Department for Transport (DfT) officials are mulling splitting up strike-hit Southern rail owner Govia Thameslink Railway as they assess the best way to improve the network.
The government said it is "actively looking at the shape and size of the next Thameslink, Southern and Great Northern franchise on expiry of the existing contract in 2021".
GTR was awarded the TSGN franchise back in May 2014, but it has been under increasing scrutiny, with Southern embroiled in a row with trade unions over the role of the guard for more than a year. A member ballot of the deal agreed by train drivers' union Aslef and Southern last month, is due on Wednesday.
The dispute has spread to other train firms too, with strikes planned across Southern, South Western Railway, Northern, Merseyrail and Greater Anglia this week.
A DfT spokesperson said:
In advance of the expiry of a franchise contract the Department considers the size and scale to ensure new train operations best meet passenger needs.
As previously announced, the Department is actively looking at the shape and size of the next Thameslink, Southern and Great Northern (TSGN) franchise on expiry of the existing contract in 2021.
According to the Sunday Times, DfT officials discussed reducing bidders' risks on franchises at a meeting last month, with the possibility of the government paying train firms if their revenue falls short of forecasts, but enforcing close financial monitoring.
The Transport Select Committee said back in February that if GTR was found to be in breach of contract, the DfT should "consider restructuring the franchise to realign the incentives and focus of the operator back to the passenger".
The franchise's unusual structure has also come under scrutiny, as it uses a management contract where fare income does not go to GTR. The DfT receives revenue from ticket sales and takes on the revenue risk, with the company operating the service in exchange for a management fee, in the region of £1bn.
A report from the Transport Select Committee earlier this year said that this exposed the DfT financially, and in the case of GTR, net revenue losses for the year beset by strike action amounted to at least £38m. The committee said this amounted to "revenue, which could have been reinvested in rail services, lost to the public purse".
The report noted that despite the severe operational failings of GTR, it paid just £2m in penalties for its first year of operation – only 0.2 per cent of its £1bn management fee.
The set-up of the contract came due to risks relating to infrastructure changes of the £6.5bn Thameslink modernisation programme, which were seen as too high for the private sector to take on.