The rail regulator recently gave approval for First Group competing on the East Coast mainline between London and Edinburgh, where Virgin Trains East Coast is the franchisee. The 10-year track access application approved by the Office of Rail and Road (ORR) will enable First Group to operate from Kings Cross via Stevenage, Newcastle and Morpeth by 2021. What’s your view on this?
The East Coast main line has two open-access operations already – we’ve got Hull Trains and Grand Central. So it has been a route on which open access has operated for some time.
The point we’ve been making is this doesn’t really fit with the franchise system in terms of the charging policy. The open access operators don’t make the payments to Network Rail and to the government that we do. We are not happy because it’s not a level playing field. The same is true of these Edinburgh services. This needs to be fixed.
We pay over £4 million a week to the government. And we pay a fixed charge to Network Rail. We also pay a per-mileage charge to Network Rail, a much smaller charge. The other operators also pay the per-mileage charge, but that’s pretty much all they pay. The DfT [Department for Transport] have said they want this to change. They have expressed concern about abstracting revenue from the franchise. That’s a cost that ultimately, in terms of future franchises, falls to the taxpayer.
If costs were spread equally, would you be supportive of a competitive marketplace?
When you take the East Coast main line, it’s hugely competitive already, so it’s wrong to say that we’re anti-competitive. Our two owning groups, Virgin and Stagecoach, are obviously very used to operating in very competitive markets. We think competition is a good thing. Fundamentally, to have a good competitive environment, there should be a level playing field between the players.
I think you’ve also got to recognise that the franchise agreement and proposition that we bid for is about a much wider programme. The existing trains, for example, are being replaced by our new fleet of Azuma trains. And really, the East Coast mainline now goes through the transformation that took place on the West Coast mainline back in the 2000s. That’s clearly had a lot of economic benefits to the country.
You’ve got to be mindful of maintaining your ability to make these big transformational changes. I think this is one of the difficulties that the regulator has to work through – the regulator has to promote investment into the railway as well as promoting competition.
Many say the franchise system itself is not good for consumers….
Ultimately the system is a matter for government to decide. Virgin and Stagecoach have said that for long-distance routes, a system of licensing train operators, who might compete together on particular routes, should be considered.
What’s the difference between licensing and franchising systems?
Licensing would essentially be a system where the licensees bid for packages of slots, a bit like how airlines do. The details would clearly need working through. You would need to consider how to ensure promoting investment and protect the need to protect socially necessary services.
So does the franchise system protect those services?
Yes, under the current franchise system we have specific train service requirements that we have to deliver, to ensure that minor stations are served at different times of the day to meet social needs.
Virgin’s new Azuma trains will increase fleet size enabling the operator to expand operations in line with the Office of Rail & Road's (ORR) approval of new services: Virgin can run new services to Bradford, Lincoln and Harrogate from May 2019, and Edinburgh and Middlesbrough from May 2021 (if capacity becomes available sooner, the extra Edinburgh services could start from May 2019).
Our plan is to increase the number of services we run from 155 a day currently, to just over 200 a day – up by about a third. We look to use these trains not just to connect the obvious city-to-city journeys like Newcastle to London, but also what we can add to the network. Take Middlesborough for example, it’s actually a big place these days and it’s not got a direct train service to London. Our objective there is to really support the ongoing economic development in the Tees Valley.
And journey times will come down because the Azuma trains accelerate faster. Our goal is to get the Leeds-London journey times down to two hours, and Edinburgh-London down to four hours throughout the day – reduced by around 20 minutes. Newcastle to London comes down to just over two-and-a-half hours.
What’s your perspective on competing with air for market share of domestic travel?
We know from experience, from Virgin Trains on the West Coast, where journey time has been cut on the Glasgow-London route, that if we can get the journey times down then we can attract some switch of customers from air. The door-to-door journey times become comparable.
The main route where we’re looking to increase our competitive position is Edinburgh-London. Today, our market share is only around 30 per cent. We’ve set out as a goal to get that up to a far more equal position with air. Not just by cutting down journey times but increasing frequency – we’ve just started the new timetable which runs an extra 42 trains per week. It takes us up to a half-hourly frequency for virtually all of the day. That’s another 22,000 seats a week. We’re making wifi free in standard class, we’re revamping the catering, with James Martin – he’s already redesigned our first-class menu and is now looking at our standard class offer. We’ll launch that later in the summer.
This year we are giving the existing services as much of an overhaul as possible ahead of the new trains coming, and really starting to build activity to reposition rail as a more viable alternative to air on the Scotland-London route.