The Department for Transport (DfT) must share responsibility for the failure of the East Coast rail franchise along with operators Stagecoach (LON:SGC) and Virgin Trains, according to a damning report by MPs.
The franchise to run the route was won by the Virgin Trains East Coast joint venture of Stagecoach (90%) and Virgin (10%) and began in March 2015. It was scheduled to run for eight years before it was terminated in June after it failed to meet its financial commitments to the government.
READ: Stagecoach shares fall as it suffers £84.5mln hit from East Coast franchise loss
The Transport Select Committee said the InterCity East Coast route, which includes Stevenage and Peterborough, made a profit and customer satisfaction was high. However, the JV’s revenue projections were overly optimistic, with its operating surplus not enough to cover the premium payments it had committed to make to DfT.
“Franchises should be able to withstand normal fluctuations in the economic cycle. Naivety, over-optimistic expectations and a mismanaged bid process all played a role in the failure of this franchise – the third in little over a decade,” Lilian Greenwood MP, the chair of the Transport Committee said in a statement.
GNER was stripped of the route in 2007 after its parent company suffered financial difficulties, while National Express withdrew in 2009.
The DfT was itself criticised for encouraging overbidding and failing to adequately test the robustness of Stagecoach and Virgin Trains’ bid.
“The Secretary of State pointed the finger at Stagecoach and Virgin for getting their bids wrong, but the Department is not blameless. Even now, there is no concrete plan, nor timescales, for the interim operator of this franchise,” Greenwood added.
Shares in Stagecoach were 1.2% up at 164.6p in early afternoon trade.