Sir Richard Branson has threatened to walk away from the rail industry after Virgin lost its West Coast franchise.
Transport giant FirstGroup beat Virgin Rail in the bidding battle to run the London to Scotland line - a move described by the tycoon as "insanity."
Virgin's founder told Sky News he feared Government had repeated mistakes of the past by awarding a franchise to a company that he claimed could not possibly deliver on the promises it had made, citing the demise of GNER on the East Coast.
"We had a deliverable bid year-on-year based on realistic figures ...we are slightly cynical about this," he said.
It means an end to Virgin's 15 years of operating the line which has seen tilting, high-speed Pendolino trains serve cities like Birmingham, Manchester, Liverpool and Glasgow.
The West Coast carried around 13 million passengers a year in 1997. The annual total is now around 31 million.
FirstGroup, which already operates a number of rail routes including Great Western and ScotRail, is believed to have outbid Virgin's £4.8bn on West Coast, offering as much as £5.5bn to operate the new 14-year franchise which will begin in December.
It is also thought FirstGroup could operate West Coast under the name Horizon Trains Limited, with a firm of this name having been registered at Companies House.
FirstGroup chief executive Tim O'Toole said: "We are delighted to be selected by Government to operate this unique railway which connects communities across the country and plays a vital role in the UK's economic growth.
"We will be making significant improvements including reduced journey times and introducing new direct services."
Mr O'Toole added: "In support of our commitment to generate increased passenger growth, we will be reducing Standard Anytime fares by 15% on average."
But, following the news, FirstGroup's share price dropped by 5.5% in early morning trading.
In a statement released to mark the announcement, Sir Richard expressed his sadness saying the decision "is extremely disappointing for Virgin, and for our staff that have worked so hard to transform this railway over the last 15 years".
He said cuts in quality and fare rises would have been inevitable if Virgin's bid was any higher and he did not want to risk bankruptcy by overbidding.
Sir Richard added: "Sadly, the Government has chosen to take that risk with First Group and we only hope they will continue to drive dramatic improvements on this line for years to come without letting everybody down."
He criticised the Government further saying: "Insanity is doing the same thing over and over again and expecting different results. When will the Department for Transport learn?"
Labour and transport unions have already warned that a change of ownership could mean higher fares, poorer services and job cuts.
RMT general secretary Bob Crow said before the decision was announced: "Whoever wins the West Coast route, and all the signs point to FirstGroup, they should be left in no doubt that we will mount a massive industrial, political and public campaign to stop any attacks on our members' jobs and the services that they provide to the travelling public."
He added the franchise was being left "with a gold-plated, 12-year contract linked to massive cuts to jobs and passenger services and huge increases in fares as the winning bidder battles to extract every penny that they can in profit".
Simon Weller, national officer of the train drivers' union Aslef , said: "The Government is always seduced by the big buck, but any savings on the franchise will have to come by cutting staffing or higher fares."
Shadow transport secretary Maria Eagle said: "Passengers are set to lose out no matter which companies win these new longer franchises because ministers have promised successful bidders they can hike fares, cut services and close ticket offices."
Rail minister Theresa Villiers said: "Labour have admitted that their only transport policy is rail renationalisation with huge costs and massive upheaval for our railways."
She added: "We are currently evaluating bids for the Intercity West Coast franchise. All franchise bids are judged on their affordability, deliverability and their value for money for passengers and the taxpayer."