By Katy Austin
Ministers could withdraw Avanti's contract to run services on the West Coast Mainline when it comes up for renewal in October.
Transport minister Trudy Harrison told the House of Commons all options remained on the table.
She said withdrawing the contract was one option, and "all of the implications of that" were under consideration.
Avanti cut services and ticket sales last month amid a staffing crunch.
Labour urged the government to intervene, saying this had "left passengers facing chaos" and was damaging the economy.
Avanti's move has left only one train an hour between Manchester and London Euston, and very few direct trains running to or from north Wales. Passengers have reported crowding on trains which are running.
Ms Harrison said increasing in services between the two cities "remains an absolute priority", but could not say when it would happen.
The minister added that the Department for Transport continued to monitor Avanti's performance while they looked at options "to reliably increase the services".
Avanti has blamed staff shortages on train drivers suddenly stopping volunteering for overtime. The drivers' union Aslef has strongly denied the company's claim that there's been unofficial strike action.
Last week it was announced the operator's managing director would leave on 15 September.
Louise Haigh, the shadow transport secretary, said passengers needed to hear a plan "to get this vital line back on track". She said more than 220,000 seats per week had been lost between major towns and cities.
She accused ministers of letting "this failing operator get away with appalling performance for far too long" and handing over tens of millions of pounds of taxpayers' money in performance and management fees.
Ms Harrison told the Commons the timetabling decision had been made so that passengers could have confidence trains were running, following a high number of cancellations in July.
She said an industry arrangement where drivers volunteer to work on rest days had been in place "for many many years", but this was "no longer a sustainable way to operate".
She insisted the DfT and train companies were working on recruitment, diversity and retention "to ensure we have the train drivers…[to] operate a safe, affordable and reliable service in the future".
Navendu Mishra, Labour MP for Stockport, said Avanti's schedule cuts continued to "blight the lives" of his constituents and elsewhere.
He said: "Customers are unable to purchase tickets when seats for one leg haven't been released, forcing people to buy two singles or open returns at a greater cost. There continues to be a lack of clarity and certainty around the release of tickets, and many outlets still say sold out, leading people to believe there are no tickets left."
Transpennine is also introducing a temporary timetable from 12 September, with fewer connections along the West Coast Mainline.
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Avanti West Coast: Government considers withdrawing rail operator's contract – BBC
By Katy Austin