Sir Richard Branson has lost the battle to continue running the West Coast Main Line that his Virgin Rail company has been operating since 1997.

The Government today announced that the fight to take over a new 13-year West Coast franchise had been won by giant transport company FirstGroup.

FirstGroup, which already has a number of rail franchises including Great Western and ScotRail, will start operating the London to Scotland West Coast line in December.

Announcing the new franchise winner, Rail Minister Theresa Villiers said the new franchise would deliver "big improvements for passengers, with more seats and plans for more services".

But the RMT transport union warned of "massive cuts to jobs and passenger services and huge increases in fares".

Virgin has operated the West Coast line for 15 years, introducing tilting high-speed Pendolino trains to the route and increasing passenger levels from around 13 million a year in 1997 to around 31 million a year now.

Virgin Rail is 49% owned by another giant transport company Stagecoach which said today that it was disappointed that its bid with Virgin to continue running the franchise had been unsuccessful.

It said it understood that Virgin was the Department for Transport's (DfT) second-choice bidder and that that the reason it failed to win the new franchise was "because another bidder contracted to pay significantly higher premiums to the DfT".

FirstGroup chief executive Tim O'Toole said the company was delighted to win the franchise.

He went on "We will be making significant improvements including reduced journey times and introducing new direct services."

The deal will see the introduction, from December 2016, of 11 new six-car electric trains which will enable more seats to be provided across the franchise, including greater capacity on the Birmingham to Scotland route.

New services are planned from Blackpool, Telford, Shrewsbury and Bolton to London. FirstGroup has also committed to cut the cost of West Coast standard anytime fares by an average of 15% within the first two years.

The franchise stretches from London to Glasgow, connecting many of the UK's major cities including Manchester, Liverpool, Birmingham, Wolverhampton, Edinburgh, Lancaster and Chester.

The DfT said the franchise deal was worth #5.5 billion over the lifetime of the contract. The new franchise will begin on December 9 and will run for 13 years and four months.

Ms Villiers said: "This new franchise will deliver big improvements for passengers, with more seats and plans for more services. Targets to meet on passenger satisfaction will be introduced for the first time in an InterCity rail franchise and passengers will also benefit from smart ticketing and from investment in stations.

"The West Coast is the first of the new longer franchises to be let by the Coalition which has helped us secure real benefits for passengers by encouraging First West Coast Limited (as the company will be named) to invest in the future of the service."

The DfT said benefits of the new franchise would include:

:: Around 12,000 extra seats a day when the new 11 six-car electric trains come into service;

:: This is in addition to the 106 extra Pendolino carriages currently being introduced into operation which will deliver more than 28,000 extra daily seats;

:: More services: Initially First West Coast will operate the timetable they will inherit from the current franchise but are seeking to introduce a number of new services including a London Euston to Blackpool service from 2013 and, from 2016, services from London to Telford Central, Shrewsbury and Bolton;

:: Improved services: Journey time improvements between London and Glasgow are planned, as well as additional services from London to Preston.

:: Improved stations: First West Coast is taking over responsibility for maintenance at 17 stations and will spend at least #22 million on a station investment programme.

Mr O'Toole said: "Our winning bid is a deliverable proposition that is compelling for all who want to see a greater use of our rail networks.

"We will be making significant improvements including reduced journey times and introducing new direct services. We will improve marketing and deliver a smart ticketing system, refreshed and improved train interiors, station upgrades and even better catering.

"In support of our commitment to generate increased passenger growth we will be reducing standard anytime fares by 15% on average."

Mr O'Toole said First West Coast would continue to invest in front-line staff and looked forward to welcoming new employees.

He went on: "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.

"The new franchise will provide an economic return for our shareholders and is value enhancing from day one."

Stagecoach group chief executive Sir Brian Souter said: "Virgin Rail Group has revolutionised train travel on the West Coast line. I am bitterly disappointed that Virgin has been unsuccessful in its bid.

"After 15 years, it is difficult to imagine a West Coast rail service without the Virgin brand. I would like to thank all those that have been involved in delivering the Virgin vision over that time and all those that contributed to the strong bid for the new franchise. The outcome is a blow to all of those people."

Sir Richard Branson promoting Virgin Rail services Credit: PA

Sir Richard Branson said he was "extremely disappointed" with the decision, the franchise system was "flawed" and it was "extremely unlikely" that Virgin would bid again for a franchise.