Serco set for a Highland fling with rail bid

Serco, the support services company, is planning a major expansion of its rail business by bidding for the franchise to run most trains in Scotland.

The offer is likely to be made jointly with Dutch Railways, and executives from both companies will meet this week to make the final decision on whether to bid.

The pair are already bidding to run the Merseyrail franchise and Serco runs the Docklands Light Railway and Manchester Metrolink. But winning the ScotRail franchise would catapult the companies into the big league of UK train operators.

The ScotRail franchise covers around 95 per cent of the passenger rail services in Scotland and includes sleeper services to London.

Running through some of the country's most spectacular scenery, the ScotRail franchise attracts the highest state subsidy because it is centred on thinly populated areas. According to Government figures, ScotRail receives £230m a year. At 19p per passenger mile, this is more than double the subsidy paid to South Central and South West Trains combined.

National Express, the current ScotRail franchise operator, is expected to bid to hold on to the route for another seven years, starting on 31 March 2004.

However, National Express, which is the UK's largest train operating company, has warned that it may reduce the number of franchises it runs; the total currently stands at nine. It also runs Central Trains, WAGN and Silverlink. Last month the company reported a 38 per cent slide in first-half profits to £37.2m. This was partly blamed on the ScotRail franchise.

National Express has been hit by a series of strikes by ScotRail drivers that cost it £7m. On top of this, the sleeper service from London to Inverness and Fort William suffered at the hands of low-cost airlines such as Ryanair and easyJet, which mopped up demand. As a result, the sleeper service lost £20m last year and National Express has warned that the Government needs to provide an additional subsidy to keep it viable. Despite these problems, the size of the franchise is also likely to tempt Stagecoach, First Group, Connex and French state railway operator SNCF to bid.