Difficult Decisions

A 50:50 chance of recession in the US; a dollar so weak it’s forcing countries to consider decoupling from it; strong oil demand in emerging markets; a UK credit crunch that threatens growth if not recession in England; and the potential for continued or renewed conflicts are all very real threats to the price we pay for the oil the industry needs.

Then there’s the variable but generally woeful perceived shortfall in concessionary travel reimbursements—in some parts of the country—and the newly imposed costs in operating longer distances services.

Forgive me for saying so but there are still those of us who remember the bleakness of, and the worst of times during the 1970s. Surely, we can’t be approaching that sort of turbulence again?

Increasing fares has been a time-honoured remedy—and there’s plenty of that about at the moment. It didn’t work in the 1970s but in the face of sharply escalating fuel bills, there seems no other readily available tool. It’s still a gamble. You need to make assumptions about elasticity. It’s one thing using the laws of mathematics to predict changes to masses and gases, it’s quite another to predict a human reaction to a fares’ increase. There’s only so much passengers will take. And rapid-fire increases just stoke the situation. Perhaps higher fares in theory bring in higher free travel reimbursement if the formulæ weren’t so ineffective.

Even is the extent isn’t always foreseeable, demand does drop when fares increase. And under the threat of the 1973 UK petrol rationing, the unemployment and fares inflationary times of the 1970s, what was the last thing people gave up? Their cars. It always seemed so absurd. No doubt 2008 will be no different.

Yes, the recently announced 2p rebate via BSOG on the recent fuel duty increase is good news but the lag between imposition and rebate causes operators to worry. And put up fares. More recent fuel increases have more to do with world markets than domestic taxes.

How else will operators deal with this situation? Threatening withdrawal of mileage looks certain to become commonplace. If a route or journey isn’t contributing, it goes. Will 2008 be the turning point when operators drop more marginal mileage?

It’s precisely these sort of problems—lower margins, low reimbursements and fuel costs—that are behind Wilts & Dorset’s January 2008 decisions to withdraw…