Comments left on the Lancashire Evening Post website about the demise of Preston Bus predictably demonstrate the usual misconceptions about a modern, deregulated bus industry. It’s probable that the general public will never grasp the complexities of bus service operation. And, why should they? All they want is a value-for-money, reliable, punctual service. Yet, if those web comments are a true reflection of what people think, deregulation appears to them to have failed.
While most of the sentiments were anti-Stagecoach, there were those who felt Preston Bus needed whipping into shape. Either way and for whatever reason, even after 22 years of deregulation and privatisation, when the public believes the bus service isn’t working, when this becomes so overwhelming, the bus industry finds itself painted defensively into a corner. The odds stack up in spite of the good that’s emerged in the last two decades.
And much good has emerged in the North West. Prestonians must remember their history. Stagecoach purchased Ribble in 1988 and began the process of turning around the stultifying culture of this once drifting super-tanker. In 2001 Stagecoach sold the less profitable east Lancashire garages. New owner Blazefield turned them around but only after it ruthlessly concentrated on core routes.
And Prestonians are less likely to recall the lack of investment till relatively recently at Preston Bus, the old Atlanteans battling on, the end-of-life Lynxes and the seemingly exhausted Metroriders.
Prestonians will no doubt soon see a rationalisation but will they recall the traffic chaos in town and buses queuing at residential termini? And will they realise that the resultant service is likely to be sustainable?
And yet, it still comes back to it. In the eyes of the public, has privatisation worked? Profit, to the public, is a dirty word and they want service first. The operator has an incentive to maximise profit by offering a good service. But the two seem as far apart in the public consciousness as ever, as passengers continue to consider the bus industry not as a business but a public asset.
Saturday, 31 January 2009
Public Asset?
Photo: Omnibuses Northern Correspondent
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5 comments:
The article states that "the operator has an incentive to maximise profit by offering a good service".
This can undoubtedly be true in many cases, but unfortuately there are far too many cases in the bus industry where the easiest way to maximise profit - for the short term at least - is not to improve services, or even to maintain services, but to cut costs.
Plenty of operators see incentives to cut an already-profitable half hourly frequency to hourly, for instance, or to merge two profitable and relatively direct routes from town centre to A and town centre to B into one very circuitous one from town centre to B via A. Such changes are of course borne out of a realisation that a good proportion of passengers have no alternative and therefore the revenue lost as a result of such changes will be just a small fraction of the costs saved. Clearly this will increase profit, but certainly could not be described as "providing a good service". The normal market incentives that ensure that customer satisfaction = profit are certainly a bit mangled in the bus industry, to the extent that they can too often give a very good financial result for the bus company, but a very poor result for the travelling public.
While the anonymous commenter above is correct that an operator has more incentive to not improve services or to thin them, this surely leads to the point made in the original article that customers become dissatisfied and therefore correlate the quest for pure profit with providing a poorer service.
What is hard is getting the balance right between the two. Though this leads to profit being "mangled" as Anonymous puts it, I suspect that there is no better way of providing a service. State run bus services might operate at frequencies (and fares) passengers feel give a good service but without very heavy subsidy they will make no profit for the operator.
There is no evidence at all that state run operations will run more frequent service - if anything the opposite.
The great benefit of commercial operation is that the operator is fundamentally incentivised to run buses where people use them.
If you look at those operators who have increased frequencies on strong corridors - Brighton and Hove, Oxford Bus Co, Wilts and Dorset, Southern Vectis - what you see is operators taking a calculated but nevertheless very real financial risk, pushing frequency as high as they can at not inconsiderable cost.
There are two real problems with the notion of moving to council run or regulated / franchised operations.
Firstly, Councils are swayed by public opinion, not least powerful councillors making uneconomic demands for bus service in their 'patches'.
The result can be very low margins - sounds good for the public and pasenger purse, but this actually means that you get a double whammy. Firstly, councils are risk averse - they have to be because they are risking public money. secondly they run on low margins. This combination makes them very unlikely to risk investing in high frequencies.
The opposite tend to happen, with them spending too much resourse cros subsidising uneconomic services.
The result is that they are very very vulnerable to adverse costs hitting them and they are also ill prepared to gain revenue from new customers.
In a possibly regulated future market structure, there is an almost certain inevitably that what we would see is strong corridors cut, often when councils were short of cash for other departments, and still an over provision of service where it wasn't needed. You end up with an effective 'rationing' of service across the network.
The real downside to that is that it actually reduces passenger numbers, and returns us to the decline on strong corridors, when exactly the opposite is required.
Driving up frequency through commercial risk taking is what drives up passenger numbers and makes bus operation viable.
There will always be a ocial need / desire to run uneconomic services, but this is currently pretty transparent - the cost is clear through tenders. That would be lost in franchised networks, all we would get is a number at the bottom.
How about the possibility of a halfway house, where councils franchise out exclusive rights to operate a route or small network but still leave the franchisee with a good degree of flexibility?
For instance the contract could specify minimum service levels and vehicle standards but the operator would still keep all revenue and could still choose to invest in higher frequencies/newer vehicles/extra marketing etc. over and above the minimum in the contract where it felt there was a commercial case for doing so. Perhaps this could even be encouraged by something like a bonus payment and/or automatic renewal of contract for any operator achieving more than a certain percentage passenger growth over the life of the contract.
I think under such a system the problem that anonymous3 suggests - that councils would cut frequency on busy corridors when money needed saving - could be solved, as surely under a franchising system that still gives commercial freedom councils would find that they recieved the least expensive bids when they proposed the comercially optimal level of service.
I do agree that there would be a problem with councillors wanting unreasonable levels of service for their own areas, but to be honest that can and does happen just as easily under the current arrangements.
The advantages of such a franchised system though could be very significant IMO. Network stability would be a major plus. Networks that would likely be designed to work well as complete networks rather than just a collection of disparate routes could do a great deal to broaden the potential of bus travel as an all purpose mode of transport, rather than just focussing on specific markets such as shopping trips, 9-5 commuting trips etc. Early morning, evening and Sunday services may stop being nibbled away at if they are packaged as part of larger franchise - people's cars are available at these times, and they expect buses to be too if they are to seriously consider them as a transport option.
I would also contest that on many 'goldmine' routes operators are currently making far more than a fair rate of return on capital investment and risk taking, ie. they are making what in economc terms is a monopoly profit, due to the fact that commercial bus routes are natural monopolies, unless broken up by an undesirable on-street bus war. Under a competitive franchise system this situation would not occur.
Indeed it would force operators of such goldmines to use some of their surplus monopoly profit to, shock-horror, cross-subsidise, rather than turn to the public purse. Take for instance a typical route in a medium to large sized town. It runs, say, every 15 mins commercially 7am-7pm with modern low floor single deckers, and is a very good performer, makes a margin well into double-digits. In the evenings and on Sundays a half hourly/hourly service is run under contract for a subsidy. Suppose then that under a franchised system the whole route - daytimes, evenings and Sundays - is bundled up into one package, specified at existing service levels, and put out to tender for exclusive rights to operate it. What sort of bids would the council recieve? I'd be willing to bet that on many such routes where evening/Sunday subsidies are currently paid, councils would actually recieve bids from operators willing to pay a premium to operate them if the whole route was packaged up and auctioned in this way.
A forward thinking council could then actually invest the subsidy thus saved into better bus route infrastructure, marketing, improvements to the network etc. etc., and possibly establish an upward spiral of passenger growth-decreased subsidies-extra investment-passenger growth... to the ultimate benefit of the council, passengers and the operators.
Right - sorry - I have rambled on far too long! But I think I have made all the points that I wanted to. :-)
The franchising of individual routes, or groups of routes (as suggested by the 4th anonymous contributor) still involves a degree of bureaucratic (and political) control that will inevitably restrict the operator's commercial freedom. Note that the third anonymous contributor said that..
"The great benefit of commercial operation is that the operator is fundamentally incentivised to run buses where people use them."
Note particularly 'where', not just 'when', which is effectively what the suggested franchising system would offer.
Any such 'franchising' would in effect be another form of quantity licensing/control, but what is actually needed is quality control - and frequency of service is a measure of quantity, not quality.
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