Business Stripped Bare (13 page)

When it was announced I was thinking of a flotation for Virgin Trains, Brian rang me up and said: 'I share your vision for the railway system.' And nine days later we'd done a deal. Stagecoach held 49 per cent of Virgin Trains to couple with its South West Trains, the UK's largest commuter network, and the Isle of Wight's Island Line, a mini-railway company. I admired that kind of decisive action and it cemented a friendship and working relationship that has lasted over a decade. At a time when transport – and railways in particular – was never out of the headlines, we wanted to make a positive statement after years of expectation. It was all about creating a feel-good news event to assure the frazzled travelling public that something was indeed being done.

Brian shared our view that innovation – leading to a better experience – was the best way to encourage more people to go by train. And while he admitted to having reservations about the Pendolino, he said: 'My mother used to say to me that a fool and a bairn should never see a job half done. I think when people eventually see what's being created here they will understand we're really doing our best to improve the railway system.'

In 2003 the Christmas panto season came early. On 4 December I arrived at one of Alstom's vast Birmingham workshops to deliver a massive present.

I was dressed as Santa Claus and sat next to two scantily clad women on a tinsel-bedecked trap pulled by a reindeer. Brian, wearing a Glenalmond school blazer, shorts, an old-fashioned leather satchel over his shoulder and with a blue cap worn at a jaunty angle, was the lucky schoolboy unwrapping his giant train set.

Faced with a gallery of UK media, I called out to Brian asking if he had been a good boy and what did he want for Christmas. 'Some nice, shiny, new trains which go very fast, please.'

I couldn't resist a quip in front of the TV cameras: 'And how about a higher share price?' (The Stagecoach share price was in the doldrums since its mega bus deal with Coach USA. Brian and I have both been through the mill together, so I can get away with jokes like that.)

As the dry ice swirled around, amid sparkling fireworks and the booming strains of the
Mission: Impossible
theme tune, the nose of a new train burst through the satin wrapping. Nationalised British Rail never generated this much excitement. And although it was only the shell of the first Pendolino, shipped from Italy to Bristol and then Birmingham, we were a step nearer.

Virgin West Coast invested £1.2 billion in fifty-three Pendolinos. Each train cost £11.5 million – which we were told by government railway officials was £1.5 million too expensive. The extra safety features I had asked for had increased the price. Passenger numbers began to rise – although they stumbled at times after engineering setbacks on the tracks.

Angel Trains, then a subsidiary of the Royal Bank of Scotland, stepped in to become the train owners; they then leased the rolling stock the way planes have been leased to airlines for many decades. It's a lucrative business because Angel Trains was sold in June 2008 to a consortium led by Babcock & Brown, an Australian infrastructure business, that includes Deutsche Bank and AMP Capital, for £3.6 billion. The train-building work was also a massive boost for Birmingham and kept highly skilled engineering jobs in this industrial heartland.

The new trains give off 76 per cent less carbon dioxide per seat than domestic airlines and are the most emissions-efficient rolling stock in Europe. They're very reliable. They spend less time in the workshop, more time carrying passengers. Every time the train slows down, the brakes heat up and the regenerative braking system pumps electricity back into the overhead cables – another innovative feature that government transport officials didn't want. With oil at $48 a barrel, they didn't see the point in putting electricity back in the grid. By 2008, with oil prices nearing $150 a barrel, perhaps it's clear even to them that it was a good decision.

The new trains went into service along the West Coast Main Line on Monday 27 September 2004. And on the first day there was a glitch. One that (Sod's Law being what it is) coincided with the announcement in London of Virgin Galactic, the world's first commercial space launch system for both scientific and human space flight. The Royal Scot train leaving Glasgow ground to a halt outside Carlisle. Passengers had to be switched to another train and were two hours late arriving in London. The press put the breakdown and Virgin Galactic stories together and the
Daily Mail
had full-page fun at our expense:
'Euston, we have a problem . . .'
It was an absolutely brilliant headline and it put me in an irritable mood all day.

If I needed comfort, though, I only had to look at the situation by the end of the first week. The news was very encouraging: I wrote in my notebook:

'First week – Pendolinos. 27 September–2 October. 82 per cent punctuality. Promised 72 per cent. Cancellations 4 out of 210 trains run daily. Pendolino tilting in traffic 32, two more than estimated on Monday 27th. Only two trains to fail. Got masses publicity due to space launch. Jack Straw travelled and said PM enjoyed reception – also that he'd had amazing feedback from our staff parties.
'

To this I added: '
Delivered exactly what we promised a year ago and general mood of passengers is that it worked well and will steadily improve.
'

In the early days, mind you, we had to weather constant criticism about Virgin's two franchises. Virgin Trains had to take over the worst record for timekeeping in the country. Our West Coast Main Line services achieved a punctuality figure of only 84 per cent in the year to 16 October 1999. And the performance of Virgin CrossCountry, a higgledy-piggledy criss-crossing of routes, was worse, recording a figure of 80 per cent. But this was unfair on our team. We were now operating more services and carrying more passengers on the antiquated track and rolling stock which we had to nurse along until the new trains arrived.

I felt for all of our people. It was demoralising to be constantly criticised. We had worked very hard to get things better and the service had improved. The privatisation of the network brought some real benefits, but it imposed an institutional and political structure that was seriously flawed from the beginning, something which was exposed by the Hatfield accident, after a broken rail went undetected.

The Hatfield rail crash, on 17 October 2000, left four people dead and seventy injured. It was a nadir for the rail industry, and some questioned whether it would ever recover. Railtrack slapped speed restrictions on the whole of the rail network and our passengers suffered misery, delays, late arrivals and cancellations. There were recriminations and blame. I remember long discussions with Stephen Byers, then Secretary of State for Transport, about what needed to be done. Privately I wondered if it would ever be properly sorted. In 2001, following Hatfield, Railtrack, a publicly listed company, went into administration, and the company's shareholders lost their investments. In 2002, the Rail Regulator presented taxpayers with a massive bill for an additional £1.25 billion a year of increased infrastructure costs, largely due to historic underinvestment and Railtrack's loss of control. It was a deep and complex mess.

Since Hatfield, however, the rail industry has slowly begun to turn the corner. The UK government established Network Rail as a not-for-dividend private company to manage the railway infrastructure – that is, the track and the signalling. These changes were implemented in the Railways Act 2005, with the Secretary of State for Transport now responsible for setting the strategy and budget for the railways in England and Wales.

Increasingly, Virgin Rail has developed better partnerships with the government, Network Rail, and suppliers like Alstom and Bombardier, to bring in huge improvements. We've got our trains running every twenty minutes between Manchester and London – the highest frequency for that sort of route anywhere in the world. For business people, trains are now a much better alternative to short-haul flying. Virgin's own delivery has improved, too. In 1997, 13.6 million passengers used the West Coast Main Line. In 2003, this was 14.1 million; 2004, it was 15.1 million; 2005, 18.7 million, and by 2007, it was more than 20 million. Our punctuality was over 90 per cent. What had seemed like Mission Impossible became more than doable. It became surpassable. Network Rail still have big issues to deal with in the way they upgrade the last sections of track and inconvenience the public. But one way or another, 2009 will see another leap in service, speed and punctuality on the West Coast line, which will make it truly a world-class railway. It has been a tough journey but thanks to the leadership of Tony Collins and the support of Stagecoach's top management we have made it through the really tough times.

You must never forget that every change ushers in unforeseen consequences. This applies as much to welcome changes as unwelcome ones. It always tickles me when a spokesperson comes on the television to explain, with an earnest frown, that an ailing company is 'a victim of its own success' – as though it had undergone something rare and freakish and hard-to-credit; some sort of business equivalent of alien abduction.

Success one day does not give you a free lunch every day thereafter
. Obviously, you can't plan for the unexpected. All you can really do is never let your guard down. Delivery is not just hard work: it's
endless.

We had invested more than £2 billion replacing all the trains on our CrossCountry routes with Voyager diesel trains. The trains were popular and extremely reliable. There was a 50 per cent increase in passenger numbers – and suddenly people were finding it difficult to get a seat on the busier routes. We were a victim of our own success!

Altogether more troubling was the thought that our passengers were victims. I received one letter in particular from a couple travelling from Preston to London. They had been planning a treat in London and didn't realise that they now had to book a seat. When they arrived, they found the staff unhelpful. Given the husband was disabled and used a wheelchair, this was pretty terrible of us. I personally sorted this one out, and encouraged my Virgin Rail team to improve. I was concerned that we might have taken our eye off the ball when it came to customer service. I penned a letter to Ashley Stockwell, the brand and customer service guardian for Virgin Group.

Dear Ashley,

I am worried about Virgin Trains and the service we are delivering to the customer. We have a board of directors who have understandably got tied down in franchise negotiations and the bigger picture issues. When we first got involved we put people in from Virgin Atlantic who really cared about staff and customers. Somehow, things seem to have slipped. Tony Collins realises this – he told me very frankly yesterday that we had 'lost that customer service'. I'm sure he'll do everything he can to address the problem. Any help your department can give I'm sure would be welcome.

We got better. Increasingly, we picked up plaudits. By April 2006, when we announced our decision to reapply for the CrossCountry franchise, I was beginning to believe we had achieved something extra special in Britain. Paraphrasing slightly, I used the old Magnus Magnusson line from
Mastermind
to allow us to continue: 'We've started, so we'll finish.'

But there was opposition to our franchise inside the Department of Transport. Before a crucial meeting with officials, I got a phone call from a well-informed transport journalist. He knew the exact time of the meeting and what was going to happen and who would be attending. He was right in every respect. He also told me that the government's endgame was to destroy Virgin's CrossCountry franchise and they were looking for an excuse to stop it. I wrote in my notebook: '
If this guy is right on everything else, is he right on this?
'

We argued that we'd worked hard and that punctuality was the best since we took over, revenues were up 40 per cent and passenger numbers up 50 per cent – and the government were now getting 87p in every £1 of extra revenue.

In my notebook I wrote: '
We've been told that certain elements of the Department of Transport want CrossCountry back so it can be remapped and absorbed by other networks. I hope that's untrue. I'm confident that the Virgin Group's bid will not be bettered by another operator in a competitive tender. I find this all a little bizarre to say the least. But that's the rail business.'

It certainly was. Having done all the donkey work, taken all the flak and increased passenger numbers by 50 per cent in ten years – Virgin Trains lost the CrossCountry franchise. But that's life in twenty-first century Britain. There are (he says, through gritted teeth) no regrets. And even if there were, in business, as in life, you're better off just moving on. After all, we still had the West Coast Main Line.

Virgin Trains is criticised in some quarters for the supposedly easy money we've racked up in the form of government subsidy. I think those people should consider the time and effort we spent for very little financial return. Out of that subsidy money we had to pay Network Rail for running on their tracks, and as their problems increased, so did our access charges. When we signed off the first deal we never envisaged the increases. So, between 1996 and 2006, we did indeed receive £2 billion in subsidy – and promptly waved it goodbye again, paying £2.4 billion in track access charges, first to Railtrack, then to Network Rail; in other words, back to the UK government. Plus Virgin Trains paid higher charges to Network Rail than any other train operators – this when the subsidy was reduced by half from £526 million to £268 million at the end of March 2006!