Competition Concerns Arising From East Coast Rail Franchise Award

The Competition and Markets Authority have issued a statement requesting Stagecoach and Virgin Trains to offer an acceptable solution to address competition concerns and avoid an in-depth merger investigation into its successful bid to run the East Coast rail franchise.
The Competition and Markets Authority (CMA) reviewed whether competition concerns could arise given the coach and rail services already operated by Stagecoach Group plc (Stagecoach). The CMA found that the franchise award did not raise significant concerns in most areas, but could potentially reduce competition on the following routes:

• the overlap of East Coast rail services with East Midland Trains services operated by Stagecoach between Peterborough and Grantham and between Peterborough and Lincoln. On both of these overlapping rail services there is no other rail operator and only a minimal coach service
• the overlap of East Coast rail services with Citylink’s coach services, which are operated and jointly owned by Stagecoach, between Edinburgh and Dundee as well as between Edinburgh and Aberdeen. The only competing public transport services are provided by ScotRail and Arriva Cross Country.

The CMA’s analysis recognises that important aspects of rail services are regulated and also governed by increasingly prescriptive franchise agreements. However, the CMA in its phase 1 investigation found that there is a realistic prospect that the award of the East Coast rail franchise to Inter City Railways Limited (ICRL) would lead to higher fares or reduced service quality for rail passengers travelling on these overlapping routes. In addition, the CMA was concerned that the award to ICRL may result in higher coach fares or reduced coach services quality (including a reduction in frequency) on these overlapping coach and rail services routes, given that coach services are unregulated. The CMA did not have sufficient evidence to suggest that private transport, including transportation by car, is a sufficiently strong constraint on any of the overlap flows it considered.
The CMA looked carefully at whether competition concerns could arise on other routes, but found that competition between East Coast rail services and existing services of Stagecoach and Virgin Group Holdings Limited (Virgin Trains) was limited and/or that ICRL will continue to face sufficient competition from other operators. This includes routes between London and Scotland, where both the East Coast and West Coast rail services will be operated by consortia of Stagecoach and Virgin Trains. The evidence examined by the CMA indicated that competition between the East Coast and West Coast rail services was limited and that air services between London, Edinburgh and Glasgow provide significant rivalry to the rail services.

ICRL now has the opportunity to offer undertakings to resolve the competition concerns identified by the CMA within 5 working days after receiving the CMA’s reasons for its decision. The CMA has until 20 February 2015 to decide whether these might be acceptable as a suitable remedy. If this is the case, it will consult on ICRL’s proposed undertakings before accepting them. If ICRL does not offer undertakings, or the CMA does not accept them, the CMA will refer the East Coast rail franchise award for an in-depth phase 2 investigation. In that situation, the CMA expects that ICRL can start operating the East Coast franchise from 1 March 2015 as planned, although the CMA may decide to impose a ‘hold-separate’ order for the duration of its investigation, aimed at avoiding integration of businesses or loss of competition between East Coast services and existing services, without impeding proper operation of the franchise.
Focus Comment As usual the sleepy heads at the CMA have taken many weeks to come up with these misguided ideas and are now giving Stagecoach 5 working days to respond. Their new name CMA (Was Competition Commission)  does nothing to dispel the idea that they know nothing much about competition and certainly haven't got a clue on what happens in the world of transport. 
We are sure that Stagecoach will grit their teeth and come up with some  ideas on how to pacify the bunch of lame ducks at the CMA.