Outlook: Virgin Rail

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The Independent Online
FOR ALL the Deputy Prime Minister's posturing, he and the privatised train operators know there is precious little anyone can do to force them to improve services until their franchises come up for renewal. In some cases, this is not until well into the next millennium.

The train operators can only be stripped of their franchises in extreme circumstances, and after a lengthy series of warnings. The subsidies Railtrack receives to run the network, meanwhile, are guaranteed through copper- bottomed contracts for another two years.

Every so often, however, an opportunity to improve the lot of the poor travelling public does present itself. This is when the train operators want approval for something, allowing the regulators to extract their pound of flesh.

The deal struck yesterday between Virgin Trains and the franchising director, John O'Brien, is one such example. In return for being allowed to sell a 49 per cent stake in the business to Brian Souter's Stagecoach, Virgin has agreed to tougher performance standards and compensation arrangements on its West Coast Mainline and Cross Country franchises.

These probably amount to a few ounces, rather than the full pound of flesh. Henceforth passengers who are delayed for more than two hours on the Euston-Birmingham train (some going, since the entire journey should only take that long) will be given a refund voucher inviting them to try the service again for free.

This may not seem like much but at least it is something and having given Virgin a severe going over last week, John Prescott, had nothing but praise for the deal struck yesterday.

Virgin was also rather pleased with itself. But it knows that the real test of its financial mettle will come in four years time when the subsidy it receives from the taxpayer to run the railway suddenly turns into a rental payable to the Exchequer.

Those rental payments total pounds 1.3bn. In order to meet them, Virgin has made some heroic assumptions about revenue and passenger growth. It is also relying upon Railtrack and Fiat having the pounds 4bn upgrade of the West Coast track and trains ready on time when all the history of major transport infrastructure and equipment projects points to delays. That, more than any regulatory crackdown, has the power to cause Virgin and its new partner real pain.