Stagecoach-Virgin face open access competition on East Coast train line

A report by engineering consultants CH2M Hill commissioned by the ORR said there was “irrefutable” proof that competition would bring significant economic benefits, the Times reported on Monday.

This follows a report in March from the Competition and Markets Authority (CMA) sent to the Secretary of State for Transport that examined the possibilities for introducing greater competition between passenger train operators on all franchises.

A decision to allow a second competing operator to run services on the east coast main line is expected within a matter of days.

Currently Virgin Trains East Coast, a business split 90-10 between Stagecoach and Virgin, operates the franchise.

Bids for a rival service under the 'open access' rule have been made by operators including FTSE-listed FirstGroup and Alliance Rail-Deutsche Bahn vehicle GNER.

FirstGroup's proposal is for a no-frills, low-fares train service with tickets starting from £25.

In its argument against open access, Virgin has protested that the new rules would make it impossibly to pay the £3.1bn in excess profits promised to the government over the next eight years.

The CH2M report concluded that open access competition can, depending on differing business models and effective timetabling, Virgin should only see a low impact.

Last year, following its successful bid to run the East Coast rail franchise, Stagecoach was told to address competition concerns if was to avoid an in-depth merger investigation.

An investigation found that the award could give rise to higher fares or reduced service quality for rail passengers travelling [on certain routes], in some cases possibly affecting thousands of consumers relying on public transport services.

Widening the competition issue to all the UK's rail franchises, March's report from the CMA declared there would be significant benefits from allowing 'on-rail competition' competition, or allowing other operators to run competing services against the existing operators.

Train companies should also be made to pay a larger contribution than they currently do in track access charges, the report said, with operators also required to help fund important but unprofitable services, such as those in rural areas, through a Public Service Obligation (PSO) levy.

Although its proposals will not affect current franchises and the awarding of upcoming franchises, the CMA said "action is needed now" due to the level of changes needed to implement such reforms.