STAGECOACH and Virgin Trains are to bid for the new Greater Western franchise from London’s Paddington station in a move that will place them in competition with First Group, the existing operator.

The plan demonstrates Stagecoach’s increasing confidence in its UK rail business, despite the setbacks it has experienced in recent years with Virgin Trains, of which it owns a 49 per cent stake, on the West Coast Main Line and CrossCountry routes.

However, Stagecoach’s ambitions will prove controversial with passenger groups as Virgin’s CrossCountry trains have the worst record in the industry for punctuality, while South West Train’s operations are the worst in London and the South East. Virgin’s West Coast route, where new trains and journey-time improvements are long overdue, also continues to be plagued by problems, although the company largely attributes these difficulties to Railtrack.

Graham Eccles, director of Stagecoach’s rail operations, said: “There are significant opportunities for network expansion on these lines by introducing new high speed trains.”

Unveiling the group’s full-year figures, Brian Souter, chief executive and founder of the Perth-based Stagecoach, boasted of the group’s cost-cutting programme: “The car park’s almost empty in Perth,” he said, claiming that significant overheads had been taken out of the group.

He also promised that there would be a renewed focus on the UK bus business, which he argued had been neglected in recent years.

Pre-tax, pre-exceptional profits for the year of £113 million were only marginally higher compared with the same period last year. The small rise was boosted by improved UK bus performance and compensation payments for late delivery of trains, which pushed the rail business ahead of last year.

However, the figures were overshadowed by £575 million of exceptional writedowns relating to the Coach USA business which pushed the group into a £500 million loss.

Stagecoach is selling most of Coach which it bought four years ago for £1.2 billion. Mr Souter admitted that he woke up to the fact that the Coach USA business was not what he had hoped “four months after he bought it”.

Stagecoach’s shares closed up 4¼p at 61p.