What's Going Wrong?

The news yesterday of up to 150 potential job losses at the UK's largest bus manufacturer Alexander Dennis Ltd shattered any final illusions that the UK bus industry is immune from recession. The announcement came after the recent post-Transbus uphill struggle that saw ADL again at the forefront of UK bus manufacturing. It adds to the significant (and proportionately higher) number of redundancies expected at Wrightbus.

So, what went wrong? Readers may recall the initial upbeat messages from operators. First, Stagecoach felt that UK bus was likely to ride the recession even if it thought that rail was going to suffer. Stagecoach was right about rail. Then, First Group followed with its own upbeat assessment.

There was talk of modal shift. There was talk also of free travel-led salvation—even in areas with lower than necessary reimbursements. After all, older people would keep on travelling and shopping, right? Not for them the continual looking over the shoulder to see if they still had a job. But older people are much less well off than at the beginning of this recession (if, like most of them, they rely on fixed incomes from savings).

Readers may also recall some warnings of what happened in the deep recessions of the mid-1970s. These were truly turbulent times when peak loadings quickly crumbled in proportion to the number of general job cuts in industry and the service sector. Then, there was a higher percentage of bus peak journeys, so losses were potentially more harmful. Even now, even where there are fewer regulars travelling at peak times, every redundancy equates to 10 lost bus journeys. And these are regulars, week in, week out, 48 weeks of the year.

It may just be that operators who hedged fuel have landed themselves with a problem. Last summer, they were quids in but now, they may be locked into poorer fuel contracts that haven't benefited from the recent market stability. This, then, gives operators a massive headache and one that cannot so easily be blamed on fuel inflation (as were fares increases from May 2008).

And rail, too, has its part to play. Rail fares are capped at inflation minus one percent and, on regulated fares at least, this gives little room for manoeuvre. The government seems intent on using this formula even as we approach deflationary times. With train operators now seeing the evaporation of the projected growth they once predicted to sustain optimistic franchise bids, it's little wonder that these same operators are having to look closely at their bus businesses, too.

Added to which, there's a real sense that we just may be on the verge of significant developments in hybrid technological. Good news in one sense, perhaps, but not for current orders. Initial hybrid trials on Merseyeside floundered, with those on Tyneside a little more successful. London is now the focus and even here, promises haven't been kept about the pace of change. So, First (and probably other operators) is reticent about diesel orders in the face of advances that just might be just as revolutionary as Gottlieb Daimler's 1885 combustion engine.

So, it's little wonder that all these factors conspire to translate directly into fewer bus orders. Added to which, when you're used to a recent strong and increasing bus (rather than coach) order book, any regression comes as a bit of a shock.