Fuel to Blame?

There’s an argument over fares between the group representing the passenger transport executives (PTEG) and the Big Four (sic) operators.

PTEG feels that operators have used recent fuel rises to justify over-the-odds increases in fares. Fuel is just one component in the cost equation, argues PTEG, and the Big Four have hedged to a greater or lesser extent such that the true cost of fuel to operators is significantly below the pump price.

On the other hand, operators argue that hedging is simply deferring payment and that they face the same *rate* of increase, though the headline figure’s just delayed. Operators point to other inflationary pressures that coupled with fuel are rising costs significantly.

It’s understandable that operators should point towards fuel as a reason for upping fares. After all, you had to have spent a lengthy vacation on Mars not to have noticed recent fuel price hikes. It’s been dramatic, at every local filling station and supermarket, front-page news on every newspaper, the talk of every pub and topping the six o’clock news. It’s something the public easily understands and, importantly, can identify with.

Labour costs are rising but they’re not in the public eye. In any case, the public may well expect an operator to keep these in check, to have control, not realising that this far from easy. As buses get longer, heavier and their capacities are reduced, the cost per seat increases significantly but, like increasing insurance premiums, this is hardly as transparent and obvious as fuel.

The trouble comes when fuel is (temporarily) going down. It’s six per cent lower at my local forecourt since its mid-July peak. So why are fares still rising? The answer’s obvious to those inside the industry but not to others.


So, should we have sympathy, for example, with Wilts & Dorset’s announcement ‘We are sorry, but owing to the high cost of fuel a number of bus fares will increase from Saturday 16 August 2008’? Or is this a useful smokescreen? Go Ahead group has hedged its current year’s fuel at 43ppl and half of next year’s at 52ppl (24 per cent increase, from *next* year). Other figures are:

First Group hedged all its 2008/09 requirement at $76 a barrel ($144 high for spot price of Brent crude).

Arriva hedged 81 per cent of its requirement for the current year at 27.2ppl.

(Figures from Transit magazine)