Virgin Trains East Coast franchise to end 24 June 2018 and is temporarily re-nationalised

[TUC]

As I understand it, DfT is responsible for losses once the £165m parent guarantee is used up (written into the franchise agreement).
This is going to occur in the next few weeks - hence the review of how to manage the operation forward.
Clearly it will involve adjusting the premium payments and expansion plans.
Andrew Adonis tried to strip NX of its other franchises when it failed on NXEC, but discovered he couldn't do it legally.
NX even won c2c when it went up for renewal (but has since sold it to Trenitalia).

Something that I thought the DfT had committed after NEx to fixing for future franchises (by including a contractual provision allowing for companies owned by the parent companies of failed franchisees to be excluded from future bids).

 

[neilm]

Something that I thought the DfT had committed after NEx to fixing for future franchises (by including a contractual provision allowing for companies owned by the parent companies of failed franchisees to be excluded from future bids).

They did as that was when Labour was in power, but swifty stopped once the conservatives returned. Also I think the DfT were concerned that companies would not bid with that in place. For example perhaps Stagecoach would not of bidded such a high premium knowing that WC, MML and SWT could be affected by it?

 

[Tom B]

I've been a regular user of the line since early GNER days, but the cost puts me off nowadays. I'll still make a certain number of journeys per year, but if prices hadn't been increased so much I would be able to afford more journeys.

And at current walk up prices, the cost is pretty much equal to driving. Suppose I had to go from London to Doncaster - an off peak return is £155, the cost of petrol for a return journey (168 miles x2 at 25mpg) is around £80. Especially for those who have some way to go from the station, this could lose a fair number of people.

 

[SaveECRewards]

OK I'll try and avoid the 'R' word anymore in this thread

I posted about the Stagecoach response but have we heard anything from Virgin yet? They're always keen to appear to take the credit when things are going well but I've yet to hear a single statement from them. I have written a blog about Virgin and potential future use of their brand on the ECML.

The promotional video from early last year showed some of the things they had planned for the year ahead, most of which turned out to be underwhelming or just not delivered (the bit about technology starts at 1:22, the stuff before is just loads of self congratulatory stuff).

So the booking engine and ticket machines turned out to be much worse than what they replaced. As you see from the video the app was supposed to provide more functionality that it did, including the ability to order at-seat. This was planned for 2017 but all we got is a cut down implementation which is pre-order not on-demand.

So basically everything they did to make train travel easier using technology they somehow made much worse. I can imagine these projects as well as running over time have also massively exceeded budget which is not helping with their financial situation.

My thought is whoever takes over from VTEC will not want their booking engine, app, etc and will get one off the shelf either through Worldline or Thetrainline.

 

[Marklund]

Low prices isn't a "reward".
Otherwise I could say I am being rewarded every time I shop in most places :P

Of course it is, it's a reward for choosing them, instead of another, more expensive retailer!
Your reward is instant in the form of cash, and not a point scheme.

You can say that if you eek out every penny of a shopping budget, by shopping in multiple retailers, for the lowest cost every time. Good luck to you doing that!

Me, I can't be doing with that, and shop where it's convenient. If my reward is in the form of more cash in my hip pocket by Adsa being cheaper, or Tesco as they give points then so be it.

 

[pt_mad]

Will it be worth Virgin even bidding on the East Coast or West Coast Partnership franchises when it looks like the ITT will specify that the brand names will not be allowed to contain any operator specific branding. I.e. The TOCs will have to use a brand name that can be handed over to future operators such as East Coast Express etc and not Virgin Trains as this wouldn't qualify.

Would Virgin even be interested in this? To run the line without their elaborate branding?
It seems their percentage share is usually just to use the Virgin brand and this will be of no use in the future if the operator has to use a generic name.

 

[Starmill]

I'm don't entirely agree, though I know where you're coming from. When TOCs engage in silly 10p-less games it's actively harmful to customers. But where there is genuine competition, such as London-Birmingham/Oxford and London-Brighton, it works better for customers. We've seen that on the BML when competition ended: fares skyrocket, service quality nosedives.

You are absolutely right, but it's just too difficult and inefficient to have competition everywhere. Regulation, and a properly funded system that acts in the national interest would help to distribute these benefits equitably.

The current competitive fares approach is a huge mess for so many reasons.

 

[SaveECRewards]

Will it be worth Virgin even bidding on the East Coast or West Coast Partnership franchises when it looks like the ITT will specify that the brand names will not be allowed to contain any operator specific branding. I.e. The TOCs will have to use a brand name that can be handed over to future operators such as East Coast Express etc and not Virgin Trains as this wouldn't qualify.

Would Virgin even be interested in this? To run the line without their elaborate branding?
It seems their percentage share is usually just to use the Virgin brand and this will be of no use in the future if the operator has to use a generic name.

You're right! Virgin is nothing without the brand. You can be pretty sure the reason Stagecoach got Virgin on-board for East Coast is for the branding and nothing else. Although Virgin bid for the west coast and crosscountry franchises themselves they probably wouldn't have bothered if the franchises had to be called InterCity (plus they quickly got Stagecoach on board for their operational experience).

Presumably when Virgin announced their involvement with the Stagecoach WCP bid there was no requirement for neutral branding known about at the time, so you may see Virgin leave the rail business if it is the case that they need to use a vendor neutral brand.

 

[47271]

What a curious incompetent beast VTEC was. Everyone knows that they got their sums wrong when they bid, and the government swallowed it, but it's hard to fathom how they managed to go on to mess up just about every aspect of their pricing, marketing, loyalty, ecommerce and social media.

It's almost like a bunch of gauche sixth formers were given the Virgin brand and tried to make it more so as a school project, but sadly were utterly clueless. To me the awesomes and gloriouses always grated in a way that they never do on the West Coast.

And then there was the disintegration of First Class service and the crummy lounge refurbs. In the case of the King's Cross lounge, crumb infested as well as crummy in style terms.

I've checked, and the combination of the loss of Rewards and the useless new website sent me from spending just over £7k with East Coast online in 2014 to around £600 with VTEC in 2017. Okay, a lot of the £7k was for travel with other operators, but nevertheless illustrative in a small way of what went wrong. To use their cringeworthy phrase, my 'money saving mitts' went elsewhere.

An awesome failure.

 

[BRX]

You're right! Virgin is nothing without the brand. You can be pretty sure the reason Stagecoach got Virgin on-board for East Coast is for the branding and nothing else. Although Virgin bid for the west coast and crosscountry franchises themselves they probably wouldn't have bothered if the franchises had to be called InterCity (plus they quickly got Stagecoach on board for their operational experience).

Presumably when Virgin announced their involvement with the Stagecoach WCP bid there was no requirement for neutral branding known about at the time, so you may see Virgin leave the rail business if it is the case that they need to use a vendor neutral brand.

I don't really get what the value in the virgin brand is supposed to be anyway. I get that 20 years ago perhaps it had some kind of association with the glamour of transatlantic air travel, but these days does it really convey anything positive to prospective rail passengers? It doesn't to me.

 

[whhistle]

Of course it is, it's a reward for choosing them, instead of another, more expensive retailer!

Hmm.
I'd seriously not consider a "reward" as somewhere that is simply cheap.
The definition of reward is "a thing given in recognition of service, effort, or achievement", which doesn't give much weighting to this thread, but I'd still suggest a reward is more something that is extra. Cheap prices is simply competition, not a reward.

It just seems that there are a significant few that stomp around saying the same thing (that VTEC should have some sort of reward system) but don't accept that it was once good, but now it's gone. You can spend your time trying to get them back, or accept and vote with your feet. If you don't, you clearly are able to accept there are no more rewards.
I see the same sort of thing in many places - people who moan that some sort of system has changed, but don't change themselves. It's almost hypocritical.

 

[AlterEgo]

I don't really get what the value in the virgin brand is supposed to be anyway. I get that 20 years ago perhaps it had some kind of association with the glamour of transatlantic air travel, but these days does it really convey anything positive to prospective rail passengers? It doesn't to me.

That’s an interesting perspective. It is difficult to see what Virgin’s brand brings to the railways. I don’t think many people associate it with flying to New York.

 

[dcsprior]

It just seems that there are a significant few that stomp around saying the same thing (that VTEC should have some sort of reward system) but don't accept that it was once good, but now it's gone. You can spend your time trying to get them back, or accept and vote with your feet. If you don't, you clearly are able to accept there are no more rewards.

Personally, I don't care if EC/VTEC has a rewards system or not as such - but I do care that the dropping of it has contributed towards a total price increase for me of something like 80%.

Because of this, I've voted with my feet - presumably people doing this have contributed to their demise, which is what this thread is actually meant to be about.

 

[BRX]

That’s an interesting perspective. It is difficult to see what Virgin’s brand brings to the railways. I don’t think many people associate it with flying to New York.

I associate it with Voyagers that smell of toilets, and my broadband service that doesn't always work properly.

 

[centraltrains]

I associate it with Voyagers that smell of toilets, and my broadband service that doesn't always work properly.

Virgin Hyperloop

 

[cambsy]

I blame the Governments and the franchising system, as in order to win the franchise, Stagecoach and Virgin had to overbid to win the franchise, then when things don’t quite work out, infrastructure etc they end up in doggy doo dah, The DAFT just wring their hands with glee when they see how much Stagecoach and virgin were going to pay, then lo and behold it went belly up, the DAFT should have looked through the figures with fine tooth comb and not just take the bid without due diligence.

 

[Bornin1980s]

Okay, why is it that franchisees are always required to pay more than DOR could earn?

 

[Bletchleyite]

Okay, why is it that franchisees are always required to pay more than DOR could earn?

Because political nonsense.

 

[AlterEgo]

Okay, why is it that franchisees are always required to pay more than DOR could earn?

The default assumption is that the private company would run it better. This is a fallacy and not always true.

 

[matt_world2004]

Okay, why is it that franchisees are always required to pay more than DOR could earn?

Because they bid a price to the dft and they bid more than dor could earn.

 

[peri]

Perhaps from now on the DFT should ask for cash in hand.
Less money will be offered but "bird in the hand" and all that!

 

[Master29]

I don't really get what the value in the virgin brand is supposed to be anyway. I get that 20 years ago perhaps it had some kind of association with the glamour of transatlantic air travel, but these days does it really convey anything positive to prospective rail passengers? It doesn't to me.

Completely agree. Who gives a xxxx about brands when stuck on a freezing platform on a February evening.

 

[swt_passenger]

Virgin Hyperloop

Makes me think of Tubular Bells. Or maybe Tubular Balls Up...

 

[LLivery]

I don't really get what the value in the virgin brand is supposed to be anyway. I get that 20 years ago perhaps it had some kind of association with the glamour of transatlantic air travel, but these days does it really convey anything positive to prospective rail passengers? It doesn't to me.

That’s an interesting perspective. It is difficult to see what Virgin’s brand brings to the railways. I don’t think many people associate it with flying to New York.

I think with many people it has taken the INTERCITY spot. There are people who seemingly think all InterCity trains are Virgin. I had someone think London to Notts was Virgin even though they've never seen a Virgin train at Nottingham station. Virgin have also until recently managed their PR very well. Taking all credit for the Pendolinos, West Coast upgrade, the new IEPs for the ECML. Then there are the flashy adverts, the informality etc., which has allowed for the screw ups to be ignored. I've never been convinced, don't like Virgin Atlantic which is far too expensive when you compare even to BA. I use Chiltern if I'm going Birmingham and now the Branson reputation has been hit by this, NHS scandal, tax questions.

 

[Chrism20]

Speaking with a colleague last night who incidentally works in my companies loyalty team and uses VTEC on a regular basis.

His opinion was that rewards Will have had a detrimental effect on income initially but not on sales of their own tickets. He pointed out that anyone who was savvy was buying everything they could train travelwise through EC as it earned points and that given EC had not tinkered with the redemption levels until the very end it was clearly paying for itself and possibly adding a handsome amount on top for by selling other operators tickets.

He reckons that spending probably stopped dead overnight when VTEC took over as there were other operators at the time offering nectar AND 1-3% cashback depending on the type of ticket via TopCashback or Quidco.

So the majority of that revenue was simply gone the moment they flicked the switch on rewards. He reckoned that if EC were able to shift significant volumes of tickets for other operators that the commission from this alone could possibly have covered all of the rewards expenditure.

He says looking at the booking confirmations for the last five years on his email account he can see that the regular weekends him and his partner used to have in London are now on average £50 each more expensive than they were when VTEC took over which has added £100 to a weekend away with nothing in return. He says this resulted in a weekend away every month becoming once every six weeks.

His exact words were “They embarked on some type of
Grotesque fare management system that alienated their core group of customers” which was complimentary in comparison to what he had to say about the roll out of the website, app and on station ticket machines which has been shambolic and he is astonished that no one has walked over that mess given that it is relied upon to generate most of the cash.

He rounded it off by saying if you have survived being hacked off about not getting rewards, succumbed to being fleeced by a circa 50% rise in the price of your ticket after struggling to reserve it on a patchy system, panicked because you can’t get the ticket out the machine or the app to activate it you then have to contend with the crew being stressed because the rota has went to pot and there is half the amount required onboard, the majority of the food hasn’t been loaded, the shrinking of what has been loaded, the toilets not working properly, no standard trolley and the food bar being shut you would probably think twice about repeating the experience.

And that unfortunately is a fairly accurate account of what VTEC have done over the last few years. They have thoroughly pissed off their core group of customers and they have voted with their feet.

 

[SaveECRewards]

There needs to be a new formula for franchises but I'm not sure what it could be. It needs to ensure that the operator doesn't have to make things worse for passengers by cutting back on quality (catering, lounges, customer services, etc) and cause uncertainty for staff which affects morale.

One of the failures of this current franchise is it specified that so much had to be spent on 'innovation' (working with third parties such as Seatfrog for new ideas), new website, app and catering ordering - all have been implemented so poorly it's been money down the train. But as they were obliged to do this as per their franchise they had to cut back on the things passengers actually care about.

The obvious solution would be that the operator bids on the overall offering - detailing a minimum on-board service they'd provide and then provide a baseline figure to pay the government based on detailed assumptions such as passenger figures, competitive environment (e.g. if they need to lower prices due to competition from other sources) and whether upgrades to the line are due on time. Every one of these variables is a risk and the franchise document should detail what will happen if any of these risks occur.

Blindly paying a set amount of fees based on assumptions made back in 2013/14 (when Stagecoach were putting the bid together) is a terrible way to run a bidding process.

So the question is how do we make it better? If we carry on in the same way we're always going to get franchises that'll try their luck and bid high (like Stagecoach did, even if Network Rail and Hitachi had zero issues with delivery this bid was still much too high), if the government plays safe and goes with a low bid then passengers will be annoyed if they see record profits, or on the other hand the operator might have more money to invest in improvements - better service would attract more discretionary passengers.

If an operator had to pay a fixed percentage of their profits in theory this would encourage operators to invest in improvements and wouldn't penalise them if there was a bad patch beyond their control. However it would be easy for an operator to game the system by making profits lower by passing money to subsidiary companies for consultancy/services.

 

[SaveECRewards]

So the majority of that revenue was simply gone the moment they flicked the switch on rewards. He reckoned that if EC were able to shift significant volumes of tickets for other operators that the commission from this alone could possibly have covered all of the rewards expenditure.

(apologies in advance for those sick of rewards, I thought this covered new ground and so was worth a response)

They would be right. We did a FoI request for East Coast and the commission from the sales of third party tickets more than covered the cost of all the third party redemptions (things like wine, gift cards, etc that would cost EC real money to offer), the extra commission would have probably covered the other costs of the scheme too (although the cost to EC of a free EC ticket is harder to value).

Here's the FoI request (my summary and a link to the full document): http://saveecrewards.co.uk/foi/initial-document

Expenditure on non-East Coast rewards (i.e. rewards that cost East Coast real money to provide such as wine and gift cards) was £527,731 for the year to date. The amount earned by East Coast in commission during the same period was £2,759,041

FirstGroup had Nectar before Virgin (west coast) and FirstGroup gave points of all bookings (like EC did with rewards), so anyone who cared about Nectar was already booking with FirstGroup. VTEC crazily didn't even give points on VTWC bookings or vice versa, so if you weren't aware of which Virgin site to book on you were better booking 'Virgin' on a FirstGroup site. It would be a bit like Tesco coming along and ditching Clubcard and replacing it with Nectar but only giving points on Tesco own brand while Sainsbury's gave points on everything.

I doubt the loss of income from commission from third party sales would have been enough to cause financial trouble but it was still a significant amount of money which they effectively lost because of some bad decisions. Some may have stuck around initially but when the new booking engine launched there was really no reason to continue booking all your travel directly through them.

UPDATE: I've Tweeted part of your comments and a link to the full posting https://twitter.com/saveecrewards/status/961588886513377280

I agree Rewards was just one small element in what made VTEC less attractive. I still used VTEC significantly more than other options until other issues (catering lottery mostly) made their product much less attractive. I was happy paying their increased prices when I knew I'd almost certainly get a good product on board. They can still be great when the service is as advertised.

 

[pt_mad]

That’s an interesting perspective. It is difficult to see what Virgin’s brand brings to the railways. I don’t think many people associate it with flying to New York.

Not now.

I remember in the late 90s it just seemed so cool all the intercity trains being painted into red black and stripes with the Virgin logo on,which again looked pretty cool at the time. My main association at the time was Virgin Megastore and Virgin Records. Virgin Megastore was another really cool thing in the mid to late 90s. Virgin Cola, although granted didn't do well but Cola was still a pretty cool thing at the time. Also the top man was on the telly attempting his around the world and hot air balloon trips.

It just felt like innovation and modernisation and trendiness was coming compared to old BR intercity.

I think with many people it has taken the INTERCITY spot. There are people who seemingly think all InterCity trains are Virgin. I had someone think London to Notts was Virgin even though they've never seen a Virgin train at Nottingham station. Virgin have also until recently managed their PR very well. Taking all credit for the Pendolinos, West Coast upgrade, the new IEPs for the ECML. Then there are the flashy adverts, the informality etc., which has allowed for the screw ups to be ignored. I've never been convinced, don't like Virgin Atlantic which is far too expensive when you compare even to BA. I use Chiltern if I'm going Birmingham and now the Branson reputation has been hit by this, NHS scandal, tax questions.

Definitely felt like it had taken the intercity spot when they had XC. Not so much since they lost that as for many years it's been just one route, till East Coast.


Nowdays, associations are probably Virgin Media, Virgin Airlines, something to do with Virgin and banking and Virgin and the NHS.

Also RB who people probably think of now as simply the bloke who owns or did own Virgin and who lives on a tropical island.

Not even sure teenagers would know who is he.

 

[SaveECRewards]

Not now.

I remember in the late 90s it just seemed so cool all the intercity trains being painted into red black and stripes with the Virgin logo on,which again looked pretty cool at the time. My main association at the time was Virgin Megastore and Virgin Records. Virgin Megastore was another really cool thing in the mid to late 90s. Virgin Cola, although granted didn't do well but Cola was still a pretty cool thing at the time. Also the top man was on the telly attempting his around the world and hot air balloon trips.

It just felt like innovation and modernisation and trendiness was coming compared to old BR intercity.

I had remembered that time well, just finishing GCSEs, only travelled on the BR IC225 a few times before (nice and new then) but thinking it would be great if Virgin got the ECML franchise. Thought they would probably revolutionise it.

In the end GNER got it and they impressed me. They took what they got from BR and built on it. They had a beautiful livery that looked very traditional but with a modern (at the time) twist.

Virgin (CrossCountry) at the time had some knackered stock from BR and didn't seem to want to do much with it. I never saw the interiors of the trains in the BR days but it didn't look like they did anything to them. While GNER got their fleet pained relatively quickly there was still some carriages going around in InterCity colours, there was often a mix of Virgin and BR carriages in the rake of coaches it never gave to me a modern feeling.

Other things I remember from that time were the lack of focus on catering. On GNER the buffet was open from a few minutes after departure until about 20 minutes before the terminating stop and you pretty much knew in standard there was also a trolley and in first it was well staffed. I remember boarding an XC service from Sheffield to Newcastle late evening to find the buffet shut, after a similar thing a few weeks later I decided it was better to get Northern(Spirit) to Doncaster and GNER from there.

As VTEC have discovered thanks to GNER people expect a reliable catering service. East Coast making first class complimentary has also raised expectations on that front (although I preferred the restaurants).

Definitely felt like it had taken the intercity spot when they had XC. Not so much since they lost that as for many years it's been just one route, till East Coast.

Back when the franchised was announced I questioned the wisdom of using the Virgin brand as many people would associate Virgin with CrossCountry as if you lived between Doncaster and Scotland that was probably your biggest experience with Virgin Trains.

Nowdays, associations are probably Virgin Media, Virgin Airlines, something to do with Virgin and banking and Virgin and the NHS.

In many ways this has dissolved the brand. Almost as bad as Stelios, if you look at easy.com he has created loads of 'easy' companies most you've never heard of.

Obviously some people in marketing think the Virgin brand is still cool, otherwise they'd not have used it. I think Virgin Care will likely to be what kills off the last remaining admiration for the brand.

Also RB who people probably think of now as simply the bloke who owns or did own Virgin and who lives on a tropical island.

Not even sure teenagers would know who is he.

I've never thought of that. It's easy to forget that people who were well known when you were growing up may be someone that the current young generation might not know.

Personally I think most teenagers will probably know who he is, but I imagine many think he's like this embarrassing grandad who tries to be cool in front of their friends.

 

[SamYeager]

There needs to be a new formula for franchises but I'm not sure what it could be. It needs to ensure that the operator doesn't have to make things worse for passengers by cutting back on quality (catering, lounges, customer services, etc) and cause uncertainty for staff which affects morale.

IMHO the primary issue affecting franchise decisions is HM Treasury (HMT). It's important to realise that HMT doesn't give a stuff about the railway industry and its "customers". HMT's only interest in railways is how much money it has to give the railways at the expense of other areas such as the NHS, social care, benefit rates and lower tax rates which are far more important politically.

Bear in mind that HMT has had a long running campaign to increase the amount of revenue it derives from both passengers and TOCs to offset cost of railway. I'm pretty certain this is why DOR was booted out as HMT wanted more money.

Labour getting voted in will not change situation in terms of funding available as policies mentioned above, excluding lower tax rates, will still be most important. Most likely impact would be even more meddling from DfT with HMT pushing to freeze or reduce funding to make more available to "deserving areas".