Stagecoach could face a major competition probe within weeks unless it addresses fare increase and service quality concerns in its new £3.3 billion East Coast rail franchise.
The Perth-based public transport giant and Virgin Trains have just five working days to post remedies to the issues raised by the Competitions and Markets Authority (CMA) about their joint East Coast mainline rail operation Inter City Railways Ltd (ICRL).
The watchdog said the consortium, which is due to begin running the line between Aberdeen and London on March 1, is being given the chance to avoid an in-depth merger investigation by bringing forward suitable proposals to alleviate its “limited competition” concerns.
The CMA said a first-phase investigation into the new franchise had found a “realistic prospect” of higher prices and a reduction in service quality for passengers travelling on routes already covered by Stagecoach businesses.
Specifically, the regulator highlighted overlap of East Coast rail and Citylink coach services between Edinburgh, Dundee and Aberdeen, where the only competing public transport services are provided by ScotRail and Arriva CrossCountry.
It also raised concerns about overlap of East Coast services and those of East Midlands Trains, which is operated by Stagecoach.
The CMA said it had considered the issues and had concluded it was under a duty to make a “phase-two merger reference” in the case a situation sparking a full-blown competition probe into the franchise award.
However, the watchdog said the reference would not be exercised while it considered whether to accept undertakings made to resolve the issues raised.
ICRL has only been given until February 13 to respond, and the CMA said it would decide whether to refer the case for a full investigation by February 20 at the latest.
“Our investigation has shown that no significant competition concerns arise on most routes where East Coast services overlap with existing Stagecoach or Virgin Trains rail or coach services,” said Andrea Coscelli, executive director, markets and mergers, and the CMA’s decision-maker in the case.
“However, we found that the award could give rise to higher fares or reduced service quality for rail passengers travelling between Peterborough, Grantham and Lincoln; and for coach and rail passengers travelling between Edinburgh, Dundee and Aberdeen, in some cases possibly affecting thousands of consumers relying on public transport services.
“ICRL can now offer a resolution to these concerns to avoid the award being referred for an in-depth phase-two investigation.”
In a statement to the City last night Stagecoach, which owns 90% of ICRL, said it noted the watchdog’s announcement.
“The CMA is required by law to carry out a phase-one review of all UK rail franchise awards,” the firm said.
“Stagecoach notes that the CMA has identified limited issues.
“The company will study the detail of the CMA’s review decision and work constructively with the authority to address the issues raised with a view to running services under the Virgin Trains East Coast brand as planned from March 1, 2015.”