The operator has this year carried 8 per cent more than last year as it narrows the gap with airlines on the UK’s busiest air route, The Scotsman has learned.
Vtec, which is 90 per cent owned by Perth-based Stagecoach, attributed the increase to discounted fares, more frequent services and refurbished trains.
It said its share of passengers against airlines had gone up by 2 percentage points to nearly one third.
The firm has vowed to make rail more popular than air between the cities within seven years by increasing its annual passenger total to some 1.5m with a new fleet of trains from 2018.
However, it has acknowledged that would be a “massive challenge”.
Crucial to achieving that will be a new fleet of Japanese-designed Hitachi “Azuma” trains being introduced from 2018, which will have extra seats, run more frequently and cut journeys by 20-30 minutes to four hours by 2020.
But competition with air will intensify from March when Flybe launches Edinburgh-Heathrow flights, as The Scotsman revealed two weeks before it was announced.
British Airways, EasyJet and Ryanair fly between the capitals, with the Caledonian Sleeper operating overnight.
Air overtook rail in popularity on the route in the 1980s
Vtec’s passenger increase this year from 976,000 in 2015 came as airline growth on the route stalled. That reversed the trend last year - Vtec took over the franchise in March from UK Government-run East Coast - when air grew at the expense of rail.
Vtec managing director David Horne said: “We’ve set out ambitious plans to take on airlines by investing in our services and we’re delighted to see that strategy bearing fruit.
“The growth in rail travel shows the improvements we’ve made have been popular with customers, who are voting with their feet.
“That’s good news for passengers, good news for the environment and good for the long-terms growth of rail between Scotland and England.”
Transport minister Humza Yousaf said: “It is clear, given the huge numbers of passengers now travelling on Virgin East Coast, that cross-Border rail services are more popular than ever, with demand growing year on year.
“Virgin are also offering increased frequency and journey time improvements and we will no doubt see the popularity of rail continue.”
However, Airlines UK chief executive Tim Alderslade said: “Domestic air connectivity from Scottish airports and elsewhere in the UK is in excellent shape, and the recent announcement of new Flybe services from Heathrow to Edinburgh and Aberdeen will only offer more choice to passengers.
Scotland should be proud of its aviation links. The decision of the Scottish Government to reduce the tax on air travel by 50 per cent from 2018 will only make it more attractive to would-be airline customers in the future - which can only be a good thing for consumers.”