Avanti West Coast told to ‘drastically improve’ rail services for Lancaster passengers
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The decision means it will continue to run services until next April, the Department for Transport said.
The BBC has reported that Avanti has come under fire after slashing its timetables in August. It had apologised for the problems.
Transport Secretary Anne-Marie Trevelyan said services on Avanti have been "unacceptable".
"While the company has taken positive steps to get more trains moving, it must do more to deliver certainty of service to its passengers," she said.
"We have agreed a six-month extension to Avanti to assess whether it is capable of running this crucial route to a standard passengers deserve and expect."
The Department for Transport added that it would "consider Avanti's performance" once the extension comes to an end on April 1 2023.
Avanti West Coast's contract was due to expire on October 16.
The government had previously said that it was keeping all options on the table, including non-renewal.
FirstGroup, which owns Avanti West Coast in a joint venture with Italy's Trenitalia, said it was "committed" to providing services that meet the needs of customers and communities.
"Today's agreement allows our team at Avanti West Coast to sustain their focus on delivering their robust plan to restore services to the levels that passengers rightly expect," said Graham Sutherland, FirstGroup's chief executive.
The operator slashed its timetable from seven trains per hour to a minimum of four per hour in August and suspended ticket sales, blaming "severe staff shortages".
Avanti has relied in the past on workers doing overtime in order to run its services. It says that train drivers suddenly stopped volunteering for overtime in early August, resulting in the shortages.
The train drivers' union, Aslef, has strongly denied any accusations that there has been unofficial strike action.
It is understood that in the future, Avanti is looking to reduce its reliance on overtime.
It has also increased its services. The company started running extra trains on its key London-Manchester and London-Birmingham routes at the end of September, and it has said that services will improve in December once nearly 100 drivers finish their training.