09.02.15
New East Coast operator faces probe by competition watchdog
The consortium of Stagecoach and Virgin Trains that will operate East Coast rail services has been ordered to address competition concerns or face an in-depth investigation by the Competition and Markets Authority (CMA).
Inter City Railways Ltd (ICRL), a subsidiary jointly owned by Stagecoach and Virgin Trains, takes over the East Coast franchise on 1 March, but the CMA is concerned about their market share on certain sections of the London-Scotland route.
Specifically the CMA cites the overlap of East Coast rail services with East Midland Trains services operated by Stagecoach between Peterborough and Grantham and between Peterborough and Lincoln. Neither route has any other rail operator, with only a minimal coach service as an alternative.
The CMA is also concerned about the overlap of East Coast rail services with Citylink’s coach services, which are operated and jointly owned by Stagecoach, between Edinburgh and Dundee as well as between Edinburgh and Aberdeen. The only competing public transport services are provided by ScotRail and Arriva CrossCountry.
The watchdog believes there is “a realistic prospect that the award of the East Coast franchise to ICRL would lead to higher fares or reduced service quality for rail passengers travelling on these overlapping routes”.
ICRL, which will be branded as Virgin Trains East Coast, now has the opportunity to offer undertakings to resolve the competition concerns identified by the CMA within five working days. The CMA has until 20 February to decide whether these might be acceptable as a suitable remedy.
If the efforts by Stagecoach and Virgin do not assuage the fears of the CMA then a further investigation will be ordered.
Andrea Coscelli, executive director, markets and mergers, and decision maker in this case, said: “Our investigation has shown that no significant competition concerns arise on most routes where East Coast services overlap with existing Stagecoach or Virgin Trains rail or coach services. However, we found that the award could give rise to higher fares or reduced service quality for rail passengers travelling between Peterborough, Grantham and Lincoln and for coach and rail passengers travelling between Edinburgh, Dundee and Aberdeen, in some cases possibly affecting thousands of consumers relying on public transport services. ICRL can now offer a resolution to these concerns to avoid the award being referred for an in-depth phase 2 investigation.”
If the CMA takes further action against Stagecoach and Virgin it could prove to be embarrassing to the government, which faced heavy criticism for re-privatising the franchise after it had been operated successfully by the state-owned Directly Operated Railways.
The Department for Transport said: “We are confident that this franchise gives the best deal for passengers. It will provide more seats, more services, new trains and over £140m of investment along the route. In addition, more than £3bn will be paid to taxpayers
“Stagecoach/Virgin will take over responsibility for the franchise on 1 March as planned. They are now working to address the CMA’s concerns. It would not be appropriate to comment further while the CMA’s review is ongoing.”
Stagecoach told the Financial Times the competition authority had identified “limited issues”. The company would “work constructively with the authority to address the issues raised with a view to running services…as planned”.
(Image source: Mike Knell)
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