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When Wales and Borders took over the North Wales routes all the 175s were transferred to them and then subsequently Arriva Trains Wales. 11 were sub-leased to First North Western and then Transpennine Express for use on the Manchester Airport to Blackpool/Windermere/Barrow routes (and weren't used by Arriva Trains Wales until 185s were brought into operation, so I imagine they would have been stored with the other First North Western rolling stock and then later with the Transpennine Express stock rather than with the rolling stock for the north Wales routes at Chester.
Regarding the capacity on Blackpool trains this has been a problem for a long time. I remember boarding a Saturday First North Western Blackpool bound train at Stockport in 2000 and many people had to stand from Manchester Piccadilly to Preston. You need to remember that passenger numbers are increasing faster than extra rolling stock is being brought out, so it may not have been as made with 2 car 175s as you imagine. Although I imagine it could be very bad next summer with 185s replacing Voyager trains between Manchester and Preston and less trains overall.
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