Divisional review

UK Bus and Coach

Revenue for UK Coach was £242.9 million (2008: £244.7m) and normalised operating profit was £34.3 million (2008: £27.0m).

Revenue for UK Bus was £293.9 million (2008: £341.0m) and normalised operating profit was £20.8 million (2008: £40.0m).

UK Coach

In Coach, the benefits of a strong national network, flexible coach supply model and value for money brand positioning were clearly demonstrated in challenging market conditions as we delivered a record profit from the business. The recession cut back on discretionary journeys, and we also saw increased competition from rail, due to new high speed capacity to the North West.

In response, the Coach business delivered strong customer service consistent with its brand values, and used effective and innovative marketing to promote our superior frequency and network coverage through our multi-channel sales distribution. Whilst web sales continue to grow, our ability to service traditional ticket office custom remains a key advantage.

Following a reduction in demand for air travel, new investment in customer facilities at Stansted Airport has radically altered our presence, actively managing passenger recruitment on services to London and securing a return to revenue growth. At the same time, with new competition on South Coast routes to London, National Express services have been expanded, driving over 18% growth in revenue on these routes.

As a result of these successes, Coach passenger volumes declined by just 2% in 2009, while underlying passenger revenue increased by 1% on 2008.

Our coach supply model, where 80% of services are run by third party operators, proved very flexible in meeting changing demand. The Coach cost saving programme delivered a substantial improvement; savings were achieved in scheduled coach hire, with fewer duplicate coaches operated, and operating mileage reduced by 4%.

Alongside the National Express brand, our other coach businesses also achieved success. Airlinks secured a new five-year contract at Gatwick Airport. Eurolines, our partnership with ALSA and other European operators, benefited from increased patronage, with the progressive opening up of European markets likely to benefit in the future. Our Events business saw increased demand to Wembley and festivals. However, reduced private hire and engineering work impacted the Kings Ferry and rail replacement businesses respectively.

As a result of a resilient revenue performance and strong cost management, the UK Coach business delivered a 27% increase in normalised operating profit to £34.3 million (2008: £27.0m) on continuing revenue of £242.9 million (2008: £244.7m).

UK Bus

In UK Bus, rising unemployment - nearly 10% in the West Midlands - led to a 3% reduction in passenger journeys. Despite this difficult backdrop, underlying revenue rose 2%, benefiting from stronger passenger yields. Total UK Bus revenue of £293.9 million was lower than 2008 (£341.0m) due to the sale of London bus operations, which impacted by £46.6 million.

As forecast, cost pressures during the year were significant. Fuel costs rose by £4.5 million and pensions costs by £3.5 million. Increased labour costs reflected a previous three-year pay deal, agreed during a better economic climate. The Travel London disposal accounted for a £2.3 million reduction in UK Bus normalised operating profit, to £20.8 million (2008: £40.0m).

Nevertheless, the business retains its key strengths. As market leader in the West Midlands, we have a strong network, offering a high frequency, value for money service to our customers. Our strong branded ticketing encourages customer loyalty, whilst multi - operator ticketing supports a competitive market place. We recently renewed our three-year concessionary fares scheme on similar terms. In Dundee, a new management team has consolidated our position, improving reliability and operational efficiency, although revenue has been impacted by the economic downturn.

Cost control programmes have made initial progress. Improved staffing should drive better productivity. Alongside this, we have reduced mileage operated by 3%, more readily matching consumer demand for services which has been affected by higher unemployment. A review is underway to assess our operational footprint. Fares have been held unchanged to support incremental passenger growth and fuel hedges for 2010 are at a lower cost. We are targeting a further £9 million reduction in operating costs. We continue to work closely with our regional partners to deliver `Safer Travel` for customers in urban areas.

We are also supporting the review of the bus industry by the Competition Commission, following the referral by the Office of Fair Trading in January 2010. We believe that our markets are effective and competitive, with over 30 operators overlapping with our West Midlands network and over 60% of our passengers travelling on routes served by other operators. We expect the Commission to report in 2011.

UK Coach

UK Coach
Revenue
£242.9m
Normalised operating profit
£34.3m

UK Bus

UK Bus
Revenue
£293.9m
Normalised operating profit
£20.8m

Partnerships in UK Bus help develop new services

As a major bus operator, National Express West Midlands believes that partnerships with local stakeholders are vital to create the right environment to operate our business successfully. In the West Midlands, we work with the local integrated transport authority, Centro, and seven local authorities to promote public transport across the region. Since the first partnership was launched in 2007 in Walsall and North Birmingham, more formal partnerships have helped develop how services are provided - including in Dudley, Solihull and South Birmingham.

Partnerships involve a joint approach to planning bus services. Our commercial needs are placed alongside the community’s social needs. Open sharing of customer travel patterns helps the company achieve change on specific routes and introduce new routes to fit changing customer needs - for example, to serve new hospitals. Services are tailored to areas of passenger growth and to minimise the impact of reducing underutilised services in a coordinated way. Decisions can be difficult - but partnerships make decision making smoother and more open, and allow for coordination of service improvements - this has included the introduction of new routes, real time information to passengers and smartcards. In the dynamic public transport market, working in partnership is key.