In defence of franchising, or why bus operators need the Buses Bill
Posted: 09 Mar 2016
This blog was first published in Coach and Bus Week
I strongly believe that we need the Buses Bill. The power for Local Authorities to franchise their local bus services has the ability to revolutionise the UK bus industry.
It’s pretty clear that franchising has the capability to bring significant benefits to the travelling public through enabling network development that meets the needs of communities. However, many operators are fiercely opposed to franchising. In public they state that the current system works well, that franchising will prove a costly, deadening mistake. Yet in private, it’s all also pretty clear that their opposition stems from a perceived threat to their narrow economic interest.
I take a different view. I think that it’s not just communities that need the Buses Bill, I think that the bus industry needs it too – and urgently.
To make this argument, we’re going to have to step away from the public talking points of the CPT and talk honestly about the industry as it really is. In the UK outside of London, competition is largely dead in the bus industry. Big players defend their territories, smaller operators find ways to keep going on the margins.
At HCT Group, we want to compete and disrupt – we’ve grown by a hundredfold over the past decade and we want to double in size again over the next five years. Yet HCT Group will never compete on the road against an established operator outside London, ever. It would be commercial suicide. We’d be front-run. We’d be over-bussed. This would continue until we withdrew or went out of business. We are amongst the hungriest of the mid-scale operators, so if the market signals us not to even try to compete, very few will.
Regardless of the intention of the 1985 Act, we have effectively replaced public monopolies with private ones. This lack of competition has had a devastating effect on the market. Prices have risen, mileage operated has fallen and passengers have stayed away as a consequence. When you catch a depot head at a major operator in a reflective moment, they will tell you that their job is to manage decline profitably. We can all point to the outlier examples of where this is not the case, but the over-arching national numbers tell the real story. We are on the glide-path to history.
The malaise that grips the industry can only continue when we look at the position of Local Authorities. Increasingly, they are no longer in a position to sustain subsidies for uncommercial routes. This leads to further cuts in networks that threaten their overall viability and a decreasing public acceptance of and trust in the bus industry to deliver something worthwhile.
I believe that the issue of public trust is a very difficult one for the industry. Most bus operators are businesses that are accountable to their shareholders and need to make a profit. They are not public services that are accountable to their communities. Yet the travelling public do not see the issue in this way and places responsibility, fairly or unfairly, directly with the industry itself. This leads to an extraordinary level of risk in terms of a societal ‘licence to exist’ and its attendant political risk.
I contend that the Buses Bill – and franchising – is an opportunity to address both the issue of competition and ensure the industry avoids the public’s approbation for simply trying to run effective businesses. Franchising will bring operators in head-to-head competition again, but for contracts, and with it a drive for operating innovation – and customers will get a better deal. It will also place responsibility for the delivery of an essential public service exactly where it belongs – under democratic local accountability. The downside will likely be slightly lower operating margins, but at a significantly lower risk.
Franchising also promises a new political settlement for the bus industry. When viewed from the right, franchising restores competition between operators, increasing value for money and unlocking the innovation that market forces bring. When viewed from the left, it enables Authorities to provide networks based on public need, not shareholder value. As a consequence, it could provide a stable platform for the industry for decades to come, regardless of who holds office.
Will operators walk away from markets if their monopolies are taken from them? Of course they won’t. Will newly-empowered Authorities find anyone to tender for their franchises? Of course they will. Most of the major bus operators also run train franchises which work in a similar way. Most of the major operators compete fiercely for London Bus contracts. Most of the major operators compete for European bus and rail franchises. They will compete for these contracts because they are already competing for contracts that are very like them.
How do we know that franchising will work for certain when the only UK example, London, is an outlier in every respect? There is another example close to home that gives us confidence. HCT Group operates the franchise to run the bus network in Jersey. Jersey is an interesting case because it exists outside the framework of the UK’s legislation, which means it can order its bus service as it sees fit.
The States of Jersey (the name for Jersey’s government) put its network out to tender for a new operator to start in 2013. Upwards of 30 operators worldwide expressed an interest (reinforcing the point on competition made above). The tender was set around a model network to allow comparability of pricing. This cut down the field to a short list and it was here that the States played a clever hand – it allowed the remaining bidders to ignore the model network and suggest one based on their experience and expertise to the same total mileage. This enables something that will be essential if franchising in the UK is to succeed – operator innovation in network design, scheduling, ticketing, marketing and so on.
In the end, what they commissioned unlocked a whole host of innovations. The most far reaching of which is a profit share arrangement. The contract is a minimum subsidy deal, yet if operator profits exceed a certain level, they are shared with the States for the explicit purpose of transport investment. This actively incentivises the States to be significantly pro-bus, investing in new roadside infrastructure, bus priority measures, curtailing town centre parking and so on. This then leads to greater operator profits, leading to a greater profit share for the States and round it goes – a virtuous circle and a true partnership. The results have been impressive – an increase in ridership of 32% since 2013, growing returns both to the operator and the States and public pride in their bus service.
It is our direct experience of franchising done well in Jersey that, in part, makes us such strong advocates of the Buses Bill. If done correctly, everyone wins – operators, commissioners and the public at large. Regardless of what many operators will say, it’s clear to me that the Buses Bill is much more likely to save the bus industry than to damage it.