By Mark Williamson
FIRSTGROUP has received a boost after the competition watchdog’s fears about the prospect of the transport giant taking on the West Coast rail franchise appeared to ease following assurances about the impact on ticket prices.
The Competition and Markets Authority had been concerned about the implications of the Department of Transport’s decision to award the franchise linking London Euston and Glasgow to a partnership of FirstGroup and Italian rail firm Trenitalia.
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Stagecoach was barred from bidding for the new franchise for the West Coast service, which it currently runs with Virgin, amid a row about who should cover the cost of rail industry pensions.
The award came as FirstGroup grappled with problems on a range of fronts. On Thursday the company posted a £187 million first half loss after slashing £124m off the valuation of the Greyhound buses operation in the US that it is trying to offload.
The CMA noted the award would mean passengers on routes between Scotland and Preston would only be able to choose between services offered by the new West Coast partnership and the Transpennine Express operation run by FirstGroup.
It said this could lead to higher fares and reduced availability of cheaper tickets.
However, the organisation said yesterday that there were reasonable grounds for accepting undertakings given in recent days by FirstGroup and Trenitalia to address its concerns.
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FirstGroup noted these will include a proposal to cap unregulated fares on the Preston to Scotland route.
The CMA will get views from third parties on the proposals before making a final decision on whether to accept them, with a March 17 deadline.
The organisation could conduct an in-depth investigation of the franchise award if it decides the proposals do not go far enough.
In previous cases, such as the East Midlands Rail and FirstGroup’s South Western franchises, it was satisfied by companies committing to price caps on affected lines.
FirstGroup said it was pleased the CMA had accepted the fare-capping proposal in principle.
“We will continue to work with the CMA over the coming weeks as they launch their public consultation,” said a spokesperson for the group, adding: “We anticipate that our proposal will resolve this issue to their satisfaction.”
With shares in FirstGroup rising eight per cent yesterday investors appeared to welcome the news.
But the increase only provided limited compensation for the paper losses suffered by FirstGroup investors on Thursday, when shares in the firm fell 18.5%.
FirstGroup's £124m Greyhound write down wipes out profits
The group said then that it had revised its forecasts for the Greyhound division after a fall in immigration-related demand in the Southern states in the second quarter weighed on the business.
FirstGroup said the sale process for Greyhound which it launched in May was well advanced without providing further details, disappointing hopes a deal might be announced.
The US business was hit by a £59m insurance charge which reflected a deterioration in the US motor claims environment.
FirstGroup’s US arm includes the First Student and First Transit local bus divisions for which it sees the best growth prospects.
UK rail and bus passengers revenues grew on a like-for-like basis.
The group said the outlook for the full year had improved since its annual results announcement in May to reflect a part-year contribution from the successful bid for the West Coast Partnership, from December, and favourable currency translation rates.
Matthew Gregory, who succeeded Tim O’Toole as chief executive in November last year, said the group had continued to execute clear commercial strategies in each of its divisions in the first half to ensure they delivered future progress and growth.
Rebel shareholder Coast Capital renewed its call for the company to adopt a new strategy.
FirstGroup shares closed up 8.3p at 113.7p yesterday.
The CMA had expressed concerns about 21 routes covered by the West Coast franchise including 17 between Preston and Scotland and four within North West England.
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