Virgin Rail still bidding for greater stake in West Coast Mainline

TALKS between the Department for Transport and Virgin Rail Group which could potentially see the rail operator take a greater financial stake in the West Coast Mainline franchise are continuing, VRG’s minority shareholder has said.

Stagecoach, which owns a 49% stake in VRG, said the group continued to earn a fee equivalent to 1% of revenue from the WCML franchise with the DfT taking the risk that revenue and/or costs differ from those expected.  

“VRG and the DfT are discussing revised commercial terms that could see VRG take greater revenue and cost risk for the period from a date to be agreed through to April 2017 for a commensurate financial return,” said Stagecoach in a trading update.

It is now more than a year since VRG said have handed over operation of the route to another franchisee. However, the tender process used to award the contract for the service was found to be flawed and in an embarrassing move, the DfT was forced to ask VRG to continue operating the service until new arrangements could be introduced.

It is easy to see why VRG is keen for the situation to be resolved. Its revenue growth in the 40 weeks to February 2 was 5.7% – the best performance by any of Stagecoach’s operations, be they bus or rail.

In addition, the DfT has confirmed that Stagecoach, together with its partner, VRG have been shortlisted to bid for the InterCity East Coast rail franchise.  

Stagecoach said work on the bid was progressing and it had revised its expectation of UK Rail operating profit for the year to April 30, 2014 to allow for up to £5m of current year bid costs in respect of that franchise.
 
It also continues to discuss with the DfT the planned extensions to its South West Trains and East Midlands Trains franchises and it said it was making good progress with Network Rail in agreeing the terms for continuing the South West Trains-Network Rail Alliance. It is also in the running for the Docklands Light Railway and Thameslink franchises.  

In outlook, Stagecoach said current trading was satisfactory and given the broad geographical balance of the group, its prospects remain positive.