Virgin Trains profits gather speed as West Coast contract is extended

The operator has pledged to invest more than £20 million to modernise stations

The West Coast Main Line rail franchise fiasco ran into fresh controversy when the Government extended  Virgin Trains’ temporary contract with a likely profit margin three times greater than under its previous deal.

The Department for Transport (DfT) botched the tender process for the London-Manchester-Glasgow line in 2012 when it awarded the contract to FirstGroup. Sir Richard Branson’s company, which had been running the West Coast line since 1997, threatened to sue and the Government, admitting fault, scrapped the award. Instead, it gave the route back to Virgin Trains to run on a temporary basis. The failed tender cost the taxpayer £50m in legal and consultancy bills.

Under the new temporary contract, which runs for a further two years plus a probable one-year extension,  Virgin Trains has agreed to pay the taxpayer almost £60m more each year than it had been paying before. Its previous contract, however, represented a profit margin of about 1 per cent, while the replacement is likely to run to about 3 per cent, analysts said.

Virgin Trains stressed that the old contract, which came into place after the 2012 debacle, did not include any of the big investment that the new deal will bring in. Virgin Trains, rather than the taxpayer,  will also now be taking on more of the commercial risk, it pointed out.

The DfT said the new contract meant the company  would have to provide thousands of extra seats, better  wi-fi and station upgrades. It will also set up a new direct route between Shrewsbury and Blackpool and London. Service improvements will add up to £35m.

Critics said the contract showed what poor value for money the taxpayer had been receiving before. Mick Cash, acting general secretary of the RMT union, said: “The collapse of the tendering process on the West Coast has allowed Virgin to bully themselves into a monopoly provider position, hoovering up repeated extensions while the public sector option is ignored.”

City investors pointed out that the lucrative nature of the new deal was demonstrated by today’s 2 per cent rise in the share price of Stagecoach, Virgin Trains’ 49 per cent shareholder. Despite that, Virgin Trains’ executive co-chairman, Patrick McCall, said the deal stemmed from “some tough negotiations with the DfT which put the problems of 2012 firmly behind us”.

Last year, Sir Richard said he had shared nearly £500m in dividends from Virgin Trains with Stagecoach, while Stagecoach’s accounts for 2013 showed its share of the operating profits was £12.8m, against £21.5m the previous year. Sir Richard’s side of Virgin Trains will, by the end of the extended West Coast Main Line contract, probably exceed £300m.

Patrick McLoughlin, the Transport Secretary, said: “This deal will provide thousands more seats and better journeys for the tens of thousands of passengers who use these services every day.”

However, his shadow, Mary Creagh, said: “This is the latest chapter in the botched West Coast franchise process, which has left passengers and taxpayers paying the price for government incompetence.”

She said the fiasco had cost taxpayers at least £50m directly and hundreds of millions of pounds more in delays to investment on the line and to other franchise competitions, which were put on pause during a review of the process.

Start your day with The Independent, sign up for daily news emails
Arts and Entertainment
Billie Piper as Brona in Penny Dreadful
tvReview: It’s business as usual in Victorian London. Let’s hope that changes as we get further into the new series spoiler alert
Life and Style
A nurse tends to a recovering patient on a general ward at The Queen Elizabeth Hospital in Birmingham
Arts and Entertainment
No Offence
tvReview: No Offence has characters who are larger than life and yet somehow completely true to life at the same time spoiler alert
Chuck Norris pictured in 1996
ebooksA celebration of British elections
Arts and Entertainment
Sarah Lucas, I SCREAM DADDIO, Installation View, British Pavilion 2015
artWhy Sarah Lucas is the perfect choice to represent British art at the Venice Biennale
A voter placing a ballot paper in the box at a polling station
Arts and Entertainment
The Queen (Kristin Scott Thomas) in The Audience
theatreReview: Stephen Daldry's direction is crisp in perfectly-timed revival
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: Trainee Recruitment Consultant - Swiss Banking and Finance

£20000 - £25000 per annum + Uncapped commission: SThree: Can you speak German,...

Ashdown Group: Marketing Executive - 6 month FTC - Central London

£25000 - £30000 per annum + benefits: Ashdown Group: An exciting opportunity f...

Ashdown Group: Junior Project Manager (website, web application) - Agile

£215 per day: Ashdown Group: Junior Project Manager (website, web application ...

Guru Careers: Software Engineer / Software Developer

£40-50K: Guru Careers: We are seeking an experienced Software Engineer / Softw...

Day In a Page

General Election 2015: Ed Miliband's unlikely journey from hapless geek to heart-throb

Miliband's unlikely journey from hapless geek to heart-throb

He was meant to be Labour's biggest handicap - but has become almost an asset
General Election 2015: A guide to the smaller parties, from the the National Health Action Party to the Church of the Militant Elvis Party

On the margins

From Militant Elvis to Women's Equality: a guide to the underdogs standing in the election
Amr Darrag: Ex-Muslim Brotherhood minister in exile still believes Egypt's military regime can be replaced with 'moderate' Islamic rule

'This is the battle of young Egypt for the future of our country'

Ex-Muslim Brotherhood minister Amr Darrag still believes the opposition can rid Egypt of its military regime and replace it with 'moderate' Islamic rule, he tells Robert Fisk
Why patients must rely less on doctors: Improving our own health is the 'blockbuster drug of the century'

Why patients must rely less on doctors

Improving our own health is the 'blockbuster drug of the century'
Sarah Lucas is the perfect artist to represent Britain at the Venice Biennale

Flesh in Venice

Sarah Lucas has filled the British pavilion at the Venice Biennale with slinky cats and casts of her female friends' private parts. It makes you proud to be a woman, says Karen Wright
11 best anti-ageing day creams

11 best anti-ageing day creams

Slow down the ageing process with one of these high-performance, hardworking anti-agers
Juventus 2 Real Madrid 1: Five things we learnt, including Iker Casillas is past it and Carlos Tevez remains effective

Juventus vs Real Madrid

Five things we learnt from the Italian's Champions League first leg win over the Spanish giants
Ashes 2015: Test series looks a lost cause for England... whoever takes over as ECB director of cricket

Ashes series looks a lost cause for England...

Whoever takes over as ECB director of cricket, says Stephen Brenkley
Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

Fishing is on Nigel Farage's mind

Ukip leader casts a line to the disaffected
Who is bombing whom in the Middle East? It's amazing they don't all hit each other

Who is bombing whom in the Middle East?

Robert Fisk untangles the countries and factions
China's influence on fashion: At the top of the game both creatively and commercially

China's influence on fashion

At the top of the game both creatively and commercially
Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

The man known as GOD has a reputation for getting the job done

Lord O'Donnell's three principles of rule
Rainbow shades: It's all bright on the night

Rainbow shades

It's all bright on the night
'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

Bread from heaven

Dutch survivors thank RAF for World War II drop that saved millions
Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

How 'the Axe' helped Labour

UK will be 'run for the wealthy and powerful' if Tories retain power