08 January 2010

Bus Industry referred to CC

News broke yesterday that the Office of Fair Trading (OFT) has decided to refer its investigation into the bus industry to the Competition Commission (CC). All areas of the UK - with the exceptions of London and Northern Ireland - will see the findings of the OFT into the local bus sector scrutinised by the CC.

The move has resulted from the outcome of the OFT's investigation: primarily that there is insufficient competition within the sector. In some cases, the OFT reported, local areas are dominated by just one operator and that the CC's own in-depth investigation, and then detailed deliberation, will deal with how "competition can be harnessed to deliver what passengers want and the best value for money for the taxpayer".

It was in August that the OFT announced that it had uncovered evidence to suggest the UK's £3.6 billion bus industry was not as competitive as it might be. Specifics highlighted were: higher fares in areas where operators had strong market positions that weren't challenged by rivals; local routes operated by a small number of large bus companies; complaints alleging predatory behavior by incumbent firms to eliminate new entrants; and the low number of bids for supported service contracts in many areas, with just one bidder for a quarter of tenders.

We believe that of the 'big five' it is Stagecoach whose exposure to any changes imposed by the CC will be felt the most since it has no London operation and just over half its profits continue to come from the UK bus market.

The main criticism cited against the OFT investigation - and now that to be conducted by the CC - is that both inquiries are ill-founded, with the private motorist being the main competitor the bus industry faces, not other bus companies. This is very true in the main, though we've often given our ear to operators locally who are more concerned about their territory being encroached by another, not specifics about car usage.

A few weeks ago, contributing writer The LEYTR Stig - a railway manager based in London - emailed us a short article based on this very matter: "I've limited knowledge of the bus industry, which qualifies me to have similar views to the average bus punter, I'm sure," he wrote.

"My parents live at one end of a very popular express coach service, which is operated by two different operators, yet the fares are identical. And I don't simply refer to single and day returns, but weeklies, monthlies, thirteen-weeklies, annuals and two-annuals. Even time of day restrictions affording travellers additional perks are identical. The only difference is where your money goes, either Scotland or the North East. Unlike the rail industry, the DfT doesn't set fares for large percentages of tickets, so why isn't one operator cheaper than the other? Why hasn't one opted to drop their day return or single fare down to the nearest round number?

"I'm not so ignorant that I've not contemplated the 'market forces' argument, that is, both operators would love to charge more than they actually do, but know that the first one to do so would see a big reduction in patronage - and that it is their passengers, through their expectations and the maximum amount they're willing to pay, that keep both operators pinned down to the same fare. I don't know which is true and most importantly, nor do the passengers - and my parents - who use the services regularly. My mother - still in charge of her faculties - has even used the term 'price-fixing' in relation to these so-called competing services, and if she has contemplated this, then so too will other passengers.

"Despite operators' moans, the privatised bus industry benefits from considerable freedoms, something we in 'heavy rail' can only dream of."

LEYTR Comment: When the OFT announced its plan to investigate allegations that the UK bus industry wasn't as competitive as it should be, the general consensus was that this was a straightforward exercise by the OFT to prevent making redundancies like all other government departments.

Five months of investigations took place, with most criticism coming from PTEs and local authorities, who've long criticised what they see as larger bus operators flexing their muscles at contract tender time. They - and a scattering of disgruntled passengers - will be very pleased indeed that the CC will soon be involved. Bus operators will not. Reference has been made to the CC's likely findings and associated recommendations, but no one has commented on what the latter could be.
Could the CC really force the industry to change the way it operates? We suspect not. How do you level a playing field that many feel is already spirit level perfect? To do so would mean discriminating against the larger, more dominant operators, who would be sure to put their lawyers on the case.

The rail industry complains of micro-management by the DfT, with decisions being made over matters such as booking office opening hours by Whitehall mandarins; perhaps the CC would suggest something in a similar vein for the bus industry, i.e. instigating forced fare reductions in certain towns and cities where it believes stagnation has taken place?
Or everything could carry on as it is and in a few years' time we'll look back and laugh at how obviously pointless this exercise was.

Further reading: CC's referral press release.

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