Glaxo Smith Kline made global news because its US activities failed to publish key research data & because of the way in which it illegally promoted its drugs, including to young people.
Barclay's Bank made national news when we all heard of inter-bank lending rate fixing.
Cardiff Bus made regional news, in Wales, following the preliminary findings of the competition appeals tribunal into Cardiff Bus’ activities at the time of the 2Travel competition. (See also what the Traffic Commissioner said, here).
The tribunal adjudged that 2Travel was so badly managed that it would've liquidated irrespective of Cardiff Bus' actions. This is not how the local Cardiff paper saw it in its search for a scapegoat
The theme that runs through these three cases is business ethics, or an alleged lack of them. But before we judge Cardiff Bus too much, it’s Cardiff Bus that’s been caught. Although Cardiff Bus appears to have crossed that fine line between defending a business and predation (acting in a predatory fashion) let’s face it, there will be plenty of people within the industry who over the weekend might well be thinking, “There but for the Grace of God go I”.
The history of deregulation has seen its share of similar issues, though few have been on such a scale or have had such an impact. When faced with competition, protecting your business is obviously a natural instinct. Incumbents must have a right to react. Because most competition seems to conclude naturally after a couple of years or fewer, it may be safe to assume that one operator or another has had to take the hit in operating without garnering a profit. Most markets aren’t sustainable with more than one operator.
In this particular case, we need to remember that Cardiff Bus was providing a comprehensive, city-wide, 18-hour, seven days-a-week service; whereas 2Travel was basically in-filling off-peak between school bus workings, just the very thing that deregulation detractors felt was totally unacceptable way back between 1984 & 1986, when legislation was being formed.
From the 2010-2015 business plan
And it’s not as if 2Travel appeared as a well-managed business, far from it: this much emerged from the tribunal’s findings and it was this that resulted in the original £20mil claim being disallowed. In a very real sense, Cardiff Bus was the victor, in persuading the tribunal not to award a damaging £20mil settlement that would’ve had serious ramifications for the arm-length company and its shareholder, the city council. Would, for example, Cardiff city have been forced to sell and, if so, might this have destabilised the entire market?
2Travel is nevertheless a defining moment in the annals of the bus industry. Its impact is such that the managing director has decided to resign (possibly as a scapegoat, hounded by the local press). Others who wish to compete against a new threat will henceforward be very careful in formulating their responses. Cardiff Council may yet re-examine its relationship with its bus operator (it previously wanted to sell part of its stake). Might it now do so in a bid to draw a line under this incident?
24 comments:
There is now a civil case going through the courts
The profit motive has no place in public transport. It dirties everything it touches. Nationalise now (not that that would be a solution in itself; sigh)
Oh dear it appears the Socialist Worker campaign office has discovered Omnibuses blog (Anon @ 0725) - shame they didn't bother doing their research as they would have discovered Cardiff Bus is already government owned (albeit at arms length from local government).
This whole saga is a very sorry one as the 2-Travel incursion into Cardiff didn't need any reaction and it would still have failed. The services were unreliable, the vehicles scruffy, half the services registered never operated, the drivers were carrying Cardiff Bus ticket holders for free and they were competing on the busiest core services against low-floor high frequency services with old high-fllor B6's on much lower frequency. It also wasn't as efficient as just using spare resource between schools as they didn't use the school bus fleet (a motley collection of ancient deckers) but a dedicated fleet of slightly less ancient single deckers with the drivers returning to the depot to swap vehicles before/after the school runs.
The Cardiff response also seemed somewhat half-hearted, the white minibuses only ran part routes and didn't enter the housing estates where most of the passengers where so there was limited extraction from any service apparant from outside.
This whole thing seems like an attempt to blame anyone but the directors of 2-Travel for it's failures. It has never been adequately explained (probably why they lost the case for damages) how a small new competitive operation in Cardiff managed to lead to the downfall of a business streatching from Newport to Llanelli cover commercial & tendered buses, contract services and coaching and employing a fleet not that much smaller than the local authority owned Cardiff Bus fleet.
All a bit of a sorry tale.
Poor quality competition, which was obviously going to fail.
Disproportionate, and illegal as it turns out, response.
Rdiculous "lawsuit", the findings of which do neither party any favours.
And the CAT are forced to say that the very kind of competition that the CC decided in its expensive report last year was not what they wanted ("Cheap" competition) was worthy of a financial award.
Anonymous at 0725 really doesn't have much of a clue, does he/she? (sigh)
Given some of the competitive assaults that have arisen over 25 years of deregulation what is it about this case that marks it out as different? I have read a couple of articles about this case but not the CAT ruling.
Far stronger attacks have been made against incumbent operators and there have been very strong responses from those incumbents. Has the competition legislation changed? Will operators be required to "tread on egg shells" if they need to defend their operation against new entrants? It all feels like a confused mess to me.
So if a poor quality operator registers a new service obviously designed to cream off customers (i.e 5 mins in front on a half hourly frequency), what can the incumbent operator legally do to protect their business?
Whilst there must be a difference, I am struggling to see why a business protecting itself against competition in this instance is any different to say the supermarket bake bean war where goods were sold at/below cost, 1p Ryan Air fares etc etc
Does this ruling now open the flood gates for similar claims?
And as has been said, how does the incumbent protect itself if it can’t ‘fight back’?
"The profit motive has no place in public transport. It dirties everything it touches."
I don't mind the profit motive, as it concentrates minds. But I really think the competition should be at the point of contracting, as with other privately-operated public services like refuse collection, and not on the road.
The problem with on-road competition is precisely this sort of situation.
In a more hypothetical manner, as I don't know the full detail of this case and do not wish to prejudice any legal proceedings that may be taking place, in an example city the established operator X operates an all day comprehensive network of services commercially. Operator Y comes along and registers services at the most profitable times. This results in operator X having to withdraw some marginal or loss-leader mileage to pay for the revenue loss caused by this situation. Then, to ensure the services are protected, the Council step in and tender those withdrawn journeys.
The upshot of this is that the Council, by way of a money go round, are paying for Operator Y to play buses and cream off profit. This to me is not acceptable.
This is why I really, really dislike the current hybrid system we have. We should do one of two things - either regulate fully (my preference) - I am open minded as to whether that would be via nationalisation or via London style tendering, or indeed larger scale tendering like Malta where the whole network is tendered to one operator - or we should completely deregulate other than a roadworthiness and driver licensing scheme, withdraw all subsidy and let the market work as it wishes.
A similar money go round can be seen in other situations, of course, and it isn't just bus operators that do it. Milton Keynes Council has announced plans for a mandatory charge to opperators for maintaining publicity at stops. This fee will either be passed on to passengers via fare rises, or more likely there will be creeping withdrawals and the Council will end up paying it back, minus admin costs, in the form of tendered services. Rather wasteful.
Neil
The transcripts mention that 2travel had assumed, correctly that the 1998 competition act would offer them some protection against the old style post deregulation practices which CB employed in 2004.
It isn't the first time CB have acted in this way- over the years they have adopted the same strategy with CK, Cardiff Bluebird and with Alister's the outgoing MD has to have been aware of the response (being the then Finance Director!) in at least two of those cases. For him to claim ignorance is a little far fetched and the tribunal had took this view.
It is interesting to note from the transcripts that the 'Cardiff' issue took an increasing amount of 2 Travel's management time diverted from the rather vital issue of running their own business.
Now, had 2T focused their operation on Swansea and ran the network they'd intended there, they'd have made a massive dent in First's revenues and become a substantive operation. It is however said that much of this growth was driven by external shareholders. One can see that they sadly overreached themselves.
Bev Fowles now runs a much smaller operation in Neath from the remains of 2Ts operations there suggests that he has focused on the Swansea area as a means of growing his new business and it might have been interesting, with hindsight to see how 2T would have grown the very same market.
We shouldn't overlook the fact that the tribunal took the view - allegedly - that much of the evidence given by the MD of Cardiff Bus was untrue.
A point to make is that while Cardiff Bus is council owned, it's still a limited liability company and operates just like any bus company.
I agree largely with Neil. Most council owned and some independent operators do try to provide a good comprehensive service at reasonable cost, but this is a precarious difficult equilibrium to maintain. As soon as a cow-boy operator starts to compete the incumbent has to resort to predatory tactics and a race to bottom ensues. What is more is that competition laws usually aren't in the incombent's favour.
While London-style tendering is probably the best system overall there is a risk of losing some innovation and personal touch that are sometimes associated with small high-quality independents. Also due to the extra layer of beaurocracy, routes and timetables (and timetable changes) can in some instances be badly coordinated.
The reported comments by the tribunal chairman were actually '.....the MD had lied and given undertakings to his board.......without taking legal advice....'
This sort of preditory action is very cmmon. In this case it become obvious what Cardiff bus were upto.
The current sysytem of providing UK bus services simply does not work. We have no real competition but a series of regionl monopolies.
The only limited real competition is for local council tendered services which are ususualy the routes that the big players are not interested in. With council tenders the operaator also knows it cannot be forced out by predetory actions.
The clear way forward is to move to a TfL sysytem but with tight control on subsidy levels. This system works well and provides a far better service for the passengers. It increases competion, gives significant efficiency savings and ensures there is real competition.
There are indication of informal cartels in operation in many areas where each large operator sticks to its patch.
Anon 0904 wrote:
"The clear way forward is to move to a TfL sysytem but with tight control on subsidy levels. This system works well and provides a far better service for the passengers. It increases competion, gives significant efficiency savings and ensures there is real competition."
You are joking, surely? Efficiency savings? Yeah, right.
Real competition? Where fares are set arbitrarily by a TfL-type authority who decide where and when buses run and the spec (and thus cost) of those buses? As a passenger, that's not 'real competition' by any stretch.
"As a passenger, that's not 'real competition' by any stretch."
Would you like to elaborate as to the ongoing, long-term advantage provided in a typical town (i.e. not the exceptional cases of places like Manchester's Oxford Road) by on road competition.
I genuinely cannot think of any long term benefit at all.
Neil
Neil said:
"Would you like to elaborate as to the ongoing, long-term advantage provided in a typical town (i.e. not the exceptional cases of places like Manchester's Oxford Road) by on road competition.
I genuinely cannot think of any long term benefit at all."
As a passenger I'm in favour of anything that keeps costs (and prices/fares) down, even if it's temporarily. I've never said that on-street competition is sustainable long-term. It doesn't have to be... and it generally isn't in a lot of markets, not just with buses. But that's no reason to say it shouldn't exist at all. Where it breaks out it keeps operators on their toes. Where it doesn't break out, in theory the threat of it keeps operators on their toes. I'll shop around between Asda and Tesco. Don't you? Competition (or the threat of it) should keep prices down benefiting the consumer be it buses or pints of milk in a supermarket. I accept that the bus market can't ever sustain two operators on every route, nor can it sustain two operators on one route long-term but again, that's no reason to say it shouldn't exist. Ask the OFT!
Buses need a different form of competition. Direct head to head competition does not work with buse service which is why we should have tendering authorties. This gives competition but without the chaos and monopolies that direct competition creates
"As a passenger I'm in favour of anything that keeps costs (and prices/fares) down, even if it's temporarily."
Even if short-term that causes childish tactics like registering one minute ahead, non-interavailability of fares, poor quality buses and long-term damage by its cost to the incumbent?
" I'll shop around between Asda and Tesco. Don't you?"
Not really, I don't have time to go to both. What I do tend to do is "shop around" on a more macro level - that is, I might consider choosing which supermarket I visit this week based on the "basket" prices that are often publicised, for instance. But more often I go to the one that happens to be on the way to/from wherever else I'm going, there is little difference between the big ones overall.
"Ask the OFT!"
The OFT exists to promote competition in areas where competition makes sense.
I just don't think it does here.
Anon@0908 agrees with me, I think (or I agree with him :) ).
Neil
Also what do you think of the "subsidy go round":-
1. Competitor registers service.
2. Incumbent incurs costs to compete.
3. Services are withdrawn.
4. Services are tendered.
Thus the Council (and thus you and me) pay for the competitor's creaming off of the profit?
In some ways I'd mind less if a competitor was required to register an equivalent service, at least in terms of time coverage. So no more creaming off busy daytime traffic when the incumbent runs the evening services marginally as well.
Neil
Was 2Travel really going to cripple Cardiff Bus anyway ?
With a bit of tact,and perhaps some clever customer loyalty efforts etc,surely it was only a matter of time before 2T went pop,or were closed down for any combination of legal failures by the TCs. Hardly Premiership opposition were they?
Hopefully,those currently engaged in the spat in and around Nottingham will be taking notes.
On-street competition seldom equilibrises quickly. In Nottingham's case Yourbus and Premiere don't seem bad operators per se. What you end up with is several well-intentioned operators at loggerheads with each other biting off more than they can chew.
Faresaver have competed against First Somerset & Avon's routes linking Bath with West and North Wiltshire for years. Their services run 5 minutes ahead of First, duplicate the route, and have similar route numbers. They only run Mon - Sat daytimes. Faresaver also changed from a blue/yellow livery to beige/purple when Barbie replaced Badgerline colours.
First got caught out by the Traffc Commissioner in the early days for running unregistered journeys on service 231/232 (short workings from Corsham to Bath I think). The TC banned Somerset & Avon from operating the route for 12 months, so First transferred the registration to their then Wessex subsidiary.
The sustained competition on the Bath Chippenham service must be abstracting revenue from First as elderley and scruffy step-entrance darts have replaced equally scruffy SLFs. I witnessd two young mothers with buggies opt to walk when a step-entrance Dart arrived at Chippenham bus station last Friday.
Faresaver meanwhile are making steady progress buying used SLFs. I travelled on a very nice VDL/Plaxton Centro the other day between Leafy Lane, Rudloe and Chippenham for £4 single. It was on time, nicely driven and the driver said 'thank you sir' when I alighted.
http://www.hobbiesphotographic.co.uk/images/IMG_9768.jpg
If I have a choice I tend to favour Faresaver these days due to vehicle quality and friendlier staff.
http://www.faresaver.co.uk/
Other operators are not the only prey for Cardiff Bus's predatory actions - it enjoys taking frequent pot-shots at its own employees, maintaining an atmosphere of aggression and intimidation towards the workers. Sackings are frequent, pay is low and the chances of surviving the one year probationary period depend very much on the whim of the management.
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