RAIL ticket prices are to go up after GNER last night won the biggest deal in European rail history to run East Coast Main Line services.

The York-based firm said it would invest more than £125m to deliver a "bigger and better railway, running extra services with more comfortable trains and carrying many more passengers".

In return for a seven-year contract, with an option for a further three, it will eventually pay £1.3bn.

GNER said the payment - far more than the £22m a year it now pays - could be met by increasing passenger numbers and was based on the assumption that annual revenue would continue to grow at the current level.

However, chief executive Christopher Garnett said: ''Fares will go up, but they will not go up in the big way people are describing.''

The Strategic Rail Authority chose GNER ahead of Sir Richard Branson's Virgin Trains and FirstGroup, which is understood to have been the runner-up.

Last night, a source close to one of the rival bidders said GNER's bid had "raised eyebrows". He said: "A number of people in the rail industry feel that GNER have overbid and that the premiums they are committed to paying back are not realistic."

GNER earns about £400m a year from East Coast, and in 2003 carried a record 15.1m passengers between London, Yorkshire, the North-East and Scotland.

It employs more than 3,000 staff, has increased services since 1996 to 122 a day, and increased passenger numbers in that time by 34 per cent.

GNER said its bid would mean an increase to 136 services a day and also protects its restaurant car services, and its headquarters in York.

In a statement on the website of GNER's parent company, US-owned Sea Containers Ltd, chairman James Sherwood said he regretted that the franchise gave less freedom to develop the business than the existing one, but said there was considerable scope to enhance revenue through improved sales and marketing and what he called "yield management".

Mr Garnett pledged to have 90 per cent of its trains running on time by 2010, compared to a current figure of more than 80 per cent.

He said GNER planned to do this in a number of ways, including convincing Network Rail to rewire sections of overhead cable on the route, which were "substandard and frequently caused delays", and the creation of a new control centre in York.

Vale of York Tory MP Anne McIntosh said: "I am absolutely delighted for GNER, who had cross-party support for their bid, and this decision is a great vote of confidence in them. I will be monitoring and keeping under close supervision GNER's performance in the light of these financial commitments.

"However, I am sure that the Transport Secretary Alistair Darling would not have awarded this franchise had he thought that GNER could not pay the amounts it has agreed to."

The leader of the RMT rail union, Bob Crow, said the deal was not good news and said there was now the prospect of "higher fares, service cuts and a squeeze on our members' terms and conditions".

A spokesman for GNER said: "We have spent nine years building up GNER and are not about to undo all our good work."