Job losses in the City – which employment experts estimate will top 100,000 within the next year, even before the merger deal between Lloyds and HBOS – are expected to put the brakes on growth of London rail commuter traffic.

Britain’s Cinderella industry of public transport has defied all predictions of a gradual demise after privatisation to post steady growth since the 1990s.

While the transport companies benefited from London’s growing status as the financial capital of Europe, however, the next wave of seismic shifts in the financial services world are expected to shake the scene.

Nearly three-quarters of all rail journeys in the UK end in London. This means that all the large, listed bus and rail companies – with the exception of Arriva – have some exposure to the expected further contraction in the London job market.

Paul Venables, the finance director at recruitment firm Hays, calculated that even before Lehman Brothers investment bank crumbled 10 days ago, leaving about 4,000 UK staff in the lurch, the City had already scaled back about 10 per cent of jobs. This reduction followed the Northern Rock debacle in autumn last year. Now he believes that an already bearish job market will worsen in 2009.

“Next year will be significantly lower. But perhaps this means we will be able to get a seat on the trains now. There is always a silver lining,” said Mr Venables.

Commuter rail volume growth has surprised even the train operating companies, who attribute the rise in passenger numbers to a combination of factors that have taken motorists off the road.

Fuel costs, congestion charges, the environment, and slow-moving traffic are the push factors, while a significant improvement in the quality and performance of Britain’s trains since privatisation is seen as a big pull factor. As a result, peak-hour train services are running at near capacity.

But with a dramatic contraction expected in City jobs, Damian Brewer, transport analyst at JPMorgan, believes that at least two of the five listed bus and rail groups will be affected by a significant drop in passenger numbers.

The UK’s biggest commuter rail franchise, Stagecoach and its rival Go-Ahead have the largest exposure to London commuter rail services – at 38 per cent and 36 per cent of forecast 2009 earnings before interest and tax (Ebit) respectively.

National Express gets about a quarter of its forecast Ebit from rail into London, while FirstGroup’s exposure is relatively small – about a tenth of its forecast 2009 earnings come from London commuter rail services.

Mr Brewer says that while Stagecoach and Go-Ahead would also obviously stand to benefit from an economic rebound, “growing threats to central London employment and limited scope for (further) modal switch in London commuter markets suggests they carry greater risk in the near-term”.

Public transport in the UK is highly regulated leaving train operators with little wiggle room to cut costs if their passenger market contracts.

Many expenses are fixed and the train operators must also in some cases achieve aggressive growth rates in terms of their government subsidies.

Mr Brewer points out that fares are quite tightly regulated, based on the retail price index (RPI) in July of 5 per cent plus between 1-3 percentage points.

The fares are structured this way in part to offset RPI-linked costs, but Mr Brewer notes that as a result of rigid pricing, “there are limited net benefits in terms of offsetting demand and volume risk”.

Stagecoach declined to comment on the outlook for its business,.

However, a spokesman for Stagecoach referred to its interim management statement at the end of August, which mentions the effect of central London employment on Stagecoach’s latest results.

Stagecoach operates the South Western franchise, which runs about 1,600 trains a day in south-west England, departing from London Waterloo. It also runs the East Midlands rail franchise, which includes high-speed long distance services from London St Pancras (pictured left).

Stagecoach said that UK rail had increased by 9 per cent in the 16 weeks to August 17.

“In the UK rail division, we continue to see strong like-for-like revenue growth and we are encouraged by this positive trend,” it said.

“The reported growth of 9 per cent includes (among other things) economic factors such as reduced central London employment.”

Keith Ludeman, chief executive of Go-Ahead, echoed this positive view, saying the group had “to date seen no evidence of slowing growth in our railway business”.

Go-Ahead’s rail business includes the Southern, Southeastern and the London Midland franchises.

Mr Ludeman maintains that it is far too simplistic to say that job losses will be matched by an equal drop in rail passenger volumes, adding that the public transport model has proven to be resilient in an economic slowdown.

“I can’t speculate on how many jobs will go. Clearly there will be some, and we can’t be ostriches and pretend that nothing is happening,” he said.

“But I don’t have a crystal ball. I do believe, however, that life is different now, and the railways are in much better shape.”