Examination of Witnesses (Questions 400
WEDNESDAY 1 NOVEMBER 2000
400. If you are running a so-called express
bus service from Glasgow to Dumferline you can easily stop every
(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.
403. Have your carryings kept up?
(Mr Clayton) No, they have declined again since.
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
(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.
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
(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
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.
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
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.
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.
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
(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.