Virgin Trains loses West Coast Mainline franchise

 

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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
 

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  • rate this
    +3

    Comment number 1082.

    Sir Richard Branson could now build that bullet train link between London and Newquay airport and operate London's extra International airport and spaceport from there. (Newquay has one of the longest runways in the country)

  • rate this
    +1

    Comment number 1081.

    "1044.Ronbo
    "Scrap it all and pay SNCF to run it."

    Damn right.

  • rate this
    +5

    Comment number 1080.

    Having travelled on most of the major lines since privatisation I would have thought that the 'First' Group were actually the LAST company that I'd have given the franchise to. And I'm pretty sure I'm not the only one of that mind. But then, I'm only a rail passenger, and who bothers to listens to us these days? We're only the poor fools who fund the dividends and Senior Management bonuses

  • rate this
    0

    Comment number 1079.

    1046.T8-eh-T8
    Network Rail are the Infrastructure Maintainer, they cannot blame themselves to gain anything!

    1052.sptool
    "system failures, derailments, deaths" Caused by First Group? Where?

  • rate this
    0

    Comment number 1078.

  • rate this
    +1

    Comment number 1077.

    So how long are the Government going to give First until they don't provide what they have promised and when they don't how long will it take for the kick back kings to prolong the inevitable to happen,? then who will be made accountable other than our pockets that will pay for everything new introduced by fair hikes without the carriage's,stroke seats that they are promising lets all just wait ;)

  • rate this
    +5

    Comment number 1076.

    Privatisation gone MAD. I have used both Virgin and First Group trains, the latter use old rolling stock and appear to have no pride in their service. Passengers will have no choice but to carry on using the west coast line. The railways should be re-nationalised.

  • rate this
    +4

    Comment number 1075.

    Nationlisation does not work because self-serving Politicians who have vested personal interests in privatised companies will never allow it to.

    Power to the people? Never will our morally-challenged and corrupt Politicians allow that either.

  • rate this
    +9

    Comment number 1074.

    It used to cost me £15 return from Liverpool to London and even then, I could jump on any train. Now it costs £70 and everyone has to book in advanced - even when 50% of the seats are empty.

    Why don't we just bring British Rail back? I don't mind paying £70 knowing that will go into improving infrastructure and trains and not in the pockets of fat cats and shareholders.

  • rate this
    +1

    Comment number 1073.

    This is a clear indication of greed and corruption

  • rate this
    +2

    Comment number 1072.

    1056.Keith95a Other countries seem to manage with nationalized industries - so why in the UK is it the case that a nationalized service implies inefficiency
    --------------
    Because the people who pervade the 'implication of inefficiency' in a nationalised organisation make the most out of privatisation. Us little people need not worry about such things, social order must be maintained!! ;oD

  • rate this
    +4

    Comment number 1071.

    My sympathies to West coast travellers. I use a service shared between First Capital and South Eastern, and the service has become so unreliable it's a nightmare. A common problem is the service terminates early at London because no First Capital driver has turned up, and their rolling stock is a disgrace.

  • rate this
    +4

    Comment number 1070.

    I use both regularly:
    Virgin: Pros: Quick, Comfortable, Clean, Strive to Improve, Good Value Adv Tickets, Well Staffed, Innovative
    Virgin: Cons: Too much space for 1st Class, Sneaky lengthening of Peak Times, (both lead to overcrowding at popular times)
    First: Pros None
    First: Cons :Poor Value, Dirty, Tatty, Uncomfortable, Lack Innovation, Attitude to Customers, Lack Willingness to Improve Service

  • rate this
    +4

    Comment number 1069.

    I am extremely angry about this decision.

    On it's own it's enough to guarantee that I would not vote for either of the parties that form this shambolic coalition Government.

  • rate this
    +5

    Comment number 1068.

    The trouble with privatising the railways and having the madness of "train operating companies" who can claim money from Network Rail rather than having the whole system run by one organisatio is that the war is over and the good guys lost. I concede defeat.

  • rate this
    +3

    Comment number 1067.

    This decision is appaling. Once again the Conservative government have sold out to the highest bidder! Virgin provide an excellent service linking the North with the capital. Friends of mine are worried for thier jobs now as the concessions they recieved with Virgin will no longer be. Country gets worse by the day!

  • rate this
    +4

    Comment number 1066.

    @ 1038 Mike_1973, FGW rolling stock on the GWR is 1960's rolling stock, NOT 1980's.
    The oldest rolling stock in the UK.
    A Reading to London season ticket in 2008 was apx £1500pa, as of Jan2013 over £4300pa. SAME exact rolling stock, no extra services and a padded time table a former 15 minute journey is 30 so all trains ARRIVE EARLY.

  • rate this
    +4

    Comment number 1065.

    1056.Keith95a
    Other countries seem to manage with nationalized industries - so why in the UK is it the case that a nationalized service implies inefficiency?
    --
    You only have to look at the job done by the Police, Army and volunteers at the Olympics to know that this is a red herring peddled by those who have a vested interest in privatisation. G4S prove my point.

  • rate this
    +3

    Comment number 1064.

    I see that any pretence of choice for the consumer has now been flung out of the window. But then many predicted that this would happen while others hailed privatisation and competition not thinking at all that the sole goal in commerce is market security in the form of a monopoly Ticket Splitting prices would probably reflect the real prices of rail travel had the Trains remained in public hands

  • rate this
    0

    Comment number 1063.

    Just spoken to the Department of Transport & asked them is First Group becoming no more than what BAA became in the airport sector, a vast un-apposed monopoly, they were not interested. BAA was force to sell airports to increase competition, and in theory aid in the reduction of air fares. Having one company own so much of the UK rail licences is just right, as we already pay 10 x the EU avg.

 

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