Trains could derail Virgin

RICHARD BRANSON may have won his libel case last week - another trophy to add to his conquest of the airline and savings businesses - but away from the headlines his other great passion, trains, is running into trouble.

City analysts are increasingly sceptical about whether Mr Branson can make his train ventures work and recoup a pounds 750m investment in new trains, while marketing consultants say the well-publicised problems with the continental rail link are already damaging Virgin's carefully managed brand image.

"He may have underestimated the difficulty of getting a thing like a railway working," said Eddie Hutchison, chairman of consultants Marketing Dynamics. "He needs to get it sorted fairly quickly. The commuter is not a forgiving creature, and cynicism will only corrode the brand."

Investors question whether Virgin can make money on the project in the long term - an important issue if Mr Branson goes ahead with plans to sell shares in the two railways this year.

The West Coast Main Line faces easily the toughest financial targets of any regional railway. Starting with a pounds 76.8m government subsidy for the unprofitable service in the first year of a 15-year franchise, Virgin must begin paying the government in 2003 and eventually hand over pounds 220.3m in 2012.

Virgin will succeed if its passenger demand forecasts are right, but that is in doubt after the recent collapse of the planned high-speed rail link from London to the Channel Tunnel. Virgin, a shareholder in the London & Continental (LCR) group building the link, was supposed to bring the marketing expertise to boost passenger travel on LCR's Eurostar service. But the group fell 40 per cent short of its passenger forecasts on Eurostar and is now pursuing a two-track policy - either to refinance its operations, or close them down.

Since Virgin took over the West Coast Main Line, linking London with Scotland, last March, it has consistently ranked as the worst-performing of the 25 privatised regional railways.

On Scottish sections, figures showed that only 54 per cent of Virgin's trains arrived within 10 minutes of their scheduled time last autumn - well below the 90 per cent benchmark set by the Government. Virgin's other rail service, Birmingham-based Cross Country, ran just over 80 per cent of its services on time, also among the worst performers.

Virgin may have erred by pushing long-time executives into retirement - people Mr Branson had called "demoralised old British Rail staff, not motivated". But observers say relatively inexperienced people were put in key positions.

"There's a few guys they paid off they wish they hadn't," said Bill Ure, secretary of the Rail Users Consultative Committee for Scotland. Describing Virgin's service as "patchy at best," Mr Ure said he was optimistic things would improve, especially when the line is upgraded for 125mph tilting trains in 2002.

"The service could be better, but we know Virgin is trying to do something about it," Mr Ure said, pointing to small steps such as fresh paint on the trains and better customer service.

Mr Branson, for his part, is confident he will eventually turn the service around. "In the short term, there is a danger it could damage the brand," he has said. "But most people know it was absolutely ghastly when British Rail ran it and they're starting to see the improvements."

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