Select Committee on Environment, Transport and Regional Affairs Appendices to the Minutes of Evidence

Memorandum from the Virgin Group Ltd (RES 2)



  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).


  2.1 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.


  3.1 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.


  4.1 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.


  5.1 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.


  6.1 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.


  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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