Reports:

The bus industry - encouraging local delivery

Chapter Two: Bus Industry Trends

1. This section examines trends across three markets within England: London, Metropolitan areas, and Shire counties. Where possible, comparisons are made between 1984, the year prior to the introduction of deregulation, and 2002/03 (this has not been possible in all cases). All cost figures are presented in 'real' prices.

Passenger Journeys

2. London passenger journeys has increased between 1984 and 2002/03 by 32.7%. English shire counties have experienced a loss in journeys of 24.5% between 1984 (1,598m) and 2002/03 (1,206m). The most substantial fall has been in Metropolitan areas, where the number of journeys declined from 2,047 million in 1984 to 1,149 million in 2002/03, a reduction in journeys of 44%. For England including London, since 1984, local passenger journeys have fallen by 18.9%^[1].

Trends in local passenger journeys (1984 - 2002/03)

Passenger Receipts

3. Between 1984 and 2002/03, passenger receipts increased by 1.21% from £3,057m to £3,094m^[2] (figures include local bus services in Great Britain).

4. However, when examined by region, passenger receipts for London increased by 32.6%, from £539m in 1984 to £715m in 2002/03. In England outside London, passenger receipts have fallen by 0.7% between 1985/86 and 2002/03^[3].

5. Changes in bus revenue between 1987/88 and 2001/02 demonstrate a 31.9% increase in London, a -8.9% decline for PTE areas and an increase of 1.7% in English shires^[4].

Vehicle Kilometres

6. All vehicle kilometers (vkms) in England outside London increased by 17.5% from 1,466 million in 1984 to 1724 million in 2002/03^[5]. Of this growth, between 1989/90 and 2002/03 commercial bus vehicle kilometres fell by 0.2%, while subsidised vkms increased by 11%^[6] (figures adjusted for inflation).

Local Bus Services: Vehicle Kilometers by Area

7. The increase since 1986/87 was mainly influenced by increased competition outside of London arising from the Transport Act 1985 and the trend towards higher frequency services using smaller buses^[7]. Between 1985 and 2003, the number of 9 to 16 seat vehicles has increased by 80% (from 6500 vehicles to 11,700 vehicles), while double deck buses have declined by 34%. In a sense, this is one of the positive outcomes of deregulation - smaller buses running more frequently, reducing waiting times.

8. Due to the difference in bus size, conventional opinion today is that a much better measurement of industry performance is one which relates operations to bus capacity - hence the preference towards 'seat kilometres delivered'.

Vehicle Km and Seat Km 1987/88 to 2001/02 (Great Britain)^[8]

Year	Bus Km Million	Average Bus Size	Seat Km Million
1987/88	2,342	60.6	141,878
1988/89	2,390	58.7	140,197
1989/90	2,442	58.2	142,002
1990/91	2,448	57.3	140,148
1991/92	2,488	56.1	139,602
1992/93	2,515	56.1	141,041
1993/94	2,585	54.6	141,219
1994/95	2,649	53.4	141,324
1995/96	2,632	54.8	143,771
1996/97	2,638	53.2	140,300
1997/98	2,627	53.5	140,649
1998/99	2,642	53.7	141,835
1999/00	2,613	54.2	141,556
2000/01	2,640	54.1	142,940
2001/02	2,636	54.3	143,187

9. The above table shows that while bus kms has increased over time (12.5%), seat kms has remained roughly unchanged throughout this period (.9%), while the average vehicle size fell by 11%.

Supports and Grants

10. The Bus Service Operators Grant (formerly Fuel Duty Rebate) has increased by 63%, from £232m in 1986/87 to £378m in 2002/03^[9].

Estimated % Real Growth in BSOG (1984/85 to 2002/03)^[10]

Area	% Change
London	106.2%
England excluding London	43.1%
Great Britain	56.2%

11. Concessionary fares went from £545 million in 1985/86 to £495m in 2002/03 - a 9.2% reduction in funding^[11]. Concessionary fare reimbursement has declined in London by 2.4% since 1984/85. In English shire counties, it has increased by 4%. English metropolitan areas have seen a 9% decline in funding levels since 1984/85.

Concessionary Fare Reimbursement (1984/85 to 2002/03)

12. Overall, public transport support^[12] for local buses in England outside of London has reduced by 60.6% - from £668 million in 1984/85 to £263 million in 2002/03. The level of support for London has reduced by -29.2% - from £502 million in 1984/85 to £355 million in 2002/03, by -30.7% in English shire counties and -74% in English metropolitan areas^[13].

Trends in pubic transport support (1984/85 to 2002/03)

Tendered Services

13. The cost to local authorities and passenger transport executives of providing supported bus services is rising well above the rate of inflation. Tender costs for supported bus services were rising at a rate of 7% per year. The principal reasons behind the rises were increases in fuel and insurance costs, and rising staff costs due to driver shortages. It is also argued that a lack of competition for tendered services contributes to the higher costs of these services. The following outlines cost changes for secured services across PTEs.

PTE Tendered Service Costs 1997/98 to 2002/03

	Average cost per mile 1997/98	Average cost per mile 2002/03	Percentage increase
Nexus	£1.23	£1.38	12%
Centro	£0.74	£0.92	24.3%
West Yorkshire	£1.19	£1.52	27.7%
South Yorkshire	£0.80	£0.96	20%
Merseytravel	£1.10	£1.73	57.3%
GMPTE	£0.59	£1.02	72%
Strathclyde	£0.62	£1.00	61.3%

Industry Personnel

14. Driver numbers have increased by 17% between 1984 and 2002/03. In the same period, Maintenance staff numbers reduced by 53.7%^[14], possibly resulting from the closure of depots, contracting out of maintenance functions, and increases in new vehicles which require less maintenance.

15. Department for Transport statistics^[15] show that, in the period immediately prior to deregulation, bus and coach drivers average weekly earnings were £334.06 per week (at 2002 prices), compared with the national average wage of £332.26. At this time, bus and coach drivers earned 0.5% above the national average. The changes in working practices and in the structure of the industry that followed deregulation and privatisation resulted in drivers' wages falling significantly below the national average, where they remain. A snapshot at five yearly intervals is provided in the table below.

Bus and Coach Drivers' Average Weekly Earnings, compared with National Average^[16]

Year	All Occupations	Bus and Coach Drivers	% difference
1986	332.26	334.04	0.54%
1991	375.82	292.39	-22.20%
1996	404.94	249.90	-38.29%
2001	451.01	315.40	-30.07%
2002	464.75	323.87	-30.31%

Motoring Costs and Bus Fares

16. The growth in car travel and fall in bus patronage seen over the last twenty years has been accompanied by stable motoring costs and rising bus fares. Since 1984, motoring costs have reduced by 4.5%, Rail fares have increased by 29.7%, and local bus fares have risen by 36% in real terms^[17].

Comparison of motoring costs, rail fares and bus fares (1984 - 2003)

Changes in bus fares by area (1984-2003)

Car Ownership

17. The metropolitan areas outside of London have shown a 16% increase in cars per head over the last five years from 0.36 to 0.41. Car ownership rates in London have risen by 3.6% over the last five years with around .35 cars owned per head of population^[18]. Since 1985, car ownership rates have increased by 37% in England^[19].

Household Expenditure on Transport

18. A recently published Report from the Office of National Statistics on Expenditure and Food (2002-03) found that transport was the largest area of expenditure, ahead of recreation, food, housing, clothing, education and health. On average, households spend £59 per week on transport, including buying and running vehicles as well as public transport^[20]. Income levels are also related to modal split, with those on lower incomes travelling less, but using the bus for more trips than those on higher incomes.

19. The following graph explores the relationship between household income and bus use^[21]. The central line intersecting the bus trips curve indicates the weekly household income level at which it is judged car ownership becomes a viable option. It describes how bus use drops dramatically, as the weekly household income increases.

The Changing Profile of the Bus User

20. The bus industry can no longer depend upon demand from their historical users - those on low incomes and older travellers. For example, 71% of adults (an estimated 32.1 million people) now hold full car driving licenses, compared with 57% (24.4 million) in 1985/86. The proportion of women holding driving licenses has increased from 41% in 1985/86 to 61% in 2002. For men, 81% of men now hold a driving license, compared with 74% in 1985/86^[22].

21. While car ownership has increased in all income groups since 1985/86, the most noticeable change was in the lowest income group, where the proportion of households with access to a car increased from 26% to 38%. The uptake for OAP concessions is also falling, possibly from a preference for the convenience, comfort and security offered by the car. For example, in 1985/86, 27% of people aged 70+ held a full driving license. In 1999/2001, this had risen to 44%.

22. Recent research completed by TfL (2004) on bus usage and ethnicity in London found that Londoners from a non-White background (i.e. Black African, Black Caribbean or people of mixed background) are more likely to be bus users. Black Africans were also found to be four times as likely to use the bus as Asians, and twice as likely as Whites per head of population. TfL also found that all bus users on average are more likely to be aged 16-34, while bus users specifically from British/Irish backgrounds are more likely to be 60+ than other bus users.

Bus Industry Investment

23. Investment in new buses and coaches has been at record levels in recent years: it was about £500m per annum between 1998 and 2000, but fell to £450m in 2001. The average age of the bus and coach fleet was 8.4 years at the end of 2001, down from 9.9 years at the end of 1994^[23].

24. The following illustrates the levels of re-investment within the industry across the three different markets. This includes industry spending on new ticketing equipment, maintenance facilities, computer systems and vehicle location systems. As shown below, the largest reduction in investment is seen in the shire areas, while London's levels of investment has increased.

Levels of Industry Investment by Market (1991-2002)

Local Bus Services Operating Costs^[24]

25. Operating costs for England per vehicle kilometre reduced by 41.2% between 1985/86 to 2002/03. In the same period, operating costs per passenger journey in England fell from 68 pence to 63 pence (-7.3%). Reductions in costs per passenger journey are not as great as those per vehicle kilometre because the number of passenger journeys has generally declined whilst mileage operated has generally increased^[25].

Operating costs per vehicle kilometre by market (pence)

26. When examining passenger journey by region, in London between 1985/86 and 2002/03 operating costs had fallen by 32.8% (adjusted for general inflation)^[26]. Operating costs for English metropolitan areas has fallen by 1.7%. In 1985/86, English shire counties operating costs per passenger journey was 80 pence - exactly the same price as in 2002/03^[27].

Operating costs per passenger journey by market (pence)

Industry Profitability

27. The latest Bus Industry Monitor (2003) notes a fall in overall industry profitability for the second time in three years. Turnover across all companies analysed (incl. London) increased by 4%, ahead of the rate of inflation, reaching £3,060m. Operating costs however rose by 4.2%, reducing total industry turnover to £2,745m. Operating profits for the industry rose by 2.1% in cash terms to £315.2m, with a fall in margins to 10.3% (2000/01: 10.5%). Pre tax profits were 2.5% up in cash terms, but margins had fallen from 9.1% in 2000/01 to 8.9% in 2001/02.

28. Profitability in the industry outside of London shows a 1.0% increase in turnover to £2,300m, with operating costs rising to 1.5%, reducing total turnover to £2,047m. Operating profits were £252.5m at a margin of 11.0% (2000/01:11.4%). Pre-tax profits in 2001/02 were 2.9% lower at £224.6m, giving a margin of 9.8%, down from 10.2% in the previous financial year.

Pre-tax Profit Margins (%) by Area (1989 - 2001)

29. The graph below illustrates levels of investment within the industry have risen as profits have risen - reflecting the bus industry's behaviour of reinvesting within the industry alongside profitability. TAS suggest that the industry has consistently spent more in capital investment than it has earned in net profit over the last ten years.

Net Profit and Capital Expenditure, 1991/92 - 2001/02: All Companies

Source: TAS (2003). Bus Industry Monitor. TAS Consulting.

What do the trends tell us?

30. Passenger journeys outside London have declined since deregulation - by one third. Significantly most of this decline occurred in the ten years following deregulation, and most markedly in the metropolitan areas (44%).

31. Operating costs within the industry dropped substantially, by about 41.2% in real terms since deregulation. Again, most of the cost decrease occurred in the ten years immediately following deregulation. As predicted, efficiency savings were made within the industry as a result of privatisation.

32. Bus kilometres increased by 17% over this period - in part resulting from the widespread introduction of smaller vehicles replacing double-decker operations. However, there has been very little change in 'Seat Km' between 1987 and 2002 (0.9% increase).

33. Fares rose significantly, particularly in the large metropolitan areas where low fares policies had often been in effect prior to deregulation: an overall increase in real fares of almost 36% occurred in this period. Concessionary fares reimbursement to the bus industry has declined since deregulation, with the most significant drop again occurring in the metropolitan areas (9%).

34. Very different experiences have been felt within London and the Metropolitan areas - particularly in the past five years. There is little surprise that Metropolitan authorities have raised concerns regarding deregulation as they have borne the brunt of rising costs in fares (which in turn have been the result of escalating industry costs and loss of patronage). As commercial operations have contracted to maximise investment by focussing on corridors with high ridership, they have experienced a growth in supported services.

35. London has shown patronage growth in a time of general decline, though it has been able to control service planning and fares due to the regulated system operated by TfL - something authorities outside London are unable to do. Also its strong economy and population growth, along with demand management techniques, including the congestion-charging scheme, its strong pubic transport culture, and a large increase in public transport support, have all contributed to the health of the bus industry.

36. Other areas, such as Brighton, Edinburgh, York, Nottingham, Oxford and Cambridge, have also managed to generate patronage growth. Often these areas have established Quality Bus Partnerships that have seen local authority investment in bus priority measures. These areas prove that the virtuous circle can be delivered within existing legislation.

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1: DfT. (2003) A Bulletin of Transport Statistics 2003, Department for Transport: London. (Table 10).
2: DfT. (2003) A Bulletin of Transport Statistics 2003, Department for Transport: London. Includes concessionary fares. Figures adjusted for general inflation to 2002/03 prices. (Table 11).
3: DfT. (2003). A Bulletin of Transport Statistics 2003, Department for Transport: London. (Table 11).
4: TAS. (2003). Bus Industry Monitor 2003: The Market Public Spending and Support Investment & Fleet Analysis Industry Performance, TAS. (p. 9).
5: DfT. (2003). A Bulletin of Transport Statistics 2003, Department for Transport: London.(Table 12).
6: DfT. (2003). A Bulletin of Transport Statistics 2003, Department for Transport: London. (Table 8).
7: DfT. (1996). Bus and Coach Statistics Great Britain: 1995/96, Department for Transport. London.
8: TAS. (2003). Bus Industry Monitor 2003: The Market Public Spending and Support Investment & Fleet Analysis Industry Performance, TAS. (p. 17).
9: BSOG is paid by DfT directly to operators and is not broken down by region/county - calculations at 2002/03 prices - adjusted for general inflation using the market price deflator.
10: As BSOG splits were not held prior to 1995/95, this calculation has been estimated by applying the 1995/96 level of BSOG to 1984/85 and cross-checked against the split of vehicle mileage.
11: Includes concessionary fare schemes for children from 1987/88 - all figures adjusted for general inflation using the RPI for the London data or GDP market price deflator for other data. (DfT. (2003). A Bulletin of Transport Statistics 2003, Department for Transport: London: Table 21).
12: From administrative returns from local authorities and Passenger Transport Authorities. Includes tendered services, professional and technical services and the new Rural Bus Subsidy Grant and Rural Bus Challenge from 1998/99. Excludes concessionary fares and BSOG. Adjusted for general inflation using the RPI for the London data or GDP market price deflator for other data.
13: DfT (2003) A Bulletin of Public Transport Statistics: Great Britain 2003 Edition. DfT: London. (Table 20).
14: DfT. (2003) A Bulletin of Public Transport Statistics: Great Britain 2003 Edition. DfT: London. (Table 28).
15: Bulletin of Public Transport Statistics 2002, Table 30.
16: Figures shown in April 2002 prices.
17: DfT. (2003). A Bulletin of Transport Statistics 2003. DfT: London. (Table 9).
18: Transport for London. (2003) London Travel Report 2003, TfL.
19: TAS. (2003). Bus Industry Monitor 2003: The Market Public Spending and Support Investment & Fleet Analysis Industry Performance, TAS.
20: Office of National Statistics. (2003). Expenditure and Food (2002-03). ONS: London.
21: Bus Industry Monitor, from National Travel Survey Data and Social Trends 27. Data refers to 1997 only.
22: DfT (2003) Transport Trends - Sixth Edition. DfT: London.
23: CPT.(2003) The Facts 2003: CPT.
24: Calculations include depreciation of vehicles.
25: DfT (2003). A Bulletin of Public Transport Statistics: Great Britain 2003 Edition. DfT: London. (Table 26).
26: Comprises all registered local bus service operators in the London Survey.
27: DfT (2003). A Bulletin of Public Transport Statistics: Great Britain 2003 Edition. DfT: London.

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