Any other business

Why passengers won’t mourn the passing of Virgin trains

20 April 2019

9:00 AM

20 April 2019

9:00 AM

‘Virgin trains could be gone from the UK in November,’ blogged Sir Richard Branson from his billionaire hideaway after the Department for Transport barred Stagecoach, Virgin’s 49 per cent joint-venture partner, from bidding for new passenger rail franchises. This followed a row over Stagecoach’s reluctance to help fill a £6 billion black hole in the Railways Pension Scheme – and affects Stagecoach’s bids for the East Midlands and South Eastern franchises as well as the renewal of Virgin’s West Coast Main Line service.

Branson is always a sore loser on the rare occasions the dice don’t roll his way, but I doubt many travellers will mourn the passing of his trains. The truth is that they never lived up to his brand promise, being little more than a Stagecoach service plastered with Virgin logos. The cramped, swaying and strangely odiferous Pendolino trains on the West Coast line always make me feel sick (even more so if I’ve paid the peak fare), while the Virgin East Coast service that failed last year wasn’t a patch on GNER, the line’s much-missed first franchisee, and has swiftly been surpassed by LNER, the current state-owned operator.

In the air, Branson retains 20 per cent ownership of Virgin Atlantic, 49 per cent being held by Delta of the US and 31 per cent by Air France-KLM. I suspect he also does not devote much time these days to the running of it — yet there’s no dilution of the in-flight stylishness and marketing gloss that reflects his personal image. That conjuring trick was never achieved on his trains, though the Guardian reckons he reaped more than £300 million from them during his 22-year partnership with Stagecoach; the truth seems to be that railways never excited him the way aviation clearly did.

Air France-KLM, incidentally, has a clause that says it can sell its Virgin Atlantic stake back to Branson in the event that Brexit inhibits flight operations and makes it imperative for the airline to revert to majority UK ownership. The bearded balloonist may yet find himself back in the cockpit.

Waiting for Halloween

A brief update on the auto industry: carmakers who had braced for Brexit on 29 March — including BMW-owned Mini and Rolls-Royce, both having planned temporary plant closures — must be even more frustrated now that the feared supply-chain disruption could fall any time until Halloween. Meanwhile, for readers still tempted to chant ‘We’ll be fine under WTO rules’, I commend a paper by Professor Matthias Holweg of Oxford’s Säid Business School, entitled ‘Death by a thousand cuts’.

Holweg explains that under a WTO regime, the 10 per cent tariff that would apply to vehicles exported to the EU would more or less wipe out the profit margin for mass-production cars. Given that some 40 per cent of UK-made cars are destined for the EU, that would render parts of our industry unviable, and he thinks we could lose 35 per cent of current production volumes over a decade. Combined with the effects of an 80 per cent drop in capital investment over the past three years, this loss of scale ‘will lead to a slow “hollowing-out” of the skill and supply bases, which will have further adverse effects on aerospace and defence manufacturing’. I’ve written before, and Holweg concurs, that global factors have pushed the car industry into a fragile state which a bad Brexit will make much worse, at great cost to the UK economy. Any politician or pundit who continues to deny that is deluded or lying through his teeth.

Progress report

Good news for our UK Optimist Fund portfolio of 24 shares assembled from readers’ suggestions last month: collectively we picked one runaway winner and a couple of other early hot-shots. Shares in ReNeuron, a Bridgend-based stem cell research firm targeting areas of ‘poorly met medical need’, have tripled, partly in response to a positive progress report on clinical trials and a licensing agreement with a Chinese pharma group. Another bioscience venture, Angle (based at Guildford and developing blood analysis products to identify tumour cells), is up 27 per cent; and Anglo Pacific, which invests from London in mining royalties around the world, is up 23 per cent.

The bad news is that these are all small fry compared with blue-chips such as Vodafone, Lloyds Banking Group and National Grid which on any realistic allocation of capital would represent a large portion of our portfolio — and have all drifted downwards. Not even pie-maker Greggs bucked the gloom; only Tesco, with a 28 per cent profit jump, has done us any favours. But let’s take comfort that our mixed bag of smaller stocks picked to play to Britain’s post-Brexit strengths is looking good. Too soon to be smug, of course: I’ll report once the saga moves on. But the lesson so far is that in uncertain times it pays to be bold.

Close of play

My long-serving mole in a pink coat at the Bank of England tells me he’s planning to retire in January, when Mark Carney’s extended tenure comes to an end, rather than hang on in the hope of finding a kindred spirit in whoever succeeds the funless Canadian technocrat as Governor. It was bad enough when Carney scrapped the traditional governors’ day cricket match at the Bank’s ground in Roehampton — but now comes a decision to close the 32-acre sports club altogether, after it clocked up losses of £755,000 in 2017-18. Usage had dropped dramatically, my man tells me, what with Bank staffers being so tied up war-gaming for a no-deal Brexit; and now that’s been shelved, they’ve been ordered to make contingency plans for a Corbyn-McDonnell government. Besides rehearsing for a sterling crisis, house price collapse, capital flight and gilt investors’ strike, he whispers, Roehampton’s redundant croquet mallets have been quietly stacked behind the great doors of Threadneedle Street in case they’re needed to repel the mob.

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