With the announcement that over the weekend National Express rebuffed First Group’s unsolicited take-over bid, are we poised to enter the third phase of privatisation?
Phase 1 was the sale of state or municipally owned bus companies, often to their managements. Phase 2 is the consolidation that’s been occurring ever since and especially from the early 1990s. Will our stricken economy force upon us Phase 3?
Phase 3 may take a number of forms. The merger, for example, of one or more of the Big Five, the acquisition of one of them by a non-transport player, or a continental transport group. It’s a maturing process that will either see the Big Groups turn into Super Groups or the splintering of a group into smaller units at the hands of concerns specialising at buying big and selling small.
In terms of the former, the market appears ready and has an appetite for corporate consolidation.
Though NatEx rejected First this time around, is NatEx in a position to be choosy? NatEx has already restructured its business significantly in order to improve its ailing bottom line. But the passenger slump on the east coast main railway line continues to cause it problems.
First views the recession as entrenched and is going through some reactive adjustments. It’s understood that it has set local targets for each bus operating subsidiary that involves reducing mileage. It’s looking progressively to amalgamate back office functions by seeking economies of scale by joining contiguous (and sometimes geographically disparate) subsidiaries.
Could the logical outcome, a natural extension, of both these processes see the Big Five becoming the Bigger Four?
Stagecoach has rationalised over the last couple of years, including the sale of its London businesses. Arriva, too, merged it two midlands businesses into one and its north west & Wales businesses, though has undertaken a volte-face as regards the latter regions.
That we live in interesting times is certain. Nothing can be ruled out as we approach Phase 3 with either relish or disquiet. Imaginative thinking is required.
Tuesday, 30 June 2009
Thinking the Unthinkable
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6 comments:
If First is right about the recession, might comparison with the thirties be worth looking at. My transport history id weak, but from what my parents said, there was in the twenties a badly unregulated industry with recklessness a feature, until it was brought under control by the then government. Out of that and subsequent pre-nationalisation events, how many large groups were there and what % of total service did they hold?
If that was an optimum, then how is industry heading now?
National Express seems to have weakened considerably since Phil White left. He seemed to understand the business and there appeared to be potential to expand.
Now the business is weakening. Over commitments on the rail side and a lack of investment on the bus side are not good omens and soon the big five are likely to be the big four.
National Express has not seen a passenger slump on the ECML. Growth continues but not at the rate projected when the franchise was agreed - in very different economic circumstances.
Only in the privatised era in this country could an operator whose rail franchise continues to show month-on-month growth be faced with losing it. Don't forget that if NXEC is handed back, so too are the much better-performing NXEA and c2c.
To respond to the first anonymous poster, it's important to remember that in the 1920s (and before), the bus industry was still in its 'initial growth' period. There was certainly consolidation then and during the 1930s, and the Tilling and BET groups grew during that period. Decline tended to set in during the 1950s and '60s, although consolidation of operators continued.
I'm not actually sure that a comparison with the earlier history of the industry is particularly relevant, as consolidation of ownership is, to some extent, an inevitable trend in any industry, regardless of the economic circumstances affecting that industry. In times of growth, businesses will try to increase their share of the market, and buying competitors is one way of achieving that. In times of decline, former competitors may find it more beneficial to merge to save overheads to preserve a business in some form - we have, of course, seen that recently with some banks.
The nature of the bus industry may to some extent restrict the degree to which this form of consolidation takes place. While expansion may bring economies of scale, there are also 'diseconomies of scale', for example, in the sense that some routes, which are unremunerative for large operators, may nonetheless be worthwhile for smaller companies with lower overheads. For example, large groups quoted on the stock exchange have shareholders who expect a specific return on their investments, and this creates an overhead that many smaller operators will not have. If the big groups are reducing mileage, I would expect to see smaller operators filling at least some of the gaps.
Things for NX are moving
Bowker resigns and co is to lose EC franchise
http://news.bbc.co.uk/1/hi/business/8127851.stm
How might that impact on the co and its bus sector?
In terms of administration and back-office functions, First is only now, very belatedly, catching up with what the likes of Stagecoach did years ago...
In fact they're now embarking on a programme so harsh that I believe they're in danger of leaving themselves vulnerable to outside forces...if they're that heavily/blindly committed to costcutting, it's hard to see how they can fend off competitive moves from the opposition ...
Under the circumstances it may be unwise to use them as a model...
Whilst I too fear the recession may be deeper than initially thought, there may well be opportunities therein for the better prepared...
With over thirty years in the industry, my advice would be to invest some thought RIGHT NOW into having a Plan A, a Plan B and a Plan C in your bottom drawer...
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