Memorandum from the Virgin Group Ltd (RES
2)
REGIONAL EUROSTAR SERVICES
1. VIRGIN'S
LOCUS
1.1 Virgin welcomes the committee's decision
to hold a short inquiry into the regional Eurostar services north
of London.
1.2 Virgin's interest in these services stems
from its current position as a shareholder of London and Continental
Railway's (LCR), the company with whom the Government has an agreement
to develop the Channel Tunnel Rail Link.
1.3 As part of the Deputy Prime Minister's rescue
plan for restructuring LCR and the CTRL project, Virgin and a
consortium led by National Express Group and British Airways ("the
Eurostar Consortium") bid for a contract to manage on behalf
of LCR the Eurostar InterCapital train services. Virgin's bid
included a separate business plan for regional Eurostars. In the
event the Eurostar consortium was chosen to run the InterCapital
services.
1.4 Virgin understands that the Eurostar consortium's
bid did not include plans for direct regional Eurostar services
to continental Europe. The Deputy Prime Minister did, however,
request a review of these services and a proposal to be put before
him by the end of the year. In response to questions to his parliamentary
statement on the CTRL on 3 June he said, "I have asked .
. . whether if there are spare sets there now, we can do something
about starting some useful services right away." (Official
Report, Col. 381, 3 June 1998).
1.5 It was in response to this call that
Virgin put a proposal to the Deputy Prime Minister and LCR in
June to run from early 1999 a regional Eurostar service. Regional
Eurostars would be run at Virgin's own risk and without the need
for public subsidy (beyond that already sunk into the Regional
Eurostar fleet and associated infrastructure works).
2. STATUS OF
REGIONAL EUROSTARS
2.1 Regional Eurostars have their origins in
Section 40 of the Channel Tunnel Act 1987. This required British
Rail to draw up plans to secure the provision and improvement
of direct international rail services from the regions through
the Channel Tunnel. This reflected the widespread concern that
the whole of the United Kingdom should have an opportunity to
enjoy the benefits flowing from the Channel Tunnel.
2.2 BR's plans were published in December 1989.
In October 1994 the then Government instructed Railtrack "to
make sure the infrastructure is in place to allow rail services
from the regions to continental capitals to begin by the start
of 1996." (DETR Press Notice, 11 October 1994). In February
1996 LCR assumed responsibility for Eurostar. It had firm plans
to run regional services.
2.3 The introduction of regional services by
LCR has been delayed as a result of the technical difficulties
of operating regional Eurostar rolling stock on parts of the existing
network. These problems meant that the safety approvals necessary
for the operation of passenger services could not be granted.
2.4 Virgin understands that Eurostar (UK) Ltd
has been working with Railtrack to resolve these problems. It
is understood that the necessary safety clearances have been granted
for the West Coast Main Line to Manchester; so far as the approvals
for the East Coast Main Line are concerned, clearance as far as
Newcastle is expected by the end of 1998 and to Edinburgh and
Glasgow early in 1999.
2.5 The fleet of regional Eurostars is comprised
of seven train sets of 14 cars each. These cost approximately
£25 million each at a total cost to the taxpayer of around
£180 million. In addition train paths north of London have
been provided by Railtrack for use by regional Eurostars.
2.6 Regional Eurostar services provide the commercial
rationale for the Stratford International station that will be
built as part of phase II of the CTRL. Stratford provides a London
stop for direct services from the regions, without the need for
a time-consuming detour into St. Pancras station.
2.7 Regional Eurostar is also a critical ingredient
for justifying the second stage of the CTRL. Virgin believes an
early start for regionals will give an indication to the market
of the future viability of Stage II. If the regional Eurostar
fleet is deployed as Heathrow services instead, there is unlikely
to be an equivalent benefit for Stage II of the CTRL.
2.8 The Deputy Prime Minister in his parliamentary
statement highlighted the fact that "there must be a strong
incentive to complete the whole link from the tunnel to St. Pancras
. . . " (Official Report, Col. 369, 3 June 1998). Regional
services that are already operating would provide such an incentive.
2.9 Virgin is aware that LCR has stated an intention
that regional services should run from 2007 (when stage II of
the CTRL is planned to be open).
It is understood that the proposed agreements
with the Eurostar consortium do not include an obligation to run
such services.
3. VIRGIN'S
PROPOSALS (SEE
ROUTE MAP
AT ANNEX
I)
3.1 The base option proposal which Virgin has
made to LCR envisages a daily service from Glasgow and Edinburgh
(via the ECML), two services a day from Manchester and one from
Birmingham (on the WCML via Watford Junction). Virgin's plans
also provide for some services to start at Watford to allow a
regular service (four daily) with excellent interchange opportunities
with domestic road and rail networks, arising from Virgin's West
Coast rail services and its partnership with Stagecoach. Once
Virgin's fleet of new tilting trains has been delivered, it plans
to enhance Watford as a main interchange station by stopping all
of its services there. (For details see Annex II)
3.2 In taking forward its plans, Virgin has
already been in discussion with Railtrack and Eurotunnel to explore
ways of improving the operational efficiency of its proposed services
over future years, including increasing the service frequency
of three trains from Manchester and six from Watford (one of these
would be an overnight seated train).
3.3 The proposals would provide passengers from
outside central London with direct international access at 17
stations, along with a one-change connection opportunity to a
further hundred stations. This market currently represents over
7 million passengers per year. Attached in Annex III is a list
of the towns and cities which would be served directly and indirectly
by Virgin's plans for regional Eurostar.
3.4 These proposals would provide an almost
immediate use for the seven regional train sets, which have been
standing idle since 1995-96.
3.5 If Virgin's plans are approved by the end
of October, the intention would be to introduce the first direct
regional rail services to continental Europe by Spring 1999, subject
to the necessary co-operation of all other parties.
3.6 Virgin has offered to run the service on
a management contract on behalf of LCR for the same period as
the Eurostar consortium's contract for the InterCapital service.
The consortium's contract will run until 2010. Virgin would be
willing to negotiate a minimum service guarantee.
3.7 Virgin's offer is not conditional on obtaining
approval to carry domestic passengers on the domestic legs of
a regional Eurostar's journey, although such agreement would enhance
the viability of the business.
3.8 Virgin would meet all the variable costs
of running the service and maintaining the trains, and would make
franchise payments to LCR. This would provide LCR with an additional
revenue stream. Moreover, virgin proposes to negotiate in advance
a fixed payment to LCR for passenger revenues abstracted from
the core InterCapital service by the regional service. This payment
is intended to ensure that LCR is no worse off by awarding a contract
for regional Eurostar, and that the minimum revenues assumed in
the Deputy Prime Minister's rescue package are protected.
4. COMMERCIAL PROSPECTS
4.1 Eurostar has been successful at capturing
a significant share of point-to-point traffic between London and
Paris. The build-up on the London/Brussels route has been slower,
but this is changing with the opening earlier this year of the
Belgian high-speed line. Virgin believes that approximately 63
per cent of the rail/air market from London to Paris and 55 per
cent to Brussels now use Eurostar.
4.2 Eurostar's penetration beyond London has,
however, been poor. Only a small proportion of the beyond London
markets use Eurostar:
— only 8 per cent of the 7.6 million
South East market (excluding London);
— only 6 per cent of the nearly 5 million
market within two hours of London and
— 4 per cent of the market beyond two
hours from London.
This reflects the lack of easy access to the
Eurostar InterCapital services for those living outside London.
Services from Manchester, Birmingham and Glasgow would provide
for the first time direct access for around 30 per cent of the
rest of UK market.
4.3 With a journey time of about 3hr 30min,
direct rail services from Watford would offer an attractive alternative
to air for many business passengers living and working outside
London. Further north the increased the journey times mean Virgin
would be primarily targeting the leisure rather than the business
market. This market is currently served largely by long-distance
coaches and the car.
4.4 Throughout its involvement in LCR, Virgin
has committed itself to building the market including high-profile
marketing to compete with low-cost airlines promoting other destinations,
and through the development or regionals beyond the InterCapitals
core. Other members of LCR and the Eurostar consortium have not
necessarily shared this business philosophy.
4.5 Virgin continues to believe that regionals,
while a smaller business than the InterCapitals, is viable given
that the start-up investment costs have already been incurred.
Virgin is uniquely placed to promote Eurostar travel from a very
wide set of stations in Britain because of its position as the
holder of the West Coast and Cross Country rail franchises, both
of which are the subject of major investment and renewal programmes.
5. OTHER USES
5.1 The Deputy Prime Minister indicated in his
parliamentary statement that the Eurostar consortium is investigating
a direct rail service from Heathrow Airport to Paris.
5.2 In preparing its bid for the Eurostar InterCapital
management contract, Virgin considered the prospects for running
a Heathrow service. It concluded that there were significant practical
difficulties with such a proposal.
5.3 The prime commercial opportunity is believed
to be to enable long-haul airline passengers to connect directly
into the European high-speed rail network, thus releasing BA slots
currently used on European short haul routes for more profitable
long haul routes.
Virgin believes that the journey time from Heathrow
to Paris is likely to be of the order of 3 hours 45 minutes. This
is unlikely to be a competitive alternative for most passengers
who can travel direct to Paris by air or connect more easily with
onward flights at Heathrow which offer a flight time of 45 minutes.
Most passengers will only exercise a preference for the train
if the choice of air alternatives is in some way restricted. Virgin
also concluded that a minimum hourly service would be required
so as not to further increase the elapsed time arising from an
interconnection.
5.4 Virgin identified considerable technical
difficulties to be overcome if Eurostar trains are to operate
between Heathrow and Kensington Olympia. An electrification gap
would have to be filled at Acton with complex alterations to signalling
and electrical immunisation. The Heathrow Eurostars would have
to use the slow lines (Heathrow Express is built to access the
fast lines) with major implications for Thames Trains: the rail
flyover at Heathrow Junction would have to be extended to avoid
even more disruptive use of crossovers on the flat, and this could
require a time-consuming TWA order (taking up to two years).
The existence of two stations at Heathrow further
complicates the handling of connecting passengers. Virgin believes
that services would need to stop at both the station serving Terminals
1, 2, 3 as well as the Terminal 4 Station. However, this gives
rise to major problems in meeting the necessary security standards,
as well as track capacity constraints. Virgin was unable to identify
a solution to this problem without sacrificing three of the four
Terminals.
5.5 Clearly it may well be possible to overcome
the technical difficulties with investment. However, this will
take time to achieve. Virgin concluded that it would be difficult
in any event to introduce a full service from Heathrow until 2004
at the earliest. This must be seen against the background of LCR's
recently stated intention to run regionals from 2007 when the
full CTRL is planned to be open.
5.6 Regulatory approval from the competition
authorities is a further consideration for any proposal involving
slot substitution.
5.7 LCR has not been able to find an alternative
UK purchaser for the seven regional sets despite strenuous efforts.
The only other options for the regional assets are either that
they are mothballed or leased to a European train operator, such
as SNCF. These would clearly be unattractive options, given the
existence of a firm proposal to run regional services for the
benefit of UK consumers.
6. RECONCILING HEATHROW
AND REGIONAL
SERVICES
6.1 The Deputy Prime Minister has expressed
his desire to have both Heathrow and regional services if at all
possible. If, however, it is not possible to have both, then Virgin
understands the Heathrow services will take priority.
6.2 Although Virgin is sceptical of the practicality
of a Heathrow service, it accepts the priorities that have been
established and has offered to develop its proposals for regional
services to make them compatible with the Eurostar consortium's
proposals for Heathrow.
6.3 We have met the Eurostar Consortium to explore
joint solutions for reconciling the Heathrow and Regional Services.
Two core options for Heathrow emerged from this discussion:
Option A: Two-hourly service to Heathrow
alternating with two-hourly Regional Service.
Option B: Hourly service to Heathrow
with regional service.
6.4 Option A would seem to provide a good solution
if all parties are willing to co-operate. The seven Regional sets
would be split into fourteen train sets, by purchasing additional
driving trailers and then be divided equally between the two operators.
It is possible to operate both a two hourly service from both
the regions and Heathrow using five sets (with two spares) on
each service. It is known that there is at least one additional
slot every hour for an hourly service between Paris and London.
This slot could be used alternately to Heathrow and north of London
with the good will of all operators.
6.5 Option B would consume nine operational
sets and three spares to operate an hourly Heathrow service. The
additional sets, from those available under option A, could be
found by re-allocating some of the spare Intercapitals sets which
could be split in the same way as regionals. Virgin has identified
spare capacity in the current fleet and believes that up to five
sets could be released by determined management. Clearly the availability
of still more train paths for Eurostar services would need to
be a matter of negotiation between the parties.
6.6 If either Option A or B is acceptable, Virgin
would propose to make an immediate start on regional Eurostars
using the existing full length trains. If and when there is a
firm commitment to a Heathrow service, then Virgin could release
the necessary assets to the Eurostar consortium to create 14 half-trains
for the two operations.
7. CONCLUSIONS
Virgin believes strongly that:
— regional assets which cost the taxpayers
£180 million should be used, at least in part, for the purpose
for which they were originally intended;
— there is a rail operator willing
and able to run regional services;
— these services could be operating
early next year, rather than having the regional train sets lying
in the sidings;
— in the event that firm plans for
a Heathrow service do materialise, then proposals for a regional
service can be made compatible if all parties work constructively
to achieve that objective.
1 October 1998
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