Winning bid from Stagecoach/Virgin includes far more ambitious schedule of premium payments to Department for Transport than offered by rivals

 

Artist’s impression of an IEP train in Virgin branding

 

Stagecoach/Virgin has won the new intercity East Coast rail franchise with a commitment to pay the Department for Transport £3.3bn in premium payments over the eight-year contract. Industry sources told Passenger Transport that the premium is £900m ahead of competing bids from FirstGroup and Keolis/Eurostar.

The business plan relies on more than doubling revenue from around £700m when Stagecoach/Virgin takes over the franchise from publicly-owned operator East Coast in March 2015 to over £1.4bn. Stagecoach said profitability would be around the industry average across the course of the contract, but lower in the early years as initial investments are made to improve service quality. That suggests operating profit will rise from around £15-20m in the first year to approaching £100m in 2023/24.

The growth in revenue will be delivered primarily through a huge expansion of the service after the replacement of the current fleet with 65 new IEP trainsets between 2018 and 2020. Following infrastructure works to increase the route’s capacity, Stagecoach/Virgin plans to use the flexibility of the bi-mode, multiple-unit IEP trains to maximise the number of services it can run to new destinations and towns and cities that are poorly served at present, as well as increasing frequencies to core destinations.

In 2020, the DfT said Stagecoach/Virgin would be providing 23 new services per day. The franchise’s network will be further expanded by extending existing services. The most significant changes are connecting Middlesbrough to the East Coast network with six return trains per day. Bradford, Lincoln and Harrogate, all of which have one return train per day at present, will get a service to and from London every two hours. Huddersfield will also be connected to the network with one return journey per day. Existing core markets will benefit from additional frequencies with a further five trains per day serving Leeds.

Journey time improvements include reducing typical London-Leeds trips from two hours 11 minutes to two hours and typical London-Edinburgh trips by more than 20 minutes to provide regular four-hour journeys.

Prior to the introduction of IEP trains, Stagecoach/Virgin plans to connect Sunderland to the East Coast franchise with one return journey per day from December 2015. From May 2016, it will use an additional trainset to increase London-Edinburgh frequencies from three trains every two hours to half hourly.

Overall, the expansion will increase capacity by 50%. Stagecoach chief executive Martin Griffiths said it would be complemented by a programme to provide “world class customer service” through £140m of investment in stations, staff, and ticketing and passenger information systems. Although Stagecoach will hold a 90% share in the franchise, it will run under the Virgin Trains East Coast brand when it transfers from public ownership in March 2015. Initial changes to pricing will include reducing long distance Anytime fares to London by 10%.

However, transport secretary Patrick McLoughlin acknowledged that expansion of the East Coast franchise depends on the Office of Rail Regulation approving Stagecoach/Virgin’s expansion over competing plans from Alliance Rail. Alliance has applied to run an express hourly London-Newcastle-Edinburgh service (PT073), expand its existing Bradford-London business and run services to Scarborough and Cleethorpes.

 


Related coverage in the latest issue of Passenger Transport:

Franchise moves in on open access routes
New services to Middlesbrough and Bradford planned

DfT deal insures against open access
Protection offered against arrival of new competition

Better value for taxpayers
Premium payments will be higher than current levels

Rapid commercial improvement required
Stagecoach/Virgin must improve on record of public sector

Customer service changes
Multi-faceted plan to boost appeal

 

This article appears inside the latest issue of Passenger Transport.

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