Select Committee on Trade and Industry Minutes of Evidence

Examination of Witnesses (Questions 400 - 419)



  400. If you are running a so-called express bus service from Glasgow to Dumferline you can easily stop every 15 miles.
  (Mrs Palmer) Yes.

  401. There will be express services that are local services in terms of the rebate?
  (Mrs Palmer) There will be some, yes.


  402. Is there any indication that people use public transport more when fuel prices are high?
  (Mrs Palmer) I think it is quite the opposite.
  (Mr Clayton) There is no evidence of that. There was evidence during the recent fuel crisis that a lot more people used public transport than they had done previously. The interesting thing there was that something like half the people who used buses because of the fuel crisis said they would use them again in the future. That is the audience we have to aim for.

Mr Morgan

  403. Have your carryings kept up?
  (Mr Clayton) No, they have declined again since.

Ms Perham

  404. Your submission states that increases in diesel costs have been a key factor in the increase in bus fares and between 1990-99 local bus fares increased by 24 per cent in real terms and motoring costs have risen by just ten per cent. Have you seen drops in numbers of people using buses as a result of fare increases?
  (Mr Clayton) Yes, we do. As a general rule for every one per cent increase in fares above inflation we would not get the full one per cent in revenue, we could lose about 0.3 per cent in the short-term. In the longer run there are studies now that suggest that over a period of five to six years you effectively get no revenue gain at all. It is against that backdrop that you have to view the fact that over the last couple of years particularly the bus industry has actually arrested the decline in patronage overall and there have been some slight gains and improvements in patronage of the order of half to one per cent. Again, that has to be seen against the Government's target of a ten per cent increase in bus patronage over the next ten years which is a challenge that the industry, and the bus industry in particular, is prepared to meet but it is a very steep mountain to climb, particularly when fuel prices now are such a very significant part of our business and also a very volatile part of the business in terms of pricing. In the last few weeks we have seen fuel prices see-sawing. The big companies, although they have an opportunity to fix and to hedge prices, tend to do that when prices are low and when they are high you tend to wait in the hope that they will fall.

  405. You did mention about operating costs accounted for by fuel and you said it was an important component but have you a percentage of operating costs that are accounted for by fuel?
  (Mr Clayton) It varies from company to company because of the relative importance of fixes or hedges that big companies have. Certainly for a bus company it is a percentage of the order of ten to 15 per cent and for a coach company it is more like 20 per cent because a coach company is unlikely to have any of its fuel tax rebated.

Mr Morgan

  406. It has been suggested that one of the problems for the road haulage industry, although it is not admitted by the industry, is the fact that there is an overcapacity in the industry. Do you think this is a factor that affects your own industry?
  (Mrs Palmer) If you take the coach industry there is no overcapacity but there is an element on the bus side in terms of bus provision.
  (Mr Clayton) In effect, in the bus industry there has to be overcapacity for two reasons. One is that what people want apart from reliability is frequency, a turn up and go view of buses whenever possible. The other thing is if we are to encourage more people to travel they have to perceive that there is an opportunity to do that and an opportunity to do that means there have to be empty seats.

  407. At the moment are you saying there are too many empty seats? I realise that every bus cannot arrive at every stop with the number of seats for the passengers standing there but in some places in Edinburgh and Glasgow you can hardly cross the road for buses all over the place.
  (Mr Clayton) I cannot speak for Edinburgh, I have no particular knowledge of it, but certainly in Glasgow, on our own operation to the West of Glasgow, we have been making efforts in the last year to bring supply more in line with demand. The point I am emphasising is that it is important not to cut it too fine. No commercial operation wants to provide more capacity than is necessary for the development of the business.
  (Mrs Palmer) There is always the question that you have to supply the peak and that is very important because people do not want to be left. I can recall a situation in Camden, for example, where one particular service, because there was not sufficient in the peak, used to leave people standing at the bus stop. That sends the wrong vibes to people that there is no point waiting for the bus because you cannot get on the wretched thing. Provision in the peak is jolly important.

Mr Laxton

  408. In practice is there any competition between the European coach companies and the UK coach companies? Have you done any research or do you have any figures on comparable costs, the costs of operating a coach in Europe in comparison with the UK?
  (Mrs Palmer) In answer to the first part of your question on competition, only at the margin. We have got about ten per cent of Europeans who have come in to this country on the bus side, maybe about one per cent on the coaching side, so it is not an issue. Although our fuel prices are higher there are other costs that European operators have to bear that our's do not. I think it is a fair balance taken overall, that is my view on it.

  409. You have not got any figures on comparable costs between operating a coach in Europe and here?
  (Mrs Palmer) We can get them for you but I did not bring them with me today.


  410. Mr Clayton, Arriva operates in Europe as well as in the United Kingdom.
  (Mr Clayton) Indeed it does, yes.

  411. We would be grateful, Mrs Palmer, for the information you are promising but can you give us any off-the-cuff reactions? How hard is it to operate in the UK as against your operations, say, in the Netherlands?
  (Mr Clayton) If I can just caveat it by saying that my own responsibilities do not extend to Europe. Oh that they did, I could travel a bit further perhaps.

  412. By bus.
  (Mr Clayton) Certainly our operation in the Netherlands, essentially in the north of the Netherlands and includes the city of Groningen as well, is almost a near monopoly and the services are contracted to the local authorities. It is a heavily regulated environment which lacks the responsiveness to supply and demand that happens in the UK. In Copenhagen, where we are one of the principal operators, again that is a very prescriptive tendering regime where the responsibility for responding to the marketplace is not with the operator but with the authority. In the UK we can respond very quickly to changes in demand, both up and down, in a way that is not possible on the continent. We also operate in Northern Spain in a small way in Galicia, and there the marketplace is much more akin to the UK in that there are very long franchises granted to operators who have the flexibility in consultation with the local juntas to change both frequencies and fares levels, whereas in Holland and Denmark that is not the case. It has to be said, in all three places they are suffering from the effects of fuel prices as well.

Mr Laxton

  413. We have heard of haulage companies looking at the issue of flagging out, not always successfully, as you perhaps heard from the last evidence we received a moment ago. Is that something that happens in the coach industry and the bus industry at all?
  (Mrs Palmer) We have had no evidence of that at all. The only evidence we get is that some coach companies who do European tours fill up with fuel over there but there is no flagging out.


  414. You would not bring buses over to Britain having filled them up with fuel in the Netherlands, get them over and work East Anglia?
  (Mr Clayton) No, although we do buy a not insubstantial number of our chassis from the Netherlands but also a lot from the UK as well.

  415. I was talking about fuel rather than chassis.
  (Mr Clayton) No.

  Chairman: We have had these stories of double tanks and things like that, which I do not think would be permissable in public transport because questions of safety would be that much greater. I just wanted to kill that one, as it were.

Mr Chope

  416. If FDR was extended to coach operations, by how much would fares come down do you think?
  (Mrs Palmer) It is difficult to be precise because all fares are due to go up fairly soon because everybody is hurting, both bus fares and coach fares. Everybody is very conscious about the impact that high fares have on users. I cannot see them coming down significantly, although there would obviously be some reductions. Because of retail price maintenance and competition matters these would be questions for individual companies, this is not something that we would be able to give a precise answer on as to how each company would go.

  417. It would be a range of less than ten per cent do you think?
  (Mrs Palmer) Yes, absolutely.

  418. Five per cent?
  (Mr Clayton) I think a point that is worth making, certainly from the bus industry, is some of the large groups, and Arriva currently is not one of them, have fuel hedges in place, many of which are due to expire during the course of next year. If you fixed your fuel prices 15 months ago and you have been running the business at that price and you come into the marketplace with fuel prices something like double what they were 15 months ago that is going to have a very big impact on the business. Were Fuel Duty Rebate to be increased, what it would do is significantly take the sting out of any price increases that may be necessary.
  (Mrs Palmer) My concern about price increases is that they are going to turn more people away from public transport because people, particularly in socially deprived areas, socially excluded people who may be on Income Support, cannot afford high fares and particularly people trying to go to work. One of the things that the industry did quite recently with DfEE was we did a New Deal where we gave a half price to New Dealers up to the age of 24 looking for jobs. Maybe on an extension of fuel duty one could look again at something in this area because we are concerned about the socially excluded who are affected by prices.

  419. I am intrigued by your evidence, I have got some personal experience in my own constituency of parents wanting to club together to provide a coach to school and the difficulties of the economics. You say operators find it difficult to operate at a price that competes with taking pupils to school by car, why is that? You have got the cost of employing the driver I suppose.
  (Mrs Palmer) There is the cost of employing the driver, he has to be paid a wage. There is the cost of the use of the vehicle, the cost of fuel, and there is a level below where it is not economic to take the vehicle out of the yard. They are subsidising it, it is as simple as that. This is going to get even worse. The moment you start pushing up prices, services which are presently running at the margin that people do use to go to school, some of these services will be withdrawn and then the burden will fall on the local authority. The local authority is then faced with do they provide transport and they have not got it in their budget and they are faced with unplanned expenditure, so you are in a vicious circle. It is much better to make sure you have a good public service there which everybody can use.
  (Mr Clayton) I think the other thing that is worth pointing out is that school transport requires vehicles to be used at peak times, so you are not using an asset at the margin, you are acquiring an asset for that express purpose.

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