ON FEBRUARY 19, Virgin Rail was awarded a 15 year franchise to operate InterCity services on Britain’s West Coast Main Line between London, Birmingham, Liverpool, Manchester and Glasgow. Handover of the operation took place at 02.00 on March 9. Announcing the details of the award, Franchising Director John O’Brien hailed the package as a ’fabulous deal for the taxpayer’ which could see trains covering the 646 km from London to Glasgow in under 4h within 10 years.
Virgin Rail will pay the Office of Passenger Rail Franchising £1237m in premiums for the right to run the franchise, converting the £92m subsidy paid to BR in 1996-97 into a £220m premium in 2011-12 - by comparison, ICWC took just £219m in ticket revenue during in 1995-96. Virgin will continue to receive subsidies averaging £61m a year until upgrading work is completed in 2002, after which the money flow swings to a £52·7m premium almost overnight. Over the entire franchise, the average premium is £62m.
Virgin is also committed to investing ’hundreds of millions of pounds’ into the franchise, on top of £1·5bn which Railtrack is to spend on upgrading the track, signalling and power supplies.
Virgin Group Chairman Richard Branson said he was ’very excited to fulfil a dream, with Eurostar (UK), CrossCountry and now West Coast. Over the next 15 years we will be working to create a rail network that Britain can be proud of, and the envy of Europe.’ He recognised the scale of work needed to revitalise ICWC, but ’we wouldn’t want to take on the challenge if we didn’t think it would enhance the Virgin name.’
The West Coast Main Line accounts for 12% of the Railtrack network. Following the completion of electrification in 1974, the route attracted substantial business from road and air, earning 50% more revenue than the ’rival’ East Coast route from London to Edinburgh.
However, a planned fleet re-equipment in the early 1980s was scuppered by the abandonment of the Advanced Passenger Train, and subsequent attempts also foundered due to recession and the run-up to privatisation. As a result ICWC saw what Virgin Rail director Will Whitehorne described as ’15 years of slow and sad decline’, to the point where barely 76% of trains arrive within 10min of the advertised time, and failures and cancellations are rife.
The Franchising Director acknowledged there were problems: ’I know how important this route is, and how much investment it needs ... it is the real litmus test of the franchising process.’ Back in 1994 we also identified West Coast modernisation as one of the biggest challenges to Britain’s rail privatisation process (RG 4.94 p217).
Last October OPRAF and Railtrack reached agreement to spend an extra £150m on upgrading in addition to the £1·35bn ’core investment plan’ for infrastructure refurbishment, paving the way for the possible operation of 200 km/h tilting trains from 2002. O’Brien said he was ’delighted that this upgrading approach has been vindicated’, noting that Virgin Rail has already started negotiating a supplementary upgrading package with Railtrack to lift maximum speeds to 225 km/h by 2006.
Virgin Rail is committed to ordering a fleet of 40 tilting trains capable of 225 km/h, which will enter service at 200 km/h in 2002. With a similar number of diesel trainsets pledged for the CrossCountry franchise it took over on January 5, the company will be spending £800m on new rolling stock. Director Brian Barratt said Virgin Rail would be looking to negotiate ’bulk purchase’ deals for the two fleets, having ’identified a lot of commonality’ between the requirements.
Branson said he hoped work would start next year, and that ’by 2003 almost all Virgin trains will be brand new’. With a snipe at East Coast franchisee Great North Eastern Railway, he noted that ’we are buying 80 new trains against their two!’. Unified fleet management will have other benefits; refurbished 200 km/h diesel HSTs replaced by new CrossCountry stock will be available to cover West Coast duties during the infrastructure upgrading, and perhaps for through services onto non-electrified routes.
Journey times are forecast to fall dramatically as the new trains come on stream and Railtrack completes the infrastructure works (Table I). This makes Virgin highly dependent on Railtrack delivering to schedule, but Branson says the companies will ’work very closely together ... we are looking to work in partnership with Railtrack to build a new network, which is not the way it has happened over the past two or three years.’ But he warned ’we will be sitting on top of them if they get it wrong.’
Railtrack Commercial Director Michael Howells was quick to ’endorse all the promises made by Virgin ... we are fully confident that the work will go forward as planned.’ He later confirmed that the start of upgrading is not dependent on having the innovative transmission-based signalling ready, although ’we will be looking to the maintenance cost savings from TBS to provide the return further down the road.’ TBS will be compulsory for the planned step up to 225 km/h operation in 2006, but Howells says ’following discussions with our suppliers, there is a high level of confidence that TBS will deliver.’
The ambitious programme was also endorsed by the West Coast 250 group which has been campaigning for substantial improvements to the corridor. Carlisle MP Eric Martlew, who jointly chairs the all-party parliamentary West Coast Main Line Group said the campaigners looked forward to working with Virgin and Railtrack ’to ensure that the promised investment is achieved’.
Investing in quality
Virgin is to invest another £200m on ’non-rolling stock’ projects including substantial station improvements, although no details were released beyond an initial £2m for passenger information systems. Whitehorne noted that ’lack of information is the biggest single source of customer complaints’ at present.
He felt that ’sales to the public is an area where rail has not kept up with its market competitors such as the airlines.’ CrossCountry was opening a new telephone ticket sales office in March, with 100 staff initially and later up to 250. This will be expanded to cover West Coast tickets from October, and Virgin ’will offer the facility to other franchisees as well.’
Virgin Rail has negotiated backing from four investment groups for its spending programme, although a public share offering has not been ruled out. Asked how Virgin will be able to generate enough income to fund the investment and the huge premia payments, O’Brien said that extra revenue would come from higher patronage and increased services; the deal was ’not about taking costs out of the business.’ Branson emphasised that there were ’many areas where using our expertise will make West Coast more efficient and earn more’, highlighting recent changes designed to bring CrossCountry train catering back into profit.
Substantial growth in patronage will be needed to generate enough revenue to fund the agreed premia, but Whitehorne is confident that the target is achievable. ’There is a huge market out there if we can tap it; rail currently has around 5% market share in the M6 corridor, with air at 3%, coaches 2% and private cars no less than 90%. A step change in the attractiveness of this line after 2002 means we can take market share and grow the business. We are not talking rocket science; the numbers are easily attainable.’
Virgin Rail is committed to increasing the present service levels on most West Coast corridors, with a 15min interval service to Birmingham to be launched ’early in the next century’. Branson felt there were a lot of opportunities for ’point to point services as well as the existing stopping trains’, in effect overlaying a ground-level airline onto the classic railway operating patterns.
Whitehorne sees considerable scope for winning business from short-haul domestic air services as pressure on runway slots increases at the busiest airports; ’CrossCountry and West Coast together are ideally placed to offer the first integrated rail/air network in the United Kingdom’. With a few minor infrastructure works, ’we could be running direct services from Manchester Airport to London Heathrow in 2h by 2001.’
Virgin Rail has agreed to look at the scope for launching new services off the present electrified network, notably restoring through inter-city services to Shrewsbury and Blackpool, which lost them in the early 1990s. It will also look at electrification of the ’missing link’ between Manchester and Preston, used by CrossCountry, and on the branches from Crewe to Chester and Preston to Blackpool.
Innovation is also expected in fare structures; Barratt felt that ’the classic first and standard classes are no longer appropriate to today’s market’. He plans to offer four levels of service on most Virgin trains. At the upper end the ’first class’ coaches with 2+1 seating will offer Business Class for those wanting to work on the train and ’Premium Class’ for passengers who just want to be pampered and enjoy the journey. The 2+2 standard class coaches will provide a Luxury Economy with tables for family groups or seat-back videos, whilst high-density face-to-back airline seating will meet the demand for very cheap leisure fares.
Asked about the £19 London - Scotland single fare offered by GNER to compete with budget airlines, Branson was quick to emphasise the trade-off between quality and price. ’There is a balancing act between making quality better and having the most competitive fares; our aim is to run a high-quality operation, but Virgin is not famous for being outpriced. We will be in there fighting.’
Wait and see
Despite his ambitious aspirations, Branson was keen to emphasise that Virgin had a long haul ahead. ’Passengers must not expect too much too quickly ... they are not going to walk onto a train tomorrow and find everything is different. New trains are 4 1??2 years away, and Railtrack has to spend a fortune on the track.’
Even so, Virgin can be expected to start making much-needed improvements as soon as it takes over the franchise. Brian Barratt said punctuality on CrossCountry improved by 5% within the first month as a result of better communication between the train operating company’s staff on the ground and those of Railtrack. Virgin has pledged to lift West Coast’s dismal performance record and get the on-time punctuality of ’most’ services to 90% within a year.
Refurbishment of the existing rolling stock is already getting under way, and the first train was available for service on March 10. Some London - Birmingham and London - Manchester services will be speeded up by 5min from the May 1998 timetable change. Fixed-price taxi links will be introduced to feed in and out of major stations, and a dedicated coach link from Watford Junction to Heathrow airport will be reinstated. o
TABLE: Table I. ICWC journey time cuts
1997 2002 2006
London - Birmingham 1h 40min 1h 20min n/a
London - Manchester 2h 30min 2h ’Under 2h’
London - Liverpool 2h 45min 2h 15min n/a
London - Glasgow 5h to 4h to ’Under 4h’
5h 30min 4h 20min
CAPTION: West Coast is Britain’s busiest inter-city route, earning on its own 10% of all passenger revenue. Virgin also has the CrossCountry franchise, making it the biggest private operator of inter-city services