I have always had a soft spot for Sir Richard Branson, ever since he took me on a press trip to Tokyo. He was warm and friendly and held great parties in his hotel room until the early hours of the morning.
It was Virgin’s inaugural flight to Tokyo, and to mark the occasion Sir Richard invited celebrities such as Patsy Kensit and Swing Out Sister, a British pop band who had just recorded a hit called Breakout. His mother was there too. The few days were very jolly and there was no shortage of partying and bonhomie.
Sadly there didn’t seem to be a lot of bonhomie around yesterday as Sir Richard reacted with venom to Virgin Rail losing out in its franchise bid for the west coast route to Glasgow to First Group.
Sir Richard, who has lost three other bids, branded the decision insane and threatened to pull out of the railway business altogether.
The new deal sees First Group bidding £5.5bn for the right to operate the routes from London to destinations including Glasgow, Manchester and Liverpool, until 2026.
Branson, who bid £4.8bn, said his company refused to match FirstGroup’s bid because of the risk of almost certain bankruptcy.
In the past Virgin has been outbid on a couple of other routes, only to see the winning bidder, on one occasion National Express, and on the other GNER, fail to complete the contract.
However, there are good reasons to believe that First Group has a decent chance of making a success of its new business. It is looking for growth in revenues of 10.4 per cent a year, through a mixture of increasing passenger numbers, price rises, and a more flexible fare structure aimed at better utilising capacity during non-peak hours.
Although the trains are currently jammed during peak hours, current capacity levels are only around 35 per cent. “There is bags and bags of underutilised capacity,” says a First Group spokesman.
First Group says it has managed to increase passenger revenues by around 20 per cent a year on its trans-Pennine routes and sees little reason why a similarly healthy increase can not be achieved on its new route.
Could it be that Sir Richard made a tactical mistake in bidding so far below First Group? If he had bid closer to his rival, he might have stood a chance.
As an incumbent who could argue had done a reasonably good job on the line already, he may have got away with a slightly lower bid and still been allowed to keep the franchise. But the difference between the two bids is too large for any tightly squeezed government to ignore.
Only time will tell whether First Group has overpaid or not but in behaving so petulantly Sir Richard is winning himself no favours and is looking like a bad loser. It would have been better to accept the decision gracefully.
PENSION WOES FLOOR DAWSON
After weeks of negotiations with the Pension Fund Body the Pension Fund Regulator (PPF), the cashmere group Dawson International was yesterday forced to call in administrators. The group was hopeful it could secure a deal with the PPF that would have seen the body take an equity stake in Dawson, and suppliers and shareholders take some pain but reach a conclusion that could have led to the survival of the 140 year-old group that once owned brands like Pringle and Bannatyne.
Chairman David Bolton is convinced the PPF could have been more flexible in its approach and could have reached a deal. What a shame.