First Great Western is to fund a £29 million investment programme to compensate for the poor performance that has led to a ministerial warning that the company could lose its franchise.

The operator has also shaken up its senior management team again and agreed a plan to improve operational performance.

Transport secretary Ruth Kelly said the operator had breached its franchise agreement by exceeding the limits on cancellations, and also by misreporting those cancellations. But she said, FGW has already commenced implementation of several initiatives and offered the £29 million package of passenger benefits.

Mrs Kelly said that while she could have fined FGW for under-reporting its performance, this would not in itself help passengers so she had opted for the benefits package.

Issuing FGW with a notice requiring it to produce a remedial plan, she warned that failure to deliver the new commitments would be a default of the franchise which could lead to its termination.

The moves bring to a climax the problems the franchise has suffered since it was launched in April 2006. At the end of both 2006 and 2007 company bosses were forced to apologise for the poor service over the previous year.

First Great Western says it has established a new performance directorate – headed by former London Lines boss Mark Hopwood – to “improve management of disruption alongside Network Rail”.

The company has also started recruiting a further 60 drivers, 40 guards and a number of technicians to improve service reliability.

Five additional Class 150 units will allow cascaded Class 158 diesel trains to lengthen Cardiff/Bristol/ Portsmouth trains. FGW will also have an extra high-speed train.

The operator will also improve station information systems, expand the planned refurbishment of London commuter trains, offer half a million more cheap tickets, and extend its compensation for delayed passengers.

Moir Lockhead, FirstGroup chief executive, said: “We have already put in place actions to address performance at FGW.  We are encouraged that during January 2008 performance improved and cancellations were at their lowest level for 18 months. This trend has continued during February.”

As part of First Great Western’s management shake-up following its tough warning, Mark Hopwood has become performance director. He heads the new performance team responsible for train planning, control and performance analysis, and oversees the three route directors with route specific responsibilities across the FGW network. 

Mr Hopwood, who was managing director of National Express’s LondonLines until January, was originally joining FGW as one of its three new route directors but is now in the process of recruiting a new team of route directors.

In a written statement to Parliament, Ruth Kelly said the performance of First Great Western has persistently fallen short of its customers’ expectations and has been unacceptable to both passengers and Government.

She said the Remedial Plan Notice requires FGW to submit a plan to bring the standard of services back to acceptable levels. It will be contractual, and ‘material non-compliance’ with the plan could lead to the Government terminating First Great Western’s franchise.

The transport secretary informed MPs that last year FGW told the DfT that it had been miscalculating its performance figures and they were worse than reported.

An FGW internal audit uncovered several errors and DfT officials are now checking systems at other companies.

Andrew Haines, FGW chief operating officer, said: “There is a considerable momentum to transform the business and taken together with the management changes we have made, we are confident of our ability to improve performance.”

As well as Mr Hopwood, FGW has announced a number of other appointments.

Matthew Golton has joined as projects director, responsible for major project liaison with Network Rail and the DfT. He will manage FGW’s input into the Intercity Express Programme, Crossrail, Reading remodelling and North Cotswolds line redoubling. He has worked for EWS for the last decade. Sheridan Flavin has joined as human resources director, while Sue Evans, formerly director of communications at EWS, takes a similar role at FGW.