27 August 2012

A Personal View

The loss of the Intecity West Coast (ICWC) franchise by Virgin Trains to FirstGroup has seen not only a storm of media attention, created mainly by Sir Richard Branson and his team, but also a number of seasoned journalists and analysts unusually airing their personal opinions. Three such occasions happened in the latest edition of Passenger Transport.

First was analyst Chris Cheek of the TAS Partnership, whose analysis of a number of public transport balance sheets per edition makes for a fascinating read - and PT's unique selling point, in my opinion. Cheek broke cover to admit to never being a fan of Sir Richard's "unique blend of cheap populism and egotism" and admitting that he feels the Class 220/1 and 390 trains "foisted on the public" were "the worst on the system". He feels that Virgin Trains's threat that their removal from the rail industry would  reduce competition from the industry is untrue as Stagecoach (who has a 49% stake in VT) would now bid for franchises that VT would otherwise have gone for "and do a rather better job on their own".

Second is 'Railway Doctor' George Muir. A slightly more illustrated column in this edition than usual, and focused on the Department for Transport's decision to simply accept FirstGroup's projected figures as accurate. FirstGroup's claim of "a percentage here and a percentage there and, hey presto, you have 10.4% per annum revenue growth for 13 years" equates to "in the year 2025/26, revenue growth of £2,982m out of which is to be premium payments to the government £1,696m" or "ONE POINT SEVEN BILLION POUNDS." Muir claims that taking into account FirstGroup's planned £149m profit, the Intercity West Coast franchise is to have a 62% profit margin.

His contempt for those within the DfT is not held back: "the civil servants in the DfT may be batty, bicycle-riding, Blackheath-living intellectuals, but they live on this planet not the land of Zog and they cannot possibly believe they will get £1bn in today's money, for four years on the trot from FirstGroup". Muir puts the blame firmly with Transport Minister Theresa Villiers, who had the idea for longer, less prescriptive franchises while in opposition. Now in power, her department chose not to spell out the problems with applying this while-in-opposition policy rigidly and wholesale to all franchises. He feels that far from a 13-year franchise, what the DfT have actually produced is an "as long as you like til it starts hurting" franchise. And First have form here with their Great Western franchise - choosing to renegotiate (immediately before the economic downturn) and then not accepting their franchise extension.

Third was one of the PT editorial team who writes the Great Minster Grumbles column. Perhaps, keeping in the character of someone from the DfT supposedly writing this column, they were playing devil's advocate, though I suspect not. Their Westminster insider imagines the mandarins at Great Minster House saying things like "I do find this decision regrettable", "the railway industry needs companies like Virgin with its utter focus on customer service and the rest", "it seems a pretty perverse approach to rail franchising that good performance gets 'rewarded' by losing the franchise!"

I've heard mention on a number of occasions over the past few years how Virgin Trains has managed to outsmart the DfT on commercial negotiations and PT's mandarin hopes that the recent decision wasn't "a case of revenge being a dish best served cold".

Chris Cheek has a background mainly in the bus industry, while George Muir was the top man at ATOC for almost a decade so two people with different passenger transport background have different opinions. Cheek's comments came in a piece in which he was analysing passenger growth on British rail franchises during the past financial year, so was unable to cover the ground that Muir did.

I found RAIL offered a more pragmatic view on VT's tenure, with managing editor Nigel Harris choosing his lengthy editorial to remind us of a number of aspects of the company's West Coast franchise that weren't so glitzy, echoed in much more depth by columnist Christian Wolmar in his regular column.

Regardless of whether the journo clearly sides with VT or not, I've yet to read the thoughts of one who isn't deeply suspicious of at least one element of the way in which the franchise awarding was handled. My personal opinion (since we're on the subject) is that these big contracts can suddenly be awarded to another operator. In the bus industry recently, Stagecoach Grimsby-Cleethorpes has lost two very long-term school contracts as its parent operator, East Midlands, does not get involved in tenders that are put out to e-auction by the local authority on a point of principle. More on this in the next LEYTR. The consequence is that one public bus service has been slashed and members of the public are about to lose out on a point of principle - not theirs, but Stagecoach's.

Long-standing franchises/contracts in all transport industries are lost and won by someone else all the time. I wasn't surprised to hear Virgin Trains had been pipped to the post by someone else but more concerned that the DfT had chosen to award ICWC to FirstGroup as it represents the most money it could get, regardless of the fact the chance it may have to renationalise the route has gone up significantly, too. On the one hand the DfT is trying to appease people opposed to High Speed 2 by saying it's not all about the many billions it will splash out paying for the new line to be built, but all the less prescriptive benefits that come with improved connectivity YET chooses to ignore similar elements within the ICWC franchise (such as the cuts planned by FirstGroup and the cost to the public purse of renationalising the route if it all goes 'pop') and goes for the best price regardless.

1 comment:

Anonymous said...

Interesting final sentence - what exactly sre the "cuts planned by FirstGroup" of which you write?

Also hard to make comparisons on value for money since, while there has been an outline of the service proposed by FirstGroup (additional trains and services, no staff cuts, shop retained and at-seat service enhanced) Virgin appear - at least in public - to have been reticent about revealing their 'cunning plans' for the future of West Coast.