GNER, which runs intercity trains on the East Coast Main Line, argued that ORR's decision to allow Grand Central to operate on the route was unlawful.

Grand Central is set to run a London to Sunderland service.

Mr Justice Sullivan announced that he rejected "GNER's discrimination and state aid grounds of challenge".

Franchise payments

GNER had said it paid more to access the track than Grand Central and had sought a declaration that the "charging scheme" was unlawful.

"Today's decision is truly extraordinary"
Bob MacKenzie, chief executive of GNER-owner Sea Containers

The ORR decision at the centre of the court ruling was to grant two train operating companies - Hull Trains Company Ltd and Grand Central - the right to run "open access" passenger services on the East Coast Main Line.

GNER, which has a franchise agreement to run intercity trains on the East Coast Main Line, had also argued that the ORR decision amounted to "an unlawful grant of state aid" in favour of the two other companies.

As franchise rail operator, GNER has to make three payments to gain access to the tracks: a fixed charge, a variable charge, and a franchise premium of £1.3bn over 10 years.

'Preparations continue'

In March, Grand Central won the right to run three direct trains a day between Sunderland and London.

But GNER, which last year beat off three competitors for the East Coast Main Line franchise, had stressed that the case was against the ORR and not against Grand Central.

"We are pleased that our decision has been upheld"
ORR chairman Chris Bolt

Bob MacKenzie, president and chief executive of Sea Containers, the parent company of GNER, said: "Today's decision is truly extraordinary. It has serious commercial consequences for GNER and for the Department for Transport.

"It undermines the profitability of GNER, which already operates to modest margins, and devalues a recently-awarded public contract agreed with government."

But ORR chairman Chris Bolt said: "We are pleased that our decision has been upheld.

"It means that Grand Central can continue with its preparations to run new services between London and Sunderland, and Hull Trains can continue to run its additional service between London and Hull."

See also:

Rail line may suffer after defeat in court - GNER says decision could undermine investment

Yorkshire Post: 28 July 2006
William Green, Political Correspondent

TRAIN operator GNER yesterday admitted it faces "serious" commercial consequences after losing a crucial court battle over competing services on the flagship East Coast Main Line.

The company unsuccessfully urged a judge in London to quash an "unlawful and discriminatory" decision by rail regulators to allow rival firms on the key route, linking Yorkshire with the capital and Scotland.

GNER, which won a Government franchise to run services on the line last year, argued it would have to pay more than "open access" operators Hull Trains and Grand Central – which amounted to an "unlawful grant of state aid".

Under railway rules, a potential operator which identifies a new market for train services not already served by a franchise can apply for open access rights to run those trains.

Mr Justice Sullivan yesterday rejected "GNER's discrimination and state aid grounds of challenge" – sparking warnings about the impact on company finances.

GNER's contract runs for up to a decade, during which time it is due to pay the Government a £1.3bn premium, but its parent company said that could now be at risk with a possible knock-on in terms of investment on the East Coast Main Line.

The court ruling comes days after its long-serving chief executive announced he was stepping down and as its parent company has faced financial problems – raising speculation that the train operator may be sold.

GNER also lost revenue in the wake of the July 7 bombings in London last year and has seen energy costs rocket.

Bob MacKenzie, president and chief executive of Sea Containers, GNER's parent company, said: "Today's decision is truly extraordinary. It has serious commercial consequences for GNER and for the Department for Transport.

"It undermines the profitability of GNER, which already operates to modest margins, and devalues a recently-awarded public contract agreed with Government and the East Coast franchise in perpetuity. It will also make bidders for other franchises elsewhere on the network more risk-averse."

He insisted the company had a strong case and warned passengers on the East Coast rail route might not see as much money reinvested into their railway.

"We will be discussing the serious implications of today's decision with the Department for Transport, as it is likely to jeopardise GNER's ability to pay some of the premium payments agreed with the Government over the course of our franchise."

Sea Containers said once it had considered the consequences of the High Court's decision in full, it intended to issue a statement next month, which will include a financial update on trading matters relating to GNER.

At the centre of the case was the decision by regulators to approve a Sunderland-London service from new operator Grand Central with three daily direct trains each way calling at Thirsk, Northallerton and York.

GNER also challenged the decision to grant existing operator Hull Trains an additional daily return journey between King's Cross and Hull.

Regulators also rejected GNER's bid to expand Leeds-London services while approving the other proposals earlier – although rail chiefs have since found space to run the additional trains.

See also:

Legal ruling 'may force up rail fares'

The Scotsman: 28 Jul 2006
ALASTAIR DALTON TRANSPORT CORRESPONDENT

GNER will be under pressure over its east coast service, with another operator given the green light
Picture: David Mitchell/ PA

TRAIN fares are likely to go up, passengers have been warned, after GNER lost a legal battle against a new competitor on the east coast main line.

Following the legal ruling, the train company admitted it will now come under pressure and is already considering cutting its restaurant car service.

A High Court judge threw out GNER's claim that allowing Grand Central to launch services on part of the line was "unlawful and discriminatory".

GNER claims the rival service will see it lose £109 million over the next nine years, because Grand Central will have the right to some of its fare revenue, while paying only a fraction of its charges to use the line.

Lisa Barnard, a spokeswoman for GNER's parent company, said the court judgment could force up rail fares and threaten services such as GNER's acclaimed, but loss-making, restaurant cars. "It will have a massive impact. There will certainly be pressure to increase fares and the restaurant cars are currently being looked at," she said.

Ms Barnard said Bob MacKenzie, Sea Containers' chief executive, who has become GNER's executive chairman, was examining "all aspects of the business". She said: "I'm sure we will see some changes."

GNER is already paying the Treasury a £1.3 billion premium for its current ten-year franchise, which started last year.

Barry Doe, a rail fares expert, yesterday predicted grim times ahead since GNER was already suffering from paying so much for the franchise.

He said: "Passengers in Scotland are already suffering because of GNER's financial problems and will continue to do so as a result of this decision. GNER used to be known for good service, but already this year it has raised car park prices and cut back its onboard restaurant so much that meals are only served south of Newcastle. The most likely prospect after this ruling is fewer cheap fares."

The judgment upholds a decision by the independent Office of Rail Regulation - but opposed by ministers - to allow Grand Central to run trains between Sunderland and London from December.

GNER said because these trains will call at York, where it also operates, Grand Central will have the right to a share of its fare revenue which it estimated would account for 80 per cent of Grand Central's total income.

GNER is considering an appeal and said the judgment was likely to jeopardise its ability to pay some of the premium for its franchise.

There has also been speculation that Sea Containers may sell off GNER.

Comments

1. freetalkscotland / 9:27am 28 Jul 2006

There was me thinking that privatisation was all about competition.......

2. Ou Tjalie, Edinburgh / 11:29am 28 Jul 2006

Help me out here. All over the world rail is considered the cheap travel option. In the UK it is pretty damn expensive. How is it that flying can be cheaper?

High time for the clowns in charge to get this mess sorted out.

Make the rails cheaper and I'll travel on them nore often.

3. Vikki-Sian, Powys, Cymru / 1:11pm 28 Jul 2006

I, too, was under the impression that competition was supposed to bring prices down.

Isn't it reassuring to see that the Law Lords and solicitors will still be able to afford to travel by train - takes us back in history a bit - rail for the 'elite', the peasants (or under this government "proles") can walk!

See also:

Rival on fast track to poach GNER custom

The Scotsman: Sun 30 Jul 2006
DOUGLAS FRIEDLI

GNER will be plunged into another battle for customers after rival train operator Grand Central revealed it will apply for more licences on its routes.

Grand Central last week secured legal backing to run trains on part of GNER's flagship east coast main line.

A jubilant Ian Yeowart, chief executive of Grand Central, last night promised to apply for more licences on GNER's tracks and raised the prospect of a rail fares war between Edinburgh and London.

Yeowart said Grand Central planned to run four trains a day between London and Bradford, competing with GNER for the first time between London and Doncaster.

He said: "We can look differently at our plans now that we know how to put a successful bid together."

He added he would also look at routes between Scotland and England. One idea is a cheap ticket allowing customers to board a Virgin train in Edinburgh and change to a Grand Central train at York for London.

The upstart operator may run trains from London which split and carry on to separate destinations as a way of connecting smaller towns.

Yeowart said: "If we were to look at Scotland, we might look at somewhere in the west and somewhere in the east and pull them together."

Grand Central's expansion plans are likely to add further woes to GNER, which is consulting its lawyers over whether to go to the Court of Appeal or the European Commission to overturn last week's court decision.

The operator lost its argument that the Office of the Rail Regulator was wrong to allow Grand Central to run trains between London and Sunderland via York.

Christopher Garnett, GNER's chief executive, resigned unexpectedly last week as the company was preparing for the court decision. The company is now headed by Bob MacKenzie, chief executive of GNER's parent company, Sea Containers, which has breached lending agreements and is thought to be close to bankruptcy.

Last week, MacKenzie warned the ruling would have "serious commercial consequences" for GNER, undermining its already marginal profitability and jeopardising its ability to make franchise payments to the government.

GNER, which pledged £1.3bn over 10 years for the East Coast franchise, contends that operators such as Grand Central have an unfair advantage because they do not have to pay as much to the government, so they are able to offer lower fares and poach GNER's customers.

But last week a senior judge ruled that GNER had a number of advantages over open access operators like Grand Central. These include better track access rights, protection against variations in charges, and clauses which reduce their franchise payments if revenues are lower than projected.

MacKenzie said: "The real losers from this judgment are passengers on the East Coast main line and other rail users on the network, who may not see as much money reinvested into their railway."

But Grand Central's Yeowart said: "We fell foul of GNER, whose parent is in its death throes, and they are just lashing out at everyone.

"The biggest eye-opener was how much political interference there has been. This has shown the importance of an independent judiciary and independent regulator to protect the public."

A GNER spokesman played down suggestions that the operator would ramp up rail fares from Scotland in the wake of last week's ruling.

Comments:

1. Andrew, Oxford / 10:02am 30 Jul 2006

Grand Central would do well to consider the option of starting a service further North than Edinburgh.

Any time I've used the GNER service from Stirling to Kings Cross, it is always heavily loaded.

Any additional services from Perth/Stirling direct to London would be very welcome. (As would additional Pendolino services from Edinburgh to Euston).

2. Andrew, Cumbernauld / 10:43am 30 Jul 2006

I quite agree Andrew (Oxford). A start from furrther north than Edinburgh would be even better!
A re-introduction of the popular "Clansman" service which ran to/from Inverness via Perth, Stirling, Cumbernauld, Coatbridge, Motherwell, Carlisle and the WCML through the midlands (Birmingham/Coventry) to London Euston would be a MORE than welcome return! Admittedly this would be 'Virgin' territory!!