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Monday, 27 August 2012

Toot toot, chuff chuff

The last time Beardy Branson had such a good whine, he was crying to his mother from police cells after being questioned in connection with the selling of records in Virgin stores that had been declared export stock. His latest tizzy is all about being outbid for the West Coast Main Line franchise. You have probably heard about it because he has been on the airwaves trying to create a fuss about the rival bid.

For the record, and because you won't hear much about this from the BBC, the rival bidder, FirstGroup, has promised to introduce better wi-fi and food, more frequent trains and more seats, and to cut standard fares by 15%. They would also introduce 11 new 125mph six-car electric trains on the Birmingham to Glasgow route and provide more direct services between destinations. Oh, and they have promised to pay £5.5 billion for the franchise. Now that is what the franchising system is all about.  More competitive bids, offering more for the franchise and creating better services.

But Branson's argument is that they can't deliver. Not so, all the targets are perfectly deliverable.  The only issue is whether they make any money at it,, and that is the risk of the bidder.  Well, what if they don't perform? Well if the franchising contract is drafted correctly then the entire First Group can be held liable.  First Group may have smaller annual revenues (£6 billion or so) than Virgin (£15 billion give or thereabouts), but their embedded infrastructure (train and bus franchises) is a lot less volatile than the video games, jewelry, houseware and holidays that form an increasing part of the Virgin business.

And if anybody has to make a judgement call on that, well it is the rail regulator, or to give it its full name The Office of Rail Regulation, the independent safety and economic regulator for Britain's railways.  Which makes it all the more laughable that Angela Eagles and the Labour Party should be joining the Branson bandwagon, looking for an "independent" review of the the decision.  The ORR is independent, and ultimately answerable to parliament.  Some parliamentary ego-maniacs just never know when to stop.


SadButMadLad said...

Why is there such a high price for the franchise in the first place? Look at what the very high price of the four G auction got us. A three G system. And then the government give back the money in the form of subsidies. And the result? High ticket prices.

What should happen is full privatization or full nationalization, not the current mess of neither.

Alex said...

Ticket prices are determined by the regulator and are factored into the bids of all parties (i.e. they work off the same starting price and inflation assumptions and bid on what they can pay for the franchise). First Group reckoned they could provide a better service with more trains and hence afford to outbid Branson for the franchise.

You are right that a better approach would be to bid for lowest possible ticket prices and zero franchise payments, but that's politicians for you - ever eager to raise more taxes by the back door.

Anonymous said...

Furthermore, First Group is British registered, widely-held, fully-listed in the UK and publishes copious, transparent and verifiable annual financial results, which are subject to scrutiny by analysts, investors and everybody else. It has a conventional management structure, responsible to its investors, and is an established and growing provider of transport in "United Kingdom, Ireland, Denmark, Sweden, Canada and the United States".

Virgin is ... um ... er ... well ... yeah!