Bus company wins first rail franchise

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Rail passengers face sharp cuts in train services following the successful bid for Britain's largest railway franchise by a bus company famous for its aggressive business tactics.

The Independent has learnt that Roger Salmon, the franchise director, has decided to award the franchise to run South West Trains to Stagecoach, Britain's largest bus company, because its bid for the line required the least annual subsidy. Stagecoach was built up over 15 years by the brother and sister team of the former bus drivers Ann Gloag and Brian Souter. They started with two second-hand coaches, running a Dundee-to-London service financed with pounds 25,000 they had saved while bus drivers. Mrs Gloag, brought up in a council house in Perth, recently attracted widespread attention by buying Beaufort Castle, the former home of Lord Lovat.

Mr Salmon will announce next Tuesday that the bus company has beaten the joint bid from the management buy-out team and Compagnie Generale des Eaux for the prestigious franchise which involves running the commuter and regional network out of Waterloo. The winning bid was based on providing only the number of trains set out in Mr Salmon's minimum specification - implying a cut of 8 per cent in services.

A source close to the bidding process said that Stagecoach's bid was cheaper but still required more than the pounds 70m per year subsidy at present being paid by Mr Salmon, who now allocates the government's funding for the railways. However, it was cheaper than the management buy-out team's bid because it did not include all the trains in the existing timetable. The cuts could mean first and last trains being axed and frequencies on some lines reduced sharply. Stagecoach also hopes to save money by using less rolling stock.

The fact that Mr Salmon has set "minimum passenger requirements" below the level of the present timetable is now the subject of a court challenge by the Save the Railways campaign due to start in the High Court tomorrow. If the challenge is successful, then Mr Salmon will have to delay the announcement of the winning bid, or even start the whole franchise process again.

Stagecoach, which runs several bus companies in the South West Trains area, plans to run shuttle services to railheads from towns without railway stations.

Critics of the company have said that its bus operations will lead to a reference to the Monopolies and Mergers Commission, but the company's managers are confident that this will not prevent the bid from going through. The company will have three months to take over services, which means Britain's first privatised trains are likely to run on 1 April next year. The two other early franchises, Great Western Railway and London, Tilbury and Southend services are set to go to management buy-out teams. Last year, Stagecoach - which owns bus firms in New Zealand, Hong Kong and Mal- awi - made a profit of pounds 32.6m on turnover of pounds 338m. Shares reached a peak of 284p yesterday. The company has faced over 20 investigations by the Office of Fair Trading and four inquiries by the Monopolies and Mergers Commission. In August the MMC found that the company's tactics in combating the local competition in Darlington were "predatory, deplorable and against the public interest". But the Commission decided not to prevent the company operating in the area because "it would be a disservice to the people of Darlington" since other firms had been driven out of business. The company has always defended itself against such criticism, saying local monopolies are necessary for the successful operation of its services. As testimony to its commitment to good service, the company points to its recent order for 1,100 new buses.

Stagecoach's early success means it is likely to become Britain's biggest private rail operator since it is planning to bid for all 25 rail franchises. Sell-off row, page 9