Virgin Loses Franchise

Published 16th August 2012

Virgin loses West Coast Rail Franchise

The Government awards West Coast Main Line rail franchise to First Group while Virgin prepares to exit the rail industry.

First Group awarded WCML

First Group has been awarded the West Coast Main Line (WCML) rail franchise commencing operations on December 9 and running for 13 years and 4 months to 31 March 2026. This coincides with the proposed date for opening the first section of High Speed 2, offering the opportunity for a complete timetable revision.

This then, as with any new franchisee, is the time for any worried passengers and staff alike to take note of the promises in this case, First Group, have made along with the timescales offered for improvements. In a statement, headed ‘Delivering benefits for passengers, value for taxpayers, opportunities for employees and returns for shareholders’ First Group have offered the following:

The new franchise will offer substantial improvements in the quality and frequency of services which will attract far greater numbers of passengers, enabling the InterCity West Coast franchise to achieve a modal share comparable to other intercity franchises in the UK.

This growth will create greater long term opportunities for employees; generate solid returns for shareholders and justify the substantial Government investment of £9 billion that this railway has received by providing better value for taxpayers.

Unused Capacity on the WCML

First Group also says that the WCML has “a considerable amount of unused capacity” that will expand with the addition of 106 new Pendolino coaches introduced by Virgin as part of their last franchise extension.

This capacity, First Group says, exists on the key growth corridor for the UK economy, linking a number of the UK’s largest and growing major urban areas including London, the West Midlands, Greater Manchester, Liverpool and Glasgow.

The stunning news

First Group has surprised many by announcing they will bring in 11 new six coach electric 125 mph trains to be used on the Birmingham-Glasgow services, which will allow the diesel Voyager fleet to provide direct services to more locations. These will provide an extra 12,000 seats a day on this route and in total offering 40,000 extra seats by 2016, compared with last year with the longer Pendolinos.


The route generates around £900m in ticket sales a year, is forecast to generate an operating margin of approximately 5% over the life of the franchise. This First Group says, will return a premium payment to the Government of £5.5 billion at net present value over the franchise term.

A decade of Growth

Over the last decade revenues have grown at an average of 10.2% compounded despite limited incentive to increase passenger revenues as a result of revenue share/support arrangements during the last five years. This is as a result of the renegotiation of the Virgin Franchise with the DfT after the West Coast Upgrade was not delivered to time or specification by Railtrack.

The new franchise reckons it will achieve a growth of 10.4% annually driven by targeted £350m investment and substantial capacity increases.

They said

Tim O’Toole, Chief Executive First Group said “We are delighted to be selected by Government to operate this unique railway which connects communities across the country and plays a vital role in the UK’s economic growth. Our winning bid is a deliverable proposition that is compelling for all who want to see a greater use of our rail networks.

We will be making significant improvements including reduced journey times and introducing new direct services. We will improve marketing and deliver a smart ticketing system, refreshed and improved train interiors, station upgrades and even better catering. In support of our commitment to generate increased passenger growth we will be reducing Standard Anytime fares by 15% on average.

“With a strong focus on service quality we will continue to invest in front line staff and look forward to welcoming new employees to the Group, providing them with long term opportunities from an enhanced and reinvigorated railway.

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. The new franchise will provide an economic return for our shareholders and is value enhancing from day one.

“As the UK’s largest rail operator with a highly experienced management team, we have established a vast wealth of knowledge with unrivalled expertise in operating every type of rail franchise. We have a proven track record of generating growth from investment in customer service enhancements and innovation, together with a strong focus on operational delivery and financial discipline.

Key highlights: Better train accommodation to more destinations

First Group say they will transform the on-board environment with a major refurbishment of Pendolino and Voyager interiors, with new seats throughout and improved luggage space. They will offer improved journey time of 15 minutes for trains between London and Glasgow and introducing new direct services from London to Blackpool, Shrewsbury and Bolton.

Preston’s service to Euston will be doubled and extra capacity created to Chester and North Wales and better connections are promised for Nuneaton and Milton Keynes.

Reliability and punctuality improvements to increase Public Performance Measure to over 90% (from current level of 85.9%) through targeted investment and a new alliance with Network Rail.

More revenue barriers

Fares and ticketing initiatives will see a reduction in Standard Anytime fares by 15% on average, but this is not clear if it means numbers of tickets sold or by revenue, two totally different things. Ticket gates will be installed at 21 stations including Euston, Manchester Piccadilly, Liverpool Lime Street and Glasgow Central. Revenue growth will be further helped by greater yield management to help grow demand with increased marketing and introducing a new customer loyalty programme.

This will also be supported by a smart ticketing system, free upgraded high speed Wi-Fi and enhanced mobile phone coverage following train refurbishment. Interestingly, there is also a promise to improve on-board catering, one of Virgin’s supposed strong points.

Station investment will be made to improving accessibility, security and passenger information along with a commitment to high quality service including a greater emphasis on customer facing staff on trains and at stations

Our plans for the service reflect its status as the UK's premier railway and through investment and innovation we are committed to delivering high quality customer services, with visible employees to assist and reassure, and maintaining and enhancing on-train catering.

We have also committed to improve customer satisfaction ratings, and to provide clear and comprehensive information about our performance on the franchise.

First Investment

First Group has a record of investing in trains as well as leasing them like most train operators. They own outright five High Speed Trains representing an investment thought to be of about £60m. Other TOCs like Virgin for example, announce that they have invested hundreds of millions, even billions of pounds in new train fleets such as the Pendolino and Voyager fleet a just over a decade ago.

This is stretching a point as banks financed the construction and operation of the fleets while the train company leases them. When a train franchise changes hands, the fleet generally is transferred to the next incumbent.

Passenger Satisfaction Figures

The First Group passenger service satisfaction pledge directly confronts the Virgin published statistics and the last set published a few weeks ago are not good reading despite them running trains for 15 years.

The survey figures covering the four weeks up to July 21st show only around 85% of trains arriving within 10 minutes of the advertised time. Much of this is down to Network Rail though with numerous points and signal failures and overhead power cable failures. However these figures are skewed when they declare a void day when performance dives as it affects he moving annual average.

Catering achieved a satisfaction rating of under 70% in this period while responses to customer comments satisfaction rating was just 46%.

Virgin Disappointment

Virgin are thought to have been paid tens of millions of pounds annually in compensation following renegotiation of their franchise contract 10 years ago at Horwood House, near Milton Keynes. This was agreed after Railtrack failed to deliver the WCML upgrade to 140mph which obviously broke the Government contract with them.

Several train companies, but especially Virgin, benefitted by these compensation payments, which were largely retained as profit and not passed on to passengers as intended in the privatisation process. This loss of this compensation could be a reason Virgin are disappointed in the franchise decision apart from the reduced brand awareness.

The last word…

Following the DFT's decision to award the West Coast Mainline franchise to FirstGroup, Sir Richard Branson, founder of Virgin Group, said:

“The Government decision to award the West Coast Main Line Franchise to FirstGroup is extremely disappointing for Virgin, and for our staff that have worked so hard to transform this railway over the last 15 years. We submitted a strong and deliverable bid based on improving customers’ experience, increased investment and sustained innovation. To have bid more would have involved dramatic cuts to customer quality and considerable fare rises which we were unwilling to entertain.

“We also 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. Sadly the Government has chosen to take that risk with First Group and we only hope they will continue to drive dramatic improvements on this line for years to come without letting everybody down.

“We won the franchise in 1997 with an agenda to change radically the way people viewed and used the train. At the time the track was run-down, staff demoralised, the service riddled with delays and reliant on heavy subsidies. We set hugely challenging targets to dramatically speed up journey times with modern tilting trains, increase the frequency of the service, improve the on-board experience; as well as double passenger numbers and return the line to profit.

“We were told it was "Mission Impossible" and our plans were laughed at by critics. However 15 years later, despite continued problems with the track, we have achieved our targets. Passenger numbers have more than doubled to over 30 million, the fastest growth in the UK and world leading. We have the highest customer satisfaction of any long distance franchise operator and dominate the air/rail market between London and Manchester. It has been a remarkable achievement by an outstanding team who have successfully delivered on our promises.

“I am immensely proud of our staff for turning the West Coast line from a heavily loss-making operation into one that will return the taxpayer billions in the years to come. Last year we paid a net premium of £160 million to the taxpayer and have created a franchise worth more than £6 billion which is hugely valuable to the country.

“These achievements have counted for little – as this is the fourth time that we have been out-bid in a rail tender. On the past three occasions, the winning operator has come nowhere close to delivering their promised plans and revenue, and has let the public and country down dramatically. In the case of the East Coast Main line, both winners – GNER and National Express - over promised in order to win the franchise and spectacularly ran into financial difficulties in trying to deliver their plans. The East Coast is still in Government ownership and its service is outdated and underinvested, costing passengers and the country dearly as a result.

When will the DFT learn?

Insanity is doing the same thing over and over again and expecting different results. When will the Department for Transport learn?

Interestingly before Virgin took over the West Coast there were more passengers using the East Coast than the West Coast. Now there are 12 million fewer.

“Under our stewardship, the West Coast Mainline has been transformed from a public liability into a valuable asset for the UK, worth many billions of pounds. The service is a British success story and one to put up against rail companies around the world. It is a great shame that such a strong track record has been discounted in the evaluation process for one of the UK’s most important infrastructure assets. The country's passengers, taxpayers and the West Coast employees deserve better.

“Based on the current flawed system, it is extremely unlikely that we would bid again for a franchise. The process is too costly and uncertain, with our latest bid costing £14 million. 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.

“Our amazing staff have been the driving force behind the West Coast Main Line’s transformation and I am sure that for the last months of the contract they will all continue to run the high quality service that has helped win us many awards and attract millions more customers to rail.”

DfT announcement for new Intercity West Coast franchise

The Department for Transport (DfT) has today, Wednesday 15 August, announced that following a bidding competition, Virgin Rail Group will not be operating the new Intercity West Coast franchise which starts on 9 December 2012 and runs through to 31 March 2026.

Tony Collins, Chief Executive of Virgin Rail Group, said today: “Naturally, we are all very disappointed by today’s announcement. We had submitted a strong, deliverable bid with emphasis on customer service which would have produced strong growth over the life of the franchise resulting in significant benefits for the taxpayer through generous premium payments to Government.

Our focus for the remaining four months of the current franchise will be to continue to offer a high quality service to our customers, who we would like to thank for their loyalty over the past 15 years, and hand over a healthy and efficient franchise to the new operator on 9 December.”

Virgin Rail Group took over the West Coast franchise in March 1997 and during the last 15 years has revolutionised rail travel on Britain’s flagship route.

  • 91% customer satisfaction - consistently the best score of all the long-distance franchise operators
  • More than doubled the number of customers from 13m to 31m
  • Provided the most frequent long-distance service in Europe (London - Manchester and London - Birmingham, both every 20 minutes).
  • Grown rail share of the Manchester-London rail-air market from 30% to 88%
  • Introduced over 70 new tilting trains, at a cost of £1.5 billion.
  • Delivered major payments to Government in recent years, with £160m paid to Treasury last year one of the highest payments in rail
  • Improved passenger facilities at stations, and added 5,000 car parking spaces.
  • Slashed journey times - Manchester is now 2 hours 8 minutes from London, down from 2 hours 30 minutes.
  • Launched the first internet rail ticket scheme and the first FastTicket machines.

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