SHARES in coach and bus operator, Stagecoach, were boosted by an impressive 8 per cent last Wednesday, following the surprise news that a consortium involving Virgin and Stagecoach had fought off their hotly tipped French rivals to run the East Coast mainline, writes Gary Welford, Assistant Investment Manager.

The firm favourite in the running had been a joint-venture between Channel Tunnel operator, Eurostar, and sister company Keolis – both controlled by France’s state-owned rail firm, SNCF.

Train and bus company, FirstGroup, had also been touted as strong contenders, but saw their own shares sinking to 2014 low’s, once the news had emerged that they had also failed to seal the deal to run one of Britain’s highest-profile rail businesses.

The move will mean that the Virgin/Stagecoach consortium, which is 10 per cent owned by Sir Richard Branson and 90 per cent by Scottish-based Stagecoach, will operate the rail franchise under the ‘Virgin Trains East Coast’ banner, from March 2015.

More significantly, the change of hands from the publically owned East Coast Company, to Virgin/Stagecoach, signals a move back to the private sector for the rail franchise, which has been government-run since 2009.

The move, which took many by surprise, has been daubed a ‘national disgrace’ by rail union, RMT, who have been pushing the government for the franchise to remain in public ownership since they took control from the previous operator, National Express, when they ran into financial difficulties.

However, with a General Election just months away, the government has returned the East Coast line back into private hands under the promise that the move will transform the route with a much needed injection of cash.

Over the next eight years, Virgin and Stagecoach, who already operate rail services on the West Coast main line, have pledged to pay the government around £3.3bn to operate the franchise and will invest £140m to make dramatic improvements.

They will shortly begin talks with Network Rail and the Office of Rail Regulation to agree on more seats, more services and new trains. The package of measures includes 23 new rail services; the first ever direct route between London to Sunderland and from Middlesbrough and Thornaby; more trains from Harrogate; a ten per cent cut in standard anytime fares; and 3,100 extra seats for morning peak time services by 2020.

In a further vote of confidence for the region, 65 state of the art Intercity Express Trains, will now be assembled by Hitachi at Newton Aycliffe, which will be brought into passenger service from 2018.

At a time when the railway industry has doubled in passenger numbers, news of Virgin and Stagecoach’s innovative plans for the route, will hopefully give the North, which has arguably been neglected in terms of transport infrastructure, a long-awaited signal that there is light at the end of the tunnel.

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