Old rail line operator slammed for 'failing to invest in service'

Directly Operated Railways Ltd revealed that it made an operating profit of 52.7m on turnover of 233.8m.

It took over the flagship service last November after franchise holder National Express broke the terms of its agreement, two years after previous holder GNER hit financial difficulties.

Elaine Holt, executive chairman, said Directly Owned Railways faced a huge challenge when it stepped in to take over the business.

"Staff morale was low, investment in the business had all but ceased – and crucially, many of the key engineering skill sets had been allowed to evaporate.

"It quickly became apparent that a complete turnaround would be necessary, not simply to restore satisfactory operation performance in the short-term, but to hand over a business in excellent shape to the next private sector operator – for long term and sustainable reliability in the future."

The annual report published yesterday covers the period from July 2 2009 to March 31 2010, with most of the turnover coming from East Coast ticket sales and associated revenues from November.

After service payments to the Department for Transport and tax, the company made a profit of 1.2m.

Ms Holt said: "Our financial performance in this first period of operations has been strong – and we are exceeding our targets."

She revealed that the company is paying back more money to the Government through higher payment premiums. She also reported a three per cent increase in passengers since November.

The company is investing 10.3m into developments at York, Wakefield, Doncaster, Edinburgh, Retford and Peterborough stations and in IT services, training and staff development.

Ms Holt added: "Already there are signs that the 'pride' is back among East Coast staff. Sickness absence has reduced by 25 per cent and staff turnover has reduced from 8 per cent to 6 per cent."

Other changes include the introduction of some charges for the wi-fi service last month. A spokesman said customers had complained about how slow the internet connection had become while free so a new service was installed.

The spokesman said an announcement will be made next week about changes to the on-board catering service, which had been losing 25m a year. These could include the scrapping of the restaurant car service.

Directly Operated Railways said it expects that the franchise will be re-let to a private operator by the end of 2012, which is later than originally anticipated.

The East Coast route has national strategic and economic significance and premiums paid have historically been used to support other parts of the national railway infrastructure.

Before the election, industry figures said the Conservatives were considering longer and looser franchise agreements, which would be less restrictive and allow more commercial latitude to operators.

The coalition Government would not want a third successive franchise failure, which could lead to calls for permanent renationalisation of the service and support claims that the shareholder model does not suit the ownership of such an important part of UK's railway system.

East Coast operates 136 weekday train services, linking King's Cross, the East Midlands, Yorkshire and Humberside, North East England and Scotland.