Great Southern Rail is an example of how management skills have been deployed through the VLCP program in turning a company around from the brink of failure to a viable tourism experience.

Great Southern Rail (GSR) owns and operates the luxury trans-continental passenger rail services, The Ghan, The Indian Pacific and The Overland.

In 2015, Allegro Funds acquired GSR from its previous owner Serco. At the time of Serco’s acquisition in 1999, GSR served an important role of providing affordable transport to people travelling across Australia and was heavily subsidised by State and Federal governments.

However, GSR suffered a major disruption to its business model with the arrival of low cost airlines in the 2000s. Transport passenger numbers dropped rapidly, from more than 140,000 in 2005 to 40,000 by 2015. With declining passenger numbers it became untenable for governments to continue the subsidies.

Without government support, GSR’s existing business model was unsustainable and the business would be severely loss making. As such, a new business model was required in order to turn the business around, keep the iconic trains in service and retain the jobs of thousands of employees supporting the business.

Allegro’s investment thesis was to transform GSR from a low value transport operator into a high value experiential tourism business. Allegro’s experience in transforming businesses, coupled with a highly regarded and motivated GSR management team, were critical in ensuring the transformation was a success.

Upon acquisition, the first step in the transformation program was to create a sustainable stand-alone business, completely separate from Serco and no longer reliant on government funding to underpin operations. Once this was done, the transformation to luxury rail cruiser began. This included a new vision to focus on providing exceptional experiential travel experiences.

GSR CEO Chris Tallent said when Allegro acquired GSR it needed capital and a dedicated focus to reach its potential. “With a suite of iconic assets supported by a strong team, including Allegro and my management group, we were well positioned to capitalise on the forecast growth of the luxury experiential tourism sector in Australia.”

The business invested over $80m to upgrade the carriages and facilities while reshaping the product offer and experience by creating richer experiences, lengthening the journeys, all-inclusive offerings and unique off-train experiences.

At the same time, the whole operating model of the business was redesigned which included making the trains longer with reduced frequency and significant investments into systems, data and capability to ensure the business had the foundations in place to be a leading Australian tourism business. This operational transformation laid the foundation for the next phase of growth for the business.

During Allegro’s ownership, the business tripled in profitability, the number of employees grew by more than 30%, forward orders doubled and the business achieved world class net promoter scores. Following a successful transformation of the business, Allegro sold a majority stake to Quadrant Private Equity who have used GSR as the platform asset for Journey Beyond, Australia’s leading experiential tourism and leisure owner and operator in Australia. Under Quadrant’s ownership, GSR has continued to grow from strength to strength and execute on the growth plans.

Through Allegro’s investment, GSR transitioned off federal government subsidies, the businesses viability was assured, jobs were saved and GSR continues to provide iconic experiences that showcase the best that Australia has to offer.

A key aspect of the turnaround was the ability of Allegro to provide GSR access to financial capital as needed. This included the upfront acquisition and investment, as well as a structure that allowed the business to retain surplus earnings and funds without any obligation to have to distribute those funds to fund investors for otherwise tax or regulatory reasons.

In September, the Australian Investment Council lodged a very important submission with the Federal Department of the Treasury in response to the Venture Capital Tax Concessions Review which was announced as part of the Government’s Digital Economy Strategy in the 2021–22 Federal Budget. The review has been focused on how effective VCLPs, ESVCLPs and AFOFs have been in attracting domestic and foreign capital, developing innovation, and expanding venture capital management skills and experience in the domestic market. Read the submission here.

Published February, 2022

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