Avanti West Coast has been warned it might lose the rail contract between London and Glasgow entirely after having it renewed for just six months.
Transport Secretary Anne-Marie Trevelyan said services on Avanti have been "unacceptable" after services across the north-west were slashed in August.
"We have agreed a six-month extension to Avanti [to April] to assess whether it is capable of running this crucial route to a standard passengers deserve and expect."
Trains on its timetable were reduced from seven per hour to four on August 14 with routes from London to Manchester especially badly affected.
Avanti blamed a shortage of drivers for the problems and said services would build up again as new drivers completed their training.
The company, a joint venture between the UKs FirstGroup PLC (LSE:FGP) and Italy’s Trenitalia said it was committed to working with the government to deliver a successful railway.
Mayor of Greater Manchester Andy Burnham said: "At last there is a recognition that there has been spectacular mismanagement by Avanti West Coast."
"We just need good services and a full timetable back as soon as possible," he added.
Shares in FirstGroup rose 0.4% to 108.9p.