The East Coast main line is to be brought back under public control in what will be the third time in a decade that the UK government has called a halt to the franchise.
The decision followed a statement by the transport minister Chris Grayling in February in which he said the operator had “got its numbers wrong” when bidding for the franchise and that the contract would end earlier than expected, with Stagecoach running the line “a small number of months and no more”.
Speaking to parliament today, Grayling said after two months of analysis, he had concluded that taking the East Coast line back into public ownership would provide the smoothest transition to a new operation.
He added that the firms operating the franchise, which is held under a joint venture between Stagecoach and Virgin owning 90% and 10% respectively, “will have lost nearly £200mln” but this had not been a loss to taxpayers “at this time”.
However, he said he had received “official advice” that both firms should be allowed to continue bidding on future rail franchises.
The new publicly controlled rail line will be renamed the London and North Eastern Railway (LNER).
The decision with pile additional gloom on Stagecoach, who saw like-for-like revenue for its region UK bus operations fall by 2.5% in March as severe weather dented its earnings.
The firm has run the East Coast franchise with Virgin since 2015 and said that the two companies had been in negotiations with the Department for Transport for a new franchise contract.
However, it is understood that Grayling was “no longer considering” them for the deal.
Stagecoach Group chief executive Martin Griffiths said: "We are surprised and disappointed that the Department for Transport has chosen not to proceed with our proposals. We believe our plans offered a positive, value-for-money way forward for passengers, taxpayers and local communities, ensuring the continuation of the exciting transformation already underway on East Coast and a smooth transition to the Government's new East Coast Partnership.
He added: "However, we respect the Government's decision. We will work constructively with the DfT and the OLR in the weeks ahead to ensure a professional transfer to the new arrangements, supporting our employees and maintaining the same clear focus on our customers as we have over the past three years.”
In mid-afternoon trading Wednesday, Stagecoach shares were up 0.7% at 154.6p.