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First Trenitalia awarded West Coast Partnership

14 Aug 2019

UK: The consortium of FirstGroup (70%) and Trenitalia (30%) has been selected for the West Coast Partnership franchise to operate intercity services on the West Coast Main Line and the first phase of High Speed 2, the Department for Transport announced on August 14.

Final award is subject to the regulatory standstill period. First Trenitalia would replace the Virgin Rail Group pairing of Virgin and Stagecoach as operator of the InterCity West Coast franchise from December 8, and would also act as ‘shadow operator’ during the development of HS2.

Two phases

The partnership agreement has been structured with two distinct phases. Until March 2026, First Trenitalia will operate existing ICWC services while providing ‘range of design, development and mobilisation services’ for HS2.

In the second phase, First Trenitalia would operate HS2 and the reshaped ICWC services ‘as an integrated operation’ under a management contract running from March 2026 until March 2031. According to DfT, ‘the government will shortly launch a review into HS2 and the Partnership has been designed to ensure that it can implement the review’s outcomes.’

The consortium has committed to operating an additional 263 train services per week from December 2022, increasing total seat-km by approximately 10%. It plans to introduce a second hourly service each way between London and Liverpool ‘subject to approval from the Office of Rail & Road’, and add new destinations including Llandudno, Gobowen and Walsall.

Rolling stock

A new fleet of 13 electro-diesel and 10 electric trainsets will be introduced from 2022. These would replace the Bombardier-built Class 221 Super Voyager tilting DEMUs used by Virgin Trains, which will get an intermediate ‘refresh’ by the end of 2020. The new bimode units would be used on services between London and North Wales, while the electric sets would provide capacity for the additional services to Liverpool. Eliminating diesel operation on the electrified sections of the route is expected to reduce CO2 emissions by 61%.

First Trenitalia will invest £117m to refurbish the current fleet of 56 Alstom Class 390 Pendolino trainsets, providing ‘more comfortable’ standard class seats and additional luggage space, along with improved passenger information systems and enhanced toilets. More than £70m has been committed to providing free on train wi-fi and 5G capability.

Forecast Revenue Mechanism

In a bid to avoid the financial problems which have affected several other franchises, DfT is to introduce a Forecast Revenue Mechanism, which will be supported by an annual review ‘to ensure partnership working is effective, collaborative and continually improving’.

During the first phase, First Trenitalia will make premium payments with a net present value of £1·6bn. First Trenitalia will directly fund £11m of residual value assets, and deductions from the premium will fund investment of £252m by the operator. A further £453m for the new and refurbished trains will be funded by the rolling stock leasing companies.

These investments, together with additional routes and other timetable changes, are expected to drive a compound annual growth rate in passenger-km of approximately 1·2%. Passenger revenues, which were £1·2bn in 2018-19, are expected to increase at ‘a mid-single digit CAGR’, which FirstGroup points out is ‘lower than the historic growth rate for the franchise over the last 10 years’.

Performance

First Trenitalia will work closely with Network Rail through an alliance agreement to deliver the December 2022 timetable, including investment of £32m on ‘developing and delivering infrastructure capacity and capability improvements’. The partners will also work more closely on timetable development, ‘exploring opportunities’ to improve services for intermediate towns such as Nuneaton.

First Trenitalia has committed £20m to improve performance, and will work with NR to develop joint plans to reduce major and minor incidents, including contingency plans to improve service recovery. There will also be investment in additional on-train and trackside infrastructure monitoring equipment.

Responses

Speaking to Railway Gazette, the Managing Director of First Group’s Rail Division Steve Montgomery said ‘we’re delighted to have been successful, along with our partner Trenitalia. We believe that the franchise that we are going to inherit is a well-run business, but we think we can enhance it. We see the importance of bringing in more eco-friendly trains’.

Montgomery explained that ‘the Forecast Revenue Mechanism means that if revenue is not performing in the way it should then there’s some protection and if it over-performs then there’s some form of reward back to the government. It’s not “cap & collar”, but it’s that type of idea that we’ve been used to in previous franchises. There is GDP protection as well, and this is why we feel the risk and reward of this franchise is better balanced.

‘If we had these mechanisms at TransPennine Express and SWR we would not have had to make an onerous provision. We’ve made it public that the balance of risk and reward has to be correct and we believe this franchise gives us that opportunity. We also re-set the contract again in 2026 and should HS2 be running late the government has the opportunity to extend the period and re-base revenue and limited costs at that point.’

‘We have more than 20 years of expertise in the high speed sector in Italy, which has significantly improved connectivity for Italians’, said FS Group Chief Executive Gianfranco Battisti. ‘Trenitalia is operating in the only competitive and open market for high speed services in the world. After only three years in the UK, we are strengthening our presence through the management of one of the country’s most important railway operating companies, alongside our partners at FirstGroup.’

Losing bidder MTR Corp, which had teamed up with RENFE and China’s Guangshen Railway, said it was ‘very disappointed that our joint venture bid for the West Coast Partnership franchise has been unsuccessful’. The Virgin-Stagecoach-SNCF bid had already been disqualified in a row over future pension payment risks.

Virgin Group CEO Sir Richard Branson said he was ‘devastated’ for the ‘members of our Virgin family who have worked tirelessly to become the top-rated franchise by customers in the UK today. We have led the industry now for more than two decades, nearly tripling the number of passenger journeys from 14m in 1997 to more than 40m. Our people have shown the rest of the industry how it should be done for more than 20 years and we wanted this to continue for many more years.’