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
    -1

    Comment number 1102.

    1079. Tio Terry
    ~Network Rail are the Infrastructure Maintainer, they cannot blame themselves to gain anything!~

    Different organisations. NR operate and develop the infrastructure, the maintenance is run seperately. It used to be privately run but was taken back 'in house' a few years ago as a distinct organisation.

    Big commercial battles over who causes delays - £££££££s of cost.

  • rate this
    +2

    Comment number 1101.

    No matter which Franchise you name - they all use similar stock.With the exception of those still running the aging "125 Inter City" trains, the remainder are all far too small for the length of journeys they undertake and for potential Passenger numbers. I've written to Virgin 5 times to express my disbelief at their services. Each acknowledged with a promise for a reply. Replies received ZERO.

  • rate this
    0

    Comment number 1100.

    1057.Tio Terry
    9 Minutes ago
    1045.redan_white
    No.
    There is no cost. East Coast is government run.......etc
    -----------
    Far too simplistic argument, bills would have been needed to be past etc. You would have ended up with a half private half QUANGO situation, this would not be a nationalised system. They would have had to buy out all remaining running contracts, too expensive.

  • rate this
    +3

    Comment number 1099.

    on then UPSIDE, if First fail to make this deal pay, it has a very real potential to bankrupt First Group for good. The deal includes a £265m penalty in the event that First terminate the contract early or fail to keep up their end of the bargain.

    Bob Crow may finally do something worthwhile and help!

    when there's no scope for true competition, as with rail, it should never be privatised.

  • rate this
    +5

    Comment number 1098.

    Whenever we go to London, we always use Virgin trains. They are clean, quite fast and comfortable. I've been on First Great western trains in Devon, they are so old. They use paper tickets for reservations, I went on their website and I saw they're only just rolling out Wifi on the trains - Virgin already has it. Just shows how modern service Virgin provide. Also the Virgin prices are pretty good.

  • rate this
    +2

    Comment number 1097.

    If the regularity of and conditions onboard First Capital Connect trains are anything to go by, the franchise for the West Coast line is doomed. Virgin always did a great job on that route.

  • rate this
    +4

    Comment number 1096.

    British Rail was under-funded by successive governments. This was where politicians would first look if they wished to save a £100 million. At least with British Rail there was a structured ticketing system. No one can argue that Public owned trains in Europe do not work. They do a better job. That Trains were put into public hands in 1947 because privatisation didn't work is a lesson to us all

  • rate this
    +3

    Comment number 1095.

    Oh no! As many others have noted, FirstGroup are notorious for driving down standards in every transport franchise they operate. As in their other franchises, I predict : exorbitant fare rises (and loss of reasonably priced tickets), understaffing, service cutbacks, a complete loss of customer service, lack of maintenance of their stock and a couldn't care less attitude from management and staff.

  • rate this
    +5

    Comment number 1094.

    Wrong. Very, very wrong.

    Once again the government demonstrate their dedication to the cause of price over value and once again the passenger is the loser.

  • rate this
    +4

    Comment number 1093.

    1045.redan_white
    1020.padmi Why didn't Labour didn't re-nationalise the railway system while they had the chance?
    -----------
    Because the Conservatives had spent the cash. . .

    Not really: they could have simply let the franchises run out and then not re-let them. Didn't do that though because the franchise process is too good a gravy-traim for them.

  • rate this
    +4

    Comment number 1092.

    If only the politicians who made this decision were able to escape their Westminster bubble and actually travel on both rail services before making a decison, they would have been able to see the ineptness of FirstGroup for themselves. Instead the decision was made behind closed doors, comparing over the top promises against a more realistic proposal. The fairytale won.

  • rate this
    +3

    Comment number 1091.

    How many times have I seen a franchise (not only rail) go to someone who temporarily souped-up their bid... you'd think the gov't would see through it by now. On second thoughts, we have a gov't with ministers like Phil Hammond who has only just realised that "there are some things that the private sector isn't cut out for" (Olympic security). Pity he didn't realsie it when he was at Transport.

  • rate this
    +7

    Comment number 1090.

    The headlines should be changed, as the liberal politician admitted on 5 live that they got it because they offered more cash than Virgin to the government - the headline should read "FirstGroup buys West Coast Rail Contract"

  • rate this
    +3

    Comment number 1089.

    I think this signals a final end to any credibility Thatcher's privatisation policies had. We only have to look at Europe to see how state owned railways deliver better, cheaper and more reliable service with in most castes less public subsidy than we put in.

  • rate this
    +4

    Comment number 1088.

    Clapham Rail Crash in 1988, govt/BR ordered to install Train Protection Equipment/software etc.
    Tory Govt said: wow Far TOO Expensive. So split and privatised BR - NOW all upgrades and crashes are 'responsibility' of each TOC.
    Govt washed hands of Rail and didnt have to actually invest in Rail.
    24 years later eqpt still not installed but NOT Govts fault.
    How does a Govt pass buck-privatise it!

  • rate this
    +3

    Comment number 1087.

    1062.Justin150
    It really does not matter whether the railways are run by public sector or private, the UK rail network will never be profitable.
    --
    Profit isnt the only factor though. Quality infrastructure enables people and goods to get from A to B efficiently and reliably - this has huge social and economic benefits. We need to look at the big picture.

  • rate this
    +2

    Comment number 1086.

    Obviously the government will opt for the franchise that promises to pay them the most. Such a shame the politicians always blindly follow the money without properly investigating company's ability to deliver.

  • rate this
    +5

    Comment number 1085.

    @1066

    Actually the oldest stock in use by FGW dates from 1975, that is the HST's, the rest is no older than 1984. No 1960's stock remains in passenger use in the UK other than on preserved railway lines.

  • rate this
    +1

    Comment number 1084.

    The Liverpool-London line is the only line I use, its the only one thats not constantly to hot, cramped and broken. I'll give the new service a try but I think I'll stick to driving. I may get stuck on the m6 but at least I'll be stuck in comfort and at a reasonable temperature.
    How are trains so bad in this country, I could make them that bad if I tried.

  • rate this
    +4

    Comment number 1083.

    First Group 2012 accounts show net assets od £800m. However the largest asset they "own" is £1.8billion of "goodwill and other intangibles". Take these nebulous assets out of the balance sheet and there is a huge problem which will only get worse when you also have £1.8billion of debt and interest rate rises are inevitable. This, like the Southern Cross Nursing Home problem, are huge problems!

 

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