First franchise ‘risks bankruptcy’, says Branson

Virgin Trains boss Sir Richard Branson labelled the Department for Transport insane as he claimed First Group overbid to take over the West Coast mainline franchise.

Rail Minister Theresa Villiers on Wednesday named First Group subsidiary First West Coast as the new operator for the 'InterCity West Coast' franchise, beginning on 9 December 2012. Virgin, after 15 years as franchise operator, will hand over the distinctive Pendolinos as First begins the 13-year contract.

First West Coast said it will introduce 11 new six-car electric trains and launch additional services from Blackpool, Telford, Shrewsbury and Bolton to London. First West Coast has also committed to cut the cost of its 'standard anytime' fares by an average of 15% within the first two years.

The franchise stretches from London to Glasgow, connecting Manchester, Liverpool, Birmingham, Wolverhampton, Edinburgh, Lancaster and Chester.

The franchise deal is worth £5.5bn over the lifetime of the contract.

Shares in First Group dropped by 7% to 239p by midday.

Villiers said: "This new franchise will deliver big improvements for passengers, with more seats and plans for more services. Targets to meet on passenger satisfaction will be introduced for the first time in an InterCity rail franchise and passengers will also benefit from smart ticketing and from investment in stations."

The DfT's statement set out the proposed benefits of the new franchise as follows:

• More Seats: The new 11 six-car electric trains will deliver circa 12,000 extra seats a day, from December 2016 with the cascade of existing rolling stock to bolster capacity on West Coast routes. This is in addition to the 106 extra 'Pendolino' carriages which are currently being introduced into operation on to the franchise, which will deliver over 28,000 extra daily seats.
• More Services: Initially First West Coast will operate the timetable they will inherit from the current franchise but are seeking to introduce a number of new services including a London Euston to Blackpool service from 2013 and from 2016 services from London to Telford Central, Shrewsbury and Bolton.
• Improved Services: Journey time improvements between London and Glasgow are planned, as well as additional services from London to Preston.
• Fares: First West Coast is changing its Standard Anytime fares and reducing them by an average of 15% over the first two years of the franchise.
• Improved Stations: First West Coast is taking over responsibility for maintenance at 17 of their stations and will spend at least £22m on a station investment programme.

Tim O'Toole, chief executive of First Group, said: "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.

"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.

"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.

"The award of Intercity West Coast marks a key milestone in renewing and developing our long-term UK Rail portfolio. We look forward to bringing an exciting mix of innovation, and customer and service improvements to InterCity West Coast and creating a better railway for all."

In a lengthy and angry response to losing the franchise, 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 £160m to the taxpayer and have created a franchise worth more than £6bn 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.

"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 £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.

"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."