First Bus looks to reshape business

[whole diary]

[grahame]

From Passenger Transport

Chief executive Tim O’Toole says profit margins at some of the group’s regional bus operations ‘are simply unsustainable’ and action is required. UK^▸ (United Kingdom) Bus operating profit margins have fallen to 3.2%

 FirstGroup has instructed all its UK bus businesses to draw up and accelerate plans to cut costs and revise timetables in a bid to counter the division’s rock bottom profitability. Changes will include service cuts in loss-making and low profit areas so that buses can be reallocated to create higher frequency core corridors.

In a briefing to City analysts, chief executive Tim O’Toole said low profit margins at some regional bus operations “are simply unsustainable and it’s about making changes”.

Group finance director Matthew Gregory also warned that further closures and sales would be considered. “We are not ruling anything out, frankly,” he said in response to questions from City analysts on whether First’s plans involve selling businesses as well as changes to services.

The announcements came as First reported in its half year results that worsening traffic congestion and consumers’ ongoing shift to shopping on line rather than travelling to high streets was continuing to hit bus revenue and patronage.

Like-for-like UK bus revenue fell 1.3% to £426.1m in the six months to October, operating profit fell from £15.3m to £13.5m and the profit margin fell further from 3.5% to 3.2%.

In considering the future shape of the UK bus division, O’Toole said he would balance the long term benefits of turning round a larger business against “changing the portfolio to achieve a healthier overall business sooner because we do not expect conditions to change in the medium term”.

Each UK bus company and region will be subject to a detailed assessment of future opportunities which will include the potential to create higher profits through reallocating buses, the potential to supplement earnings with major contract services and local authorities’ willingness to put congestion-busting measure in place.

Simple mileage cuts have been ruled out. “The trick is to refocus and rededicate the mileage in those corridors where you’ve got the [customer] volumes that will sustain it over time and you can have a frequent, successful network,” O’Toole explained.

Spelling out a warning to local authorities that they need to take action on traffic congestion, O’Toole said First could not tolerate ongoing increased costs from having to put extra buses on its routes simply to maintain frequencies and reliability.

Across the group, First said declining performance in its UK bus and rail businesses had been compensated for by improved results in North America, particularly at the school bus business. Overall, group half year revenue increased from £2.44bn to £2.56bn. Operating profit rose from £88.4m to £89m.

[Chris from Nailsea]

From Passenger Transport

The announcements came as First reported in its half year results that worsening traffic congestion and consumers’ ongoing shift to shopping on line rather than travelling to high streets was continuing to hit bus revenue and patronage.

Hmm. 

Out on those busy roads, as a grocery home delivery driver, I've noted that the bus serving Wrington (just for example - other beautiful North Somerset villages are also available ) is fairly empty on most of its journeys through those country lanes.

While such bus services may indeed be 'a lifeline' to the world outside their village for those who use them, I do understand the question as to whether such services are financially viable, or indeed justifiable, without significant subsidies.

And, just for the record, my employer's grocery home delivery service is free (minimum £60 spend).

I'm not advertising: I'm actually sympathising with Tim O'Toole - times are indeed changing.

[grahame]

There is a huge amount that could be done to make country buses more efficient to run and more attractive to new passengers ... somewhat acknowledged by the bus services bill passing through parliament at the moment.  We've done a huge amount of work in relation to that in Wiltshire - see http://option247.uk .   If you could get just 4 more fare paying passengers on each bus journey somewhere along the route, you could remove the need for subsidy.

I'm delighted that Wiltshire Council have decided to cut only 10% of their bus subsidy next (local council election) year rather than the 50% they said they needed at consultation. My fear is that if operators such as First Bus pull out of commercial routes, the council will find themselves lobbied to provide replacement services with subsidy on those formerly-commercial routes, and to my knowledge that hasn't been allowed for in the budgeting and planning.

One of the big issues we have with public transport are the perceptions of heavy and light loading. People who travel on public transport will tell you it's always busy but people who observe vehicles will tend to see it as much quieter.   The ten times a day train from Dormitarytown to WorkCity will be 110% loaded when it arrives in WorkCity at 08:30, and when it leaves at 17:30, but unless it's promoted the rest of the day the other 18 journeys will only load 10% - and that averages out over the day as just 1 seat in 5 taken, even though more than half the passengers will tell you that the train is always full and standing.     20% loading is not, I'm afraid, atypical and it's where Community Rail helps on trains.  Same thing needed on buses.  But where the "Head of Pubic Transport" in a local transport authority stands up when questioned about a commercial route's pricing and viability and says "nothing to do with me - it's commercial" we have a problem of lack of joined up thinking and foresight that there might be a need to help organise a network and partnership, even if not run the buses.

[Chris from Nailsea]

I'm happy to have given you that opportunity to expound further, grahame. 

[grahame]

And, just for the record, my employer's grocery home delivery service is free (minimum £60 spend).

Home delivery is, of course, really paid for by the customer as part of the markup between what it pays its suppliers and what it charges.  Online searches are vague but reveal markups of between 25% and 40%, but profit margins a tiny part of that by the time you add cost of sales.

I'm happy to have given you that opportunity to expound further, grahame. 

Thank you ... hot topic for me!

[simonw]

The advent of new technologies being developed by Uber, and others, allows the exciting prospect of dynamic flexible bus routes to be created.

For example on your bus app, request a bus from one stop to another, and a return, and the app will then collate other bus requests to create routes that match demand.

Whilst it sounds simple, people will effectively prepay for a bus ticket and will have to be at a bus  stop at a scheduled time.

The main benefit of this is that routes will be created to reflect demand.

[grahame]

The advent of new technologies being developed by Uber, and others, allows the exciting prospect of dynamic flexible bus routes to be created.

For example on your bus app, request a bus from one stop to another, and a return, and the app will then collate other bus requests to create routes that match demand.

Whilst it sounds simple, people will effectively prepay for a bus ticket and will have to be at a bus  stop at a scheduled time.

The main benefit of this is that routes will be created to reflect demand.

A development of the flexi-route / demand responsive buses?    There are already areas where a call centre co-ordinates requests and routes vehicles accordingly;  where there's a handful of pickups per run / vehicle it should work reasonably well - a sort of super shared taxi.    With bigger vehicles, it's likely to end up with really slow routes and / or the need to have sufficient turn around time at the end of runs to allow for the extreme of a lot of pickups.  However, information systems are these routing systems have been pretty embryonic but develop fast, so let's see.

Does require everyone wanting to use the service to have access via an app, to know at some point ahead of time that they want a ride so it ca be scheduled (perhaps before others are told of the schedule to avoid too many changes) and to have mobile coverage throughout the area to be covered without white-out areas.

[ChrisB]

Back to the private operator for these routes then?

[LiskeardRich]

Hampshire and Dorset will be at risk then. First went to the drivers union 6-12 months ago that those areas were in dire financial states.

http://www.route-one.net/articles/Employees/Dorset_strike_drags_on

...says Mr Lanning, who adds that First has told Unite that the Hampshire and Dorset business is in “dire financial straits.”

The rest rambles on about a driver dispute.

6% profit margin across the entire uk business 2015/16 tax year, which to me sounds a pretty poor return?

[Fourbee]

One way of relieving traffic congestion is to get people onto buses of course, but the offer needs to be attractive. The bus fares/parking charges for park and ride need to reflect the extra time/inconvenience factor to those drivers. I would like to see trials where the parking and bus ride were free (and advertised/promoted heavily) and frequencies increaed just to see what the maximum impact could be achieved on congestion relief by this method. Of course that would cost money which just isn't there right now.

IMO^▸ (in my opinion) routes which frequently suffer from congestion should be split where possible to ensure the service remains punctual on the other sections. Otherwise the frequent core sections will just have buses running round one behind the other followed by large gaps in the service.

I am not sure of the solution to the rural provision of buses. It's a bit like Post Offices. It's a social service provided for the community, but no one wants to pay for it.

[simonw]

The problem with current bus systems is that they are not demand driven, and expensive.

All too often it is quicker to walk, drive or get the train to avoid a long tortuous route or two/three bus journeys.

The fragmentation of the bus system 25 years was a disaster, things had to change but the destruction of central local services was not the best plan.

If First Bus want to make more money, provide more routes, more frequent services and bus hubs where people can change buses without waiting for 30 minutes for the next one.

[Fourbee]

I don't know a lot about deregulation, but my understanding is it led to competition/concentration on the more popular routes (towns/estates/city centres etc.) at the expense of the others (rural).

More could be done with service recovery though through use of technology. Same probably applies to rail. The main thing is good timely information (not always easy to get right as mentioned on another recent thread).

[ChrisB]

If First Bus want to make more money, provide more routes, more frequent services and bus hubs where people can change buses without waiting for 30 minutes for the next one.

Which will encourage even more free pass holders to use them - and we all know that bus companies aren't properly reimbursed for each journey. I seriously can't envisage bus companies chalking up motr than 6% profit margin. The private operators with lower costs may be able to make that work for them, the corporates could too, but shareholders want a higher return.

Train operators only make around3% return they keep telling us, and they make that work, so why not buses too?

[simonw]

The meaning of return is interesting.

If a company can return of 3% of all revenue to Shareholders, then that is a very good business.

Or is a return of 3% something else?

[ChrisB]

No, that's making a net profit on revenue of 3%.

How much they then declare as a dividend is another decision altogether that is taken by the Board. It could be more, or less.