The financial failure and early termination of the UK government’s East Coast Main Line rail franchisee, Virgin Trains East Coast, announced today, has been widely predicted for some time.
Despite operating under the Virgin brand name, the company is actually owned 90% by Stagecoach and 10% by Virgin. It is a legally separate entity from the other rail franchises operated by Stagecoach and Virgin (such as Virgin West Coast) who are not affected by today’s announcement.
The general consensus is that Stagecoach / Virgin got their sums wrong and over-bid for the franchise and reached the point where they could no longer afford the agreed franchise repayments to the government. However, the position is by no means clear: Stagecoach / Virgin argue that the government owned track operator, Network Rail, failed to deliver on significant track upgrade work, meaning they as operator could not achieve the operational efficiencies they had predicted, thus leading to their financial failure. Over the coming weeks we can expect to see analysists and politicians argue both sides of this debate according to their own political position on privatisation versus nationalisation.
Predicting both the impending financial failure and the ensuing argument about failure to deliver network upgrades, the government announced last November that the current franchise arrangements on the East Coast Main Line would be terminated early in 2020 and replaced by a joint train operator and track infrastructure company, thus placing responsibility for track infrastructure in the hands of the private operator and eliminating such arguments in future. As it turned out however, Stagecoach / Virgin could not even stumble through until 2020, hence today’s announcement.
Intriguingly, this scenario has happened twice before. The first operator of the East Coast Main Line, GNER, also failed though this was clearly due to problems with their parent company, Sea Containers, thus considered to be outside of issues surrounding how the UK rail industry is managed. But the second operator, National Express, also failed due to over-bidding, so today’s failure of Virgin Trains East Coast will be the 3rd financial failure on the same route. When a franchise fails, the government steps in and continues to manage the route via a directly owned company, acting as “operator of last resort”, until such times as the franchise can be re-let to another company. Thus, passengers are not immediately affected, trains continue to run, and tickets purchased from the failed company are honoured. In the longer term there may be some minor changes with regard to levels of innovation, customer service and prices and availability of the cheaper advance tickets, as would always be the case with a change of senior management.
After the second failure, the government owned “East Coast Trains” who stepped in as operator of last resort were perceived to have performed extremely well in terms of maintaining levels of innovation and customer service. Many commentators, even those agnostic on the privatisation / renationalisation debate, believed that the franchise should have remained under government control as a bench-mark to the rest of the UK rail network operated by private companies. The government however cited EU articles 85 / 86 (anti-competition clauses) as its reasons for being legally obliged to re-franchise the route as quickly as possible after the 2nd failure. After Brexit of course, such arguments against keeping one route under government control will no longer apply. However, the UK government has already announced the new arrangements it intends to put in place from 2020, so the government owned operator of last resort will keep the railway running until then.
SENRUG tries to avoid taking sides in the privatisation / renationalisation debate, preferring to focus on the outcomes passengers require and to hold the operator – be it private or public – to account on delivery of those outcomes.
