Stagecoach/Virgin consortium given chance to resolve limited competition concerns

[CP&SLJR]

First post, so hope I have formatted in the right way. Announcement from the Competition and Markets Authority today:

http://https://www.gov.uk/government/news/stagecoachvirgin-consortium-given-chance-to-resolve-limited-competition-concerns-arising-from-the-east-coast-rail-franchise-award

ICRL, a subsidiary jointly owned by Stagecoach and Virgin Trains, has the chance to avoid an in-depth merger investigation into its successful bid to run the East Coast rail franchise, if it can offer an acceptable solution to address competition concerns.

The Competition and Markets Authority (CMA) reviewed whether competition concerns could arise given the coach and rail services already operated by Stagecoach Group plc (Stagecoach). The CMA found that the franchise award did not raise significant concerns in most areas, but could potentially reduce competition on the following routes:

the overlap of East Coast rail services with East Midland Trains services operated by Stagecoach between Peterborough and Grantham and between Peterborough and Lincoln. On both of these overlapping rail services there is no other rail operator and only a minimal coach service
the overlap of East Coast rail services with Citylink’s coach services, which are operated and jointly owned by Stagecoach, between Edinburgh and Dundee as well as between Edinburgh and Aberdeen. The only competing public transport services are provided by ScotRail and Arriva Cross Country.
The CMA’s analysis recognises that important aspects of rail services are regulated and also governed by increasingly prescriptive franchise agreements. However, the CMA in its phase 1 investigation found that there is a realistic prospect that the award of the East Coast rail franchise to Inter City Railways Limited (ICRL) would lead to higher fares or reduced service quality for rail passengers travelling on these overlapping routes. In addition, the CMA was concerned that the award to ICRL may result in higher coach fares or reduced coach services quality (including a reduction in frequency) on these overlapping coach and rail services routes, given that coach services are unregulated. The CMA did not have sufficient evidence to suggest that private transport, including transportation by car, is a sufficiently strong constraint on any of the overlap flows it considered.

The CMA looked carefully at whether competition concerns could arise on other routes, but found that competition between East Coast rail services and existing services of Stagecoach and Virgin Group Holdings Limited (Virgin Trains) was limited and/or that ICRL will continue to face sufficient competition from other operators. This includes routes between London and Scotland, where both the East Coast and West Coast rail services will be operated by consortia of Stagecoach and Virgin Trains. The evidence examined by the CMA indicated that competition between the East Coast and West Coast rail services was limited and that air services between London, Edinburgh and Glasgow provide significant rivalry to the rail services.

ICRL now has the opportunity to offer undertakings to resolve the competition concerns identified by the CMA within 5 working days after receiving the CMA’s reasons for its decision. The CMA has until 20 February 2015 to decide whether these might be acceptable as a suitable remedy. If this is the case, it will consult on ICRL’s proposed undertakings before accepting them. If ICRL does not offer undertakings, or the CMA does not accept them, the CMA will refer the East Coast rail franchise award for an in-depth phase 2 investigation. In that situation, the CMA expects that ICRL can start operating the East Coast franchise from 1 March 2015 as planned, although the CMA may decide to impose a ‘hold-separate’ order for the duration of its investigation, aimed at avoiding integration of businesses or loss of competition between East Coast services and existing services, without impeding proper operation of the franchise.

Andrea Coscelli, Executive Director, Markets and Mergers, and decision maker in this case, said:

Our investigation has shown that no significant competition concerns arise on most routes where East Coast services overlap with existing Stagecoach or Virgin Trains rail or coach services. However, we found that the award could give rise to higher fares or reduced service quality for rail passengers travelling between Peterborough, Grantham and Lincoln and for coach and rail passengers travelling between Edinburgh, Dundee and Aberdeen, in some cases possibly affecting thousands of consumers relying on public transport services. ICRL can now offer a resolution to these concerns to avoid the award being referred for an in-depth phase 2 investigation.

 

[DaveNewcastle]

Well it took long enough for the CMA to respond!

I'm looking forward to Stagecoach's justification for the arrangement, but as the concern is focussed specifically on the Edinburgh-Aberdeen/Dundee services and the Peterborough-Grantham/Lincoln services, I guess they'll manage to demonstrate that there is still an adequate degree of competition and price regulation.

 

[Chrism20]

Well it took long enough for the CMA to respond!

I'm looking forward to Stagecoach's justification for the arrangement, but as the concern is focussed specifically on the Edinburgh-Aberdeen/Dundee services and the Peterborough-Grantham/Lincoln services, I guess they'll manage to demonstrate that there is still an adequate degree of competition and price regulation.

I can't see what the issue is with the Edinburgh/Dundee/Aberdeen corridor for four EC services a day when Scotrail are hourly to Edinburgh and two per hour to Dundee from Aberdeen plus there are Dundee terminators from Edinburgh also.

IIRC when National Express got ScotRail all those years ago they had to sell off their share in Citylink which made sense as ScotRail was the main competitor for long distance travel within Scotland, however it seems a little extreme for four services a day.

 

[IanXC]

I should think Hull Trains will be looking carefully at the Grantham-Peterborough issue - gaining calls at Peterborough on the back of this issue could be a nice little earner!

 

[Agent_c]

I can't see what the issue is with the Edinburgh/Dundee/Aberdeen corridor for four EC services a day when Scotrail are hourly to Edinburgh and two per hour to Dundee from Aberdeen plus there are Dundee terminators from Edinburgh also.

IIRC when National Express got ScotRail all those years ago they had to sell off their share in Citylink which made sense as ScotRail was the main competitor for long distance travel within Scotland, however it seems a little extreme for four services a day.

I would have to agree. If anything I think VTEC would seek to cut those 4 services as being over served by scotrail and coach, which iirc would require the rail regulator to approve anyway.

 

[DeeGee]

Would making the Edinburgh/Dundee etc calls drop-off only Northbound and pick-up only southbound resolve this? The Aberdeen traffic southbound beyond Edinburgh is a different market completely.

 

[3141]

Peterborough - Grantham: Stagecoach can't reduce the services of either East Coast or East Midlands if they are part of the respective franchise agreements. If Stagecoach undertook not to raise all the fares on either route by more than the amount allowed by the government each year, then to my simple mind that should cover the pricing concerns.

 

[LNW-GW Joint]

So all the posters wanting Virgin/Stagecoach disqualified on London-Glasgow/Edinburgh competition grounds have now had their answer.
No problems with the major markets, but the tiny local problems in the East Midlands and north of Edinburgh have upset the CMA.
Down to Stagecoach to produce a few local "remedies".
Who would have guessed that Peterborough/Grantham/Lincoln would be the competition battleground?

 

[thealexweb]

Stagecoach is one of the three bidders for Transpennine Express. Competition will die a little more if they prevail there too.

 

[Morgsie]

I thought ORR deals with competition issues as they are the regulator, so how come the CMA are getting involved in rail policy?

 

[Stats]

The resolution to this is likely to be similar to the offerings they made in 2004/05 to the OFT. Then to alleviate concerns over 4 flows between Doncaster and Edinburgh ICRL offered

In view of their very limited duration and the close regulatory scrutiny to which TOCs are already subject, the OFT considers it appropriate to consider the behavioural undertakings offered.
•The parties have offered to ensure that the current fare offerings and ticket mix on the four ICEC franchise services are maintained. This proposal is a clear-cut response to the identified competition concern taking into account the period of time for which this undertaking would be in place.
•They have also offered to introduce a price cap for ICEC standard class fares. This is a straightforward proposal that links directly into existing SRA fare regulation mechanisms. This will make compliance monitoring extremely easy.

http://webarchive.nationalarchives....ource_base/Mergers_home/decisions/2004/virgin

 

[tbtc]

So all the posters wanting Virgin/Stagecoach disqualified on London-Glasgow/Edinburgh competition grounds have now had their answer.
No problems with the major markets, but the tiny local problems in the East Midlands and north of Edinburgh have upset the CMA.
Down to Stagecoach to produce a few local "remedies".
Who would have guessed that Peterborough/Grantham/Lincoln would be the competition battleground?

It's funny because it's true

Yes, all the "received wisdom" from enthusiasts on here about Stagecoach now dominating the London to "The North"/ London to Yorkshire/ London to Scotland markets seems to have counted for nothing - Peterborough to Grantham is apparently much more important than all the things other people were frothing about!

As for their "dominance" on the route from Edinburgh to Dundee/ Dundee to Aberdeen (where four Stagecoach trains a day compare with two Scotrail train per hour and a handful of XC ones)... who had money on that being an issue?

Fine for one TOC to run all the trains from London to Ipswich/ Swindon/ Manchester/ Brighton (or 95% of flows like Edinburgh - Glasgow, Bristol - London), but the minute competition ends on the critical Grantham to Peterborough market :roll: Even that famous Grocer's Daughter from Grantham wouldn't be too worried about the precious free market being eroded on the flow to Peterborough, surely?

Whatever next - Stagecoach's winning Transpennine bid is scrutinised because they'll dominate the all important Thirsk to Darlington market?

Stagecoach's winning Great Western bid is scrutinised because they'll dominate the Dorchester to Weymouth market?

 

[Suraggu]

It's funny because it's true

Yes, all the "received wisdom" from enthusiasts on here about Stagecoach now dominating the London to "The North"/ London to Yorkshire/ London to Scotland markets seems to have counted for nothing - Peterborough to Grantham is apparently much more important than all the things other people were frothing about!

As for their "dominance" on the route from Edinburgh to Dundee/ Dundee to Aberdeen (where four Stagecoach trains a day compare with two Scotrail train per hour and a handful of XC ones)... who had money on that being an issue?

Fine for one TOC to run all the trains from London to Ipswich/ Swindon/ Manchester/ Brighton (or 95% of flows like Edinburgh - Glasgow, Bristol - London), but the minute competition ends on the critical Grantham to Peterborough market :roll: Even that famous Grocer's Daughter from Grantham wouldn't be too worried about the precious free market being eroded on the flow to Peterborough, surely?

Whatever next - Stagecoach's winning Transpennine bid is scrutinised because they'll dominate the all important Thirsk to Darlington market?

Stagecoach's winning Great Western bid is scrutinised because they'll dominate the Dorchester to Weymouth market?

VTEC are not serving Thirsk IIRC.

 

[edwin_m]

VTEC are not serving Thirsk IIRC.

No but Transpennine are and Stagecoach might win that.

It does seem pretty ridiculous to focus on two small sections where by winning a second franchise they achieve something closer to a monopoly, when there are so many routes where award of the franchise grants a near-monopoly to the winner.

 

[Lincoln]

I thought ORR deals with competition issues as they are the regulator, so how come the CMA are getting involved in rail policy?

Agreed!

Also, does the CMA not realise that the railway is highly regulated (with a few exceptions such as First Class fares). Any additional services above baseline have to be approved by ORR (even then sometimes the base timetable has to be approved when theres big changes), all average increases for regulated fares are set by DfT etc.

Maybe its a case of jobs for the boys?

 

[Metrailway]

I thought ORR deals with competition issues as they are the regulator, so how come the CMA are getting involved in rail policy?

Agreed!

Also, does the CMA not realise that the railway is highly regulated (with a few exceptions such as First Class fares). Any additional services above baseline have to be approved by ORR (even then sometimes the base timetable has to be approved when theres big changes), all average increases for regulated fares are set by DfT etc.

Maybe its a case of jobs for the boys?

The CMA has powers to enforce competition law over all industries including regulated industries such as energy and rail.

Indeed the CMA is required by law to carry out a phase 1 review on all rail franchise awards.

 

[LNW-GW Joint]

The DfT and ORR do not regulate bus or air services, so the CMA is the backstop for wider competition issues.
They are also the ones behind preventing Eurotunnel owning a ferry company (SeaFrance).
They are also very keen to demonstrate their independence, and there is a history of spats between them and DfT (cf the Rosco investigation).
It's interesting they have chosen the rail overlap between ICEC and EMT as an issue, which is a DfT/ORR preserve.
I don't understand the threatening CMA language ("offer remedies within 5 days or else") when the bidders have done nothing wrong.
If anything, it's up to the DfT to sort out competition issues in the initial franchise offering or during the bid analysis phase.

 

[Robertj21a]

The DfT and ORR do not regulate bus or air services, so the CMA is the backstop for wider competition issues.
They are also the ones behind preventing Eurotunnel owning a ferry company (SeaFrance).
They are also very keen to demonstrate their independence, and there is a history of spats between them and DfT (cf the Rosco investigation).
It's interesting they have chosen the rail overlap between ICEC and EMT as an issue, which is a DfT/ORR preserve.
I don't understand the threatening CMA language ("offer remedies within 5 days or else") when the bidders have done nothing wrong.
If anything, it's up to the DfT to sort out competition issues in the initial franchise offering or during the bid analysis phase.

Hear hear. It's not just 'If anything.....', the franchise documentation should have already covered any such situation.

 

[edwin_m]

Seems a bit off also that the CMA have had over two months to identify the problem since the franchise award was announced, but they only give Stagecoach five working days to produce a solution.

 

[glbotu]

I think the reason Peterborough - Grantham is being considered an issue is because Stagecoach operates 2 train services (regulated) and the bus service(s) (unregulated). It's certainly short enough that realistic competition between train and bus exists for passengers making the trip. As many on this forum explain, the real competition is between the train and other transport, not train and train.

London - Scotland/Yorkshire is a long enough trip by bus that only a very small number of passengers would consider the journey and the choice between EC and WC is pretty much decided by whether you're going from Edinburgh or Glasgow.

 

[northwichcat]

Whatever next - Stagecoach's winning Transpennine bid is scrutinised because they'll dominate the all important Thirsk to Darlington market?

Surely you'd need Middlesbrough-York to go to the Northern franchise and Arriva to win it so that Arriva operate all services between Thirsk and Darlington (including the Grand Central services), given Virgin East Coast won't stop at Thirsk.

 

[TUC]

Peterborough - Grantham: Stagecoach can't reduce the services of either East Coast or East Midlands if they are part of the respective franchise agreements. If Stagecoach undertook not to raise all the fares on either route by more than the amount allowed by the government each year, then to my simple mind that should cover the pricing concerns.

Not reducing the.number of Advance tickets available on either route, and not significantly increasing their price should be another condition as Advance fares are the real tool of current competition rather than walk-on fares.
--- old post above --- --- new post below ---
I do think though that the CMA has missed a trick in only focussing upon Peterborough-Grantham as the wider East Midlands-London corridor should also be a matter of concern. For anyone living between Nottingham and Newark there's a real choice between these two routes which could now suffer from a lack of competition. When I used to live in Arnold, just outside Nottingham, it was often more attractive an option to drive to Newark and travel on the East Coast route rather than go into Nottingham.

 

[Stats]

The CMA have announced the undertakings offered by ICR and are now considering them.

https://www.gov.uk/government/news/cma-to-look-in-detail-at-stagecoach-proposed-undertakings

The undertakings offered by Stagecoach in relation to the rail journeys commit it to a price cap on certain fares set by East Midlands Trains and provide for the ongoing monitoring of such rail fares by the CMA.

In relation to the Citylink coach services, under the proposed undertakings Stagecoach will not take decisions which may impact the competitiveness of the coach services as against East Coast on the Edinburgh to Dundee and Edinburgh to Aberdeen journeys. These decisions relate to fares, timetables, frequency and service quality.

The CMA has decided that there are reasonable grounds for believing that the undertakings offered by Stagecoach, or a modified version of them, might be accepted in lieu of a reference to a more detailed phase 2 merger investigation.

The CMA now has until 21 April 2015 to consider whether to accept the undertakings, or a modified version of them. The CMA may decide to extend this deadline if it considers there are special reasons for doing so.

As part of this consideration process, the CMA will shortly undertake a public consultation on whether the proposed undertakings are sufficient to address the competition concerns. If the undertakings are not accepted, the acquisition will be referred for a phase 2 merger investigation.