Less than a day after Stagecoach’s Brian Souter called on the government to cut roads expenditure rather than subsidies to the bus (and rail) industry comes a government report (in the midst of the Competition Commission enquiry) that the Big Five return nearly double the profit margin of smaller operators.
The report suggested that fares had increased by 24 per cent since the deregulation of the bus industry. Just 24 per cent? “We have to ask ourselves why it is that the cost of bus travel has gone by up so much while bus company profitability is extremely healthy”, said Norman Baker, a transport minister.
Since the minster is looking back to deregulation, one answer is that the previous Conservative government in deregulating the bus industry chose to adjust the ratio between fares and subsidy. One of the driving arguments for deregulation was to reduce subsidy and this it did admirably. To compensate, fares went up. There was no option; it’s a self-evident balancing equation. The treasury and local transport authorities all benefited from this rebalancing.
Marks & Spencer and Tesco receive plaudits when their profits increase and come under much media scrutiny when they go into reverse. Bus operators, on the other hand, face media criticism when there are signs of any profit. With average profit margins of 11.2 per cent, is this sufficient for the longer-term sustainability? This is probably about four per cent below the optimum and it has been falling. Why should the industry be ashamed of returning a profit when no other sector in the capitalist economy of ours is criticised?
Saturday, 26 June 2010
Ashamed
Subscribe to:
Post Comments (Atom)
7 comments:
One reason why the Big Five need higher margins is because the City demands it. This is the same City that the Government is tying to protect and increase confidence in after this week's budget.
Seems like the government is arguing against its own thinking by angling towards Quality Contracts.
I don't know where Baker gets the 24% figure from - it's not in the report from LEK referred to. It's not really relevant anyway.
What the report shows is that for a stable, low-risk industry, the big bus operators make a very good return on their capital, and it is fair to ask how much that is due to the limited competition in most areas.
M&S and Tesco make profits in real competition with Asda, Safeway etc. You can't say that about First and Stagecoach.
The industry is very keen on comparing itself to Tescos or Asdas, but the public don't seem to accept this argument. They see buses as more akin to a privatised utility (gas, electric, water) and they certainly receive criticism for their profit levels.
It would be nice if all sides of this argument recognised that it isn't 1985 any more.
Isn't the biggest competitor the car !
The Conservatives have always felt more comfortable with smaller operators. In 1985, they disliked he NBC and the PTE's. Dereg was designed to give the smaller operator support and help. That didn't emerge. Instead we go the big groups, something like the NBC without being nationalised. The big groups have replaced the NBC as being out of Conservative favour.
It is perhaps ironic that smaller operators tend to find favour in regulated environments (e.g. tendered Council evening and Sunday services) and not in daytime commercial running.
Post a Comment