Bus travel is the most frequently used mode of public transport. It accounts for two-thirds of all public transport journeys and 95% of local bus journeys involve a single bus ride.
The UK bus market is split into two models: the regulated London market and the deregulated market outside London.
Go-Ahead operates in the UK bus market through six business units: Go-Ahead London, Go North East, Go South Coast, Metrobus, Brighton & Hove and Oxford Bus Company.
Go-Ahead London and most of Metrobus’ operations are regulated by Transport for London (TfL).
London regulated market
The London bus market is different from the rest of the UK. Figure 1 shows the London bus market share. With the recent agreement to acquire East Thames Buses, Go-Ahead will become the largest operator in the capital with a market share of around 21%.
TfL is responsible for the provision of bus services in the capital. Operating under a regulated system, TfL issues tenders for each bus route and private operators enter a competitive bidding process for the right to operate them. The contracts are usually five years in duration with a two year extension if TfL performance targets are met. Route contracts are awarded on a cost per mile basis. This means that bus operators are not subject to any revenue risk.
TfL contracts are price index adjusted, designed to offset inflationary increases in costs. Broadly speaking, operators’ profits are therefore not impacted by inflation changes.
Having a good network of bus depots is important for London operators. Go-Ahead has 15 strategically located London depots, with around 85% of our capacity owned as freehold.
View a map of our London bus depots within the regulated bus operating review.
Quality Incentive Contracts
Companies are awarded bonuses for achieving TfL performance targets in areas such as punctuality, cleanliness and customer service. These bonuses are called Quality Incentive Contracts (QICs). Our London bus operations rank consistently high in the TfL performance league tables, resulting in bonus payments from TfL. In 2009 quality incentive bonuses totalled £14.2m (2008: £13.7m).
Bus operator league tables are published by TfL on their website.
London passenger growth and the impact of the current climate
Figure 2 shows that after a period of relatively flat growth, from the mid 1990s bus use in London has increased significantly. Indeed, the network underwent considerable expansion in the run up to the introduction of the congestion zone in 2003.
Demand for bus travel in the capital remains strong and the market is regarded as being relatively resilient to the current economic climate. Bus use in the UK is at its highest in London with around 2 billion passenger journeys a year. This is due to many localised factors such as:
- Congestion zone charging for private car use
- Limited and expensive car parking facilities
- High proportion of bus lanes (almost 300km)
- Significant percentage of the population without car ownership
- Bus is typically the cheapest method of public transport in the capital
See a detailed performance review of our regulated London Bus operations.
Deregulated passenger growth and the impact of the current climate
Figure 2 shows that local bus volumes significantly declined in the 1970s as car ownership widened and investment in public transport reduced. The deregulation and privatisation of the bus industry took place in 1986.
From the mid 1990s the rate of decline has slowed significantly and volumes have increased in recent years as investment by operators and the Government has increased service quality.
Within the overall deregulated market it is important to note that there are considerable local and regional variations. Go-Ahead’s strategy is to focus our operations in dense urban markets which can support a comprehensive network of bus routes, offering good value and ease of use for both commuter and leisure travel. We believe that important factors for operating successfully include providing high quality and punctual services and having strong local relationships with customers and local authorities.
The deregulated market is generally perceived to be resilient to economic downturns. Bus can often be the cheapest way to travel and offers a low-cost alternative to other modes in a more difficult economic environment.
See a detailed performance review of deregulated bus operations.
Bus Concessionary Fares Scheme
In April 2008, the Bus Concessionary Fares Scheme was extended so that anyone aged 60 or over, or who is registered disabled, is entitled to free travel on any off-peak local bus service in any part of England. The Government has invested £1.2bn in the scheme, resulting in around 11 million people being eligible for free travel. Operators are reimbursed a percentage of the full fare by local authorities for each journey taken.
Overall, we believe that the scheme is a positive step for the industry as it increases bus use. However, the implementation of the scheme is complicated and has given rise to a small number of disputes with some local authorities. Concessionary fare passengers have continued to grow beyond April 2009, the first anniversary of the scheme, as ‘free’ travel has further increased in attractiveness as a result of the economic downturn.
Concessionary passengers now represent just over 30% of Go-Ahead’s bus passengers and just over 20% of bus revenue.
Bus operating cost base
Ongoing cost control is an important part of running a good bus operation. As the pie chart within the 2009 bus highlights shows, labour cost accounts for around 60% of total costs. Fuel accounts for around 11%. Typically, bus operators have some flexibility within their cost base and in economic downturns may be able to match service levels to demand.
View the cost base of our bus operations and our bus fuel hedging policy.
