FIRSTGROUP has secured a key victory in its campaign to build its train operations, following its loss of ScotRail to Abellio, by winning the South Western franchise in a head-to-head battle with incumbent Stagecoach.
Aberdeen-based FirstGroup holds 70 per cent of the joint venture with Hong Kong-listed MTR Corporation that was named yesterday by the Department for Transport as the winner of the competition to run the new, seven-year South Western rail franchise.
Stagecoach, which will run the existing franchise until August 19, said it was “disappointed” it had been unsuccessful in its bid.
The size of FirstGroup’s passenger rail operations was reduced significantly on April 1, 2015, when the ScotRail operation moved over to Dutch operator Abellio after the Aberdeen-based company failed in its bid to retain the Scottish franchise.
FirstGroup’s victory in the battle to run the South Western franchise, one of the biggest rail operations in the UK, represents a major victory in terms of rebuilding the scale of its UK passenger train business.
The group’s joint-venture partner in the successful South Western bid runs the Mass Transit Railway in the former British colony of Hong Kong, which has been a special administrative region of China since 1997.
MTR was selected in 2014 to run the new Crossrail services by Transport for London. MTR previously ran London Overground services in a joint venture with Arriva.
FirstGroup, which retained the TransPennine Express operation after winning a new seven-year franchise which started in April last year and also runs Great Western Railway and Hull Trains, highlighted MTR’s experience of running suburban, commuter rail operations in Asia and the UK.
Perth-based Stagecoach, which operates East Midlands Trains and runs the East Coast and West Coast Main Line franchises in joint ventures with Sir Richard Branson’s Virgin Group, has operated the South Western network since privatisation in February 1996.
The network, the first in the UK to be privatised, has been operated by Stagecoach under the South West Trains banner. The South Western network employs around 4,600 people, who will transfer to the FirstGroup and MTR joint venture when it takes over the operation in August.
Stagecoach chief executive Martin Griffiths said: “We are proud to have operated the network under the South West Trains brand for more than 20 years, and we are disappointed that we have been unsuccessful in our bid for the new franchise.”
He added: “We believe we submitted a strong bid for the new South Western franchise. It offered a transformation in the travel experience for our customers, more investment to help the railway support the communities and economy of the south-west, as well as a substantial and deliverable financial benefit to taxpayers to help fund better public services. We will be seeking detailed feedback from the Department for Transport on the various elements of our bid.”
Tim O’Toole, chief executive of FirstGroup, said: “We are delighted that our partnership with MTR has been selected by the DfT to run the South Western rail franchise, a key part of the country’s railway network which millions of people rely on every day.”
FirstGroup said its joint venture with MTR would deliver £2.6bn in premium payments, on a real, net present value basis expressed in 2017/18 prices, to the UK Government over the core, seven-year period of the franchise. The contract to run South Western can be extended for up to 11 months at the Department for Transport’s discretion.
FirstGroup added that the franchise would benefit from investment of £1.2bn, primarily during its first four years, declaring that this would lead to “enhanced customer experience and passenger capacity”.
Shares in FirstGroup yesterday rose 4.1p or 3.3 per cent to 128.2p on the back of news of its South Western franchise win. Stagecoach shares fell by 2p or one per cent to 198.1p.
Earlier this month, it emerged that FirstGroup and Stagecoach would be battling it out for the new East Midlands rail franchise, along with Deutsche Bahn-owned Arriva. Stagecoach has run East Midlands since 2007. FirstGroup is bidding for the new East Midlands franchise, due to begin in November 2018, through a joint venture with FS Italiane Group’s Trenitalia UK operation.
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