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

[Domh245]

And yet the DFT is saying now they (VStagecoach) overbid, and got their figures wrong? The DFT isnt saying they were reasonably over optimistic and that the DFT vetted the figures and agreed they were acceptable?

The DfT is hardly going to come out and say "yes, we're also responsible for this mess" is it.

 

[pt_mad]

The DfT is hardly going to come out and say "yes, we're also responsible for this mess" is it.

That's what came out last time, 2012, with the First Group west cost bidding. It was admitted. Why wouldn't the DFT accept responsibility if it lies with them?

Also, Chris Grayling said words to the effect of Stagecoach got their sums wrong, and now they must pay the price, not the taxpayer.

What is the price they are paying if they are allowed to continue on a management basis? That is basically a bailout isn't it? If they carry on in exchange for a fixed fee for 2 years that's no price to pay at all other than loss of the profit they envisaged. But they still keep their reputation and their director jobs presumably.

Surely them paying the price is either they are left to run out of money and officially approach the DFT and hand back the keys saying they have failed and cannot continue, or they use the other Stagecoach group businesses to finance a loss making East Coast.

Don't some other businesses who have a massive portfolio use cash from other companies they have to finance something which isn't doing well at that time? Why can't Stagecoach do this and save the taxpayer?

 

[Agent_Squash]

Surely them paying the price is either they are left to run out of money and officially approach the DFT and hand back the keys saying they have failed and cannot continue, or they use the other Stagecoach group businesses to finance a loss making East Coast.

That's what has been happening ever since VTEC began to derail...

 

[Domh245]

That's what came out last time, 2012, with the First Group west cost bidding. It was admitted. Why wouldn't the DFT accept responsibility if it lies with them?

As it is at the moment, Labour can beat them with a stick about their ideology, but not much else beyond that. If however, the DfT came out and either admitted that a) They didn't check the numbers properly, or b) They checked the numbers, so they were flawed but let the franchise on them anyway, then Labour can beat them with a much larger stick labelled "incompetence" or "lack of due diligence" which will be far more damaging than ideology.

(Caveat being that they are only beating the DfT with sticks that they've been given, and not producing their own sticks)

Also, Chris Grayling said words to the effect of Stagecoach got their sums wrong, and now they must pay the price, not the taxpayer.

What is the price they are paying if they are allowed to continue on a management basis? That is basically a bailout isn't it? If they carry on in exchange for a fixed fee for 2 years that's no price to pay at all other than loss of the profit they envisaged. But they still keep their reputation and their director jobs presumably.

Surely them paying the price is either they are left to run out of money and officially approach the DFT and hand back the keys saying they have failed and cannot continue, or they use the other Stagecoach group businesses to finance a loss making East Coast.

Don't some other businesses who have a massive portfolio use cash from other companies they have to finance something which isn't doing well at that time? Why can't Stagecoach do this and save the taxpayer?

Look at it more from the DfT's view - they are getting people with recent experience on the line to continue running it, and are also able to have some degree of continuity, both of which have advantages over new people and a new company running it. They are paying the price because not only have they already lost almost all the money that was specified in the contract (by cross subsidising from other franchises and the reserves of both Stagecoach and Virgin HQ), but they also won't receive any profits from the direct award operation. It's probably also fair to say that they've already lost their reputation, this would be a chance to try and claw some of it back.

I would say that is a fair and reasonable price to pay (much as some others would disagree)

 

[Tetchytyke]

More news again from the BBC about this whole fiasco.

What I find REALLY interesting is the change in the way the BBC announce the ownership.

Back in 2015, when all was sunny, we had

Virgin East Coast plans £21m refurbishment for trains

.

https://www.bbc.co.uk/news/amp/uk-england-34910891

But now the ordure's hit the air-propelled cooling system, we have

Stagecoach East Coast deal to be probed by MPs

http://www.bbc.co.uk/news/business-43022843

I get that the hirsute tax dodger would want to distance himself from the whole mess. That's what the morally impoverished narcissist does. But what I can't understand is why the BBC are indulging Beardy so much?

I just find it fascinating how Stagecoach are being thrown under the bus (pardon the pun). I wonder what that is all about...

 

[pt_mad]

If the franchise would be better suited to more of a Southern Rail type arrangement, where revenue goes to the DFT but the TOC is paid a fee for running it, why don't they just implement that permanently.

Would that not solve the problem permanently?

I would imagine that all these franchise bids are based on increases in passenger numbers anyway. If there was a drastic crash in passengers numbers or a drop in leisure travel how would any TOC avoid going under? The article talks about safeguards needed to prevent overbidding. But let's say a TOC put in a bid with low premiums based on passengers numbers being the same as they are now for the next 8 years. Would they have a fair shot, or be dismissed as the premiums would be expected to be based on high growth?

 

[Domh245]

If the franchise would be better suited to more of a Southern Rail type arrangement, where revenue goes to the DFT but the TOC is paid a fee for running it, why don't they just implement that permanently.

Would that not solve the problem permanently?

I would imagine that all these franchise bids are based on increases in passenger numbers anyway. If there was a drastic crash in passengers numbers or a drop in leisure travel how would any TOC avoid going under? The article talks about safeguards needed to prevent overbidding. But let's say a TOC put in a bid with low premiums based on passengers numbers being the same as they are now for the next 8 years. Would they have a fair shot, or be dismissed as the premiums would be expected to be based on high growth?

Forecasting passenger numbers over a long period is something that is difficult to do, and is probably one of the bigger flaws of the current franchising process (if you don't take the view that the whole thing is a massive flaw). In some respects, I would agree that some sort of concession model where the TOC receives a flat rate to run trains whilst the Government takes the revenue, but then there is the issue that is often levied against privatised services of "privatise the reward, nationalise the risk" - which is a bad thing of course. Ideally then, you need to find some way of drawing up the contract so that the TOC is suitably incentivised to innovate, invest, and generally do more than the bare minimum, but also so that they are suitably penalised if they are messing up in some way or the other.

 

[swt_passenger]

I just find it fascinating how Stagecoach are being thrown under the bus (pardon the pun). I wonder what that is all about...

Agree. A few of us had a short discussion about this a couple of days ago. A Guardian piece from a few weeks ago had 9 Stagecoaches to one Virgin in the text...

 

[ainsworth74]

A Guardian piece from a few weeks ago had 9 Stagecoaches to one Virgin in the text...

Spot on surely considering the ownership split?

 

[Agent_Squash]

More news again from the BBC about this whole fiasco.

What I find REALLY interesting is the change in the way the BBC announce the ownership.

Back in 2015, when all was sunny, we had

.

https://www.bbc.co.uk/news/amp/uk-england-34910891

But now the ordure's hit the air-propelled cooling system, we have



http://www.bbc.co.uk/news/business-43022843

I get that the hirsute tax dodger would want to distance himself from the whole mess. That's what the morally impoverished narcissist does. But what I can't understand is why the BBC are indulging Beardy so much?

I just find it fascinating how Stagecoach are being thrown under the bus (pardon the pun). I wonder what that is all about...

Maybe, just maybe, it's that they actively advertise themselves as 'Virgin Trains East Coast' - while the probe is to do with Stagecoach itself?

 

[Tetchytyke]

In some respects, I would agree that some sort of concession model where the TOC receives a flat rate to run trains whilst the Government takes the revenue

A concession model makes even less sense, to me.

It can work in intensive urban work, like London Overground or DLR, as to a large extent the service is what it is. You don't need, or even want, a dynamic and innovative operator trying out new things. You want someone who'll reliably shove 10 trains an hour down the line.

But for longer-distance services, a concession model seems strange. You need a bit of dynamism to develop a market. In a concession you're doing the hard work yourself and just paying someone else to do the easy bit. You may as well have DOR and be done with it.

 

[Tetchytyke]

while the probe is to do with Stagecoach itself?

The company is not called Stagecoach East Coast, does not trade as Stagecoach East Coast, and Stagecoach are not the solitary partner in the business.

Other than that...

Another example is this:

Stagecoach East Coast rail franchise to end early

http://www.bbc.co.uk/news/business-42945709

It isn't (just) a Stagecoach rail franchise and certainly wasn't announced as such by the BBC in 2016.

It's strange that Beardy is getting a free pass when his name's all over the gaff, that's all I'm saying.

 

[Chrism20]

But for longer-distance services, a concession model seems strange. You need a bit of dynamism to develop a market. In a concession you're doing the hard work yourself and just paying someone else to do the easy bit. You may as well have DOR and be done with it.

Even more so when the line in question is predominantly leisure

 

[ainsworth74]

A concession model makes even less sense, to me.

It can work in intensive urban work, like London Overground or DLR, as to a large extent the service is what it is. You don't need, or even want, a dynamic and innovative operator trying out new things. You want someone who'll reliably shove 10 trains an hour down the line.

But for longer-distance services, a concession model seems strange. You need a bit of dynamism to develop a market. In a concession you're doing the hard work yourself and just paying someone else to do the easy bit. You may as well have DOR and be done with it.

Yes that's the issue I keep running into with a concession model. I really like it for something like London Overground or GTR or SouthEastern where there isn't really much room for manoeuvre beyond ensuring that you get as many trains per hour as possible. Particularly as a lot of your custom is going to be stuck using you (in somewhere like the South East at least).

But on a long distance operation like Inter-City East Coast? Surely, if you're going to have private sector involvement, you want the private operator to get on with it and, other than stuff you specifically want them to do, let them get on with it as they best see fit? Which doesn't really lend itself to a concession model.

I think this all nibbles around the edge of a question that, love him or hate him, Christian Wolmar often asks: "What is franchising for?"

I don't know if the answer is full scale BR Mk2 or DOR like operations on all franchises or full privatisation or something else entirely. But I do think that we cannot just carry on as if the current model is the best way of delivering services. Because whilst it does work after a fashion it doesn't work well. But then I think you also have to be mindful of the wisdom as relayed by a certain G Fiennes: "When you reorganise you bleed. For many months the few top people who keep the momentum up are distracted from their proper job. Punctuality goes to hell. Safety starts to slip. Don't reorganise. Don't. Don't. Don't."

I think we are on something of a sticky wicket and there are many hard questions about the structure we want and few easy answers about how we could get there.

 

[Bletchleyite]

I suspect a concession type model would give us something like SBB - boring and basic, but good value and very reliable. In many ways the whole thing, including the operations, feel like a solid piece of infrastructure rather than a business.

Would that be all that much of a bad thing?

Though I can't help but think that a "BR plc" privatisation would have worked better than what we got. The big sell-offs like that have generally done quite well - with BT, for example, service has improved, products have been developed and prices aren't all *that* bad - I'm with BT for my broadband and phone line and from what I've heard of some of the others like Talktalk I'll be staying. I know Openreach is about to be separated off fully, but I remain to be convinced that actually makes sense.

Indeed, was DOR East Coast (which a lot of people were quite happy with) a microcosm of what "BR plc" might have looked like?

 

[Tetchytyke]

I think we are on something of a sticky wicket and there are many hard questions about the structure we want and few easy answers about how we could get there.

I think the problem is that the structure that will work is not the same as the structure that certain Governments want.

After NXEC fell over, DOR was working well. They were innovative, they were fresh, they were profitable, they were stable.

But they were a state-owned operation. And that wasn't what certain Governments want. It doesn't fit in with their world view of state-owned companies being bad and private-owned companies being good. They couldn't accept that DOR were pretty much squeezing all they could out of that franchise, as Stagecoach have now so clearly shown. They believed the hubris that the private sector will be more efficient and deliver more.

My view is that you need to cut out the middleman, unless the middleman brings you value. With a concession model they bring you the value of getting on with the boring operational stuff like HR whilst you do something else. With a ROSCO/PFI model they bring you the value of borrowing the upfront money so you don't have to put it on the national debt. But franchising? I genuinely don't know what any* of the franchises bring to the table that the sectors weren't delivering for significantly less money in the early 90s.

(*I don't include Chiltern in this, because they're totally different to any other franchise. And they DO bring value as they've largely been more of a PFI model than a traditional franchise).

 

[Bletchleyite]

One thing to bear in mind is that Tories don't like unions, and one thing splitting it all up was meant to do was limit union power. And it did in the sense of preventing national strikes.

What it also did, though, was created a market for staff in which TOCs were played off against other TOCs and wages, instead of being reduced, have skyrocketed.

Oops.

Anyone got a generator to attach to Maggie as she spins in her grave?

 

[pt_mad]

Forecasting passenger numbers over a long period is something that is difficult to do, and is probably one of the bigger flaws of the current franchising process (if you don't take the view that the whole thing is a massive flaw). In some respects, I would agree that some sort of concession model where the TOC receives a flat rate to run trains whilst the Government takes the revenue, but then there is the issue that is often levied against privatised services of "privatise the reward, nationalise the risk" - which is a bad thing of course. Ideally then, you need to find some way of drawing up the contract so that the TOC is suitably incentivised to innovate, invest, and generally do more than the bare minimum, but also so that they are suitably penalised if they are messing up in some way or the other.

The trouble with the East Coast seems to be that the premiums that are wanted from the DFT for the franchise are seemingly too high compared to the actual revenue that can be generated. Perhaps the route has found its level now in terms of stable passenger numbers/first class uptake. It may be that it's not going to grow hugely going forward.

Everything is based on growth, new services, new trains, faster services, more passengers every week. But this can't continue forever. 3 million passengers through Doncaster (example), 3.3 million the next year. 3.8 the next year. 7 million passengers 10 years later. Until every single person in the population is expected to catch a train everyday? Where would growth come from then? Fare hikes? Especially if population growth is going to slow, which it may well given the current political climate.

If the government are dead set on a private operator, why don't they just set a guide to the level of premium they expect and a level that is realistic? Set the premium levels low, if revenue is likely to stay as it is or not grow very fast.

It seems that this route is just not destined to be privatised, in the current format at least. How many times can they blame the operator? And now they are talking about reletting it in 2020, 'combining track and train' which sounds even more alarming.

 

[Allwinter_Kit]

Is their not scope for some kind of hybrid concession franchise?

So there is basically the standard 'fee for providing the trains at the required reliability/cleanliness/staffing levels etc.' and then the revenue risk is split between government and private sector?

So if the innovation of the operator or natural growth or whatever results in increased revenue that can be split between the operator and DfT (say 40/60) whilst any loss could be split similarly (60/40).

The benefits of the full on concession but still maintaining an incentive to suggest/enact improvements, etc?

 

[aylesbury]

Have a look in the latest issue of Railways Illustrated an article in which Branson puts views ,and they are still going to be running trains until the end of the franchise but will be losing money.DOR did no investment and NR have not met their targets on renewals etc,new trains are late and I don't think will be liked by passengers(my own view based on articles by experts on them) VTEC have made £140 million investments so I think badmouthing Branson is wrong as we need more people like him to make jobs and encourage growth.

 

[Tetchytyke]

VTEC have made £140 million investments

Have they?

You keep repeating this, as well as saying DOR (who finished off Mallard and brought in a whole new timetable) did nothing.

I'd love to see your figures. Beardy press releases and Griffiths' hostage video don't count.

NR have not met their targets on renewals

Which targets? Name them.

PS A business loss is not an investment.

 

[SaveECRewards]

Have they?

You keep repeating this, as well as saying DOR (who finished off Mallard and brought in a whole new timetable) did nothing.

I'd love to see your figures. Beardy press releases and Griffiths' hostage video don't count.

PS A business loss is not an investment.

I believe the £140m is actual investment not losses. Some parts of the franchise document commit them to spending certain amounts in certain areas (that's why we have the 'innovation fund' that gives money to startups like Seatfrog), just because they have to spend the money doesn't mean they have to spend it well. Perhaps the company that they contracted to do the refurb was connected to Stagecoach in some way?

But people saying EC did nothing? They did more things of importance than VTEC have done! The good bit of the new website (the bit that's not the booking engine) was their doing, class leading rewards scheme, new first class style of service (which required modifications to the kitchens and extra space in the carriages to store the trolleys), new timetable. They were also decent with marketing (Feel at Home).

As far as I'm concerned East Coast did well everything that a private operator is supposed to be good at. I think very few of the other operators did as much as EC to improve the experience (I'm talking non-ECML operators)

 

[43096]

As far as I'm concerned East Coast did well everything that a private operator is supposed to be good at. I think very few of the other operators did as much as EC to improve the experience (I'm talking non-ECML operators)

Everything? Skimping on train maintenance such that the successor has to pick up the tab is what you expect from an operator, is it?

There's an awful lot of history re-writing going on with this thread.

 

[ainsworth74]

There's an awful lot of history re-writing going on with this thread.

Well why don't you put the record straight? I wasn't aware that EC were scrimping on maintenance so I, for one, would be interested in hearing more.

 

[SaveECRewards]

Everything? Skimping on train maintenance such that the successor has to pick up the tab is what you expect from an operator, is it?

There's an awful lot of history re-writing going on with this thread.

Did they? I knew NXEC were known for skimping on maintenance but I wasn’t aware that EC did any cutbacks in this area and reliability issues were connected to the age of the fleet.

 

[tbtc]

After NXEC fell over, DOR was working well. They were innovative, they were fresh, they were profitable, they were stable

They were innovative and fresh? Well, they gave up on the NXEC plans for daytime services to Lincoln and Harrogate, meaning that the leased 180s spent their days pottering around Manchester on loan to Northern.

Profitable? Well, everyone operating the ECML franchise ought to be handing a premium to the Treasury - AIUI Stagecoach/Virgin were paying more than DOR managed - DOR are often praised for being "profitable" but they didn't have a benchmark/ commitment so paying *anything* back was seen as good enough for them.

Stable? Well, there were no franchise commitments to stick to, there were no shareholders to worry about, there was no benchmark for success/failure, so it's probably quite easy to be "stable" in such circumstances.

Apart from that, they gave away lots of "free" tickets and some people think that the website was nice.

Maintenance cutbacks in their six years in charge? I don't know. I've seen people suggest that the fact that VTEC require a couple of 90s to maintain services was linked to DOR's handling of the 91s but that could just be because the 91s are getting towards the end of their lives and the "bathtub curve" means that they were bound to become less reliable, regardless of who had looked after them.

I'm not saying that they were a terrible operator, not a great one - they just abandoned the ambition of NXEC, stuck to the basics, I'm not sure why they are so eulogised on here (other than a chance for political point scoring from people seeking a reason to criticise private operators).

If DOR had been a six year franchise run by another bus operator/foreign Government then I don't think many people would remember them a decade later - fairly dull/functional livery, fairly unambitious operations, some nice perks for First Class passengers but probably not in the top/bottom ten of TOCs we've had since privatisation. BUT, as poster boys for Westminster-controlled operations, they are elevated to special status.

 

[ainsworth74]

Profitable? Well, everyone operating the ECML franchise ought to be handing a premium to the Treasury - AIUI Stagecoach/Virgin were paying more than DOR managed - DOR are often praised for being "profitable" but they didn't have a benchmark/ commitment so paying *anything* back was seen as good enough for them.

I've seen this mentioned several times previously (often by politicians and Virgin/Stagecoach themselves) but I can't help but feel it needs placing in context.

I can't help but feel that it is worth recalling that East Coast commenced operations in the middle of the worst recession since the Great Depression of the 1930s and it wasn't until 2011/2012 that things seemed to begin to really recover. They also took over from the failed National Express franchise and had to deal with the wreckage of that operation such as rebuilding staff morale.

Meanwhile Virgin Trains East Coast commenced operations in comparatively healthy economy (or at least one that was actively growing) from an operator that was comfortably making money and chugging along quite nicely.

I would be surprised, in those circumstances, if VTEC weren't returning more money than EC considering the difference positions they started in.

Maintenance cutbacks in their six years in charge? I don't know. I've seen people suggest that the fact that VTEC require a couple of 90s to maintain services was linked to DOR's handling of the 91s but that could just be because the 91s are getting towards the end of their lives and the "bathtub curve" means that they were bound to become less reliable, regardless of who had looked after them.

Yes I'm also interested by this accusation as it's not one I can recall coming across before. As well as the "bathtub" it's probably also worth mentioning that the 91s are being worked harder than at any time in their lives. I can't help but feel that combining that with the drop off in reliability that can be expected from an asset approaching the end of its life was always going to produce the results we're now seeing from the VTEC fleet.

But perhaps 43096 will be able to provide us with more info?

 

[Andrewh32]

Being the boring accountant I thought I'd look at the latest accounts for VTEC which hopefully have attached. Just to confuse everyone it's registered at Companies House as East Coast Mainline Company Ltd!!

Points to note:-

After paying the DFT £272 million the loss for the last year was £117.4 million

The balance sheet shows net liabilities of £106 million more than it's assets so technically even on the day of the accounts it is close to if not already bankrupt, the only reason it can continue to trade is that Stagecoach is propping it up, the accounts having a going concern note which says that.

Then if you move onto Stagecoach (I did try and attach the accounts but the file is too big 157 pages, if you want to see the accounts google Companies House Beta (as that is a free service) type in Stagecoach Group then you will find them)
Stagecoach has a net balance sheet worth of only £68.5 million (tiny considering the size of operation) which means it can only properly guarantee what is VTEC for another £68.5 million as at the date of it's last accounts.

On the presumption that what is VTEC is still making a substantial loss after DFT payments £68.5 million won't last long. This is what is being referred to as coming close to breaking it's agreements etal.

If that does happen not only is VTEC in trouble but so is the whole Stagecoach operation buses & trains the whole lot.

To be clear a company can continue to trade with net liabilities provided it has a guarantor and that guarantor can afford to pay off those Net liabilities. Currently Stagecoach can afford to act as guarantor but it's getting close to not being able to afford to do so.

By saying what I have above I'm just trying to demonstrate what the mess is all about & why it is becoming urgent something is done about it. One thing I am not doing is taking sides nor am I apportioning blame.

 

[Starmill]

Stagecoach has a net balance sheet worth of only £68.5 million (tiny considering the size of operation) which means it can only properly guarantee what is VTEC for another £68.5 million as at the date of it's last accounts.

How fascinating. What is that as a percentage of their revenues? Is there anything obvious that stands out in the short term as to why that's so small? Or is it just that it has been that way for them for some time.

 

[Mugby]

Well I havn't read it from beginning to end but anyone who uses a signature like that of Tim Kavanah has to be questionable!