Update: Stagecoach fury as franchise bids derailed

Stagecoach, the Perth-headquartered transport giant, has reacted furiously after being barred by the UK government from competing for three rail franchises, including the west coast mainline that it has run for more than two decades, due to a row over pensions.

Stagecoach chief executive Martin Griffiths. Picture: Fraser Band/Stagecoach
Stagecoach chief executive Martin Griffiths. Picture: Fraser Band/Stagecoach

The new West Coast Partnership franchise is due to be awarded in June. The winning bidder will be responsible for services on both the west coast mainline from March 2020, and designing and running the initial HS2 high-speed services from 2026.

Virgin Trains – a joint venture between Stagecoach and Sir Richard Branson’s Virgin Group – has operated services on the West Coast route since 1997.

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The pensions row means a joint bid for the West Coast Partnership by Stagecoach, Virgin and SNCF has been barred.

Stagecoach said it was verbally informed by the Department for Transport (DfT) that it had been disqualified from the West Coast Partnership, as well as the East Midlands and South Eastern franchises.

Bidders for the franchises were asked to bear the full long-term funding risk on relevant sections of the Railways Pension Scheme, Stagecoach told investors.

It added that the Pensions Regulator was seeking additional funding because of “serious doubts” over the government’s ongoing support for the industry-wide scheme.

Stagecoach chief executive Martin Griffiths said he was “extremely concerned” at both the DfT’s decision and its timing.

“The Department has had full knowledge of these bids for a lengthy period and we are seeking an urgent meeting to discuss our significant concerns.

“We have drawn on more than two decades of rail experience and worked in partnership with local stakeholders to develop high quality proposals to improve each of these rail networks.”

He added: “This is more evidence that the current franchising model is not fit for purpose. It also further damages the already fragile investor confidence in the UK rail market.”

A spokesperson for the Department for Transport said: “Stagecoach is an experienced bidder and fully aware of the rules of franchise competitions. It is regrettable that they submitted non-compliant bids for all current competitions which breached established rules and, in doing so, they are responsible for their own disqualification.

“We have total confidence in our process. Stagecoach have played an important role in our railways and we hope they will continue to do so post the conclusions of the Rail Review.

“However, it is entirely for Stagecoach and their bidding partners to explain why they decided to repeatedly ignore established rules by rejecting the commercial terms on offer.”

A Virgin Trains spokesperson said: “We’re very disappointed by the DfT’s unexpected decision. We’ve led the industry for more than 20 years with our ground-breaking innovations, such as automatic delay repay, and award-winning customer service.

“We’re studying the DfT’s decision carefully to understand why they’ve taken this action and would like to reassure all our customers that they can still book and travel as normal.”

Earlier this month, Stagecoach upped its earnings guidance on the back of strong trading and “positive progress” in its UK rail division.

Dutch rail operator Abellio, which has come under fire for its running of ScotRail, has been awarded the East Midlands Railway franchise. Abellio will take over the East Midlands route – which runs from London St Pancras International to Northamptonshire, the East Midlands, Lincolnshire, Staffordshire and South Yorkshire – on 18 August and will run trains until August 2027. Stagecoach currently operates East Midlands Trains.

In relation to the South Eastern competition, Transport Secretary Chris Grayling announced that his department was negotiating with current operator Govia to extend its deal to 10 November, with the option of a further extension to April 2020.