British East Coast franchise in trouble, again

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A Class 91 electric locomotive in the latest Virgin East Coast livery arrives at Darlington, England, on May 16, 2017.
Keith Fender
LONDON — The private operator running the main route between London and Edinburgh via York — a consortium of British operators Stagecoach and Virgin — which despite being only 10-percent owned by Virgin is branded as Virgin East Coast, will hand back the franchise to the British government within months. The operator had miscalculated how much revenue it would make and how much it would need to fund the operation according to the British Transport Secretary Chris Grayling, whose officials agreed the deal with Virgin East Coast. The contract is expected to cost majority shareholder Stagecoach around $280 million, although had it continued the company was liable for payments to the government of up to $3 billion.

The East Coast route has had a history of franchisees getting into difficulty since Britain decided to privatise its railways via a series of government awarded franchise concessions, which require the operator to take some of the commercial risk and pay premium fees from revenue to the government. The first franchisee Great North Eastern Railway owned by shipping line Sea Containers was the only one to run its full course from 1996 to 2005 and won an extension. GNER walked away from the franchise in 2007 when its parent company could no longer fund the business. A new franchise with British transport group National Express running it started in December 2007 but was terminated early only 18 months later as the company was unable to meet the commitments it had made. A government backed interim management company then took over for four years before Virgin started in March 2015. Despite the financial pitfalls the various private and government operators have increased service frequencies on key routes and passenger numbers have grown, albeit not at the rate needed to meet overambitious targets — now for a second time.

The Virgin operation started in March 2015 and the operator had based its winning bid for the contract on growing passenger numbers from new routes, additional trains, and from 2018 onwards, introduction of new Hitachi-built Intercity Express Trains replacing older ex-British Rail equipment dating from the 1980s and 1990s. The growth plan relied on government-owned infrastructure manager Network Rail, which owns all the tracks Virgin uses, to add new tracks and grade separated junctions while boosting the route’s electric power supply.

The British government is committed to keeping the trains running past the end of the Virgin operation. One option available is to award the Virgin company a management contract where it is just paid to run the trains with all the revenue going direct to the government, another is as happened when previous franchisee National Express lost its contract in 2009 is that a temporary government owned operator will take over the operation. A decision is expected in a few months.
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