FirstGroup's East Coast bid referred but Virgin cleared

The rail industry was caught off guard yesterday after Virgin's bid for the East Coast mainline was cleared but FirstGroup found itself packed off to the Competition Commission for a six-month inquiry.

The surprise decision by the Office of Fair Trading means the Strategic Rail Authority will be in the awkward position of announcing a preferred bidder for the route between London and Edinburgh, which is currently operated by GNER, before the commission has completed its investigation.

Under the present franchising timetable, the SRA is due to name a preferred bidder in February. But the commission is not due to report back until June. The new franchise is due to start in May. The OFT said it had decided to refer FirstGroup because it had failed to offer any undertakings on pricing and ticketing which would overcome its concerns about competition on mainline routs between Doncaster, Grantham and London and also on some routes in North Yorkshire. FirstGroup also owns Hull Trains, which operates long-distance services on the east coast route, and Trans-Pennine, which runs some competing services on the line.

In contrast, Virgin was cleared because it did offer the OFT undertakings which would be sufficient to overcome competition worries should it win the franchise. Virgin, which is bidding in partnership with Stagecoach through the InterCity Railways joint venture, also operates the West Coast mainline and Cross Country Trains. On some services such as Leeds and Newcastle to Edinburgh, it would have 60 per cent or more of the public transport market, including rail and coach services.

The fourth bidder for the route, which carries about 15 million passengers a year and generates revenues of £400m, is a joint venture between Danish state railways and the freight operator EWS.

Moir Lockhead, the chief executive of FirstGroup, said he was surprised the company had been referred. But he added: "We are confident we will find a way through with the competition authorities."

The SRA also played down the possibility that the commission could either block FirstGroup outright or impose such conditions that it surrendered the franchise.

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