November 27, 2014
by Neil Turner
This morning, the government announced that a consortium of Stagecoach and Virgin will take over the East Coast rail franchise in March 2015. Although Stagecoach own 90% of the consortium, Virgin’s 10% stake means that the trains will carry the Virgin brand, like those that currently operate on the West Coast Main Line (Virgin’s west coast franchise is 49% Stagecoach and 51% Virgin).
The awarding of this franchise has been controversial, and more-so than most others, because for the past five years the East Coast ‘franchise’ has been operated by the government. In 2009 the previous franchisee, National Express, surrendered the franchise after only a couple of years as it was making a loss. National Express had won the franchise in 2007 after the original operator GNER also surrendered as well. Rather than run yet another franchise competition, the Labour government at the time decided to bring operations in house, using a holding company called ‘Directly Operated Railways’ (DOR) and branded the services ‘East Coast’.
The intention was always to return the franchise to the private sector, even when Labour was in government, but originally this was to happen within two years, rather than five. I believe there have been several factors that caused the delay:
- The mess that GNER and National Express left. GNER was originally one of the better franchisees, having invested in a high-quality refurbishment of its trains, being one of the first to introduce on-board wifi and improve its offerings for first class customers. But after it retained its franchise in 2005 it started cutting costs, and National Express continued this, including maintenance cutbacks. An example was a reduction in maintenance of the automatic doors, which meant that when East Coast took over the doors were becoming increasingly unreliable.
- The fallout from the failed franchise competition for the West Coast Main Line in 2012. In August of that year, the government announced that Virgin were to lose the franchise to FirstGroup, but irregularities in the process led to the competition being cancelled and all other competitions being delayed. Virgin remain in charge of the West Coast franchise through ‘direct awards’ – essentially franchise extensions, with a new competition due in a few years.
- A major timetable change, called ‘Eureka’ took place in 2011 and this took some time to bed down.
DOR’s aim was to turn the East Coast franchise around, so that it would be in a better state to return to the private sector. East Coast’s train livery was kept deliberately neutral so that a new franchisee could easily re-brand the trains in their own colours, and the East Coast brand could be transferred to a new owner if required. Evidently this took longer than anticipated.
Of course, once the franchise was back in the public sector, after 12 years of privatisation, there were arguments that it should stay there. The improvements made, along with a subsequent increase in passenger numbers, means that DOR has returned around £1 billion in premium payments to the government. And as DOR is not a private company, it doesn’t have any shareholders or investors who would want a share of the profits.
Labour, now in opposition but seeking re-election in next year’s General Election, have made it their policy that DOR should also be able bid for franchises along with private-sector businesses. I don’t really agree with this as private companies spend millions on their bids, many of which aren’t successful and this could be a waste of money if DOR has a low success rate. In any case, it’ll be too late for East Coast – Virgin will take over the new franchise two months before the election, and will run it for at least 7 years.
Stagecoach now has an effective monopoly on north-south train services. It operates East Midlands Trains on the Midland Main Line between London St Pancras and Sheffield, and with Virgin it operates the London Euston to Glasgow services. Now it’ll also operate the London King’s Cross to Edinburgh services too, meaning that the only other operators for north-south services will be the open access companies First Hull Trains and Grand Central. Stagecoach also operates Megabus with a significant proportion of north-south coach traffic.
On the plus side, the new franchise should see some positive changes. From 2020, new trains 140mph built by Hitachi in the north-east will be introduced, and there will be more services serving new cities. A map shows that Bradford will gain an additional 6 direct services to London each weekday – right now East Coast offers a token service in each direction, with Grand Central running four trains each way to Bradford Interchange. Harrogate and Lincoln will also benefit from similar service increases, and Huddersfield will gain a token direct daily service for the first time. Existing stations such as York, Newcastle and Leeds will also see additional services running. These new services will start in 2019, subject to Network Rail granting access to the track.
Personally I’d have liked East Coast to stay in public hands, and other franchises to join it as and when the current contracts run out. But realistically this would never have happened – none of the main political parties show any willingness to roll back rail privatisation. I just hope that Virgin continue DOR’s work at improving the service that runs on the East Coast Main Line and stick to their promises, without massively raising ticket prices.