TransPennine Express is to issue refunds to season ticket holders after its recent performance was described as "completely unacceptable".
Transport Secretary Grant Shapps is to arrange an urgent meeting with the operator to discuss how it will improve services for passengers after a TPE boss admitted its performance was "not up to scratch".
The 3% rebate comes after issues with the introduction of new trains led to disruption for passengers last month.
In December, TPE announced a number of new services across the North of England and Scotland on three new fleets of trains, which would increase capacity by more than 30%.
But the operator said the late delivery of some of the new trains, a maintenance backlog and infrastructure issues, causing a delay in crew training, meant it had to run a temporary decreased service after a number of cancellations.
On Monday, Leo Goodwin, TPE's managing director, said the rebate - for customers who held a season ticket between October 1 and December 31 - would cancel out the average 2.8% annual increase on regulated fares.
Mr Goodwin said: "We know that our performance was not up to scratch at the end of last year and, for this, we really do apologise.
"We have experienced a number of issues following the introduction of our new trains, resulting in disruption to a number of our customers' journeys with us.
"I would like to thank our customers for continuing to travel with us and it is only right that we compensate them for the recent disruption."
Mr Goodwin said the operator had extended the amended timetable between Liverpool Lime Street and Edinburgh for the rest of January to allow "services to recover" and "consistency for customers" while the new fleet of trains is rolled out.
A DfT spokesman said: "TransPennine Express's performance in recent weeks has been completely unacceptable.
"We understand how deeply frustrating this is for passengers, who should not have to put up with continued poor performance, and we will not tolerate continued significant reductions to services.
"The Transport Secretary has demanded immediate explanations from the operator, Network Rail and rolling stock manufacturers, and will be convening an urgent meeting to determine how they will improve services for passengers.
"We have been clear with the operator that they must take urgent steps to address their poor performance and, if appropriate, we will take action under the terms set out in the Franchise Agreement."