Franchise By Default?

There’s much to be commended about how the bus industry has gone about it’s business during lockdown. A quite decent skeleton service has been there since day one. But with very few passengers using it – many estimates suggesting usage down around 90% in those early weeks – it is quite clear that a rather hefty amount of subsidy has been required to keep the wheels turning. A near-£400m package agreed at the start of April between Government and the industry was for a three-month period, involving a mix of existing grants that cover fuel consumption rebates and new emergency funding, for which services were expected to cover up to 50% of pre-lockdown service levels.

And by golly they needed it. On my daily strolls, I observed a fair number of buses passing through my village. Barely any passengers were on board. Now further emergency funding to the tune of £254m from mid-May for the next three months will hopefully help to see buses play their part increasingly as the country slowly climbs out of lockdown.

Predicting the future of the bus world is worse than ever. Warm words and promises of lots of extra cash from the recent election campaign had led many of us to believe the bus industry really had a promising future. As environmental concerns rise up the political spectrum and Greta’s message resonates with increasing numbers of people, public transport could be the centre of a better world.

And now this. The stuff of science fiction movies. A real, devastating message. “Don’t use public transport unless absolutely necessary. Use your car”. This, from Government.
Transport Secretary Grant Shapps even admits its an opposite message to what he should be proposing. But the science has spoken. If buses were ever the mode of last resort, they certainly are for the time being. And the longer this goes on, the worse it will be for the bus industry.

Down the road from me, in Worcestershire, local operator Diamond has taken the opportunity to revamp one of it’s poorly performing routes, and withdraw two others. These are your classic Shire County examples. The sort of routes that barely wash their hands commercially. Ten years of austerity has also seen the piggy bank of the local authority shaken empty, when it comes to topping up these marginal services. The locals doth protest, but, as ever, the issue is a far wider one – made all the more difficult by the invisible invader.

What of the future of buses? Not even Mystic Meg can predict for certain, but the industry must be guarded and ready for new challenges. Notwithstanding the social distancing nightmare, the long-term market may be scarred and dammed irreversibly. The issue of home-working may have been heavily accelerated. Even when Covid is over, is the genie out of the bottle that says working from home more and more is the new norm? The virus hasn’t stopped home deliveries – be it food shopping or stuff from Amazon. In fact, a whole new range of people have discovered how easy online food shopping has become. Yes, there may be a delivery charge, but in the same way that the likes of Uber appeared on the scene, folks are increasingly making a mental trade-off in the minds. Twenty minute wait for a bus with heavy shopping bags? Or £5 delivery charge dropped to your front door, no hassle?

So what might buses be used for in the future? I think a framework of services will probably always need to be there, long into the future. People who can’t work from home, people who aren’t pre-disposed to home shopping deliveries, and of course leisure will all require buses to be there. And I think large City-Regions will ride the storm. My concern, as ever, is for rural services, but also increasingly, those oft-marginal Shire county routes that serve mid-sized towns. It also depends on who is running these services. The large groups have large overheads. They have shareholders that require profit levels. Perhaps for these, big City-Regions work in the business plan, with high-frequency operations and enough users to justify investment. Does that model work in smaller towns surrounded by green fields? Or can it work better with smaller operations? Less expectation of profit, fewer overheads. Are they best suited to Independent operators? But where are these small operators? Many have gone to the wall already, and for those who, traditionally have been both coach & bus operators, the coaching industry is facing an even more dire future than their stage carriage sisters.

If society isn’t ready to ditch the bus lock, stock and barrel, is the future based more on local authority control? If the Government money keeps rolling to support these covid-times timetables, then it surely is more and more likely. There is a requirement with the current batch of emergency funding for commercial operators to agree the level with local authorities required, as demand increases following the easing of lockdown. And that, of course, is perfectly reasonable.

However, as lockdown eases and baby steps are taken, who knows how long social distancing will be required. Many are suggesting that we may have to live with covid for a long time. What if a vaccine is never found? Or it takes many years? Jo Bamford, who brought vehicle builder Wrightbus out of administration seems a confident chap. He is calling for £500m of Government funding to help fund the introduction of 3000 hydrogen-fuelled buses. All positive stuff, but he is also aware of the effects of covid on the long-term future of the image of bus travel, suggesting ways in which buses may be redesigned internally, including handrails manufactured from hospital-standard stainless steel, and ventilation systems that extract air rather than recirculate it internally. Some operators are making real efforts to ensure the internal appearance of buses doesn’t look like a war zone, with bits of seat taped off like a murder scene. There’s some real thought going into making it look more appealing to travel by bus.
The future battle will surely be all about wooing passengers back. But with much reduced capacity, and networks propped up with Government cash, where is the commercial attractiveness?

In those aforementioned Shire County and rural areas, is the future possibly franchise by default? Many industry watchers were keeping an eye – pre-covid – on what is happening in Cornwall, where a new authority-led operation including single branding, simpler integrated ticketing and long-term bus service tendering to one operator, with investment in new vehicles is emerging, although plans for completely free bus travel across the summer appear mired in confusion (see Roger French’s blog on the situation here). There is no doubt that the Cornwall operation has attracted funding above and beyond the usual scrimping and struggling experienced by other Shire/rural areas. Many years ago, Gwynedd Council in North Wales attempted a version of this, with buses visibly painted red on the front with “Bws Gwynedd” logos amongst other initiatives. Is covid more likely to bring an area where the current operator decides to throw in the towel completely, leaving an area bus less?

Meanwhile, in Manchester, where Transport for Greater Manchester has the Government piggy bank, some disquiet has emerged regarding what it is telling operators they must do in order to receive the subsidy. No comment as yet from the City’s major bus operators, but Julian Peddle, the Centrebus Director, and a well known and respected figure on the bus industry scene has vented his frustration publicly. He suggests (amongst other issues) that conditions TfGM are imposing on operators equate to them having total control of the network and a fixed sum of money that may or may not be sufficient. Manchester is the scene of a bid by the Mayor Andy Burnham to consider the first franchise system of a major city-region area in the UK for it’s bus network. There appears not (at least publicly) to be similar situations elsewhere but it isn’t on the face of it a good look.

Chris Cheek, the industry analyst, thinks that bus use is unlikely to recover to more than 55-60% of where it was immediately prior to lockdown. He goes on to say that, in the medium term, lifestyle changes and economic issues could keep demand between 18-26%below pre-virus levels.

All of this potentially paints a bleak picture for the future of the bus industry, but, of course, we still know so little about this virus, and how it will act in the coming months and years. Maybe, if we’re looking at long-term Government support for the bus industry, the operators need to get on the front foot and utilise their undoubted commercial nous ahead of what will probably be inevitable calls for the paymasters to call the shots – franchising by default?

Stagecoach appear to be suggesting such ideas (see previous blog Out of the Darkness? ) which involve deep, long-term partnerships with authority partners.
For passengers, long-term, well thought out, well-costed plan can only be a good thing. But it requires the commercial talents of the bus industry to play their full part. Government funding for all sorts of industries since covid emerged has cost the country an unimaginable sum of money. If that has to continue into the mid and even long term, a bus operation dictated by local authorities may well find itself competing for scarce funding with others. Far better surely to have a long-term, fully planned, well costed network that encompasses the commercial talents of the bus industry, and the civic responsibilities of the local authority.

4 comments

  1. Kevin · May 29

    The scenario the industry needs to prepare for is not “franchising by default”. That assumes companies will be there willing to expose themselves to running buses somewhere else. No – the one that needs to be ready, the likes of TfWM need to war game for, and the politicians need to be prepared for is that which Nicholas Ridley did not legislate for as he didn’t forsee it (except for viewers in London*), is operator of last resort.

    It sounds far fetched – but, if usage does not rise and Chris Cheeks analysis is hopelessly optimistic it is a possibility. A possibility that is probable. If you consider that in many areas of the UK there is one dominant operator running most of the network and if normal circumstances if there was a one day strike a city like Birmingham or Bristol would lose most of its buses and if you lived in Castle Vale, or Chelmsley Wood, or Quinton, or Halesowen that is your public transport link to the city centre gone.

    Now consider the one of the primary duties of any company director, to run the business you direct as a “going concern”. A bus operator is literally a “going concern”. There are all those buses that need to be paid for, possibly on lease. And your staff. And the fuel, hedged and probably at prices bearing no relation to those now. Heating, lighting, IT, depots, spare parts. Tax, NI. Plus the one which puts any business in bother if it is refused – insurance.

    If you look at any established business that has got in trouble, there are commonalities. A collapse in profits or substantial losses. Continual cutbacks to try and keep the ship afloat, but which have minimal effect. Planned upgrades and modernisations being cancelled. Suppliers, who in happier times were happy to accept payment by account and generous credit terms insisting on payment before delivery. A collapse in customer confidence, negative reviews and bad press. Then that moment as a director you know you are at the end of the road and the going concern is applying the emergency brake – when the insurance is refused and terminated.

    Is it likely for a big bus operator? Well that is what happened to Woolworths – once a bellwether of every high street, now a fading memory. Plus Monarch and Thomas Cook. In 2010 long established companies in a growing sector of the economy. Now gone.

    In all these cases there was competition. Customers went elsewhere. Woolies customers went to Tesco or Asda as they offered better value and what the customer wanted. Monarch customers to Ryanair or Easyjet. With buses on the vast majority of routes, there is not another operator. The competition is the car, or Uber, or minicabs, or shanks pony, or if you are lucky to live near a rail route the train. So if a big bus operator collapsed Thomas Cook style if no other bus operator wants to buy and take over the next day there are no buses. And then no buses the day after that. And the week. And the month. Because unlike the trains used by “Furious of Four Oaks” or “Brassed off of Bromsgrove” who get irate if a train is 2 minute late bus users have, for years, been treated as second class citizens by politicians who put ideology first and practicality last.

    So all of those key workers in the NHS, supermarkets, care homes, schools, councils, food producers, communications etc who have been using buses in the last few months suddenly discover through no fault of their own there are no services and unless the local authority can cobble together something – they’re stuffed.

    There needs to be an insurance policy. An emergency Buses Act. Something like

    Clause 1(1): “A transport authority in England outside of London as per Schedule 1 is required to maintain an economic bus network for its area, for the economy, health, wellbeing, environment and benefit of its residents and businesses”.

    Clause 1(2): Each bus operator and transport authority shall be required to co-operate and share information, and participate in a partnership to maintain and improve services.

    Clause 2: “A transport authority is required to set up an operating company undertaking to support the objective of Clause 1(1). This undertaking will have the power to operate any service the authority sees fit, but only if it is not possible to provide such service by any other means commercially and it is more economic to do so to the authority than via tendering under the Transport Act 1985.”

    Clause 3(1): “Should an operator running more than 51% of the mileage in an area of a transport authority enter administration or liquidation proceedings as it is unable to continue as a going concern within the meaning of the Companies Act, the Secretary of State will be required to:

    a) Acquire the assets and vehicles of the operator, and honour any leases for equipment or vehicles;

    b) Transfer the operators licence concerned to the company of the transport authority;

    c) Transfer the vehicles and assets needed to operate registered services to the transport authority;

    d) An insolvency practitioner will be required to support the Secretary of State, Traffic Commissioner and local authority to ensure the uninterrupted continous operation of registered services.

    Clause 3(2): The transport authority undertaking, will,

    a) Transfer all staff employed by the operator to be employees of the transport authority undertaking under the Transfer of Undertakings (Protection of Employment Regulations);

    b) Operate its undertaking to achieve a balanced budget, with any surplus to be paid to the pension fund of the constituent authorities**;

    c) Within a period of 12 months of transfer, undertake a review of the network of the undertaking to ensure it fulfils the objective of Clause 1(1);

    d) Co-operate with such directions as the Secretary of State may make, including the future franchising of services in its area if it is considered desirable to do so and the transfer of services from the undertaking….

    You need a bill to ensure partnership and not warm words, but ensure the worst case nightmare is not going to happen. If the politicians don’t put the insurance in place and “No Bus Tomorrow and chaos” comes to a city I hope the regional news journalist who has to report the unfolding disaster with keyworkers having no bus gives them both barrels.

    Time to cut the ideology and focus on buses for what they are. A public service. A key service.

    Because we’d all miss the bus.

    * The London Regional Transport Act allowed LRT and its successors to operate services, a power they used once when a London franchised contractor went bust….

    ** 3(b) is the “run it like a proper business” clause which might focus local councillors minds when they are discussing bus policy with the operating director of their undertaking. (Well councillor, if you pursue option c, remove the bus lanes and spend £4 million on widening the road we’d estimate, as the routes along here are our most profitable we’d lose £7.5 million of our surplus which goes to the pension fund which, you, err, manage in your portfolio…) 🙂

    • greenline727 · May 31

      I’ve no problem with clauses 1.1 and 1.2 . . . . clause 1.1 is what LTA’s should be doing anyway, but very many of them don’t!! Clause 1.2 is fine as well . . . .in practice, operators of commercial services are required to consult with LTA’s as part of the 70 day registration deadline, and those operators with LTA’s with experienced staff will very often run outline plans past them anyway. However, many LTA’s nowadays outsource transport policy to consultants or neighbouring authorities.

      My point is that Government has the OLR in the wings, staffed with experienced managers, who CAN leap into action at minimal notice in the event of a franchise failure. The bus industry doesn’t work like that. There is no pool of experienced managers available on standby, and if the problem is simply lack of passengers (and thereby lack of revenue), then the answer is very simple . . . . reduce services to match demand, and seek subsidy from elsewhere, or terminate the service.

      To be fair to Government, they have made funds available to maintain services whilst demand has collapsed, and as an industry we have to do the best that we can in the short term. In general terms, we’re (as an industry) probably OK for the summer.
      The crunch wil come in September . . . . if we still have social distancing in place, and schools are still advising students NOT to use buses, then that’s a whole new ballgame!! If commuters now work from home more, that’ll probably benefit us, as peak-hour patronage is generally mainly scholars now (outside of the big urban areas anyway).
      Most commuters (and I’m one of them) use the car, because (in my case) the journey is 30-40 minutes in the car and 2 hours by bus and train. If fewer cars are on the road, then we’ll run a better, more reliable service (which we’ve been saying for 50 years, but no-one ever listens!!).
      If social distancing is over in September, then patronage WILL return, probably not to pre-C19 levels, but hopefully not as bad as Chris Cheek says. As an industry, we’ll cope with that as well . . . . we always do.
      So . . . here is the greenline727 solution:
      1. Increase OAP reimbursement to the correct value, instead of around 50% of what it should be.
      2. Remove ALL duty from diesel for bus operators (as the railways and airlines have got).
      3. Give operators the opportunity to talk to each other directly (so get the Competition Commission to butt out), so we can co-ordinate timetables and fares to best advantage for the passenger, with the LTA as an arbiter if necessary.

      THEN we’ll see a recovery . . . . who knows, maybe better than before!!

  2. Kevin · May 31

    There needs to be an operator of last resort for the bus indsutry in case a major group fails. That is best to be a local authority, as buses are local transport and a local authority, if they are doing their job properly, should know their patch.

    There should not a return to the wretched, managing decline National Bus Company or similar run by DafT.

    The problem is that current legislation prohibits it. Ideology, rather than practicality. This http://www.legislation.gov.uk/ukpga/2017/21/section/22/enacted needs to be repealed as it is ideological claptrap. In the OLR scenario you just TUPE over the experienced bus managers and professionals to the local authority undertaking and let them get on with it – but with a local council as boss even if only temporarily.

  3. greenline727 · June 1

    A couple of comments here (and an interesting debate is emerging):
    Many local authorities simply do not have the expertise to act as a bus operator, and by the very nature of the beast, any intervention would need to be immediate to prevent a long gap in services. Yes . . . . TUPE’ing over the management of the failed operator might be possible, but if the company has failed, who’s to say that inept management wasn’t at fault? All that would happen is the LTA would pick up the bill, and no LTA has a wad of notes in the back pocket any more, so services would still be at risk.
    Look at Oxfordshire . . . . no contracted services at all; it’s all left to the operators (mainly Stagecoach) . . . . if Stagecoach in Oxfordshire failed, would OxCC know what to do or have the money to do it? Highly unlikely.
    It’s worth remembering that bus companies are already pretty localised, maybe as part of a Group, but local nonetheless. We have seen the big Groups walk away from urban networks before (think Crawley), and another Group will step in. Look at Essex; with First slowly retrenching, GoAhead have picked up the pieces. In most such cases the process is well managed, and a handover between operators takes place with limited disruption to passengers (maybe without a full 0600-2400 network, but a 0700-2000 network nonetheless).
    The bigger problem will likely come with the smaller operators failing (recently TJ Walsh in Yorkshire, for example), but one operator with a handful of routes will always have alternative operators available . . . .think Express Motors or GHA in North Wales . . . . maybe with an interuption of 1-2 days, almost all routes were replaced by other operators.
    Actually, we don’t need an OLR . . . . provided operators talk to each other and the LTA oversees the process (but without financial involvement) then we’ll sort it all out ourselves. When all is said and done . . . . we’re all professionals, with many years experience, and that counts for a lot.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s