Virgin’s lost franchise sets the news agenda

Published 25th August 2012

The Government faces challenges to their proposed West Coast Main Line franchise decision

London - The normally quiet season for news in August was shattered by the Government announcement that Virgin trains had lost their West Coast Main Line (WCML) franchise with effect from December 2012.

An online petition was launched to force a debate in Parliament on the franchise award and this quickly reached the required 100,000 signatures at lunchtime on 24th August. The petition remains open until February 2013 by which time operation of the franchise will have changed so the debate over the bank holiday weekend intensified.

Virgin has said that it would operate the franchise at no charge to the Government while an investigation took place, a clever piece of PR or clever business? The Department for Transport declined the offer saying that it had been made via the media.

Transport Select Committee seek further information

This apparent growing public concern has prompted Louise Ellman MP, Chair of the influential House of Commons Transport Committee, has asked for the signing of the new contract to be delayed from August 28 so that the committee can consider the issues.

On the same day, Ms Ellman wrote to Justine Greening MP, Secretary of State for Transport asking for a postponement in the award of the WCML franchise agreement.

It was confirmed by Ms. Ellman on 25th August that this request had been declined by the Transport Secretary who had no intention of delaying the signing of the deal. It is understood that the National Audit Office has also requested details of the deal.

Branson said on BBC’s Newsnight that he had asked the Government 40 questions which had not been answered.

First Group was awarded the franchise and they are due to commence operations on December 9 promising to save the Government £1bn over the length of the 14 year contract.

Your Questions answered

First Group made various announcements over the Bank Holiday and posted on their website a link where you can ask questions about the WCML award. The link is:

Celebrity signatures

Some high profile celebrities such as Alan Sugar, Jamie Oliver, Ronan Keating Eddie Izzard and Stephen Fry have signed the e-petition which Virgin say was set up by Ross McKillop, a Virgin Trains’ customer.

Branson said:

Virgin Group Founder Sir Richard Branson said: “This is a great boost for everyone at Virgin Trains to see the level of support for us and the frustration at the Government’s decision. It is clear customers want the decision reconsidered and Parliament should have the opportunity to debate this before any contract is signed, which is planned for August 28.”

‘In less than a week one hundred thousand of you have said that you believe that Virgin Trains should continue to run the west coast mainline and have called for the House of Commons to debate the issue. All of us at Virgin Trains are overwhelmed and thank you.

Let us hope that sense prevails and your views are acted on quickly. I'd also like to thank Ross McKillop who uses Virgin Trains and FirstGroup regularly for starting this petition.’

Mr Branson added that: “The Government may as well have auctioned the West Coast Main Line on eBay. ‘Roll up, roll up for the Great Train Sale! Highest bidder wins. Doesn’t matter when you pay, 10 years or 15 years time will do. ‘We don’t mind how much debt your company has. Deliverability not an issue. Quality not a factor. Redundancies not a problem. Roll up, roll up’.”

First Group said:

First Group Chief Executive Tim O’Toole engaged Richard Branson in the war of words in the week after the franchise award saying that he [Branson] was angry as he would miss the profits. These are reckoned to be around £200million for Virgin and the same for Stagecoach who own 49% of the current franchise.

Brief franchise financial recap and objection deadline

FirstGroup have promised to pay back an average of about £420 million annually as opposed to the £160 million currently paid by Virgin. The deadline for a legal appeal against the franchise award is August 28 and several Parliamentary committees have expressed an interest in looking at the detail of the FirstGroup’s projections.

First Group was capitalized at around £1.2bn when the franchise was awarded and the payment to the government in the final year of the franchise, 2026, would be £1.6bn - more than today’s company value. How this revenue increase will be delivered will be worth watching because if revenues do not increase, as Branson says, the franchise will follow GNER and National Express East Coast by going bust.

It is an ambitious bid and a brave Government decision to accept it as it appears that the company has bid its future on the West Coast franchise. The empty off-peak seats will have to be sold in bulk every day on every train to meet the financial challenge.

Virgin Flights and ticket sales

Virgin has announced that following acquiring more slots at Heathrow, it will be operating internal UK flights from next year, some in competition with trains on the West Coast routes from places such as Manchester and possibly Glasgow or Edinburgh.

On August 22, Virgin released sales figures for their trains which they claim showed an increase in revenue of just 0.6% in the 12 weeks up to July 22. First Group commented that Virgin had no interest in increasing its marketing activity, as you would expect in the last few months of a franchise.

Trains, toilets and customer service

Virgin runs double the amount of trains today than when they took over the route in 1997 from British Rail and introduced the Alstom built Pendolinos from 2004. It was a troubled introduction and the whole fleet underwent several modification processes before they became reliable enough to be used in squadron service.

But conversely they and Alstom have not managed to hide the often bad odours in the toilet areas of the train, a cause of many comments.

Virgin quote a high satisfaction score but this is not reflected by the official statistics on display at their stations while First Group promise to improve these ratings. Someone will be proved correct in the next year or so!

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