Joint venture company with Stagecoach will have collected at least £600m since 1997 launch

This article is more than 1 year old

This article is more than 1 year old

Sir Richard Branson’s Virgin Group will have taken at least £306m in dividends from Virgin Trains by the time the firm’s 22-year tenure as a rail operator comes to an end within the next 12 months.

Branson: Virgin trains will vanish from UK after Stagecoach ban Read more

Branson said on Wednesday the Virgin name could disappear from trains by November, after its joint venture partner, Stagecoach, was blocked from three franchises by the Department for Transport over its refusal to pay more into rail staff pensions.

Analysis by the Guardian indicates that Virgin Rail Group Holdings, the joint venture company, will have collected at least £600m since its launch in 1997, a figure that drew criticism from Labour.

The final total is likely to be higher once this year’s dividend is declared when the company’s next set of annual accounts is published in October next year.

Branson’s Virgin Group owns 51% of the venture, giving him a £306m share of the overall dividend pot.

The remaining £294m was allocated to the Stagecoach transport group, whose largest shareholder is the Scottish businessman and Scottish National party donor Brian Souter, together with his sister, Ann Gloag.

The highest dividend in a single year was paid in 2009, when Virgin Rail Group paid out nearly £95m. The figure has hovered around £50m over the past three years.

Andy McDonald, the shadow transport secretary, said: “This money could and should have been used to invest in services and hold fares down, not siphoned off by shareholders.

“The railway should be run as a public service in public ownership. Instead, absurdly, its run in the financial interest of foreign state-owned companies and billionaires such as Richard Branson. If Virgin disappears from the railway as Branson warns, it won’t be missed by taxpayers or passengers.”

A spokesman for Virgin Trains said: “In the last five years alone, Virgin Trains has paid almost a billion pounds (£970m) back to taxpayers through creating a highly successful business which taxpayers benefit from.”

Quick guide Why Virgin Trains won't be running Show Hide When is Virgin disappearing from UK railways?

By next spring at the latest, and possibly even earlier. The contract Virgin has for the West Coast line, which is in partnership with Stagecoach, expires officially on 31 March 2020.

But Virgin could disappear from railways for the first time since March 1997 in November if a new operator has been found by then. Why has this happened?

Stagecoach, which owns 49% of Virgin Rail Group Holdings, has had three rail bids blocked by the Department for Transport (DfT), including one to renew the West Coast franchise.

This is because none of their offers met pensions standards. The DfT did not mention Virgin in its ruling, but said Stagecoach “repeatedly ignored established rules”. As well as the West Coast route, which it operates in partnership with Virgin, Stagecoach had its bids for the East Midlands and South Eastern franchises rejected. The deadline for bids has passed, so Virgin Group cannot put in a bid with a new partner. Who will take over the West Coast franchise?

There are two bids still in the running for the route, now that Virgin Trains has been excluded.

First, Trenitalia West Coast Rail is a joint venture between Aberdeen-based FirstGroup and Italian state operator Trenitalia SpA. First Group won the West Coast franchise back in 2012 but then lost out after a legal challenge from Virgin Trains over how the government had awarded it. The second contender is MTR West Coast Partnership. This is a joint venture between MTR Corp, which operates Hong Kong’s public transport network, and Guangshen Railway, which operates one of China’s biggest railways. MTR operates South Western Railway as a joint venture with FirstGroup. Will the Pendolinos still be operating?

For the foreseeable future. The Pendolinos are not owned by Virgin Trains and will transfer to new owners – with different branding, of course.

Will Virgin make a comeback?

Stagecoach is “seeking an urgent meeting” with DfT about the ruling. The Virgin Group boss, Sir Richard Branson, has said he is “devastated”. However, barring a change in the DfT’s rules or a legal challenge, Virgin Trains faces a spell in the sidings.



The company said passenger numbers had nearly trebled from 14 million to 40 million a year under its stewardship, adding that it has led the way on innovations including digital ticketing, on-board entertainment and automatic compensation for delays.

Virgin’s trains have run on the London to Glasgow line for 22 years and its joint venture with Stagecoach is due to expire on 31 March 2020 at the latest. The government is to award the next franchise this June and, if the winning operator says it can start running a service by November, the handover would be brought forward.

Stagecoach said it had been informed that its bids were not compliant with the government’s terms, triggering an outpouring from its longstanding partner on the West Coast route.

“I am devastated for the teams who have worked tirelessly to make Virgin Trains one of the best train companies in the UK, if not the world,” Branson wrote in a blogpost.

“We’re baffled why the DfT did not tell us that we would be disqualified or even discuss the issue,” he added, referring to a dispute between Stagecoach and the government over how much of rail staff pension liabilities the company is willing to share. “They have known about this qualification in our bid on pensions for months.”

The government’s row with Stagecoach centres on a big deficit in the Railways Pension Scheme. The Pensions Regulator has said up to £6bn may be needed to plug the gap, but the train companies have insisted that the government should support the scheme.

Stagecoach said the private sector should not be expected to bear long-term funding risks for parts of the Railways Pension Scheme, which invests more than £20bn for railway employees.

The decision drew criticism from Jeremy Corbyn, who said it indicated that the railways should be nationalised.

Jeremy Corbyn (@jeremycorbyn) This latest failure shows that rail franchising is not fit for purpose.



Our railways should be publicly-owned and run in the interests of passengers, not shareholders.https://t.co/jaKBexYymx

Branson said: “We can’t accept a risk we can’t manage – this would have been reckless. This is an industry-wide issue and forcing rail companies to take these risks could lead to the failure of more rail franchises.”