Virgin Rail has lost its West Coast main line franchise to rival transport company FirstGroup following a Government bidding process dubbed "insane" by Virgin boss Sir Richard Branson.
Virgin has run the London to Scotland West Coast, with its high-speed tilting Pendolino trains, since 1997, more than doubling annual passenger numbers.
But the Government announced a new 13-year franchise for West Coast is being awarded to FirstGroup which already operates a number of other rail routes.
FirstGroup will pay £5.5 billion back to the Government in premiums over the life of the franchise, with Rail Minister Theresa Villiers saying the new franchise would deliver "big improvements for passengers with more seats and plans for more services".
FirstGroup chief executive Tim O'Toole said his company would be making "significant improvements, including reduced journey times, and introducing new direct services".
But Labour, transport unions and Sir Richard fear FirstGroup will be unable to meet its performance promises and financial commitments and that the award of the new franchise could result in service cuts, job losses and big fare rises.
Sir Richard said Virgin, believed to have bid around £4.8 billion for the franchise, could not have bid more without cutting customer quality and raising fares "considerably". He added: "The East Coast is still in Government ownership and its service is outdated and underinvested, costing passengers and the country dearly as a result. Insanity is doing the same thing over and over again and expecting different results. When will the Department for Transport learn?"
The DfT said benefits of the new franchise, which will start on December 9, would include around 12,000 extra seats a day when the new 11 six-car electric trains come into service in December 2016, as well as more services and improved stations.
But shadow transport secretary Maria Eagle said that passengers would "lose out" and ministers had to "reassure taxpayers that they have not been swayed by an unrealistic bid that does not in the end deliver the payments that have been promised".
The RMT transport union said the FirstGroup bid was "a total con from top to bottom" and was linked to "massive cuts to jobs and services and huge increases in fares". The TSSA transport union said that only by the introduction of 14 years of inflation-busting pay rises could FirstGroup meet its premium payments.