Thursday 16 August 2012

First Group extends its poor service to the Westcoast line

The government has awarded First Group the contract for the Westcoast line, which is currently run by Virgin. I have little experience of Virgin trains but I do have plenty of first hand experience of the line FirstGreatWestern runs from London to Bristol and on to South Wales.

To put it nicely, that experience is anything but 'first' class. The trains are usually hideously filthy and the main line from London to the West of England is operating with carriages from the 1980s. Doors are still manually opened and closed, and windows in the doors often do not shut while the train is moving.

As modern as you get with FIRST Group trains! 

First Group also seems to have pulled the wool over the government's eyes (once again) by backloading the franchise payments over the next 14 years. Since it is only in the last three years that they will pay the main bulk of the franchise money (about £2 billion) they will do what they have done before: pay average returns on the franchise in the first 11 years and then return the franchise to the government three years early which will incur a contractual fee which is far smaller than the £2 billion which they are projected to pay in the last three years.

If you think this is pure conjecture look at the markets today. First Group plc dropped by about 7% at the stock exchange and experts are unanimous that they have overbid and wont be able to deliver the sums they promise. The loser of this is of course the treasury whose officials seemed to have been swayed by the enormous franchise payments First promised to make when they awarded the contract but will probably go empty handed when First hits the buffers.

It seems that 'maximisation of returns' is not a good policy when making decisions, whether in investment or government franchising.

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