UK



Assessment

Problems with the Virgin rail franchises emerged, in part from overly optimistic revenue projections in the initial franchise bids (Nash et al) and, in the case of West Coast, a complex and disruptive infrastructure project that included many stakeholders, high political exposure, and reputational risk. The seriousness of these problems emerged only over time.

How did these problems arise? Some have alleged that Virgin out-negotiated Railtrack, a weak organization that failed to protect its own interests, and Railtrack could not deliver (Gourvish). It is true that Virgin negotiated skillfully to transfer project risks on to Railtrack, thereby protecting its own commercial interests and the interests of other operators. This helped ensure that the reputation of Virgin, and the reputation of the railways in general, did not suffer unduly since the railways’ reputation was already tainted by ageing assets and unreliability.

It is debatable whether it was sensible to franchise West Coast as a vertically separated operator, given the complexity and disruption expected from infrastructure upgrading and the massive task of coordinating the introduction of new rolling stock. Some problems might have been avoided if Virgin had also been in charge of infrastructure, although new problems might have arisen since rail infrastructure is not a core competency of Virgin Trains.

Contracts within the British rail industry are complex and those for West Coast the most complex of all. Governments should embark on such arrangements only when they have considered them carefully, employed the best technical, commercial, and legal advice, and ensured a genuine transfer of risk to the private sector.

Still, there were some major achievements from Virgin’s involvement that went far beyond the benefits of introducing marketing skills from the airline industry. Virgin is a single-minded and tough commercial operator with a strong customer focus, and involving Virgin led to the smooth introduction of tilting trains on a scale unprecedented anywhere in the world. In part, this can be attributed to the innovative procurement of rolling stock, which included maintenance provision. Virgin’s skills, combined with substantial investment from other partners, doubled passenger volumes, mainly through taking market share from air. This enabled government to receive a payment from Virgin, rather than to continue paying subsidies.

This case study shows what can be accomplished by involving a competent private sector partner with strong commercial skills and a focus on its staff and customers.

References
Department for Transport, UK. Reforming Rail Franchising, July 2010,

Gourvish, T. “Britain’s Railways 1997-2005”, 2008, Oxford University Press.

Nash C., & Smith A., (2006) Passenger rail franchising: British experience,


Office of Rail Regulation, various years, National Rail Trends,

  
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