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West Coast Mainline franchise gamble

From the Herald.................

SHORTER journey times, station upgrades, refurbished train interiors, better catering and an improved ticketing system are all promised when FirstGroup takes over the running of trains on the West Coast Mainline (WCML) later this year.

Can passengers between Glasgow or Edinburgh and London really expect this brave new world to come to pass after December 9?

The Virgin/Stagecoach partnership lost the franchise because FirstGroup contracted to pay premiums of £5.5 billion to the Department for Transport over the 13-year contract. That was significantly more than Virgin, whose founder Sir Richard Branson denounced his rival's bid as not possible without dramatic cuts to customer quality and considerable fare rises. This raises not only the question of whether the FirstGroup bid is sustainable but the more fundamental one of whether the system of awarding franchises is fit for purpose. It encourages operators to submit the most optimistic bids possible in terms of payments to Government as a percentage of turnover but if their projections prove wrong, it is the taxpayer who picks up the pieces.

Finance

The experience of the East Coast Line, on which National Express and GNER handed back the keys, suggests there is validity in Sir Richard's point that on the previous three occasions when Virgin was outbid on a franchise tender, the winning operator was nowhere close to implementing the promised plans. This should not be dismissed as sour grapes. The immediate drop in FirstGroup's share price confirmed that Sir Richard was not alone in the view that the franchise was won on terms which could terminate in financial derailment.

The Government moved to longer franchises to encourage more investment from train companies but that has increased the uncertainty of the financial forecasts. The difficulty is compounded by the fact bidders usually pay little at the beginning of the contract when investment is at its highest but ratchet up payments towards the end. With growth estimates currently being revised downwards, the difficulty of accurate projection is obvious, yet bids are largely decided on which company offers the most money.

Boosting passenger numbers requires attractive fares. On long-distance journeys between Scotland and London, four-fifths of travellers still go by air. Reducing the journey time to four hours and 15 minutes between the centre of Glasgow and the centre of London makes the journey time more competitive but the train will gain only when it becomes significantly cheaper. With fares on cross-Border services due to rise by 6.2% in January, pricing will be crucial in shifting passengers from air to rail.

FirstGroup has pledged a 15% reduction on standard anytime tickets but passengers also want a much clearer system of identifying the cheapest tickets. With another above-inflation fare rise on the horizon, they will be looking for value especially in terms of getting a seat and being on time.

The folly of allowing price to trump all other factors became obvious to all immediately before the Olympics when the failure of G4S to deliver on its security contract required the army to come to the rescue.

In considering the bids, Transport Secretary Justine Greening had that national embarrassment as a reminder that the lowest cost (or the highest payment) does not always equate with value for money. She may not be in office in 13 years' time but the Government must be held to account for the consequences of her decision. A requirement for the operator to meet targets on passenger satisfaction is welcome. First West Coast Limited must provide extra seats, faster journey times and smart ticketing and confound Sir Richard's opinion that their bid would result in almost certain bankruptcy.

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