II. TRENDS IN THE BUS INDUSTRY
- 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.
Decline in bus use
- 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.
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.
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.
Within the last reported year,
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. Figure 1 shows
the trends for bus journeys in England, split by London, metropolitan
areas and shire counties.
Figure 1: Bus Journeys in England 1989/90 to
Source: Transport Statistics Great Britain
Car ownership and bus use
- 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). 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.
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).
Public funding of the bus industry
- 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:
- Bus Service Operators Grant;
- concessionary fares compensation; and
- payments for tendered services.
Bus Service Operators Grant
- Bus operators, running a local bus service,
receive an 80 per cent rebate in fuel duty (known as the Bus
Service Operators Grant).
This rebate reduces the cost of running every bus kilometre
by about 12 per cent.
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.
- 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.
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).
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.
- 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.
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. 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.
Public funding support in London
- 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.
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.
Efficiency and Profitability
- 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).
- 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. In
addition, bus industry staff have also experienced a worsening
of conditions in terms of pension provision, welfare facilities
and holiday pay.
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
- 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
although in the case of Travel West Midlands (a subsidiary of
the National Express Group) it reached about 25 per cent.
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
- 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.
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.
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
in the country, the Department relies on competition between
bus companies to keep fare levels down.
- 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.
- 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.
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.
- 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.
Competition for tendered services
- 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.
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. 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.
4 Data derived from table 2 in DTLR Transport Statistics Bulletin SB(01)20 A Bulletin of Public Transport Statistics : Great Britain 2001 edition. Back
5 Data derived from table 10, Ibid. Back
6 Data derived from table 16, Ibid. Back
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 Ibid. Back
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