Sir Richard Branson lost control of Britain's flagship rail route yesterday as the rail minister Theresa Villiers appointed FirstGroup as the new operator of the West Coast Mainline.
The firm will take over from Virgin at the annual timetable changeover in December. The franchise runs for at least 13 years.
Ms Villiers promised "big improvements" for passengers. Within three years new rolling stock will boost capacity, and the network will be extended beyond its core routes joining London to Birmingham, Liverpool and Manchester. Trains from Blackpool will run from next year.
But Sir Richard reacted furiously. He described the DfT's decision to award the first long-term franchise to FirstGroup as "insanity", and threatened to quit the rail industry.
Virgin, which is part-owned by the Stagecoach Group, has run the service since 1997. It faced competition from three transport giants for the new franchise: SNCF of France, Dutch Railways and FirstGroup. The foreign contenders were ruled out earlier, leaving Virgin and First battling over how much they would return to the Treasury during the course of the franchise.
FirstGroup bid £5.5bn, more than doubling Virgin's existing payments. It represents an average payment of more than £1m a day, or £13 per second, between now and 2026.
Yet the new operator has pledged to reduce the most expensive "walk-up" fares for standard class by 15 per cent within two years, cutting £22 from the £148 London-Manchester fare and trimming the Birmingham-Edinburgh price from £116 to £99.
FirstGroup's chief executive Tim O'Toole said the ambitious targets for passenger numbers and revenue were realistic: "We have created growth at these levels." The company believes it can earn more from available seats on off-peak trains than Virgin currently achieves.
Mrs Villiers said: "We believe that the bid is deliverable and robust." It is thought that if FirstGroup were to walk away from the deal at any stage, it would also lose its existing franchises, which include ScotRail and First Capital Connect commuter services in London.
Sir Richard described the Coalition's decision as "extremely disappointing". He said: "To have bid more would have involved dramatic cuts to customer quality and considerable fare rises, which we were unwilling to entertain".
Since Virgin Trains won the West Coast franchise, passenger numbers on the line have overtaken those on the East Coast – more than doubling to 30 million annually.
Justin Hodnett, 34, from Preston: "When Virgin took over the line the journey times could be as long as four hours – now you can get from Preston to Euston in about 2 hours and 15 minutes. Some rail operators promise the world, but Richard Branson delivered."
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