Branson warns Government against GNER-style franchise

Sir Richard Branson warned the Government yesterday he would refuse to enter a race to retain his Virgin CrossCountry rail franchise if ministers were only interested in a cut-price "bus run".

Sir Richard said his company was anxious to "pre-qualify" for the bidding process, but would not submit formal proposals if ministers were seeking the "lowest common denominator".

Some insiders will see his comments as a negotiating ploy, but others will point to the financial problems encountered by Great North Eastern Railways after promising to pay the Treasury a £1.3bn premium in return for retaining its licence to run the East Coast mainline. Aware that some potential bidders for the new CrossCountry franchise, due to begin next year, had talked of using older trains to save money, Sir Richard said: "We have not said categorically that we are going for it.

"We would look to pre-qualify, but would only want to go further if the Government doesn't want to turn it in to a bus run. If the Government goes for the lowest common denominator approach we won't want to be involved. We will see what the rules of engagement are."

He said there was a danger that ministers would go for the biggest possible return to the Treasury, and that there would be no interest in quality issues. "We don't want to run a bus service. We want to run something we can be proud of," he said. "We will be asking them to look at bids in a balanced fashion, not just in the short term."

Chris Gibb, the managing director of CrossCountry, said it would not be possible to guarantee the Exchequer a huge premium from CrossCountry because there were too many variables. He said the cost of diesel used by the Voyager trains had shot up from £25m a year to £40m.

Mr Gibb said the company had not yet negotiated a return for running the franchise in the past two financial years.

Turning to the West Coast mainline franchise run by Virgin Rail, Sir Richard forecast that in five years there would be little need for air services between London and Manchester as the rail journey would be less than two hours, and from 2008 would run every 20 minues. He added thatVirgin was already taking 60 per cent of the air and rail market between the cities.

Virgin is in discussions to increase the speed of its West Coast Pendolino trains from 125mph to 135mph between Stafford and Rugby to reduce journey times.