Posted 27th October 2011 | 3 Comments

Revenue warning as Virgin wins West Coast extension

VIRGIN has won an extension to the West Coast franchise, which will take the contract on from its previous expiry date of 31 March to 9 December next year.

But there's been a warning that revenues are unlikely to meet a 'challenging' target set by the Department for Transport.

The extension will include management of the introduction of new Pendolino carriages that have been set to go into passenger service by December 2012.

Stagecoach Group, which owns 49 per cent of Virgin Rail Group, said it expected its share of Virgin's profit after tax for the extension period to be 'below £10 million'.

The company said this return reflected the 'relatively low revenue risk in the extension period', which will include 'cap and collar' protection so that the Department will refund 80 per cent of any revenue shortfall.

It described the DfT’s target revenue for the franchise extension as 'challenging', and revealed that Virgin expects to qualify for 80 per cent revenue support during the extension period.

On the other hand, if revenues were to be higher than the DfT's target then the Department would collect 80 per cent of the excess.

Virgin has already been shortlisted for the next main West Coast franchise, which is to start in December 2012. This will run from 9 December 2012 to 31 March 2026, with an option for an extension of up to 20 months.

A Stagecoach spokesman said the terms of the extension to the current franchise 'are not considered indicative' of the terms of the next one.

Virgin Rail Group CEO Tony Collins said: "We are delighted to have agreed an extension to the current West Coast franchise. It is great news for passengers and will also deliver value for money to taxpayers. 

“The extension will bring continuity and allow us to run services for passengers at an exciting and challenging time for the country with the London 2012 Olympic Games next year.

“We will also be working hard to introduce important extra capacity on the West Coast Main Line with the introduction of more than 100 new Pendolino carriages. These would deliver an extra 28,000 seats for passengers every day, or more than 40 per cent extra standard class Pendolino seats.”

Reader Comments:

Views expressed in submitted comments are that of the author, and not necessarily shared by Railnews.

  • Anonymous, NA, UK

    Virgin have done very well since winning the franchise but they are severely restricted by the infrastructure.
    There is not much more they can do without Network Rail and the DfT investing in and improving the infrastructure and rolling stock, whilst removing the rolls of red tape which seem to hinder all efforts to bring a 21st century railway to the deserving British public.

  • Philip Russell, Carlisle, United Kingdom

    Virgin begun both their origional franchises like a breath of fresh air to the railway,introducing new faster tilting trains,higher frequencies, better catering and new routes etc,however since the completion of the west coast high frequency upgrade the company has sat back on its laurels seemingly doing little more than incresing ticket prices ,car park charges and spending hardly anything on improving the appearance of its stations or lengthening its trains until the government stepped in .

  • Joel Kosminsky, London, E9 5EL

    I do not see why the State has to make up shortfalls in a private company's income. They bid for the franchise, they know the risk, they only see the reward. If there's no risk, of course they form a queue at the door - if there was real risk, ie losses, there would be fewer takers.

    Heads they win, tails I lose.