Virgin Threatens to Give Up on UK Rail

Sir Richard Branson has threatened to pull his Virgin Group out of bidding for any future UK rail contracts after losing the lucrative West Coast franchise to FirstGroup, the UK’s biggest bus and train operator by revenues.

Richard Branson
Tina Fineberg
Richard Branson

The government awarded FirstGroup the franchise for just under 15 years after it bid 13 billion pounds ($20.3 billion) for the contract, putting it well ahead of Virgin Rail’s bid of 11 billion pounds ($17.2 billion).

The decision by the Department for Transport to award the contract to FirstGroup is a big blow for Virgin, which is set to hand over West Coast, its only hold on the UK rail market, at the end of this year.

The future for Virgin Rail, a joint venture between Virgin Group and Stagecoach , which has operated the route since 1997, looks increasingly uncertain with the two parties seemingly split over any response to the loss of the contract.

Sir Richard has threatened to sue the government, while Stagecoach, which has two other rail franchises and is shortlisted for two more, is understood to be frustrated but much more sanguine about losing out.

Sir Richard criticized the government’s decision to award the franchise to its rival, labeling the decision “insanity” and said the way the government assessed the bids had to change. “I think under the current system you will be seeing the end of Virgin Trains in the UK.”

He said FirstGroup had “back-end loaded” the bulk of the premium payments to government, with the biggest payouts in the last few years. He compared it to the disastrous East Coast franchise award, which saw Virgin Rail lose out to a unrealistic bid from National Express in 2007 only for the government to nationalize the operation two years later after the incumbent walked away.

Virgin Rail has 10 days to decide whether to mount a legal challenge.

Tim O’Toole, chief executive of FirstGroup, rejected Sir Richard’s accusations as sour grapes. “I think he lost the bid,” he said. He added that FirstGroup’s bid would stand the test of time and insisted it was “a growth story” that “would provide better service for customers and a better return for the government”.

FirstGroup was the winning bidder from a shortlist of four that included Virgin Rail and two foreign, state-backed groups – Keolis, a subsidiary of France’s SNCF and Abellio, part of Nederlandse Spoorwegen.

The West Coast line is the most lucrative of the UK’s intercity routes, carrying 31 million passengers a year between London and Birmingham, Liverpool, Manchester, Glasgow and Edinburgh.