FirstGroup trumps Virgin as frontrunner for WCML franchise (guardian 29/07/2012)

[whole diary]

[JayMac]

From the guardian:

Bus, rail and coach group pushes incumbent Virgin Rail into second place with improved offer for 14-year contract

FirstGroup has lodged the highest bid for the west coast rail franchise, making it the frontrunner to take over the prestigious London-to-Glasgow route.

The bus, rail and coach group is believed to have pushed incumbent Virgin Rail into second place on price with an offer that is 15 to 20% higher than the nearest contender.

FirstGroup and Virgin had been vying for the contract after the other two shortlisted bidders, Dutch-owned Abellio and a bid backed by SCNF, the French rail group, slipped out of contention.

According to one rail industry rumour, the biggest bidder has offered the Department for Transport a premium ^ or excess profits ^ of between ^6.5bn and ^7bn over the 14-year span of the contract. While that far exceeds the premium paid by Virgin, industry observers believe ^5bn would be a par bid for one of the most sought-after franchises on the British rail network.

The premium is likely to be scrutinised by procurement officials at the DfT^» (Department for Transport - about), amid criticism of the vetting process after the ill-fated ^1.4bn bid for the London-to-Edinburgh east coast contract by National Express in 2007.

National Express won the contest but the deal collapsed in 2009 when it admitted it could not afford the rapidly escalating premium payments.

It later emerged that National Express had not been the highest bidder and the DfT had struck out a rival offer of ^1.6bn, believed to be from Arriva. The department said at the time: "We award franchises not only on cost but also on deliverability." Rail franchise competitions are judged on a number of criteria and it is not known whether, in the case of west coast, the largest premium bid is enough to guarantee winning the contract.

FirstGroup, which has a strong reputation for cost management and owns three franchises including First Great Western, is believed to have looked closely at the running costs on the west coast service.

Last month the RMT^▸ (National Union of Rail, Maritime & Transport Workers) trade union, the largest rail union, warned that bidders were considering severe cuts to onboard catering to achieve higher premium payments.

While Virgin pays about ^160m per year to the DfT, a bid of up to ^7bn would require annual payments of about ^500m. FirstGroup is rumoured to have considered staff cost cuts of about 20% on west coast, which could include cutting catering numbers from approximately 800 people to 300, or the service outsourced.

A hefty premium profile is also likely to draw the scrutiny of investors, who are paying close attention FirstGroup's attempts to whittle down its ^1.8bn debt burden. A plan to raise ^100m from bus company disposals has hit a snag after Stagecoach withdrew from the purchase of FirstGroup's Devon bus business after the Office of Fair Trading raised concerns over the agreement. Although a small deal, it was viewed as a negative development by analysts because of the prospect of the OFT and Competition Commission intervening in every disposal.

According to City sources, there are also concerns among investors that FirstGroup will have to launch a rights issue to reduce the debt, a development that may be viewed dimly if it is perceived to divert shareholder cash into lending banks rather than into the business.

However, the share price does not indicate serious concerns over FirstGroup's debt with the stock trading at about six times earnings, whereas if there was genuine alarm the shares would be trading at two to three times earnings.

FirstGroup said: "We do not comment on speculation or market rumours of any kind. All decisions relating to the tendering of rail franchises are the responsibility of the Department for Transport."

Virgin Rail said: "We do not comment on our franchise bids."

If Virgin loses out to FirstGroup, it will be the first time that Sir Richard Branson, co-owner of the business, has been out of the UK^▸ (United Kingdom) rail business in 15 years.

Virgin Rail launched in 1997 and a year later was drawing record complaints from passengers. It is now a popular service and carried 30 million people last year.

A final decision on the contract is expected in August.

[Chris from Nailsea]

From the guardian:

... SCNF, the French rail group ...

Typical typo from The Grauniad ... 

[JayMac]

Mystic Mac's signature text, written over two weeks ago, may be coming true!

We should know about the WCML^▸ (West Coast Main Line) on August 13th. Oh, and according to Modern Railways, Virgin's Bid Director, Paul Furze-Waddock is said to be on his way to National Express to hook up with Elaine Holt. Abandoning the good ship MV Beardie? 

Paul worked on First Group's successful bid for Greater Western in 2006.... anyone for musical chairs? 

[Btline]

So it look as if First want to apply their low standards of First Class service (a cup of tea and a biscuit probably) to the WCML^▸ (West Coast Main Line)!

I hope Virgin win.

[JayMac]

Have you tried Travelling Chef or a FGW^▸ (First Great Western) Pullman Btline? Hardly low standard.

[Btline]

Have you tried Travelling Chef or a FGW^▸ (First Great Western) Pullman Btline? Hardly low standard.

Your point is irrelevant. If First axe all those catering staff, I can hardly see them adding a Travelling Chef or Pullman dining!!

Plus the cost of the food won't be included in the ticket, so fleeced commuters will have to fork out more over the "sky" (or should I say "Virgin Media") high prices.

[Southern Stag]

But with Virgin you are paying for the cost of the food with the ticket, even if you don't want it. On FGW^▸ (First Great Western) you only have to pay for food if you want it, and you'll get a much better quality product. And if, like the majority of commuters, you are travelling in Standard Class, on FGW you have a decent freshly cooked hot food option. On Virgin you'll only ever get a microwaved cheeseburger.

[JayMac]

Your point is irrelevant. If First axe all those catering staff, I can hardly see them adding a Travelling Chef or Pullman dining!!

My point was about your assertion that First's 1st Class service was low standard. What's so wrong with freshly prepared food at mealtimes offering a greater choice by being a paid for service. A choice also available to Standard Class customers, even on The Pullmans if space permits. Outside meal times there's adequate complementary refreshments (not just tea and biscuit) in First Class. A selection of hot and cold drinks, fresh fruit, biscuits, crisps and snacks, pastries, cereal bars. A fair criticism would be that maybe there could be more Travelling Chef services and Pullmans than at present. On that point though, watch this space.

Virgin's offering has steadily worsened over the life of the franchise with less choice and smaller portions. Gone are the curry nights, gone is Friday night fish and chips, gone is the Primo menu.

And it's worth remembering that it tends to be just the rail enthusiast community that gets so worked up over catering provision (myself included). Joe Public, is I think, more concerned with getting a seat for a price that he believes represents value and at a time he wants to travel. Everything else is just gravy.

Or a red wine jus on The Pullmans. 

[Andrew1939 from West Oxon]

If First wins WCML^▸ (West Coast Main Line), will they be allowed to keep Greater Western? or will it just be money that talks?

[matt473]

So it look as if First want to apply their low standards of First Class service (a cup of tea and a biscuit probably) to the WCML^▸ (West Coast Main Line)!

I hope Virgin win.

It is entirely possible that the shorter journies in terms of time may lose full service but would not greatly affect people travelling Birmingham to London who could probably go without outside of peak hours their meals. Entirely reasonable in my opinion as people are happy on Chiltern with this option so why not on WCML. Especially if it means prices may reduce or go up by less without paying for the food as well. Also worth noting that even though staff are being cut, it is possible that directly employed staff may be cut in favour of outsourcing, in other words cost savings through letting catering firms do the catering as opposed to a large internal team to do it. If it works out cheaper to pay Rail Gourmet to carry out basic services than employing staff directly it may be beneficial for the franchise, whether it is better for staff themselves is a mute point as with the dft, money talks so if service levels may stay the same levels, it is cheaper letting others do it. After all Rail Gourmet may be able to get items a lot cheaper as a result of purchasing for other services they carry out to allowing economies of scale. Cost savings does not always mean a cut in service.

[Worcester_Passenger]

Looking at the numbers in the Guardian's text, this is taken from an article in the current edition of Passenger Transport.

I have to agree with one of the conclusions of the original article : "This is a franchise bid of Alice in Wonderland proportions. This just doesn't look credible to me."

However, I'm (very) unconvinced by the conspiracy theory suggestion later on in the article - awarding the franchise "to a bidder who has put forward an offer that is simply not deliverable" so as to be able to take it back into the public sector in a few years' time.

[JayMac]

I'm fairly sure the DfT^» (Department for Transport - about) will drill down on the numbers. They won't want to get burned again as they did with NXEC^▸ (National Express East Coast). Following that East Coast debacle, isn't it the case that future franchisees have to lodge insurance bonds against potential future financial failure?

With regard to staff cuts, I've often wondered whether each Pendolino really needs up to 8 members of staff.

[John R]

So it look as if First want to apply their low standards of First Class service (a cup of tea and a biscuit probably) to the WCML^▸ (West Coast Main Line)!

I hope Virgin win.

I can't quite reconcile your comments about First Class and inclusive meals when you elsewhere sing the praises of Chiltern who don't offer First Class and charge for food in their Business Zone.

Do you give your views as a regular first class customer of either Virgin or FGW^▸ (First Great Western) (not talking about weekend first or advanced tickets here, but full fare or season, ie the passengers who bring in the revenue that justifies the existence of the premium proposition)?

As a season ticket holder on FGW, I am relatively happy with the trolley service - I certainly wouldn't want my ticket to cost more to get a meal that I may or may not want.   

[Btline]

I don't see why when you have bought a First Class ticket you should pay even more for food. I certainly would not travel 1st in FGW^▸ (First Great Western) unless there were some cheap advances.

I have travelled a lot in VT^▸ (Virgin Trains - former franchises) and EC and the complementary offer is excellent and popular (except for enthusiasts). Since EC introduced it, revenue is up (despite the promotions) with the result that the carriages are not longer empty, freeing up seats in standard.

Comparing a company that serves the Midlands, North West, North Wales and Scotland to Chiltern is just silly. Chiltern are primarily a commuter TOC^▸ (Train Operating Company) - hence their very sensible decision to axe First Class which just took up seats. First Class on commuter trains is basically the same as standard (indeed on FGW turbos it is of the standard of standard class on most stock). It is only there to ripping off wealthy commuters who will pay over the odds to have a better chance of getting a seat. Hats off to Chiltern.

[John R]

Comparing a company that serves the Midlands, North West, North Wales and Scotland to Chiltern is just silly. Chiltern are is primarily a commuter TOC^▸ (Train Operating Company)

A commuter TOC that just happens to be taking on Virgin big time on the run from England's second city into London with a view to abstracting business travellers (including first class) by offering inter city style easting, cheaper fares but paid for food.