Select Committee on Transport, Local Government and the Regions Seventeenth Report



II. TRENDS IN THE BUS INDUSTRY

  1. This Chapter reviews trends in the bus industry, particularly since de-regulation in 1986. It sets the context for the discussions of problems and solutions that follow in Chapters III and IV. In particular, the reasons for the historic decline in bus use and the implications for future bus use are examined. The financial relationship between the Government and the bus industry is described and competition between bus companies discussed.
  2.  

    Decline in bus use

  3. The number of journeys made by local bus has been declining since the 1950s. The number of journeys has fallen from a peak of 16,445 million for the whole of Britain in 1950, to 5,641 million in 1985/86 (the last year before deregulation and abolition of the metropolitan counties), and 4,301 million in 2000/01.[4] Since 1985/86, bus trips in England have fallen by 22 per cent (from 4,807 million to 3,761 million), compared with a 35 per cent fall in Scotland and a 31 per cent fall in Wales.[5] Within England, marked variations in the 22 per cent decline are found. Bus use fell by 44 per cent in the six metropolitan areas covered by passenger transport executives and by 22 per cent in the 'shire counties' (i.e. the rest of England excluding the metropolitan areas and London). In London (the area corresponding to Greater London, now covered by Transport for London) there was an increase of 18 per cent.[6] Within the last reported year,[7] total bus use in Britain rose by 28 million trips to 4,309 million, a rise of 0.7 per cent. This was largely attributable to an increase of 52 million trips (4.0 per cent) in London, masking an overall net decline in bus use of 24 million trips outside London.[8] Figure 1 shows the trends for bus journeys in England, split by London, metropolitan areas and shire counties.
  4. Figure 1: Bus Journeys in England 1989/90 to 1999/2000


    Source: Transport Statistics Great Britain 2001, DTLR.

    Car ownership and bus use

  5. The growth in car ownership is the main cause of declining bus use. Car travel tends to replace bus travel, not only by the car driver, but also those within the same households who are carried as passengers. Between 1998 and 2000, households without access to a car made 151 trips per year by bus (20 per cent of all their trips), compared to 33 trips by those in households with access to one or more cars (3 per cent of all of their trips).[9] At present, 28 per cent of households do not have cars although there is considerable regional variation (from 20 per cent in the East of England to 36 per cent in the North East). Car ownership is higher in rural areas and lowest in large urban centres and is also highest in higher income groups.[10] Since 1985/86, the number of bus trips per person in the non-car-owning households has remained stable, but has fallen in those with cars; hence the bus industry has become relatively more dependent on the ever-diminishing number of non-car-owning households. The impact of a continued rise in car ownership is to produce an underlying decline in bus use, which will be greater where car ownership is rising faster from a low base (such as North East England) than where it has stabilised (such as London).
  6.  

    Public funding of the bus industry

  7. In aggregate, about 30 per cent of operator income outside London comes from the public purse. Bus operators receive public funding for operating bus services in three main ways which are described in more detail below:
      1. Bus Service Operators Grant;
      2. concessionary fares compensation; and
      3. payments for tendered services.

    Bus Service Operators Grant

  8.  Bus operators, running a local bus service,[11] receive an 80 per cent rebate in fuel duty (known as the Bus Service Operators Grant).[12] This rebate reduces the cost of running every bus kilometre by about 12 per cent.[13] It helps to make services commercially viable that would otherwise require direct support. The Confederation of Passenger Transport believes that the Government should reintroduce the 100 per cent rebate which existed before 1994.[14]
  9. Concessionary fares

  10.  Bus operators receive compensation for bus passengers travelling with concessionary fares. The refunds are based on the principle that operators should be no worse off as a result of concessionary fares set by local authorities or passenger transport executives than would be the case if all passengers travelled at the normal fare levels.[15] In 2000/01, the total revenue from passengers was 2,889 million, including 468m of compensation for concessionary fares (16.2 per cent of the revenue).[16] In England, the Transport Act 2000 sets a common standard for a minimum 50% reduction in costs for travel by pensioners. More generous schemes for pensioners exist in various parts of England, notably free off-peak travel in London, West Midlands and Merseyside, as well as throughout Northern Ireland, Scotland and Wales. Authorities also have discretion to provide concessions for other groups, for example school-age children, but there is no common national policy.
  11. Tendered services

  12. Where bus companies decide that commercial services are not viable, such services may be secured with local authority support (known as 'tendered' or 'non commercial' services). Supported services are typically low density routes in rural areas and extra services in early mornings, evenings and on Sundays on routes that are otherwise commercial. Since deregulation, this type of service has comprised about 16 per cent of all local bus kilometres run outside London.[17] Where only small sums of money are involved - up to 12,000 per annum per service contract, and 70,000 per operator per annum from any one authority - the 'de minimis' principle applies, under which local authorities make agreements direct with one operator. However, the great majority of tendered services involve larger sums, for which a system of competitive tendering applies. 312 million was spent on supporting additional services in 2000/01.[18] The local authority specifies the service required, and operators make bids accordingly. Recent rises in tender costs and a lack of competition for some contracts are discussed in Chapter III.
  13. Public funding support in London

  14. In London, almost all services are run as tendered services. In 2000/01 total bus revenue in London was 674m, of which 118m (18 per cent) was concessionary compensation. Only 10 million of additional support (1.5 per cent of revenue) was provided. However, this situation was probably not sustainable, and wage levels have been increased to recruit sufficient staff.[19] Further increases in expenditure have occurred as a result of increased service levels and bus fare initiatives. Transport for London expects to provide very big increases public support to 314 million in 2002/03, 453 million in 2003/04 and 512 million in 2004/05.[20]
  15.  

    Efficiency and Profitability

  16. Following deregulation and privatisation of the local bus industry a number of changes were made to increase the profitability of the industry. Operating costs per bus kilometre fell by 46 per cent in real terms between 1985/86 and 2000/01. Staff costs are the largest single element in bus operating costs and reductions in the number of staff required to run services had a substantial effect in reducing costs. Total staff numbers fell from 174,000 at March 1986 to 148,000 at March 1993. The numbers of drivers and conductors changed little until 1997/98 since when numbers have risen slightly. Staff reductions have largely been in maintenance and 'other' categories. The fall in staff costs enabled more bus kilometres to be run by the companies. In Great Britain, bus kilometres rose by 27 per cent between 1985/86 and 2000/01 with the greatest rise being in London (37 per cent) and the lowest in the metropolitan areas (15 per cent). Vehicle-kilometres run per member of staff therefore rose from 19,100 to 26,100 (an increase of 37 per cent).[21]
  17. There has been a substantial drop in wage levels in the industry relative to other occupations. At April 2000 prices, earnings per week for bus and coach drivers fell from 323.41 in April 1986 to 288.88 in April 2000 (a 10.6 per cent fall), while hours per week changed little, from 48.5 to 47.3. However, the deterioration was much worse relative to all occupations, in which earnings per week rose to reach 410.62 in 2000 (a rise of 88.95, or 27.7% on April 1986), and hours worked fell from 40.4 to 39.7.[22] In addition, bus industry staff have also experienced a worsening of conditions in terms of pension provision, welfare facilities and holiday pay.[23] Until recently, it was possible to recruit sufficient staff despite the worsening of wages and conditions. However, as unemployment has fallen, staff turnover rates have risen and operators have experienced problems in maintaining services. Increases in wages and improved conditions have now become necessary, especially in cities such as London. Rising operating costs will make it more difficult for marginal commercial services to survive and will require greater support to maintain existing local authority supported services.
  18. Current profit levels have enabled bus companies to improve the rate at which they introduce new buses into the fleet. In 2000/01, operators' income was around 3,100 million compared with approximate total operating costs of 2600 million. This gives an average operating margin of about 16 per cent. The larger operating groups generally report operating margins of about 12 per cent in the most recent year[24] although in the case of Travel West Midlands (a subsidiary of the National Express Group) it reached about 25 per cent.[25] These margins would imply a high rate of return on capital (dependent upon its evaluation). However, it should be borne in mind that costs include only historical depreciation. If operators are to maintain regular fleet renewal through their own investment, the profit margin must provide not only for a return on existing capital, but the difference between historical and replacement costs.
  19.  

    Fares

  20. Bus fares have increased significantly in real terms since the 1980s. Fares have risen at above inflation levels since deregulation in 1986. Bus fare rises are compared to rail fares and motoring costs in Figure 2.



  21. Figure 2: Cost of bus, rail and motoring between 1981 and 2001.

    Source: Passenger Transport and Price: 1981 to 2001, Social Trends 32. Office for National Statistics

     

    A typical public transport journey in the United Kingdom costs 15 per cent more than in Germany, 60 per cent more than in France and three times as much as in the Netherlands.[26] In London, the Mayor has recently frozen fares at 1 per journey in central London and 70 pence for a journey in the rest of Greater London. Transport for London estimate that it will cost 15 million to maintain the fares freeze in 2002 to 2003.[27] Elsewhere in the country, the Department relies on competition between bus companies to keep fare levels down.[28]

     

    Competition

  22. Two different forms of competition exist in the bus industry. Deregulated commercial services compete with other companies running on the same route by offering lower fares or a more frequent or higher quality service (known as 'on-the-road' competition). Bus companies also compete through a tendering process to win the right to run specific services on a given route for all services in London, and outside London for both non commercial services and special services such as some Park and Ride services and school transport.
  23. On-the-road competition

  24. The rapid reduction in unit operating costs after deregulation may well have been influenced by competition, as operators responded to threatened competition from lower cost, more efficient operators.[29] However, the extent of on-the-road competition is mixed, largely dependent on the historical context of bus services in the area at the time of deregulation. Oxford, for example, has competition between operators on a number of routes, whilst in Bristol and Bradford almost all services are run by one operator.[30]
  25. The benefits of on-the-road competition are dependent on the extent to which services are co-ordinated. A typical bus user value may be assumed to value their time at 4 per hour (7 pence per minute). If two companies compete along a route, it is clear that services that run at regularly spaced intervals will reduce the overall waiting time for passengers compared to buses that run in bunches at unevenly spaced intervals. Even waiting 5 minutes more for a bus has an equivalent cost to the passenger of 35 pence: a significant cost compared to the price of a typical journey. Coordination is therefore essential to benefit the user. The differences between fares offered by different operators for a typical urban bus journey of, say, 80 pence is unlikely to be sufficiently large for a passenger at a bus stop to decide to wait for the next bus to come along even if it is going to be a few pence cheaper. Whilst much of the fare rises have been as a result of declining subsidies, there is little evidence of price reductions through competition.
  26. Competition for tendered services

  27. Competition for tendered services is variable. The average number of bids received for tendered local authority services was 2.9 last year, the same as the previous year. This number was higher for school bus contracts at 4.1 bids per contract, down from 4.3 bids in the previous year.[31] However, 25 per cent of local bus service tenders received only one bid and 3.1 per cent received no bids. For school bus tenders, 9 per cent received one bid and 0.6 per cent no bids. Local education authorities have a legal obligation to provide free transport for pupils living more than a certain distance from school.[32] Due to the statutory obligations placed on local education authorities, bus services must be secured at whatever price, and services maintained if an existing operator withdraws. A lack of competition for some tendered services can lead to very substantial increases in tender prices. This is a particularly concern for school bus services that must be provided irrespective of cost.[33]

 


4   Data derived from table 2 in DTLR Transport Statistics Bulletin SB(01)20 A Bulletin of Public Transport Statistics : Great Britain 2001 editionBack

5   Data derived from table 10, IbidBack

6   Data derived from table 16, IbidBack

7   1999/2000 to 2000/2001. Back

8   There was also an increase of bus use in Scotland of 0.5 per cent. Back

9   Focus on Personal Travel 2001 Edition. The biggest fall in bus use occurs when a household gains access to its first car. Back

10   IbidBack

11   A local bus services is defined as a service which carries at least some of its passengers a distance of less that 15 miles. Back

12   Bus Service Operators Grant was until recently known as Fuel Duty Rebate (FDR). Back

13   From Bulletin SB(01)20 it may be shown that local bus-kilometres run in 2000/01 were 2,642 million (table 6), and FDR paid was 362m (table 19), i.e. 13.7 pence per bus km run. Average total operating cost per bus-km after FDR is netted out was 99 pence (table 30), i.e. without FDR the average cost would have been about 113 pence, which was cut by about 12% as a result.  Back

14   BUS10. Back

15   An adjustment is therefore made to take account of the extra trips that are encouraged as a result of the lower fares, i.e. operators are refunded the difference between the total revenue they would have obtained at their own commercial fare levels, and that received from those travelling on the concessionary facility. Back

16   Bulletin SB(01)20, table 19. Back

17   From Bulletin SB(01)20, table 8. Back

18   The figure of 312 million includes some spending which did not pass to the bus service operators as such (e.g. that by local authorities on service information, tendering administration, etc.). Back

19   BUS 13. Back

20   BUS 2. Back

21   Staff numbers from Bulletin SB(01)20, table 27. Statistics refer to bus and coach industry as a whole. Back

22   Data derived from Bulletin SB(01)20, table 29. Back

23   Q373 and Q383-386. Back

24   Q69. Back

25   BUS 43. Back

26   European Best Practice in Delivering Integrated Transport: Key Findings, Commission for Integrated Transport, November 2001. Back

27   BUS 2. Back

28   HC(2001-02) 558-II, Q50. Back

29   BUS 42. Back

30   BUS 14 and Q189. Back

31   Local Authority Bus Contracts: Price Expenditure and Competition Survey 2001, Association of Transport Co-ordinating Officers, November 2001. Back

32   2 miles or more for those aged under 8; 3 miles for 8 or above. Back

33   Q316. Back

 
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