FirstGroup win InterCity West Coast Franchise

[whole diary]

[Timmer]

It's First Group. Sky News reports

[JayMac]

Congratulations to FirstGroup. Two weeks or more since the guardian first speculated. Never really in doubt was it?

FirstGroup will take over from Virgin Trains at 0200 on 9th December 2012.

FirstGroup statement to the London Stock Exchange:

FIRSTGROUP WELCOMES AWARD OF INTERCITY WEST COAST RAIL FRANCHISE

FirstGroup, the leading transport provider in the UK^▸ (United Kingdom) and North America, is delighted to have been awarded the contract by the Department for Transport ("DfT^» (Department for Transport - about)") to operate the new InterCity West Coast rail franchise until 2026.

The new franchise will offer substantial improvements in the quality and frequency of services which will attract far greater numbers of passengers, enabling InterCity West Coast to achieve a modal share comparable to other intercity franchises in the UK. This growth will create greater long term opportunities for employees; generate solid returns for shareholders and justify the substantial Government investment of ^9 billion that this railway has received by providing better value for taxpayers.

InterCity West Coast is unique because it has a considerable amount of unused capacity that will expand further with the addition of 106 new Pendolino coaches by the start of our new franchise. This capacity exists on the key growth corridor for the UK economy, linking a number of the UK's largest andgrowing major urban areas including London, the West Midlands, Greater Manchester, Liverpool and Glasgow. We will add to that capacity through the introduction of 11 new 125mph six-car electric multiple units to operate on Birmingham-Glasgow services, which will free up the Voyager trains to deliver direct services and improve connectivity to even more destinations.

The new franchise will commence on 9 December 2012 and run for 13 years and 4 months. The route, which currently has annual revenues of around ^900m, is expected to generate an operating margin of approximately 5% over the life of the franchise, and will return a premium to the Government of ^5.5 billion at net present value over the franchise term. Over the past ten years revenues on the franchise have increased at a compound annual growth rate (CAGR) of 10.2%, despite limited incentive to increase passenger revenues as a result of revenue share/support arrangements during the last five years. For the new franchise a CAGR of 10.4% is expected, which is supported by passenger and revenue focused operating investment and backed by substantial capacity increases. Improvements to drive additional passenger growth will be supported by operating investment of ^350m in the first five years of the new franchise.

Commenting, Tim O'Toole, Chief Executive said:

"We are delighted to be selected by Government to operate this unique railway which connects communities across the country and plays a vital role in the UK's economic growth. Our winning bid is a deliverable proposition that is compelling for all who want to see a greater use of our rail networks. We will be making significant improvements including reduced journey times and introducing new direct services. We will improve marketing and deliver a smart ticketing system, refreshed and improved train interiors, station upgrades and even better catering. In support of our commitment to generate increased passenger growth we will be reducing Standard Anytime fares by 15% on average.

"With a strong focus on service quality we will continue to invest in front line staff and look forward to welcoming new employees to the Group, providing them with long term opportunities from an enhanced and reinvigorated railway. Our bid also delivers value for taxpayers by returning premiums to the Government underpinned by sustainable growth in passenger numbers and revenues from the utilisation of significant available capacity. The new franchise will provide an economic return for our shareholders and is value enhancing from day one.

"As the UK's largest rail operator with a highly experienced management team, we have established a vast wealth of knowledge with unrivalled expertise in operating every type of rail franchise. We have a proven track record of generating growth from investment in customer service enhancements and innovation, together with a strong focus on operational delivery and financial discipline.

"The award of Intercity West Coast marks a key milestone in renewing and developing our long-term UK Rail portfolio. We look forward to bringing an exciting mix of innovation, and customer and service improvements to InterCity West Coast and creating a better railway for all."

Key highlights of the new franchise include the following benefits for customers:

Timetable and trains

  * Transforming the on-board environment with a major refurbishment of Pendolino and Voyager interiors, with new seats throughout and improved luggage space
   
  * Introducing 11 new 125mph six-car electric trains for Birmingham - Scotland services which will create 12,000 additional seats per day. This is on top of the 28,000 new seats that will be provided by the additional 106 Pendolino carriages that are coming into service in time for the start of the new franchise. This means there will be 40,000 extra seats by 2016, compared with 2011
   
  * Improved journey time of 15 minutes for trains between London and Glasgow
   
  * Introducing new direct services from London to Blackpool, Telford, Shrewsbury and Bolton providing a new direct link to the capital for more than 500,000 people
   
  * Doubling frequency of London to Preston services and adding capacity to Chester and North Wales
   
  * Improving connectivity with more stops at Nuneaton and Milton Keynes
   
  * Reliability and punctuality improvements to increase Public Performance Measure to over 90% (from current level of 85.9%) through targeted investment and a new alliance with Network Rail
   
Fares and ticketing

  * Reducing Standard Anytime fares by 15% on average
   
  * Installation of automatic ticket gates at 21 stations, including the major terminals of London Euston, Manchester Piccadilly, Liverpool Lime Street and Glasgow Central
   
  * Investment in greater yield management capability to help grow demand with increased marketing and introducing a new customer loyalty programme
   
Enhanced customer offering and innovation

  * Smart ticketing system introduced across the network
   
  * Free upgraded high speed Wi-Fi and enhanced mobile phone coverage following train refurbishment
   
  * Enhanced catering service offered with increased at seat catering for customers
   
  * Improved information systems including new customer mobile apps
   
  * Station investment includes improving accessibility, security and passenger information
   
  * Commitment to high quality service including a greater emphasis on customer facing staff on trains and at stations
   
Additional information:

New franchise capital requirements and guarantees:

  * Minimal cash requirement - ^10m ordinary share capital in cash
   
Contingent capital:

  * ^190m subordinated revolving loan facility, supported by 3 year bank guarantees, no indexation
   
  * ^45m performance bond increasing at RPI^▸ (Revenue Protection Inspector (or Retail Price Index, depending on the context)) per annum, no requirement to be cash backed
   
  * ^5m limited liability season ticket bond increasing by RPI. Matching advance cash for season ticket travel
   
  * ^15m station repair unsecured guarantee increasing by RPI

[JayMac]

From the Department for Transport:

New operator for West Coast rail passengers

Rail passengers from London to Scotland will benefit from a package of improvements including more trains and more seats, as Rail Minister Theresa Villiers unveiled First West Coast Limited as the new operator for the ^InterCity West Coast^ franchise.

As part of the deal First West Coast Limited will introduce 11 new six-car electric trains which will enable more seats to be provided across the franchise, including greater capacity on the Birmingham to Scotland route. New services are planned from Blackpool, Telford, Shrewsbury and Bolton to London. First West Coast Limited has also committed to cut the cost of its ^Standard Anytime^ fares by an average of 15% within the first two years.

The franchise stretches from London to Glasgow, connecting many of the UK^▸ (United Kingdom)^s major cities including Manchester, Liverpool, Birmingham, Wolverhampton, Edinburgh, Lancaster and Chester. The franchise deal is worth ^5.5 billion (net present value) over the lifetime of the contract.

Rail Minister Theresa Villiers said:

^This new franchise will deliver big improvements for passengers, with more seats and plans for more services. Targets to meet on passenger satisfaction will be introduced for the first time in an InterCity rail franchise and passengers will also benefit from smart ticketing and from investment in stations. The West Coast is the first of the new longer franchises to be let by the Coalition which has helped us secure real benefits for passengers by encouraging First West Coast Limited to invest in the future of the service.^

Benefits the new franchise will offer passengers include:

-More Seats: The new 11 six-car electric trains will deliver circa 12,000 extra seats a day, from December 2016 with the cascade of existing rolling stock to bolster capacity on West Coast routes. This is in addition to the 106 extra ^Pendolino^ carriages which are currently being introduced into operation on to the franchise, which will deliver over 28,000 extra daily seats.

-More Services: Initially First West Coast Limited will operate the timetable they will inherit from the current franchise but are seeking to introduce a number of new services including a London Euston to Blackpool service from 2013 and from 2016 services from London to Telford Central, Shrewsbury and Bolton.

-Improved Services: Journey time improvements between London and Glasgow are planned, as well as additional services from London to Preston.

-Fares: First West Coast Limited is changing its Standard Anytime fares and reducing them by an average of 15% over the first two years of the franchise.

-Improved Stations: First West Coast Limited is taking over responsibility for maintenance at 17 of their stations and will spend at least ^22m on a station investment programme.

-Smart ticketing technology: First West Coast Limited will introduce ITSO based smart ticketing. This will offer speed and convenience as well as new ticket types more tailored to individual needs.

[EBrown]

Edit; BNM beat me to it by 30 seconds.

[JayMac]

Statement from Sir Richard Branson:

Following the DFT^▸ (Department for Transport)'s decision to award the West Coast Mainline franchise to FirstGroup, Sir Richard Branson, founder of Virgin Group,  said:

^The Government decision to award the West Coast Main Line Franchise to FirstGroup is extremely disappointing for Virgin, and for our staff that have worked so hard to transform this railway over the last 15 years.  We submitted a strong and deliverable bid based on improving customers^ experience, increased investment and sustained innovation. To have bid more would have involved dramatic cuts to customer quality and considerable fare rises which we were unwilling to entertain.

^We also did not want to risk letting everybody down with almost certain bankruptcy at some time during the franchise as happened to GNER^▸ (Great North Eastern Railways) and National Express who overbid on the East Coast mainline. Sadly the Government has chosen to take that risk with First Group and we only hope they will continue to drive dramatic improvements on this line for years to come without letting everybody down.

^We won the franchise in 1997 with an agenda to change radically the way people viewed and used the train. At the time the track was run-down, staff demoralised, the service riddled with delays and reliant on heavy subsidies. We set hugely challenging targets to dramatically speed up journey times with modern tilting trains, increase the frequency of the service, improve the on-board experience; as well as double passenger numbers and return the line to profit.

^We were told it was "Mission Impossible" and our plans were laughed at by critics. However 15 years later, despite continued problems with the track, we have achieved our targets. Passenger numbers have more than doubled to over 30 million, the fastest growth in the UK^▸ (United Kingdom) and world leading. We have the highest customer satisfaction of any long distance franchise operator and dominate the air/rail market between London and Manchester. It has been a remarkable achievement by an outstanding team who have successfully delivered on our promises.

^I am immensely proud of our staff for turning the West Coast line from a heavily loss-making operation into one that will return the taxpayer billions in the years to come.  Last year we paid a net premium of ^160 million to the taxpayer and have created a franchise worth more than ^6 billion which is hugely valuable to the country.

^These achievements have counted for little ^ as this is the fourth time that we have been out-bid in a rail tender. On the past three occasions, the winning operator has come nowhere close to delivering their promised plans and revenue, and has let the public and country down dramatically. In the case of the East Coast Main line, both winners ^ GNER and National Express - over promised in order to win the franchise and spectacularly ran into financial difficulties in trying to deliver their plans.  The East Coast is still in Government ownership and its service is outdated and underinvested, costing passengers and the country dearly as a result.

Insanity is doing the same thing over and over again and expecting different results. When will the Department for Transport learn?

Interestingly before Virgin took over the West Coast there were more passengers using the East Coast than the West Coast. Now there are 12 million fewer.

 ^Under our stewardship, the West Coast Mainline has been transformed from a public liability into a valuable asset for the UK, worth many billions of pounds.  The service is a British success story and one to put up against rail companies around the world. It is a great shame that such a strong track record has been discounted in the evaluation process for one of the UK^s most important infrastructure assets. The country's passengers, taxpayers and the West Coast employees deserve better.

^Based on the current flawed system, it is extremely unlikely that we would bid again for a franchise.  The process is too costly and uncertain, with our latest bid costing ^14 million. We have made realistic offers for the East Coast twice before which were rejected by the Department for Transport for completely unrealistic ones and therefore will have to think hard before embarking on another bid.
^Our amazing staff have been the driving force behind the West Coast Main Line^s transformation and I am sure that for the last months of the contract they will all continue to run the high quality service that has helped win us many awards and attract millions more customers to rail.^

[broadgage]

Congratulations to First.

Although they have their faults, in my view they are better than Virgin.

Despite the generous number of staff on Virgin services, I have often been dissapointed by the on train service.
"its not my job" "youve had a complimentary drink, you cant have another until after XX"
And worst all, regularly being told where "you have got to sit" ! surely with a first open ticket I should be able to sit where I please ? (subject of course to the seat not being occupied  or booked by someone else)

My main concerns with the new First franchise is what downgrades to passenger comfort are planned.
They have shown the way with the improved HSTs^▸ (High Speed Train) "thousands of extra seats"

IF  First group retain the Great western franchise, then presumably rolling stock used on both franchises can be loaned/transfered between Western and West coast as needed. Does not increase the total pool of course, but might give a little valuable extra flexibility.

[Tim]

Well done First.  And good luck, and remember you will not be thanked if management's attention, rolling stock or your best staff are transfered away from the Great Western. 

And what a whinger SRB^▸ (Short Rest Break) is.  Reminds me of his moaning about BMI being taken over by BA^» (British Airways - about).  In both cases he put up a less competative bid and moaned when he lost.

[eightf48544]

Tim O'Toole, whom I've met, sounded very plausable on the Today programme this am.

Improved catering! Extra 6 car trains for under the wires Birmingham Glasgow. Plus he maintains there is still capacity on the WCML^▸ (West Coast Main Line) up to 2026. Also they will reduce anytime fares by a substantial amount ( can't remember exact percentage but quite large). Have to listen to BBC^» (British Broadcasting Corporation - home page) I player.

[mjones]

An average of 15%. Here's First Group's press release:
http://www.firstgroup.com/corporate/our_company/intercity_west_coast.php

New electric trains to displace Voyagers under wires seems very sensible and should have been done whoever won.  Any indication yet what they will be? Presumably the Voyagers be transfered to North Wales, Shrewsbury and other routes off the wires? Also interested to see "Improving connectivity with more stops at Nuneaton and Milton Keynes", loss of which was a major criticism of the current service, but I thought that was driven by capacity and the need to speed up longer distance services, so how will this be achieved?

[eightf48544]

With the extra platforms at Milton Keynes and I probably at Nuneaton there is always the possiblity of having a train stopped and being overtaken by the following fast. Which is something we don't tend to do in this country.

[broadgage]

Virgin tried to run the railway more like an airline.
I suspect that they minimised intermediate stops simply because most aircraft do not stop en route !
They certainly seemed to have an active policy of discouraging local commuters and shoppers from useing their trains.

[Bob_Blakey]

Very interesting contributions from both Tony Collins & Tim O'Toole on the BBC^» (British Broadcasting Corporation - home page) R4 Today programme this morning; just sour grapes from VRG or are they really convinced that this deal will destroy First Group?

Over the last few years I have been only a very occasional user of Virgin Trains, almost exclusively between Birmingham and Preston/Manchester but with a couple of Euston trips, and in all cases the service was what I would describe as adequate. The few delays were exclusively down to Network Rail.

The removal of the Voyagers from the BHM-GLA route should be a significant plus. Does the amendment/reduction of Anytime ticket prices mean that the opportunity to use railcards on peak-time services will vanish?

I for one will follow developments with interest.   

[BerkshireBugsy]

when the news officially broke this morning the Been interviewed Bob Crowe who didn't have the most positive view on the win - in fact I think it is factual to say he didn't have anything good to say about the FG win at all.

Don't get me wrong - I have no doubt that some of what he says will happen will happen - but this reminds me of union speak from the last century.

[woody]

FirstGroup drops 6% as analysts say it overpaid for west coast mainline.Analyst says FirstGroup's revenue growth target is 'highly optimisic'

FirstGroup is the biggest faller in the FTSE 250 as many analysts agree with Sir Richard Branson that the train is likely to have overpaid for the west coast mainline franchise it has snatched from Virgin Trains.

The company's shares, which have already lost 26% of their value so far this year, dropped by almost 6% to 243.9p on Wednesday morning.

Sorry to be a party pooper but trouble ahead I think.

http://www.guardian.co.uk/business/marketforceslive/2012/aug/15/firstgroup-shares-overpaid-west-coast-mainline

[autotank]

But they have seen very strong growth over the last month - even after todays fall they are still up 20% since this time last month. Remember the market if very fickle!

I personally welcome this decision and think First will do a good job - remember Virgin have been running West Coast on a 2% management fee since 2002 which I think has allowed costs rise unacceptably.