East Coast prob­lems ap­par­ent soon af­ter the fran­chise win

Rail (UK) - - Network News - An­drew Ro­den Con­tribut­ing Writer rail@bauer­me­dia.co.uk @AndyRo­den1

STAGE­COACH Group Chief Ex­ec­u­tive Martin Grif­fiths says po­ten­tial prob­lems in meet­ing rev­enue growth tar­gets for Vir­gin Trains East Coast were re­alised “a few weeks af­ter we got in”, af­ter win­ning the fran­chise.

Speak­ing at the Pub­lic Ac­counts Com­mit­tee (PAC) hear­ing into rail fran­chis­ing on Fe­bru­ary 26, Grif­fiths added that the com­pany has been in dis­cus­sions with the De­part­ment for Trans­port “for over two years”.

Ex­plain­ing why the fran­chise is un­able to meet its fi­nan­cial com­mit­ments to gov­ern­ment over its full du­ra­tion, Grif­fiths told the com­mit­tee that the in­dus­try has been sub­jected to the low­est growth rates in UK rail since pri­vati­sa­tion, but also said no risk share was put in place to recog­nise changes in macro-eco­nomic fac­tors.

He de­nied that the fran­chis­ing process en­cour­aged over­bid­ding, say­ing: “No­body ap­proached these bids with the in­ten­tion of try­ing to over­bid or over­es­ti­mate what they might achieve. The fore­casts were put to­gether based on the best eco­nomic out­look data that was avail­able from the Gov­ern­ment and the OBR [Of­fice for Bud­get Re­spon­si­bil­ity] at that time.”

Asked whether VTEC will be prof­itable by 2019, Grif­fiths replied: “No.” But he strongly de­nied that the com­pany is “throw­ing in the towel”, and pointed out that Stage­coach and Vir­gin ac­quired East Coast as a com­pany rather than the more usual op­er­at­ing con­tract let by fran­chises.

“By the time we got hold of it and opened the lid up, the rev­enue base that we thought we were in­her­it­ing was ac­tu­ally lower than we had as­sumed when we started,” he added.

He told the PAC that bid­ders had been told to as­sume that a new fleet of trains and in­fra­struc­ture up­grades would be pro­vided and funded.

How­ever, Net­work Rail Chief Ex­ec­u­tive Mark Carne said: “We have de­liv­ered all the in­fra­struc­ture that was re­quired so far and, as Mr Grif­fiths said, the fail­ure of this fran­chise was en­tirely down to their in­abil­ity to pre­dict the rev­enue fore­casts.”

He claimed NR de­liv­ered the power sup­ply up­grade “bang on sched­ule”, and that “we have de­liv­ered all the projects that we said we would de­liver”.

VTEC Man­ag­ing Di­rec­tor David Horne was un­able to tell the com­mit­tee when the com­pany will run out of money, but Grif­fiths said that it would breach its ‘for­ward-look­ing ra­tio anal­y­sis’ “at some point in the next 12-month pe­riod.”

DfT Per­ma­nent Sec­re­tary Ber­nadette Kelly ar­gued that the fran­chis­ing sys­tem has not failed, say­ing: “We are not see­ing fran­chise fail­ure else­where in the sys­tem… so I don’t think it proves that the sys­tem as a whole has failed. I would say it is a sig­nif­i­cant chal­lenge in this par­tic­u­lar case, but I do not think it is proof of sys­tem-wide fail­ure.”

DfT Man­ag­ing Di­rec­tor, Pas­sen­ger Ser­vices Peter Wilkin­son says the De­part­ment has new tools that can help to eval­u­ate whether a fran­chise can sur­vive un­der “quite a se­vere down­side sce­nario”, tech­nol­ogy that he says was un­avail­able in the fran­chise de­sign process be­fore 2015.

He added that the low cost of petrol “has un­doubt­edly had an im­pact on longer-dis­tance travel”, which may have af­fected rev­enue growth on the East Coast Main Line.


DB Cargo 67012 hauls the 0540 Ed­in­burgh Waver­ley-Lon­don King’s Cross past Peter­bor­ough on Fe­bru­ary 28, run­ning 203 min­utes late. The train was ter­mi­nated at Steve­nage. Stage­coach Chief Ex­ec­u­tive Martin Grif­fiths told a Pub­lic Ac­counts Com­mit­tee that po­ten­tial rev­enue prob­lems were iden­ti­fied only weeks af­ter win­ning the East Coast fran­chise.

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