and the Stansted Express.
National Express will also invest in station improvements, increased frequencies and refurbished trains, and has undertaken to maintain or increase the number of front-line workers employed as drivers, guards and station staff.
Richard Bowker, the chairman of the Strategic Rail Authority, said that as part of the agreement, National Express had contracted to achieve improved performance levels. The target is to have nine in 10 trains running on time by the end of the franchise in 2011.
Greater Anglia is the first of the new so-called "super franchises" to be awarded by the SRA. About 100 million passenger journeys are made on the network each year, generating revenues of about £375m.
The franchise is expected to generate roughly £90m in annual gross profits, of which £70m will be paid back to the SRA and £18m-£20m retained by National Express, giving it a profit margin of about 5 per cent.
The new franchise, which will start in April, is based at London's Liverpool Street where National Express will become the single operator. It combines the existing Anglia and Great Eastern franchises and the West Anglia part of the old WAGN franchise.
The investment agreed to by National Express includes £11.3m on station improvements such as CCTV and customer information systems, the refurbishment of 100 four-carriage trains, new through services from London to Peterborough and Lowestoft, and refurbished Mark 3 inter-city coaches for the London-Norwich line. The franchise agreement also provides for the opening of a new "customer service academy" to train staff.
National Express won the franchise last month in competition with Arriva and FirstGroup, which had gambled on being selected after it was barred from bidding and then acquired one of the other bidders, GB Railways.