Silviase/jgov_v1.4_full_ann huggingface dataset:
compared to tolls charged on some motorway routes in France and Germany for example, this can lead to a lot of distortions in the operation of the market.

### 3. BUS AND COACH DEREGULATION

#### 3.1. Introduction

This section has three parts. The first describes the current operating conditions in UK market, the second summarises changes in regulation covering buses, the third considers the express coach market, and the last makes a brief assessment of the impact of regulatory change.

#### 3.2. Current operating conditions

Great Britain is divided into eight Traffic Areas each with its own Traffic Area Office which provides administrative support to a Traffic Commissioner. In order to operate a bus or coach service - or Public Service Vehicle (PSV) - as they are known officially - individuals or companies have to meet certain standards before they are granted an operator's licence. Decisions on applications for operators' licenses are taken by Traffic Commissioners who also monitor operators' performance and can revoke, curtail or suspend licences if operators fail to meet standards. The Traffic Commissioners and Traffic Area Offices also handle the registration of local bus services.

In passenger transport there is a distinction between:

1. Local bus stage services: Deregulation was designed to create an open market, except in London and Northern Ireland which were not de-regulated.

2. Coach sector: This has been an open market since the 1980 Traffic Act under which scheduled express coach services in Britain were de-regulated. In this sector there is a normal competitive market.

##### 3.2.1. Local bus services

“A local service” is a service using PSVs to carry passengers at separate fares over short distances. The route can be of any overall length, as long as throughout its length passengers can get off within 15 miles (measured in a straight line) of the place at which they were picked up (PSV353A Rev 2/93).

All local services need to be registered except for:

• the parts of a local service with stopping points within the London area; or

- local services run under an agreement with British Rail to replace any rail services which have been temporarily disrupted or withdrawn; or

• excursions and tours which do not run at least once a week for at least six weeks in a row.
private sector, and all but one of the former London Transport bus subsidiaries. About 20 urban fleets remain under the ownership of district and regional councils while the Ulsterbus/Citybus operations in Northern Ireland continue in state ownership. In 1994/5 some 84% of bus services are run on a commercial basis, the remainder (16%) are run by local authorities under subsidy. Route deregulation has now been abolished outside London.

The 1994 Deregulation and Contracting Out Act was passed at the end of 1994, and will come into effect in December 1995. A small section of this Act covers passenger carrying vehicles and introduces a new system of operating licences. Entry to the UK market is open in that anyone holding a valid PSV operator's licence can register a local bus service. The new system will mean that instead of licenses being renewed every five years, licences are granted in perpetuity. Deregulation is designed to reduce the burden of bureaucracy.

##### 3.3.1. The impact of deregulation on the UK Market

The outcomes of the 1985 Act over the period 1985-6 to 1993-4 are now summarised. The basis of the discussion is taken from White (1994).

First, total passenger trips in the deregulated areas fell by 27% in the eight year period. This is shown in Table 7 and Chart 1. In London the fall was only 3% and in Northern Ireland about 6%. The worst fall was in the former metropolitan counties (which were abolished on April 1 1986), at 35%; the greater-than-average drop is explained largely through the steep fare increases at the time of the metropolitan counties' abolition, notably in South Yorkshire. Largely because of previous subsidies, some Metropolitan Authorities had to raise fares by as much as 25% in real terms, but in the shire counties fare increases averaged about 3% (Table 8).

Chart 1: Local bus passenger journeys

Source: Department of Transport 1994b
Table 7: Local bus services: passenger journeys by area

Millions

London	English metro-politan areas	English shire counties	England	Scotland	Wales	Great Britain	All outside London
1983 $ ^{1} $	1,087	2,011	1,629	4,727	680	180	5,587	4,500
1984 $ ^{1} $	1,162	2,047	1,604	4,813	669	168	5,650	4,488
1985/86	1,152	2,068	1,588	4,807	671	163	5,641	4,489
1986/87	1,164	1,810	1,571	4,545	644	152	5,341	4,177
1987/88	1,207	1,732	1,550	4,489	647	156	5,292	4,085
1988/89	1,211	1,695	1,501	4,407	647	161	5,215	4,004
1989/90	1,188	1,648	1,474	4,310	613	151	5,074	3,886
1990/91	1,178	1,547	1,396	4,120	585	145	4,850	3,672
1991/92	1,149	1,478	1,333	3,961	571	133	4,665	3,516
1992/93	1,129	1,384	1,308	3,820	531	129	4,480	3,352
1993/94	1,117	1,334	1,268	3,719	526	130	4,375	3,258

$ ^{1} $ The allocation of total passenger journeys by area is less reliable prior to 1985/6

Source: Department of Transport 1994b

Second, total bus kilometres run rose by about 25%, both in the deregulated areas, and in London and Northern Ireland, this reverses the previous trend of steady decline from the 1950's, as operators cut services in response to falling traffic, following the impact of rising car ownership and other factors. These increases are also associated with extensive minibus operation, and also some cases of strong competition between operators using full-sized vehicles. It is likely that most of the increase in bus-kilometres represents frequency over roads already served, although some minibus routes do penetrate further into housing areas than previous services. By 1988 minibuses accounted for about 15% of urban fleets (Utton 1991).

Because of the increases, local authorities were therefore able to contract enough subsidised services to ensure similar post-deregulation provision in most cases. However, fewer off-peak, low density routes were registered for commercial operation. Some were restored under the contract system, but in virtually every county some places and times of day had fewer services.

Limited financial support for the provision of rural services is available from the Rural Development Commission, which was set up in the mid-1980's. It has a special fund to help keep rural communities alive. It acts on behalf of the Department of Transport by administering the
Rural Transport Development Fund, which amounts to about $ £1 $ million per year for England. Similar schemes operate in Wales and Scotland. The funds are for innovative public transport schemes - such as community buses. The fund would pay for start-up costs of such a scheme for example. Services which cannot be run commercially can also be subsidised by local authorities.

Table 8: Local bus services: fare indices by area

London	English Metro-politan areas	English shire counties	England	Scotland	Wales $ ^{1} $	Great Britain	All outside London
Current prices
1983	100.0	99.4	88.8	94.1	94.4	89.5	93.7	92.8
1984	91.6	98.6	94.8	95.3	98.3	96.3	95.8	96.5
1985/86	101.7	100.4	101.2	101.1	100.2	101.1	100.9	100.8
1986/87	107.8	127.0	106.3	112.6	103.7	105.5	111.0	111.7
1987/88	113.1	137.9	111.9	119.3	107.8	-	117.2	118.1
1988/89	125.3	146.6	117.6	127.0	112.2	-	124.3	124.2
1989/90	138.2	158.7	127.3	137.8	117.9	-	134.3	133.6
1990/91	152.4	176.4	140.5	152.1	126.9	-	147.8	147.0
1991/92	167.0	197.0	151.4	165.8	136.6	-	160.8	159.8
1992/93	179.8	210.7	157.9	175.2	146.0	-	170.1	168.4
1993/94	194.2	220.9	162.7	183.6	151.6	-	177.9	174.9
Constant prices $ ^{2} $
1983	111.3	110.7	98.9	104.8	105.0	99.7	104.3	103.3
1984	97.2	104.5	100.5	101.1	104.3	102.1	101.6	102.4
1985/86	100.5	99.2	100.0	99.9	99.0	99.9	99.7	99.6
1986/87	103.2	121.6	101.8	107.8	99.3	101.0	106.3	106.9
1987/88	104.1	127.0	103.0	109.9	99.2	-	107.9	108.7
1988/89	108.8	127.4	102.1	110.4	97.4	-	108.0	107.9
1989/90	111.4	127.9	102.6	111.0	95.0	-	108.2	107.6
1990/91	112.0	129.6	103.2	111.7	93.2	-	108.6	108.0
1991/92	117.1	138.2	106.2	116.3	95.8	-	112.8	112.1
1992/93	122.3	143.2	107.3	119.1	99.3	-	115.6	114.5
1993/94	129.8	147.7	108.8	122.7	101.3	-	118.9	116.9

$ ^{1} $ Figures for Wales since 1986/87 are omitted because insufficient data are available

$ ^{2} $ Adjusted for general inflation, using the Retail Prices Index

Source: Department of Transport 1994b

Third, real operating costs per bus-kilometre fell very sharply, by 42% outside London and 35% in London. This also reversed a previous trend of gradual increase. The main factor explaining this is increased staff productivity, associated in turn with major cuts in administrative and
engineering staff. In spite of the increase in total vehicles on the road, numbers of staff employed has shown a dramatic decline over the ten year period 1983-1993/4 (Table 9). In 1983 some 187,000 people were employed in the industry, by 1993/4 this had fallen by 40,000 to 148,000. Real earnings per member of staff have also fallen, and other aspects of working conditions worsened. Existing operators used the approach of deregulation to push through cost reducing reforms in work practices. Subsequently, two tier wages structures were introduced. Other factors include falling oil prices and the lower maintenance cost and fuel consumption of minibuses.

Table 9: Bus and coach staff employed by type of employment $ ^{1} $

Platform staff $ ^{2} $	Maintenance staff $ ^{2} $	Other staff $ ^{2} $	All staff
1983	103.2	---	84.2	---	187.4
1984	101.1	---	80.4	---	181.5
1985/86	105.4	37.3	31.6	174.2
1986/87	103.9	32.9	29.9	166.8
1987/88	104.0	29.9	25.9	159.8
1988/89	104.5	29.1	25.6	159.2
1989/90	105.5	27.9	24.7	158.1
1990/91	104.6	27.2	23.5	155.3
1991/92	103.6	25.8	22.0	151.4
1992/93	103.2	24.5	20.7	148.4
1993/94	105.0	23.9	19.1	148.1

$ ^{1} $ For 1985/86 and 1986/87, figures shown are annual averages; for all other years, they relate to the year end

$ ^{2} $ Up to 1984, the full-time equivalents of all part time staff, and all working proprietors, were counted as ‘other staff’. From 1985/86 they are classified according to their main occupation.

Source: Department of Transport 1994b

Fourth, there was a decrease in all vehicle stock in the early to mid-1980's, followed by a gradual increase up to the present day, with a significant expansion in the year 1993/4 (Table 10 and Chart 2). The figures show changing patterns of passenger carrying transport - most of the increase has come from small single deck vehicles in categories up to 16 seats and 17-35 seats. The number of double deck buses has shown a steady decline, as has the larger single deck buses.

In terms of public expenditure, support payments (to entire networks and low fare levels prior to 1988, subsequently for tendered services only) fell by about 55% outside London, and about 70% in London. However, the separate payments made in respect of compensation for concessionary fares (mainly to pensioners) were largely unchanged.
Large parts of the industry have experienced very low profitability since deregulation. For example, in an analysis of 150 published accounts of bus operators it was found that the net profit margin (profit before interest and tax, divided by turnover) average 3 per cent over the period 1986-88 (Utton 1991, 4). Comparisons with other service sectors indicated that the 'bus and coach industry' averaged 0.5% compared with 4.8% in road haulage and 1.3% for travel agents. Authors of the report concluded that in the post-regulation years, profitability was below the 'risk-free' return and that returns would have to increase if the industry was to be viable in the long-term. The current regime appears to be discouraging investment in fleet renewal. The average age of buses and coaches is rising fast, according to a census by the Society of Motor Manufacturers and Trades (Freight October 1994, 11). At the end of 1993 of the 74,478 buses and coaches on the road, 58.8% were more than ten years old. This compares with 40% in 1982. This means that innovations such as less-polluting engines will take longer to come into large-scale use.

Under the existing financial regime, investment can be achieved through higher profits, which some companies (such as Stagecoach) are already achieving. However, the achievement of higher profits may be inconsistent with the philosophy of maximising competition within the bus industry. Rationalisation of competing services through voluntary agreement is often deterred through competition rules enforced through the MMC. The overall outcome is thus one in which costs and public expenditure have fallen but the contribution which buses make to the passenger system as a whole (i.e. passengers travelled) shows an alarming decline outside London and Northern Ireland. The combination of more bus-kilometres and fewer passengers has produced a

Table 10: Bus and coach vehicle stock by type of vehicle $ ^{1} $

Single deckers	Thousands
Up to 16 seats	17 - 35 seats	36 plus seats	All single deckers	Double deckers	All vehicles
1983	6.4	---	38.5	---	44.9	25.3	70.2
1984	6.0	---	37.2	---	43.2	25.6	68.8
1985/86	6.5	3.1	33.2	---	42.9	25.0	67.9
1986/87	6.9	5.0	33.2	---	45.2	24.5	69.6
1987/88	8.0	7.8	31.8	---	47.6	24.1	71.7
1988/89	7.7	9.8	31.0	---	48.5	23.5	72.0
1989/90	8.4	10.3	31.0	---	49.8	22.7	72.5
1990/91	8.1	11.5	30.2	---	49.8	22.2	71.9
1991/92	7.9	12.4	29.8	---	50.1	21.3	71.4
1992/93	8.7	13.6	29.5	---	51.8	20.9	72.7
1993/94	9.4	14.6	30.8	---	54.8	20.1	74.9

$ ^{1} $ For 1985/86 and 1986/87, figures shown are annual averages; for all other years, they relate to the year end.

Source: Department of Transport 1994b
Chart 2: Bus and coach vehicle stock

Source: Department of Transport 1994b

very sharp fall in average load carried - in mainland Britain outside London - of about 35%. The relative efficiency advantage of buses over cars in terms of energy and road space use has thus diminished (although still significant).

Professor White concludes that these outcomes suggest that the policy of not extending full deregulation to London is correct. Substantial cost reduction and public expenditure savings in London have been obtained without the large losses of passengers found elsewhere. A system of competitive tendering under a regulated framework enables cost savings to be made, while retaining the user benefits of comprehensive information, network planning and travel cards available on all services.

##### 3.3.2. Environmental considerations

This industry, like the freight industry, is likely to be affected increasingly by environmental considerations. The 1994 Report of the Royal Commission on the Environment Transport and the Environment has recommended greater emphasis on public transport to cut down the volume of car traffic in cities. Improvements may take the form of investment in fixed-track, 'high tech' options such as light rail or other rail based systems, which are substitutes for buses. Current examples include the Manchester Metro-link opened in 1992. Other options which support increased use of buses include separate busways. Britain's first guided busway, in Leeds, was under construction in 1994, and bus priorities are being expanded in many areas, notably London suburbs (White 1994, 52).
##### 3.3.3. Competition policy since deregulation

Studies of the effects on competition within the market post 1980 have found evidence of market imperfections despite the intention to encourage new entrants. Mergers, restrictive practices and aggressive competition, particularly through 'predatory pricing' have been major determinants of the structure of local markets. These forms of behaviour are so common that they now account for a large proportion of cases referred to the MMC. Indeed "no other single industry has received such intensive investigation in the 46 years of competition policy" (Utton 1991, 3). For example, competition within some of the metropolitan areas has been restricted. In at least four Metropolitan Authorities, despite the provisions of the Restrictive Trade Practices Act, there were indications that transport companies had 'understandings' with newly privatised ex-NBC companies not to invade each other's territories.

##### 3.3.4. Mergers

Despite the view in the 1984 White Paper about the contestability of local bus markets, no one organisation was allowed to acquire more than three units of the former NBC. Subsequently there were no further restrictions, except those provided by the Fair Trading Act. Since the market has in theory become more open however, there has been a considerable amount of merger activity. Between October 1988 and September 1990, six mergers were referred to the MMC. Five were found likely to operate against the public interest.

The regulatory system itself has come under criticism because that it appears that the Secretary of State's intentions have been in conflict with the MMC. These conflicts have created delays, confusion and inconsistencies. For example, the Secretary of State has been prepared to refer sizeable mergers in the industry even though they had been completed; usually five to six months afterwards, with the MMC report published five months later. In four of the five cases where the MMC's verdict was against the merger, the Secretary of State moved for divestment even though the MMC had recommended it in only one case. In the others the MMC relied on 'undertakings' from the companies concerned. In four cases the stronger stance taken by the Secretary of State was stalled at the moment of decision by the High Court.

##### 3.3.5. Anti competitive practices

OFT’s procedure for assessing allegations of predatory pricing consists of three elements:

i. are market conditions such as to make predatory pricing feasible?

ii. have prices below variable to average total costs been charged and, if so, what were the circumstances in the market?

iii. is there any evidence of predatory intent by the price cutting firm?

Predatory pricing will only be feasible where the firm believes that the strategy of low prices and losses (possible large losses because of the assumption it is the market leader) in the
short term will be at least compensated by excess profits in the long term.

Two examples are given to illustrate this theme. In the first, the OFT concluded that there had been no predation, and in the second, that it had (see Myers 1994).

### 1. The Thamesway investigation, 1993

Bus services in Southend-on-Sea had been provided by two companies for many years, Thamesway and Southend Transport. At the time of the investigation, there were three other small bus operators, but the vast majority of services was provided by the two large operators. Since the deregulation of buses, there had been various competitive 'skirmishes' between Thamesway and Southend Transport. On June 7 1992, Southend Transport launched the 'New dawn for Public Transport' campaign, involving new bus services and increased frequency on existing routes. On the same date, Thamesway halved the price of its Dayrider ticket, allowing unlimited travel on its network for a day for £1.00, and return tickets were sold at the single ticket price. Southend Transport alleged that Thamesway's price cut was predatory, i.e. designed to cut its competitor out of the market by excessively low pricing. Predation was held to be feasible because Thamesway had market power, large financial resources, and the ability to cross-subsidise. Although the market was evenly divided between the two, Thamesway was a subsidiary of Badgerline, one of the largest operators in the country, and was therefore able to cross-subsidise, whereas Southend Transport was owned by the local council.

The investigation concluded that Thamesway's action had led to some activity losses but that they were not deliberately incurred. Over a period of time, the company had taken a number of actions designed to improve network performance, such as cutting costs by reducing bus mileage and disposing of a depot. Therefore, the price cut was only one of a series of actions to improve its position. There was no evidence that Thamesway had specifically targeted its behaviour against Southend Transport.

### 2. The Fife Scottish investigation

The duplication by Fife Scottish of subsidised bus services by a competitor was held to be predatory, mainly because there was no expectation of profitability.

In 1990, Moffatt & Williamson won a number of contracts to operate services subsidised by Fife Regional Council on six routes on which Fife Scottish operated commercial day-time services. In July and August 1992, Fife Scottish duplicated the subsidised services (without receiving a subsidy) by adding extra journeys to its existing services. Moffatt & Williamson alleged that Fife Scottish's registration of commercial services in competition with its subsidised services was designed to drive it out of tendered and commercial services and involved reputation effects. The allegation was therefore treated as one of predation.

In this case, competition was localised and Fife Scottish was able to specifically target a competitor. It was the largest local operator, had market power and the ability to cross-subsidise from other profitable routes in Fife. Fife Scottish had access to financial resources because it was a
quality improvements, a survey showed that few business trips are made by coach (4-6%). Most are to visit friends or relatives (44%).

Table 11: National Express passenger trips 1980-1993 (million)

Year	Passenger trips (million)
1980	9.2
1982	14.0
1984	15.0
1985	15.4
1986	14.4
1988	13.1
1989	13.9
1990	13.5
1992	10.5
1993	9.8

Source: National Express, and technical press results in White (1995)

Note: Changes in some years are associated with changes in definition and scope. Totals from 1989 were increased by the introduction of Scottish services.

In addition to growth on long-distance services, substantial expansion has been seen in coach operation at the regional level, notably between London and Oxford on the M40 (where two operators run - one every 20 minutes), and in Northern Ireland, where Ulsterbus has expanded its 'Goldline' network. The Stagecoach company has expanded its regional limited stop services operated through local subsidiaries, notably a Glasgow-Dunfermline-Dundee/Edinburgh/St Andrews network. In some cases, independents are the main operators, with NE operating a very limited service or none at all (for example the Gatwick-Heathrow-Stanstead-Cambridge services provided by Cambridge Coach Services).

Airport access is an important area of growth. Following deregulation in 1980, many services were diverted to service Heathrow airport. Subsequently direct links have been established to Heathrow and Gatwick from many parts of Britain.

International services have also increased. Studies on behalf of Eurotunnel showed that in 1976 1.5 million trips for cross-channel coach passenger travel were made, by 1994, this had risen to 8.1 million. This is associated with rapid-growth in roll-on-roll-off ferry services, notably concentrated on Dover-Calais.

##### 3.5.1. Conclusions

In sum, following the impact of the 1980 Transport Act, the UK network has been re-oriented to provide fast-high frequency services (typically every two hours or better) between London and main centres, together with major cross-country services. 'Hub' interchanges are
provided at London Victoria, Bristol (in the South West), Birmingham and other centres.

However, further scope for express service improvement potentially is curtailed by increasingly restrictive regulations on speed. Under 1994 EU regulations speed is limited to 105 km (65 mph). The government is considering banning coaches from the fast lane of motorways. Such regulations may reduce the competitive advantage vis a vis rail.