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Launch of Virgin Trains East Coast tightens Stagecoach’s grip on UK long distance passenger transport
March 1st 2015 saw the launch of Virgin Trains East Coast, operating the UK East Coast passenger rail franchise, awarded to a consortium of Stagecoach Plc. (90% holding) and Virgin Group (10% holding).
Stagecoach Group Plc., a large multi-modal transport group, will run the East Coast Main Line ( connecting major cities such as London, Leeds, Newcastle and Edinburgh) franchise through to April 2022, together with the West Coast Main Line franchise through Virgin Trains , a 50:50 venture with Virgin. This will mean that the group effectively controls both London to Scotland rail corridors, in addition to its successful low-cost intercity coach operation Megabus.com, which has an extensive network. The only public transport alternative for passengers, excluding expensive air travel, is National Express, a rival intercity coach operator.
Such dominance offers Stagecoach two opportunities. Firstly, the resulting increase in pricing power will allow rail and coach fares in such a fashion to maximize overall profit for the group as a whole. This is due to the variable yield-management ticket pricing models used for Megabus ticketing and Advance (a limited number of cheaper tickets on specific journeys, purchased up 12 weeks prior to travel) train fares. The prices of competitors are factored into yield management pricing models- rail companies would ordinarily seek to set fares so that they are competitive with coach operators and vice –versa. Yet, in this case Stagecoach has no commercial interest in putting its rail and coach operations in competition with each other. This will mean fares can be adjusted upwards and configured to maximise profit- by for example reducing the number of lower priced tickets on some train routes, which will invariably push budget passenger demand to coach travel.
Furthermore, Stagecoach is presented with the opportunity to increase the market share of Megabus at the expense of National Express, by squeezing its rival with both its rail and coach operations, varying promotional prices on a route by route basis to attract budget travellers. Revenues at the UK coach division of National Express totalled £263m (approximately $423.5m) in FY2013, while Megabus recorded revenues of approximately £72.5m (approximately $119.4m) in the same period, illustrating the current difference in size of the respective businesses. However, the aggressive growth of Megabus and the increasing dominance of Stagecoach as a market player in the long distance passenger transport sector mean that the market leading position of National Express in intercity coaches will continue to be eroded.
In the short-term, passengers are likely to continue to benefit from competition between the rival transport groups, in the shape of low fares and a broad choice of journeys. Whether such rivalry will continue appears in doubt.