Virgin Trains East Coast franchise to end 24 June 2018 and is temporarily re-nationalised

[mpthomson]

They didn't renegotiate it though they terminated it early

Almost certainly after a lot of failed negotiation. Early termination also requires a lot of discussion. They haven't just decided they aren't doing it any more on a whim, and it sounds from the announcements that the discussions regarding this and their intention to withdraw had been going on for quite some time.

 

[Emblematic]

GNER may have worked well up to 2005, but they seriously overbid for the next franchise period, and the rest of the story is all-too-familiar. Perhaps a re-introduction of some of the risk-reward sharing mechanisms is needed, as it stands the franchise system looks perilously unstable.

 

[Bletchleyite]

I'd definitely agree that having DOR being allowed to make bids is a good idea. Proof in the pudding etc.

It seems to work in Germany, where DB can bid for local services just as private companies can - and you get a mix of both.

 

[LNW-GW Joint]

So far the only company to complete a full franchise term successfully is GNER from 1996 until 2005, back then GNER was very popular and ran the services quite well. Maybe its time that HM Government looks at what worked then for a future franchise.

The first round of franchises was noticeably more generous, and flexible, than later rounds.
Each round tightened the terms and greatly increased the premiums required.
The DfT needs the premiums for investment in subsidised franchises.
Taking less from LNER means less in the kitty for Northern and other costly franchises, and for NR's direct grant.

 

[Joe Paxton]

Interesting DfT document:
Short-term Intercity East Coast train operator - 2018 options report

 

[Tetchytyke]

GNER may have worked well up to 2005, but they seriously overbid for the next franchise period, and the rest of the story is all-too-familiar.

Although they did, that isn't why GNER disappeared. They disappeared because Sea Containers filed for Chapter 11 bankruptcy in the US and, as a result, the performance bonds were null and void.

aking less from LNER means less in the kitty for Northern and other costly franchises, and for NR's direct grant.

There is no reason why LNER cannot rapidly get back to the profitability of DOR, where upwards of £200m was being paid into HM Treasury every year.

The ECML is extremely profitable, do not forget that. The issue is that Stagecoach bought into the hubris of "public sector inefficient, private sector efficient" and assumed that DOR's financial performance could easily be uplifted. My view is, and remains, that DOR were pretty much milking everything they could from the ECML.

 

[Tetchytyke]

Are people just desperate to believe nationalisation is so good they've exaggerated everything in their minds?

No, I don't think so. I think they remember EastCoast and remember that they were cheaper and provided a better level of service than now provided by Virgin/Stagecoach.

Those with longer memories remember just how thoroughly National Express had trashed the franchise, and remember that DOR fixed the mess and then introduced the core timetable that we now have.

 

[cactustwirly]

Although they did, that isn't why GNER disappeared. They disappeared because Sea Containers filed for Chapter 11 bankruptcy in the US and, as a result, the performance bonds were null and void.



There is no reason why LNER cannot rapidly get back to the profitability of DOR, where upwards of £200m was being paid into HM Treasury every year.

The ECML is extremely profitable, do not forget that. The issue is that Stagecoach bought into the hubris of "public sector inefficient, private sector efficient" and assumed that DOR's financial performance could easily be uplifted. My view is, and remains, that DOR were pretty much milking everything they could from the ECML.

But DOR & now LNER, don't have the same motivation to make money as a franchisee has.
As there is no franchise agreement or agreed premium payments.
So I'm not convinced DOR were milking it.
Remember VTEC made more money than DOR, but it wasn't quite enough to meet the very optimistic premium payments.

 

[Emblematic]

Although they did, that isn't why GNER disappeared. They disappeared because Sea Containers filed for Chapter 11 bankruptcy in the US and, as a result, the performance bonds were null and void.

The failure of the parent was the trigger of the franchise termination, but the premium payments, higher than anticipated costs and lower than predicted revenue were a large part of Sea Containers financial woes. They didn't blame their other operations for their downfall.

There is no reason why LNER cannot rapidly get back to the profitability of DOR, where upwards of £200m was being paid into HM Treasury every year.

The ECML is extremely profitable, do not forget that. The issue is that Stagecoach bought into the hubris of "public sector inefficient, private sector efficient" and assumed that DOR's financial performance could easily be uplifted. My view is, and remains, that DOR were pretty much milking everything they could from the ECML.

That's probably about right - however companies repeatedly bid a premium profile way in excess of these amounts, and fail as a result. If DOR had been allowed to bid for the franchise, it would be interesting to see what they would have bid, and what financial situation they would now be in. Fundamentally, the ECML is profitable, but there is lots of competition on the route and the revenues don't seem to be dependable.

 

[ModernRailways]

Could someone please explain why there is a general impression (especially among twitter users) that people seem to think that they'll wake up on the 24th June and the ECML will suddenly be a golden unicorn handing out smiles and hugs to everyone?

It's the same front-line staff, same drivers, same managers (to the most extent) same rolling stock with the same defects and on-board issues, same caterers, broadly same timetable, same Network Rail infrastructure, same ticket prices. Surely any benefits are months in the making?

Are people just desperate to believe nationalisation is so good they've exaggerated everything in their minds?

I've seen twitter comments "my train is delayed again! nationalise" ..."she was rude to me, glad you're going" ... :/

There was a similar situation up here when the Metro went back into public operation last year, a lot of passengers were of the view that the service would get better, and that it would be a fantastic thing. They've since realised that it wasn't the operator that was causing the issues and it's more down to the age of stock etc. In fact there's a few are even calling for DB to come back (most staff would too).

The ECML though did perform well, and was possibly the top route in the country when it was in public hands last time. For all it had it's issues, fares were cheaper, the rewards program was good, and for the most part it was a railway that just worked. VTEC have the opposite.

 

[ModernRailways]

That's probably about right - however companies repeatedly bid a premium profile way in excess of these amounts, and fail as a result. If DOR had been allowed to bid for the franchise, it would be interesting to see what they would have bid, and what financial situation they would now be in. Fundamentally, the ECML is profitable, but there is lots of competition on the route and the revenues don't seem to be dependable.

Maybe that should happen, a brief (not too costly) public bid. That way you can get a better idea of whether other companies are severly overbidding?

 

[SamYeager]

It seems to work in Germany, where DB can bid for local services just as private companies can - and you get a mix of both.

That would be the DB that appears to promptly sue if they lose the contest or at least that's the impression I've gained from Modern Railways? Mind you this concept of resorting to the courts when you've lost the contest seems familiar? Apart from anything else DB contesting bids is more akin to BR contesting franchises rather than DOR.

 

[hexagon789]

Does anyone know whether the plan for retaining some short-form IC225 sets will be kept, as I believe this was simply an idea of VTEC's and isn't actually required post-IET introduction?

 

[StephenHunter]

That would be the DB that appears to promptly sue if they lose the contest or at least that's the impression I've gained from Modern Railways? Mind you this concept of resorting to the courts when you've lost the contest seems familiar? Apart from anything else DB contesting bids is more akin to BR contesting franchises rather than DOR.

Or the one that's having increasing problems with delays, eliminated its sleeper trains after running down the service and decided it was a good idea to name an ICE4 after Anne Frank?

 

[Tetchytyke]

There was a similar situation up here when the Metro went back into public operation last year, a lot of passengers were of the view that the service would get better, and that it would be a fantastic thing. They've since realised that it wasn't the operator that was causing the issues and it's more down to the age of stock etc.

The issues with Metro was the division of responsibility, it was all too easy to Nexus to hide behind DB Regio and for DB Regio to hide behind Nexus.

And whilst Nexus are complete morons, at least they're now accountable morons.

But DOR & now LNER, don't have the same motivation to make money as a franchisee has.

Do they not? Really? Really really?

I'd love to see how you've come to that conclusion. Especially as DOR made stacks of money, and managed to make stacks of money without rinsing regular business passengers to such an extent that they were all driven to BA.

 

[HH]

I'm sure it's already been said, but the problem wasn't so much that VTEC didn't make money, it was that they didn't make enough to pay the enormous premiums they promised DfT.

It also has to be noted that current rail revenue growth is not what it was at the time of DoR and that DoR weren't introducing new anything. It would not have been able to sustain payments to treasury at the same level while making the changes required by DfT.

This is not to say that VTEC are blameless. Far from it. They overbid and they have clearly not run the franchise as well as they might (the two are probably linked).

 

[hexagon789]

This is not to say that VTEC are blameless. Far from it. They overbid and they have clearly not run the franchise as well as they might (the two are probably linked).

It just seems that the InterCity East Coast franchise is always overbid for and ends up being poorly run after a short while.

We can but hope LNER improve something.

 

[F Great Eastern]

Saw this from Ian King, among other things:
https://news.sky.com/story/why-taxpayers-should-mourn-virgin-east-coast-11375117

The Rail Delivery Group, the industry body for Britain's railways that includes state-owned Network Rail, pointed out today that Virgin Trains has invested more in the two years in which it has operated the route than DOR did in its five-and-a-half years running it.

Moreover, Virgin Trains has returned 30% per year more to taxpayers during its time running the route than did DOR, making it a much better-value option for taxpayers.

By April 2017, barely two years into its running the franchise, Virgin Trains had returned some £525m to taxpayers from running the East Coast Main Line - more than half as much as DOR did in twice that length of time.

The Rail Delivery Group - a pan-industry body, remember - also points out that customer satisfaction under Virgin Trains has continued to grow, currently standing at 92%.

Those advocating renationalisation across the piece should be asking themselves whether DOR would have been able to run the service it did had it been obliged to invest as much in the route as did Virgin Trains or if it were having to return as much to taxpayers as Virgin Trains. The answer is no, it would not.

These seem to play out a very different tune to what some of the pro-nationalisation people are saying, would be interested to know where the figures are being sourced from?

 

[LNW-GW Joint]

Maybe that should happen, a brief (not too costly) public bid. That way you can get a better idea of whether other companies are severly overbidding?

Where does this public sector bid gets its performance and parent body bond money from, and capital for investment?
Which public body has a budget that will happily underwrite £200m of risk on running a rail franchise?
People talk about DOR (or now OLR) as though they were operational companies waiting in the wings.
Whereas in reality they are just branches of the DfT called up to run a franchise for a limited period, with no capability to raise significant sums.
If they don't do this like commercial bidders do, it is not a level playing field.
LNER going forward, with massive change coming up, is also a different proposition to the DOR operation which was essentially steady state.

 

[Emblematic]

It's all very well to say that VTEC returned more to the taxpayer than DOR, but it was running at a loss and so unsustainable. DORs returns were continuing profits, albeit at a lower level. And what did VTEC actually invest in? Sprucing up old trains that are due to be replaced shortly, and a website and marketing that were no improvement on what was there before. None of that investment is of any benefit for future passengers (feel free to correct me if there any worthwhile legacy I've overlooked.) They may have improved 'customer satisfaction' but anecdotal evidence from here indicates that they have lost many of there regular repeat customers, and maybe replaces these with more occasional travellers that their marketing seemed to favour. Perhaps the previously unsatisfied customers had enough and left.

 

[Emblematic]

Where does this public sector bid gets its performance and parent body bond money from, and capital for investment?
Which public body has a budget that will happily underwrite £200m of risk on running a rail franchise?
People talk about DOR (or now OLR) as though they were operational companies waiting in the wings.
Whereas in reality they are just branches of the DfT called up to run a franchise for a limited period, with no capability to raise significant sums.
If they don't do this like commercial bidders do, it is not a level playing field.
LNER going forward, with massive change coming up, is also a different proposition to the DOR operation which was essentially steady state.

All these are points fixable if there is political will. After all, most UK franchises are run or backed by national public sector transport operators. Just not our own.

 

[Tetchytyke]

These seem to play out a very different tune to what some of the pro-nationalisation people are saying, would be interested to know where the figures are being sourced from?

The usual RDG fudges, as far as I can tell. I think Virgin are still trying to claim the 800s as "their" investment when it was anything but. They also tag lots of internal changes, such as the new website that's worse than the old one, as "investment".

DOR brought in an entire timetable recast but didn't refresh much because it didn't need refreshing at the time.

Premiums were higher from Virgin, but RDG neglect to point out that this was the whole bloody reason why they've gone bust. Going bust isn't providing taxpayer value, is I?

Remember that RDG are the industry propaganda merchants. I imagine they're VERY worried that the gravy train may soon be getting derailed.

 

[Tetchytyke]

Where does this public sector bid gets its performance and parent body bond money from, and capital for investment?

The same place Network Rail get their bond money and capital investment from.

The same place that funded the IEP- the IEP Virgin desperately try to brand as theirs.

Government borrowing is the absolute cheapest form of borrowing.

Given this, what do the TOCs truly bring to the table? Biscuits?

 

[ainsworth74]

Premiums were higher from Virgin, but RDG neglect to point out that this was the whole bloody reason why they've gone bust. Going bust isn't providing taxpayer value, is I?

Plus it is perhaps worth recalling that East Coast inherited an operation that was not in a good condition (including poor staff morale) in the middle of one of the worst recessions since the Great Depression. They spent most of the first three years recovering from that position and then shortly afterwards got re-privatised! It would be very interesting to see if there was much difference in premiums returned by East Coast and VTEC from 2015 onwards considering VTEC inherited an operation with happy staff, a strong timetable and a growing economy. I'd gable that there wouldn't be much difference between them at all.

Sadly, however, that will have to remain as a thought experiment.

 

[route:oxford]

What will West coast be called if virgin lose out ?
Abellio stole the LNWR rather than retain London Midland

GCML - Glasgow, Cumbria, Midlands & London

or

SCML - Strathclyde, Cumbria, Midlands & London

 

[Rail Blues]

West Coast rail.

 

[adrock1976]

Regarding the comments about franchise operators being stripped of their remaining operations and that it could not be done as they are separate companies, I believe that may be a red herring.

During the second half of the Noughties, I remember the parent company of Southampton FC started to have financial difficulties (this was after Harry Rednapp resigned as manager) and tried to get out of the points deduction due to it being only the parent company that was in trouble. It was ruled that (after legal advice) the points deduction would apply, as the parent company and Southampton FC are one of the same (or something like that).

Perhaps any Southampton FC fans could explain it better than me?

On a side note, I would be in favour of companies who have failed with a franchise to be barred from the next bidding process of franchise renewals as mentioned yesterday.

 

[Hadders]

I don't think it's necessary to strip a failed franchise of other franchises for the following reasons:

- Stagecoach/Virgin have suffered a hefty financial penalty of around £200 million
- They have suffered significant reputational damage
- There are only a limited number of companies able/willing to bid for franchises
- Some (but not all) of the reason for failure is the fault of the Government

 

[Tetchytyke]

Plus it is perhaps worth recalling that East Coast inherited an operation that was not in a good condition (including poor staff morale) in the middle of one of the worst recessions since the Great Depression.

That as well.

DOR came in to a car wreck. NX had absoluteky trashed the franchise. They fixed the problems, addressed the issues with revenue (closing the loss-making restaurant car was very sad, but did wonders for first class revenue) and brought in a whole new timetable, including the Flying Scotsman and speedimg up journeys to the north east by a good 15 minutes.

All VTEC had to do was keep it going, using their organisational infrastructure to get the savings on overheads, and instead they trashed it again. With new trains on the way they should have been on easy street. But instead they took their business market for granted, raised too many fares and cut too many corners. BA only bother competing domestically when they smell blood, they never bothered with GNER or DOR. The fact they piled in on VTEC speaks volumes.

 

[Domh245]

All VTEC had to do was keep it going, using their organisational infrastructure to get the savings on overheads, and instead they trashed it again.

VTEC had to try and get 10% growth in passenger numbers each year, as that is what they'd signed up to to with the DfT (who let us not forget, could have turned round and said that 10% growth is stupid, don't be daft - but they didn't). Maintaining the status quo wasn't an option for VTEC, or indeed for any bidder I suspect.