Was VTEC the right choice?

[alexl92]

I know the merits and pitfalls of nationalisation have been discussed extensively on this website, as as the decision to give the East Coast Mainline franchise to VTEC following on from DOR.

Many people are, for very good reasons, strongly opposed to the idea of nationalising the railways again.The East Coast under DOR was both relatively popular with passengers (especially the rewards system) and successful in terms of amount paid back to the gov.

I'm interested to know whether, with the benefit of looking back on 2.5 years of Virgin East Coast operations, the decision to give the franchise to a private operator, in this case Virgin, rather than continuing with DOR, was the right one?

To me as someone who is not 'in the industry' and still very much learning about the way things work and the standards by which they are judged by those in the industry rather than outside, it certainly seemed like DOR were doing a very good job, but also that it was always unwanted by the DfT and they couldn't wait to get rid regardless of performance.

 

[LNW-GW Joint]

The government had no choice, short-term, as the Railways Act forces the sale of franchises.
I think the best they could have done was a couple of 2-year DOR extensions prior to refranchising.
Long term, a new Bill would have to be enacted to allow public ownership, and that won't be forthcoming in Tory parliaments.

DOR might have run an efficient railway, but it had no funds to invest in new services (no source of capital), and was just a DfT holding operation.
There still is no "public company" to run rail services, as they were all distributed between the various franchises, ROSCOS and Network Rail.
DOR was a group of consultants, not a business.
Its Chairman, Michael Holden, will go on at length about why he doesn't think rail should go back to the public sector.
There's also rolling stock, freight and open access in the mix, all of which are owned (not franchised) by the private sector.

 

[tbtc]

I think that a lot of people's opinion of the move from DOR to VTEC will be clouded by their opinion of a nationalised railway and their opinion of Branson/ Souter.

Personally, I have no axe to grind - if a private TOC can run the line successfully and pay a higher premium (or take a lower subsidy) then I'm happy to go with it - but a lot of people see the issue through their politically-tinted-glasses.

The East Coast under DOR was both relatively popular with passengers (especially the rewards system) and successful in terms of amount paid back to the gov

The ECML franchise ought to be one of the most profitable ones to operate - your staffing costs are spread over several coaches (rather than paying one driver and one guard on a 153/ Pacer) - there are very few subsidised PTE fares to deal with (Wakefield - Leeds being an obvious exception) - there's a significant business demand willing to pay top whack for a First Class service.

The fact that DOR paid a premium doesn't mean DOR was great, it just means that the ECML route is one where any TOC should be paying one (as GNER did etc).

My understanding is that VTEC promised to pay significantly more to the Government than DOR had been paying - okay, they have faced problems partly because the Government haven't delivered their side of the bargain (infrastructure improvements), but it the fact that DOR paid a premium does get overblown.

I think a fairer test for DOR would have been a "middle of the road" franchise (e.g. First seem to think they can turn TPE from a subsidised franchise to a profitable one that pays a premium - could DOR have done the same to a TOC?).

 

[markydh]

It’s not all about the money. The onboard experience has declined markedly in the last year or so to try and pay for this supposed higher premium. Ticket prices have risen far above the rate of inflation when unregulated fares are taken into account. This stifles growth and is a total contradiction.

 

[Gareth Marston]

Under the original Treasury Prvitisation Unit model, deeply inefficient BR would be washed away and replaced by the efficient private sector with costs coming down, routes like the ECML that were profitable under BR were expected to be almost be "milch cows" where the excess profits were used to reduce overall Government subsidy elsewhere.

However we all know costs didn't tumble but went up as did subsidy I think successive East Coast franchise has suffered from being expected to be a Golden Goose in a world where the original plan never panned out.

 

[Clip]

I'm interested to know whether, with the benefit of looking back on 2.5 years of Virgin East Coast operations, the decision to give the franchise to a private operator, in this case Virgin, rather than continuing with DOR, was the right one?

.

As others have said - they had no choice but to re-let the franchise.

I still think people are more angry at the loss of the EC rewards scheme than anything else

 

[Darandio]

I don't sample the delights of VTEC as much as many on here, but I do increasingly feel as though I arrived 'awesome' on many more occasions under DOR than I do now. It is entirely possible that this is further amplified by the more recent struggles though.

Looking particularly at the service provided, the galling thing is probably when you know they can get it right, because they have done on many occasions and you disembark thinking how good that journey was. The problem is that these occasions happen much less now.

 

[Starmill]

My understanding is that VTEC promised to pay significantly more to the Government than DOR had been paying - okay, they have faced problems partly because the Government haven't delivered their side of the bargain (infrastructure improvements), but it the fact that DOR paid a premium does get overblown.

I think a fairer test for DOR would have been a "middle of the road" franchise (e.g. First seem to think they can turn TPE from a subsidised franchise to a profitable one that pays a premium - could DOR have done the same to a TOC?).

I think you have forgotten that DOR paid a premium and made a profit. What happened to the profit they made? If Virgin Trains East Coast pay a premium and make a profit, what happens to that profit?

I'm not saying I think it was right or wrong what happened. But I certainly do think that VTEC have damaged their reputation significantly. Also, as to the DfT reneging on infrastructure improvements - where? It's thought that future dates might be missed I quite agree, but what has happened hitherto that has caused problems?

 

[LNW-GW Joint]

It's also the case that the DfT has negotiated the long-term train contracts for IEP and Desiro City (for GWR, VTEC and TSGN), so that is a major item out of the way for the franchisees.
Even if "DOR" came back it would simply be handed those contracts to manage, with no negotiation/capital required.
It looks like being the same for HS2 stock (DfT-procured, via HS2 Ltd, not by the TOC).

This is unlike the situation with other TOCs where they are committing money and risk up front in buying new train fleets (eg TPE, Northern, GA, SWR).
That would seem to reduce the private sector risk benefit if DfT buys the trains.
On the other hand, those TOCs have to find methods of generating the revenue to pay for those high-cost mega-contracts.

 

[Chrism20]

From my own viewpoint I think I would have preferred a different winner on the grounds that Stagecoach seems to control (or have a stake in) near enough everything long distance going north. I know the competition lot looked at it and they had very few problems with it but it just doesn't sit comfortably with me.

They have clearly overbid, I don't think anyone will disagree with that and most of us said it when the award was made and we saw what they were proposing.

The fact that it's run predominantly by Stagecoach I think is part of the problem. If the virgin stakeholdong was higher and Branson had more of a say things might be slightly better.

DOR did return a surplus, however the service onboard was patchy well before virgin took over although its downward spiral has accelerated big time since they did take over. The state of the trains weren't great either under DOR. There was very little money spent unless it really had to be, although we probably tolerated it more in the knowledge that we could probably get a couple of peak time freebees off the cross per year with EC Rewards.

The Azumas might bring a stepchange in comfort and style etc but they will also bring very expensive leases with them. I'm not confident that they can produce the numbers required to bring their grand plan to fruition and turn it round.

Overall I think the bid was wrong and unrealistic. They have went over the top with it to ensure they won it. They have effectively done what they accused First of on the WCML.

 

[DY444]

DOR deferred some fleet maintenance which is why their financial performance appeared better than it really was and why there have been Class 90s working for VTEC whilst the maintenance backlog is addressed.

 

[SaveECRewards]

From a passenger perspective I was happy (except for the scrapping of rewards) with the first two years of VTEC operating the franchise.

You can argue whether or not things improved, it depends what you wanted from the service (for example on an evening meal service there seemed fewer hot drinks runs but they were more generous with alcohol and other cold drinks) but the changes were different, not definitely worse or better and overall was just a tweaked version of what East Coast offered.

This year, things seem to have taken a nosedive.

I think EC (DOR) showed that there's nothing to be scared of with nationalisation, but I have nothing against privatisation either (GNER pre-2005 will still be my favourite TOC) I just think the way the current system is run gives you the worst of both systems. Government micromanaging while private companies have to take their cut. GNER (2005) and Virgin both knew they had a choice when they overbid - it was either bid the most they believed they could afford or risk being outbid and therefore not run the franchise. This bidding process means that we'll never get the best deal for the passenger on the ECML as we're paying premiums to subsidise whatever the DfT want to subsidise and the operator needs to raise fares, reduce service quality or both.

So this year we've had the following:

• On-board crew cutbacks - although I have been told by someone on Twitter working for VTEC (but from a personal account so not official) that they plan to restore staffing levels from December
• The website which has caused much hassle for people as they launched it when it was not ready
• New ticket machines that have reliability and usability problems
• Plans to go ahead with their 'customer zones' idea (removing conventional ticket offices and replacing with a self service area with roaming staff) despite the issues with the machines
• Cutbacks on provisions in the first class lounges
• Serving sandwiches on weekdays in boxes, rather than from a platter (less premium feel and means you can't have a mixture if you want both sandwich types)

I think VTEC have the potential to do a good job so I'm happy if they government negotiates a new more affordable franchise as long as VTEC improve the quality back to at least 2016 levels (which hopefully competitive forces will encourage them to do, as they do compete against airlines and driving plus coaches on the budget end). I don't think the current government would renationalise unless it was the last resort and even if they do they need to get the management structure right to be able to deliver.

 

[jon0844]

DOR deferred some fleet maintenance which is why their financial performance appeared better than it really was and why there have been Class 90s working for VTEC whilst the maintenance backlog is addressed.

DOR also seemed pretty uninterested in revenue protection and it always struck me that the service was being run on the basis that any problems would be for the next operator to worry about.

That said, I didn't have my tickets checked on a recent trip from York to London and nor did others who wanted to upgrade to Weekend First and ended up getting first class for 'free'. Of course, passengers aren't going to be complaing about that - but you'd think Virgin would want to get the extra revenue?

Perhaps with the staffing issues, morale is low and staff aren't too bothered. Once that happens, of course, it's a slippery slope.

 

[Hadders]

DOR made a profit which was returned to the Government.
VTEC have signed up to make franchise payments to the Government that are greater than the profit made by DOR. In addition they will want to make a profit for their owners.

This relied on large increases in passenger numbers which hasn't materliaised to the extent predicted. Consequently VTEC are having to operate cost cutting measures which in many cases are not popular with passengers.

 

[gimmea50anyday]

Sloppy revenue protection and reduced staffing when ticket barriers have also been removed from some stations. That to me was a folly and will lead to further revenue losses

 

[northernchris]

I always felt DOR had an unfair advantage when it came to the premiums they paid. If Virgin were allowed to pay the sums East Coast did then cost cutting wouldn't be necessary. If the public sector wants to run the service it should be able to match what the private sector is expected to pay, without compromising on investment

 

[ainsworth74]

Well Virgin/Stagecoach didn't have to bid as much as they did!

 

[northernchris]

Well Virgin/Stagecoach didn't have to bid as much as they did!

But if they bid what East Coast were paying they wouldn't have won

 

[91109]

We're Virgin in name only, every decision made I feel is a Stagecoach one. They pull the strings. The staff on the front lines do an exceptionally brilliant job and strive to provide a service even if they're short staffed, but, at the same time, they're demoralised, don't feel valued or listened to by management. People seem to forget we're 90% owned by a bus company, and I'd stake money on the fact that if the percentages were reversed, it'd be a different franchise.

 

[Bertie the bus]

But if they bid what East Coast were paying they wouldn't have won

So you think the public sector should have to match the fantasy premiums promised but not delivered by a private sector company desperate to win the franchise? Bizarre.

 

[northernchris]

So you think the public sector should have to match the fantasy premiums promised but not delivered by a private sector company desperate to win the franchise? Bizarre.

Why is it bizarre to expect the private and public sector to be treated equally? DOR were allowed to repay £235m in their last year of operating the franchise, so why is the figure not allowed for Virgin/Stagecoach?

 

[swt_passenger]

People seem to forget we're 90% owned by a bus company, and I'd stake money on the fact that if the percentages were reversed, it'd be a different franchise.

Really? VTWC is still managed by your "bus company". Virgin have a much higher financial stake but it has always been said that Stagecoach provide the day to day expertise.

How long does it take for one of these bus companies to become a rail company anyway. Didn't Modern Railways debunk this a few years ago by proving that the vast majority of senior management positions are actually filled by career railwaymen and women?

 

[SaveECRewards]

We're Virgin in name only, every decision made I feel is a Stagecoach one. They pull the strings. The staff on the front lines do an exceptionally brilliant job and strive to provide a service even if they're short staffed, but, at the same time, they're demoralised, don't feel valued or listened to by management. People seem to forget we're 90% owned by a bus company, and I'd stake money on the fact that if the percentages were reversed, it'd be a different franchise.

I think it’s a myth that Virgin are some amazing customer service company. If they were they’d never let their brand be licensed to sub standard operators. Virgin are majority partners in the current West Coast operation and, although well above average, is not a patch on GNER or the previous East Coast (or indeed VTEC until recently).

Virgin seem to be wanting less control, not more, and happy to be making money licensing the brand. The next West Coast bid will also see Virgin as a minority partner. They’re selling off most of the 51% of Virgin Atlantic that they own to Air France-KLM.

 

[ainsworth74]

But if they bid what East Coast were paying they wouldn't have won

Why not? If all the bidders had bid around the level of East Coast's payments then the DfT wouldn't have had much choice. But they didn't. They all, almost certainly, bid as much as they thought they could get away with. It just turns out that, yet again, they were wrong.

 

[Bertie the bus]

Why is it bizarre to expect the private and public sector to be treated equally? DOR were allowed to repay £235m in their last year of operating the franchise, so why is the figure not allowed for Virgin/Stagecoach?

What's bizarre is you don't seem to understand that the private sector companies on the railway frequently overbid and promise premiums which never materialise, yet you see that as a failure of the public sector because they can't match these fantasy payments. The payments aren't made.

 

[Bertie the bus]

Really? VTWC is still managed by your "bus company". Virgin have a much higher financial stake but it has always been said that Stagecoach provide the day to day expertise.

I'm not sure that is the case. I've seen comments in Stagecoach's annual accounts stating that the ICWC franchise is a risk because they don't have that much influence being only a minority stakeholder.

 

[SaveECRewards]

I'm not sure that is the case. I've seen comments in Stagecoach's annual accounts stating that the ICWC franchise is a risk because they don't have that much influence being only a minority stakeholder.

Stagecoach in their corporate pages always consider VTEC as one of their own and VTWC as a joint venture.

I don't think Stagecoach is necessarily a bad thing. Apart from the early years when all franchises were finding their feet I thought SWT was a well run franchise.

 

[Bertie the bus]

As a passenger I’d much rather be a passenger of a Stagecoach run operation than a Virgin controlled one. In my opinion you flatter VTWC. I’d describe them as mediocre. Their PR is world class but their train operation isn’t, though I accept that their staff who buy into the whole Virgin thing would disagree.

 

[Emblematic]

What's bizarre is you don't seem to understand that the private sector companies on the railway frequently overbid and promise premiums which never materialise, yet you see that as a failure of the public sector because they can't match these fantasy payments. The payments aren't made.

When are the premium payments not made? Failing to make the payments puts the operator in default, and DfT pockets the substantial bonds that are put up for any franchise. VTEC are negotiating a reduction because the delays to infrastructure etc. materially impacts their ability to grow the franchise, and therefore the franchise conditions have changed.

 

[Starmill]

But if they bid what East Coast were paying they wouldn't have won

I don't think you have quite grasped how competitive tendering works.

In any case I don't think there is too much of a need for concern if VTEC end their franchise early. It would be very disruptive and embarrasing for the government, but the actual trains would probably still run according to the (revised) plan. The settlement reached with the DfT for early termination would surely be very much in the Treasury's favour and not Stagecoach's. They can hardly walk away without a settlement - they have paid quite a large bond.