Virgin Trains loses West Coast Mainline franchise

 

The rail journey from London to Glasgow in five minutes

Related Stories

Virgin Rail has lost its bid to continue running the West Coast Mainline and will be replaced by the UK's largest rail operator, FirstGroup.

A disappointed Sir Richard Branson said Virgin would "almost definitely back out" of bidding for more franchises.

FirstGroup said it would "offer substantial improvements in the quality and frequency of services".

Rail unions warned they would resist any attempts to cut staff pay or working conditions.

Aberdeen-based FirstGroup already operates a number of rail routes including Great Western and ScotRail.

The company, under the name First West Coast Limited, will take over the franchise from 9 December and is due to to operate the service until 2026.

More seats

The West Coast Mainline route serves 31 million passengers travelling between London, the West Midlands, the North West, North Wales and the central belt of Scotland.

FirstGroup said it would introduce 11 new 125mph six-car electric trains on the Birmingham-to-Glasgow route and provide more direct services between destinations.

Additional Pendolino tilting trains currently being introduced by Virgin will deliver more than 28,000 seats a day.

Analysis

This comes down to whether FirstGroup can deliver on its promise to attract millions more customers to the West Coast mainline.

The company will have to find an average of about £390m a year in premium payments to the government (it's much less at the start of the franchise and gets much bigger as the years roll on). Virgin currently pays about £160m.

If FirstGroup struggles, it could be forced to hand back the franchise early, which will cost it a lot of money and could put its other UK franchises at risk.

There is a lot at stake, for the company and the government.

Sir Richard Branson thinks the deal is doomed to failure. FirstGroup, which is already the biggest rail operator in the UK, begs to differ.

As they say, time will tell.

The government says FirstGroup's new trains should add further 12,000 seats a day on West Coast routes from 2016.

FirstGroup's chief executive Tim O'Toole said it was a good deal for the company and the public.

"Our bid also delivers value for taxpayers by returning premiums to the government underpinned by sustainable growth in passenger numbers and revenues from the utilisation of significant available capacity," he said.

Higher payments

First West Coast says it will return £5.5bn at net present value to the government over the franchise term.

That is believed to have been much higher than the amount offered by Virgin Rail, which is 49%-owned by another transport company, Stagecoach.

In a statement, Stagecoach said the reason it had failed to secure the new franchise was because FirstGroup had contracted to pay "significantly higher premium payments" to the Department for Transport.

BBC transport correspondent Richard Westcott says the West Coast franchise is the first of several big rail franchises up for grabs over the next few years, and the government is under pressure to get a good deal.

But there are concerns that FirstGroup may have bid too much for the franchise.

"There have been many examples… where there have been very aggressive bids which the government has awarded and then quite soon afterwards, the people have handed back the keys and walked away from the contract without any real penalty," said Stephen Glaister, Professor of Transport and Infrastructure at Imperial College London.

"That's a very unsatisfactory situation from a public interest point of view."

As part of its contract, First West Coast would have to pay £265m in penalties if it were to terminate the contract early or fail to make scheduled payments to the government.

The trade unions have also warned FirstGroup that they will vigorously resist any attempts to reduce running costs by cutting pay or working conditions.

RMT general secretary Bob Crow said: "They should be left in no doubt that we will mount a massive industrial, political and public campaign to stop any attacks on our members' jobs and the services that they provide to the travelling public."

'Bitterly disappointed'

Sir Richard Branson's Virgin Rail has operated the West Coast franchise since 1997 after the privatisation of UK railways.

He said said Virgin's loss of the franchise was "very disappointing news" and added that his company's bid had been a realistic one.

"We did not want to risk letting everybody down with almost certain bankruptcy at some time during the franchise, as happened to GNER and National Express who overbid on the East Coast mainline," said Sir Richard in a statement.

"It's a shame really, we're used to Virgin"

Three years ago, the government stripped National Express of the franchise to run the East Coast Mainline for failing to make payments promised to the government under its contract.

"Sadly, the government has chosen to take that risk with FirstGroup and we only hope they will continue to drive dramatic improvements on this line for years to come without letting everybody down," Sir Richard added.

He said the government's current bid process was "flawed" and that Virgin Rail was extremely unlikely to bid again for a franchise.

"The process is too costly and uncertain, with our latest bid costing £14m. We have made realistic offers for the East Coast twice before, which were rejected by the Department for Transport for completely unrealistic ones, and therefore will have to think hard before embarking on another bid."

Sir Brian Souter, the chief executive of Virgin's franchise partner Stagecoach, said: "I am bitterly disappointed that Virgin Rail has been unsuccessful in its bid.

"After 15 years, it is difficult to imagine a West Coast rail service without the Virgin brand."

Track record

Successive governments have had a poor track record in awarding rail franchises.

In some cases, train operating companies have defaulted on their contracted payments to the government. This was the case with Bermuda-based Sea Containers and National Express, the successive operators of the East Coast Mainline before it was temporarily re-nationalised last year.

Tim O'Toole, FirstGroup: "It's good for the passengers"

In many other instances, companies manage to meet their annual payments while making losses.

Under what is known as the revenue support scheme, the government takes on 80% of the company's losses. Stagecoach's East Midlands Trains and Arriva's Cross Country Trains are both being subsidised by taxpayers.

FirstGroup's own First Great Western Trains was in revenue support before it handed back the franchise last year.

However, under the current government franchise contracts, companies will not be offered this option. Instead, they will have to hand back the franchise, which will be re-auctioned by the government.

That raises the stakes for FirstGroup.

"Economists have openly said that if FirstGroup have got this wrong, it will probably kill off the group. Some people are saying they've bet the farm and everything they own on it," said Tony Miles of Modern Railways magazine.

Economic conditions have already worsened since FirstGroup submitted its bid. At the time, the economy was forecast to grow 0.3%, whereas now the government forecasts stagnation.

FirstGroup investors appeared to be unconvinced by the deal. Shares in the company were down 7% in late London trade. Shares in Virgin Rail partner Stagecoach rose 2%.

West Coast Mainline map
 

More on This Story

Related Stories

The BBC is not responsible for the content of external Internet sites

Comments

This entry is now closed for comments

Jump to comments pagination
 
  • rate this
    +1

    Comment number 342.

    What a sham! Virgin have long been the best rail provider in the UK, they've set a benchmark that nobody else has got close to, including First. I use FirstGW sometimes, and it is poor by comparison. I guess my company may revert to flying to London again.

    The only good news is, at least Deutsche Bahn didn't get it (see Arriva Cross Country for poorest long distance service!).

  • rate this
    +5

    Comment number 341.

    A lot of different experiences of both providers. Not surprising really. Looks as though we might end up with a monopoly. We could just rename it, er....British Rail. I loved the way the Government sold the taxpayers railway to private companies and then kept giving them our money to help run it. What a farce. Of course it will be our money that buys it back if ever AND we have the fares hike!

  • rate this
    +6

    Comment number 340.

    In 9 months virgin had one train failure that affected me the only other delays were one unders and infrastructure.

    Cannot fault the service apart from the massive 1st class sections on some trains that never seemed to have people in them.

    Sounds like a brown Envelope job to me!

  • rate this
    +3

    Comment number 339.

    298.ricardo
    "Virgin is the best train company in the country"
    ------
    Damning with faint praise.

  • rate this
    +5

    Comment number 338.

    have been a regular user of Westcoast service for 2yrs now, infinitely better service than the god awful First Great western and Great Eastern i used to use and a damn site better value too. i cannot believe this is in the best interest of the paying passenger. i hope to be proved wrong but wont hold my breath.

  • rate this
    +13

    Comment number 337.

    I use Virgin trains daily and have to say the service is reasonably good (acceptable lets say).
    Branson must have missed a couple of number 10 dinner appointments perhaps or was gazumped by Party doners.
    Do we really want key infrastructure managed in this way?
    Lets face it the majority of people want stability and accountability that only comes from Nationalisation.

  • rate this
    +2

    Comment number 336.

    With existing franchise holders their track record should be at least as important as the size of their bid. I'm unfortunate enough to have to use the Thameslink route operated by WorstGroup and the service is risible despite the enormous ticket prices. I pity West Coast users.

  • rate this
    +1

    Comment number 335.

    The difference of £750 million less on the bid is HUGE! That's £750 million that First Group have to make up!! Virgin have an excellent reputation for delivery in everything they do and my guess is that Richard Branson will be proved correct in his summation.

  • rate this
    0

    Comment number 334.

    my recent experience of first group is that fares seem to be a voluntary contribution.
    I suppose using less staff is what impressed the government as running a service "more efficiently"

  • rate this
    +4

    Comment number 333.

    What a disaster. How do we fight this?

    The Virgin service has it's issues: restrictive peak travel, costly, tickets at times, little luggage room, but the London to Manchester service I use week in week out, for my business is fantastic. Book online, open return, coach A, table seat and every journey is pleasant and on time.

    It's one of the few public transport systems that is actually working!

  • rate this
    +3

    Comment number 332.

    A General Election and now please. Get these muppets out that make these decisions. Virgin Trains are superior to any other train service, First Group has a terrible record. Back hander to the Tory party I suspect.
    Watch the service go down and the ticket price go up - Tory government - get them out!

  • rate this
    +5

    Comment number 331.

    272.PaulMcG
    GREAT!!! They already provide a crap over priced bus service in Leeds and now they are going to ruin everyones lives on the trains to the North West.

    That's progress for you! I hope everyone remembers this in May 2015.

  • Comment number 330.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this
    +6

    Comment number 329.

    I'm not doubting that First will make improvements to the service in the short term, but it's the long term viability of the franchise I'm worried about. Because of First over-bidding for the franchise, it doesn't fill me with confidence that they won't simply walk away from their contractual obligations. Nationalization won't benefit anyone; tax payers or passengers.

  • rate this
    +4

    Comment number 328.

    Booooooo to this! First Group run ScotRail services up here. Take a look at their Twitter feed - almost daily occurrences of trains running with reduced capacity due to absence of rolling stock, rarely on time and ridiculously expensive. They also pulled all their bus services from East Lothian as they weren't profitable enough. Great public service that is, eh?

  • rate this
    0

    Comment number 327.

    283.Michael Lloyd
    Branson must have all his staff/mates out in force today! ....I don't agree at all with all these pro-Virgin posts.
    //////
    Or maybe you work for First.

  • rate this
    +9

    Comment number 326.

    Most of us know that the privatised railway is just one more way of taking money from the public and giving it to the privileged few (shareholders, CEOs and company directors). An enlightened government would take back the railways and bus services into public ownership and develop the travelling infrastructure necessary for any country to prosper.

  • rate this
    0

    Comment number 325.

    BBC: FirstGroup said it would "offer substantial improvements in the quality and frequency of services".

    Those of us who use First services know only too well that there is a great difference between what First promises (sic) & what they actually deliver.
    What was wrong with the quality of Virgin services that will be so much better under First?

  • rate this
    +1

    Comment number 324.

    Am I the only person who is tired of this conceit that because Branson's a nice bloke, then Virgin has a God-given right to run everything?
    I use Virgin trains. They're cramped, too hot and funeral parlour-esque. And a red-coat once told me to get back to my own over-populated end, when I was sitting on the FLOOR between deserted 1st class carriages.
    So, imo - couldn't happen to a nicer company.

  • rate this
    +8

    Comment number 323.

    "if it aint broke - Break it" - the governments new slogan!

 

Page 42 of 59

 

More Business stories

RSS

Features

BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.