Branson slams bid process as First wins rail franchise

However, the Department for Transport decision was branded "insane" by Virgin boss Sir Richard Branson, who said it risked repeating franchise failures on the East Coast Mainline, where the Government has been forced to re-nationalise services twice.

Sir Brian Souter, whose Stagecoach company owns 49% of Virgin Trains, said he was bitterly disappointed by the decision.

The deal will see £5.5 billion handed to the UK Government by the Aberdeen-based transport giant over the course of the franchise – £700m more than that offered by Virgin – and relies on achieving a significantly higher level of passenger growth than predicted by Virgin.

Shares in First fell 6% yesterday, wiping £76 million from its stock value, seemingly reflecting the market's view it had submitted a risky bid.

First said average journey times between Glasgow and London will be cut by 15 minutes to four hours and 15 minutes over the next four years through a combination of line speed improvements and changed calling patterns, with fewer stops between London and Preston on cross-border services.

The company will introduce a new fleet of 11 electric, tilting Pendolino trains running at up to 125mph between Edinburgh and Birmingham by 2016, replacing the diesel Voyager trains that operate on the route and adding 12,000 extra seats a day. And it promised to cut the price of flexible, on-the-day tickets – known as Standard Anytime – by 15%, bringing down the cost of a Glasgow to London single from £162 to £137.70.

However, these are thought to account for around 15% of tickets currently sold by Virgin – and an even smaller proportion in Scotland – as most passengers pur-chase discounted advance tickets.

First spent much of yesterday rebutting accusations that it would drive down standards, force up fares and cut jobs in order to meet its obligations to the UK Government.

Speaking to journalists yesterday, chief executive Tim O'Toole rubbished what he said had been "unhelpful speculation" and insisted its higher revenues would be delivered through an increase in passenger numbers.

"Our bid is based on a strategy of growth, of attracting new people to this railway and providing extra seats and an enhanced offering," he said.

He said the company, which controls a number of other rail franchises including ScotRail and Great Western, had a track record of delivering its promises and had predicted a similar level of passenger growth to that achieved by Virgin, which more than doubled annual passenger numbers from 14 million year to 31 million this year.

Sir Richard said it would be extremely unlikely that Virgin Trains would bid again to operate services after spending £14m in its latest bid, which he described as "strong and deliverable".

"To have bid more would have involved dramatic cuts to customer quality and considerable fare rises which we were unwilling to entertain," he added.

"We also did not want to risk letting everybody down with almost certain bankruptcy at some time during the franchise as happened to GNER and National Express who overbid on the East Coast Mainline."

His concerns were echoed by rail unions and opposition politicians last night.

Labour's Shadow Transport Secretary, Maria Eagle, said passengers would "lose out" and ministers had to "reassure taxpayers they have not been swayed by an unrealistic bid that does not in the end deliver the payments that have been promised".

The RMT transport union said the First bid was "a total con from top to bottom" and was linked to "massive cuts to jobs and services and huge increases in fares".

However, Rail Minister Theresa Villiers said the deal would deliver improvements for passengers. "Targets to meet passenger satisfaction will be introduced for the first time in an intercity rail franchise and passengers will also benefit from smart ticketing and from investment in stations," she said.