Richard Branson's Virgin Rail Loses Franchise to FirstGroup

FirstGroup, the Scottish train operator, has outbid Richard Branson's Virgin Rail to operate one of Britain's most important rail franchises, ending the billionaire's 15-year involvement in the industry.

Britain's Department for Transport made the decision to award the 13-year franchise to FirstGroup after it submitted a £5.5bn bid to run the West Coast line, which runs from London to Edinburgh, transports around 30m people each year and generates revenues of around £900m. FirstGroup will take control of the route on 9 December.

"(The route) has a considerable amount of unused capacity that will expand further with the addition of 106 new Pendolino coaches by the start of our new franchise," said FirstGroup chief executive Tim O'Toole. "This capacity exists on the key growth corridor for the UK economy, linking a number of the UK's largest and growing major urban areas including London, the West Midlands, Greater Manchester, Liverpool and Glasgow."

FirstGroup said it will add 11 new six-car trains to operate between Glasgow and Birmingham, the UK's second-largest city, and reduce some fares by as much as 25 percent in the first two years of its franchise.

Virgin Rail's future - and that of Branson himself - in the UK transport network is now in question after the famous entrepreneur lost two previous bids to secure rail franchises on the East Coast and CrossCountry routes with its 49 percent partner, Scotland's Stagecoach Group. Branson's Virgin Money Holdings group, however, is still active after its £750m purchase of the failed Northern Rock lender last year.

"The Government decision to award the West Coast Main Line Franchise to FirstGroup is extremely disappointing for Virgin, and for our staff that have worked so hard to transform this railway over the last 15 years," Branson wrote on his blog Wednesday. "We submitted a strong and deliverable bid based on improving customers' experience, increased investment and sustained innovation. To have bid more would have involved dramatic cuts to customer quality and considerable fare rises which we were unwilling to entertain."

FirstGroup shares fell 6.2 percent in early London trading to change hands at 243.50 pence each. The shares are down around 27 percent so far this year.