Virgin Trains has lost its bid to continue running rail services on the West Coast Main Line from London to Manchester, Liverpool and Glasgow and will be replaced by the UK’s largest rail operator, FirstGroup.
FirstGroup had been widely speculated to be the front runner to win the franchise after offering the highest bid.
In a statement, FirstGroup said it would "offer substantial improvements in the quality and frequency of services".
Rail unions and rail campaigners however backed Virgin Trains and said they thought that the FirstGroup offer was unsustainable, warning that jobs would be lost, fares would rise and catering services would be cut back.
FirstGroup already operates a number of rail routes including Great Western and ScotRail but provoke controversy when it ‘handed back’ the Great Western franchise early to save paying millions of pounds to the Government.
FirstGroup, under the name First West Coast Limited, will take over the West Coast franchise from 9 December 2012 and is due to to operate the service until 2026.
The company says it will introduce 11 new 125mph six-car electric trains on the Birmingham to Glasgow route and provide more direct services between destinations.
FirstGroup’s chief executive Tim O’Toole said it was a good deal for the company and the public.
"Our bid also delivers value for taxpayers by returning premiums to the government underpinned by sustainable growth in passenger numbers and revenues from the utilisation of significant available capacity," he said.
First West Coast says it will pay £5.5bn at net present value to the treasury over the franchise term. This is believed to have been more than £1bn higher than the amount offered by Virgin Rail which is 49%-owned by another transport company Stagecoach.
In a statement, Stagecoach said the reason it had failed to secure the new franchise was because FirstGroup had contracted to pay "significantly higher premium payments" to the Department for Transport.
Sir Richard Branson’s Virgin Rail has operated the West Coast franchise since 1997 after the privatisation of Britain’s railways.