Rocks & Hard Places

Seemingly everywhere, bus operators have put their fares up this week. If not this week, then certainly in recent weeks. This is largely (though not exclusively) a reaction to cuts in BSOG plus duty increases. Handy to blame the government… but who gets it next time around? Or will there be a next time (rhetorical question).

Today’s Passenger Transport front page makes sombre reading. First UK Bus admits that for the most part its January fares increases have backfired. It produced “disappointing yields” which, coupled with margins expected to drop to eight per cent, resulted in its share price tumbling.

What to do. First needs increased revenues not simply to satisfy the City. It has an ambitious localism agenda and rebranding to pay for. Yet, its chief executive has commented that “the old time religion [of raising fares] definitely doesn’t work”. So, the $64,000 question is, what will?

The problem at First hasn’t just been fares but also the withdrawal of mileage. Added together and it seems a return to the toxic 1970s Catch-22, that downward spiral whose legacy lasted 20 years. First admits that its recent decisions have simply handed its revenue over to its competitors and it now wishes to mimic strategies adopted by some of them. This can only be good news for customers, staff and for the industry. But is it too late? Should First have started this ahead of the start of the 2008 recession?

The chief executive places great store in the ability of his MD UK Bus, Giles Fearnley, to turn things around. But, as someone commented recently, large corporations are like super-tankers. And Fearnley’s only been in place since for about a year. He’s done it before (at a more local level) but this was delivering growth through a very localised agenda that featured branding the complete opposite of First’s.

In the meantime, and in spite of positive & even optimistic comments from its leadership, First does seem trapped because of its destructive fares and mileage legacies. Trading times are tough at the moment and it’s difficult to see where the revenue’s going to come from, if not fares. Certainly not BSOG or free travel reimbursements.

It will no doubt try to offload more businesses (or parts thereof), perhaps to operators who can stand lower margins and who have reduced operating costs. But, First has already admitted that this is proving difficult.

Take Edinburgh, Scotland. It seems that takeover talks failed so First is largely walking away from parts of its operation. Now, East Lothian council is talking about an arms-length municipal to cover First’s reductions. Perhaps Scotland’s different but there’s no provision under the Transport Act 1985 that allows the formation of a *new* municipal (not in my interpretation of it, anyway). Then again, there’s a loophole regarding grammar schools, at least in Kent. *Should* such an operation be established, commercial trading might actually result in further inroads into First’s operation.

Of course, one obvious avenue open to First is to lower its fares. This would be to passengers’ delight and it would give a welcome fillip to beleaguered customers. But this is actually a far more risky stratagem than putting fares up. Yes, you’d generate more business but you are unlikely to generate enough extra to cover the revenue gap. If this was such a good solution, we’d all be trying it, right?

But that doesn’t mean there can’t be some fares innovations. Travelling in groups or even twos in some areas is now so expensive that you’d probably find a taxi not cheaper but better value, when you balance the utility to the customer. That’s sad. Operators including First who haven’t addressed this need to.

First also needs to address the investment and training so that the public sees something for their increases. This is much more nebulous, of course, given that some operators have already invested loads and embraced (as they have to) the dCPC. First has and is investing in new fleet but will it be seen as enough?

And finally, a lot rests on Southampton changes at the end of the month. Here we have the re-writing of the rule book that could prove a model for other First strongholds. Fortunately, there’s an steady hand at the tiller. Still can’t help but wonder whether it might’ve been even more prudent to have a branding break from the past, though. We nevertheless look forward to Southampton’s changes with considerable excitement.