When the new operator of the East Coast Main Line is announced later this month, at stake is much more than just the names on the trains. Nick Morrison looks at the struggle between two competing visions for our railway.

IT'S the battle that has been raging in the skies, and now it is coming down to earth. For years, the full service airlines, such as British Airways, have been fighting competition from the no-frills likes of Ryanair and easyJet; now the same struggle is taking place for control of the East Coast Main Line.

Later this month, the Strategic Rail Authority (SRA) will announce its preferred bidder to run the line for the next seven years. Four bids have been short-listed, with each bidder submitting its detailed proposals just before Christmas, but industry watchers expect the decision to come down to two bids at opposite ends of the spectrum.

One is the bid emphasising comfort and convenience; the other puts the premium on cutting costs. And behind it all, is the Government's insistence on taking as much money as it can out of the industry.

The East Coast Main Line (ECML) is seen as one of the few success stories of the privatisation of the railways. When the franchise was first awarded to GNER in 1996, the Government subsidised the route to the tune of £62m a year. Now, the ECML is one of the few lines which, far from requiring support from taxpayers, actually hands money back to the Treasury, some £25m last year.

But this is not enough for the Government. Instead, the Treasury has signalled that it would expect the winner to go beyond the premium of £25m. How much it will take to win the franchise is unknown, but figures of up to £100m have been bandied about.

The prime consideration for the SRA is expected to be which bid offers the best value for money for the Government, in other words, which one will see most money heading into Treasury coffers. And this leaves the bidders with a stark choice: short of increasing fares, they can increase this premium either by increasing the number of passengers, or by cutting costs.

Which way the SRA plumps is taking on a significance far greater than just who will run the line. Just as the ECML has a profile out of proportion to the number of passengers it carries, so the result of the franchise battle will be seen as an indicator of the future of the railways: cheap and cheerful, or higher quality but more expensive.

The four bidders are GNER, whose original seven-year franchise has been extended to nine; a joint venture between Virgin and Stagecoach, who between them run the West Coast Main Line, Cross Country and South West Trains franchises; First Group, which runs the Great Western and TransPennine routes, and a consortium of Danish rail company DSB and UK freight operator EWS.

All four bidders have been forbidden from revealing details of their bids, but Adrian Lyons, director general of industry lobby group the Railway Forum, says he expects it to be a choice between the two companies offering the starkest contrast between their visions for the line: GNER and First Group.

"It looks like First Group will offer a cut-price basic service, which concentrates on low-cost, off-peak travel, and tries to increase that market, and they will argue they can pull in enough revenue that way to meet their target.

"At the other end, you have GNER. Its case will be that it is going for the business class passengers, which have a bigger margin than off-peak tickets. They don't ignore the cut-price commuter but they want to keep the high-margin business, and they have gone out of their way to pursue that sort of market," he says

Higher staffing levels, more restaurant cars and the introduction of wire-less Internet are testament to GNER's attempt to target the business traveller. While GNER needs a smaller increase in business travellers to match whatever First Group is hoping to gain in cut-price journeys, it will come down to which bid is most convincing.

"The question is: who comes up with the biggest premium, and who does the SRA and the Treasury believe?," Mr Lyons says. "Is it going to be growing the premium market, or are they going to believe First Group's bid, which will be a cut-price service?

"It looks like the dual between Ryanair and one of the top national carriers. Both of them are viable business solutions, but you're not able to mix them."

He believes a premium of £100m a year would prove too much for the market, meaning about £12 from each return ticket would go straight to the Government, compared with £4 now, and instead reckons the final figure will be around £60m.

But this could be bad news for passengers, leading to higher fares and more over-crowding, says Fran Critchley, deputy secretary of the Rail Passengers Council in the North-East.

"It is a concern for us, because it is a massive increase in the premium, and it has either got to come from increasing the fares or by carrying more passengers," she says. "Many of the services are at capacity at the moment, and we don't want to see any more over-crowding on the route. It doesn't make a comfortable journey for passengers if you have to stand."

But just as worrying is the prospect of money being taken out of the industry and going into Treasury coffers, instead of being reinvested in the railways.

'There is not a lot of room for innovation and to invest in the market if the Government is saying they want them to pay these amounts back every year," she adds.

But if the franchise is expected to be a close call between GNER and First Group and their competing visions and, with the DBS bid very much the outside, with no experience of running passenger lines in the UK, Virgin-Stagecoach could yet come through with their middle way.

If Virgin Air is anything to go by, the Virgin-Stagecoach bid is likely to feature a business service, although not to the same standard as GNER's, combined with reasonably cheap seats.

But the Virgin bid could be at a disadvantage if the SRA is worried about creating a monopoly of inter city routes, if the West and East coast main lines are in the hands of one operator. Problems with the West Coast line, and with Stagecoach's South West Trains, which had to go cap-in-hand to the Government for a £140m subsidy on what is a prime commuter route, may also count against them. Another factor could be their sheer hunger for victory.

"I don't have the sense that it is an absolute priority for Virgin-Stagecoach, whereas it is for GNER and First Group," says Mr Lyons.

GNER is the only rail franchise held by the Sea Containers shipping and hotels group. If it loses, it will see its overheads to income ratio increase sharply. First Group is on a roll, having done well winning rail franchises, and sees the ECML as a major prize. Not only will it give them a higher profile, it could also reduce overheads by sharing costs with the Transpennine service.

If it goes to the wire, and the financial basis of the bids is similar, ministers have said they will take into account the "performances and preferences" of the two bidders, which is seen as code for saying that GNER would have the edge.

GNER has built up a loyal following: 20,000 passengers registered their support for the current holder to retain the franchise, and an SRA survey found 85 per cent of passengers were happy with the service, the highest score of any long-distance operator.

But it remains to be seen if this will be enough to ensure it is not handing over the ECML to a rival when its current franchise comes to an end on April 30.

"They have got a lot of credit for branding the line, and they have generated significant customer loyalty," says Mr Lyons. "But it is a cliff-hanger and the Government's first demand is money. Loyalty is not going to count for much unless it is an absolute dead heat."