First in pole position as Stagecoach admits rail bids defeat

The bus and train group Stagecoach admitted yesterday that it had almost certainly failed in its bid for two prestige rail franchises. Its rival First Group is now seen as the front-runner for one, and possibly both.

Shares in Stagecoach fell 6 per cent after the company disclosed that it was "not in active discussions with the Department for Transport" on the Greater Western or Thameslink/Great Northern franchises, both of which are due to be awarded before Christmas.

First is now seen as the most likely winner of Greater Western, which will combine inter-city and commuter services out of London's Paddington station. The other bidder for the franchise is National Express. First and National Express are also in competition for the new Thameslink/Great Northern franchise along with two rival consortia - one made up of MTR and John Laing and the other comprising the Danish state railway and the freight operator EWS.

Brian Souter, Stagecoach's chief executive, said the franchise bidding process had become "frenzied" with the result that bidders were offering "toppy" prices. "If there are too many hungry pigs in the trough, let them eat first," he added. Asked how big a blow it would be if Stagecoach failed to win either franchise, he said: "Better an empty house than a bad tenant."

Stagecoach also lost out last week in the bidding for the new Integrated Kent line, which went to a partnership between Go-Ahead and Keolis of France. Failure to win either of the two latest franchise bids would leave Stagecoach with only South West Trains (SWT) and its 49 per cent stake in Virgin Rail Group, which operates the West Coast Mainline and Cross Country franchises.

South West Trains comes up for renewal in February 2007 and Mr Souter served notice that it would bid very aggressively to retain the business. "We would be very surprised and disappointed if we lost SWT," he added.

Stagecoach and Virgin are likely to claim an extra £70m to £80m of taxpayers' support this year for the West Coast and Cross Country lines after revenues fell short of expectations despite a 30 per cent rise in passenger numbers. In the first half of the year Virgin Rail Group claimed £60m, enabling Stagecoach to book a £6.1m profit on its 49 per cent share of the business.