Wheels are turning slower at FirstGroup

Fewer in the North can afford its fares right now, and that's costing the buses giant as the area provides two-thirds of its revenues. Lucy Tobin looks at the prospects of the company getting back on the right route

SCREEEEECH. That's the sound of Britain's buses of the North grinding to a halt. Not literally – the wheels are still a-turning, for now. But the country's North-South divide is now so stark that some of us in the North can't afford to take the bus so often. And that's hurting operator FirstGroup, Britain's biggest bus company.

Almost two thirds of its UK bus passenger revenues are generated in the North and Scotland – but nowadays its vehicles are far less full. FirstGroup admitted in January that tough trading in Scotland and the North of England was throwing up evidence of "a widening North-South divide." Then yesterday the Aberdeen-based firm reiterated its problem of northern exposure, and said it was planning on accelerating sales of bus businesses that bring in £100m of revenues as a result.

It has already offloaded operations in North Devon and King's Lynn and a major London depot to protect profitability. More will be axed because bus operating profits fell nearly 10 per cent to £134.4m in the year to 31 March while the operating margin of 11.6 per cent is expected to drop to 8 per cent this year.

Tim O'Toole, the chief executive, says: "We have seen a further deterioration of economic conditions, particularly in our urban operations in Scotland and the North of England. The impact of reduced government subsidies and funding to the industry... [is] more acute than originally estimated, and increased fuel costs."

First's costs have risen sharply in recent months. The Government has cut bus subsidies. Its fuel duty rebate, known as the Bus Service Operators Grant, pays about a tenth of bus running costs, but was cut by 20 per cent in last November's Budget. Industry figures say some Scottish routes could see their subsidy cut by twice that.

Rivals have beefed up their spending on advertising and promotions to lure passengers away from First. And those passengers were struggling: fewer jobs, lower demand for bus commutes – and the 60 per cent of First's passengers that hail from Scotland and Northern England were hit even harder. The Centre for Economics and Business Research says the North could see one in eight people out of work by 2016.

Yet just at a time when hard-up families couldn't afford it, First put up prices. Travellers in Bath and Weston-super-Mare, for example, saw ticket prices increase by up to 70p in January. And demand fell as a result.

"FirstGroup has several problems," says Paul Hickman, a transport analyst at Peel Hunt. "The North and Scotland where it operates most are more economically depressed while it is also facing economic headwinds and rising costs – not just in terms of the cut to the fuel duty rebate but also the rising price of fuel. Usually, that helps people move on to the buses, but First has admitted it tried to deal with the problem too much by putting up the fares. Their last price increase in January frankly didn't work, and faced significant resistance in the North and Scotland."

The company, whose 8,000 buses carry 2.5 million passengers a day, says it has recovery plans in place. Mr O'Toole says a new management team was working on a plan to stimulate growth in the bus business, including spending £160m on 1,000 new vehicles and £4m on refurbishing existing ones. It is also investing £27m in new ticketing technology.

First is also cost-cutting. Bus workers are the first victims: the company yesterday said it had made their pensions £73.3m poorer, after it switched them from being linked to the retail price index to the consumer price index, and capped pension payouts. First's shares have fallen 40 per cent in the past seven months but those of rivals such as Stagecoach have lost half that in the same period.

"Evidence from other companies suggest they are just not affected by First's problem," says Mr Hickman. "First is more concentrated in the North and has been slow to use marketing techniques, whilst others have got ahead."

The shares rose 7 per cent yesterday – "relief", says John Lawson of Investec. "Shareholders have had a torrid time recently with two major profit warnings in the last 18 months. This is a potential recovery stock story – although we're waiting to see how the restructuring of the UK bus unfolds."

First has some precedent in turnaround: its US yellow school bus business was hit hard by schools trying to trim transport bills. Trading disappointed but its performance is now on the up.

"There are some parallels with the US schools problem," concedes Mr Hickman. "But I think it's going to take a while, this company has got high debts, which look that much higher now its profit expectations are lower than we had thought."

Only time will tell whether First's Northern bus journey screeches to a halt or accelerates away with its fleet, drivers and passengers intact.

Sport
Raheem Sterling and Luis Suarez celebrate during Liverpool's game with Norwich
sport Another hurdle is out of the way for Brendan Rodgers' side
Sport
Luis Suarez celebrates after scoring in Liverpool's 3-2 win over Norwich
Football Vine shows Suarez writhing in pain before launching counter attack
Arts & Entertainment
The original design with Charles' face clearly visible, which is on display around the capital
arts + ents The ad shows Prince Charles attired for his coronation in a crown and fur mantle with his mouth covered by a criss-cross of white duct tape
Sport
Steven Gerrard had to be talked into adopting a deeper role by his manager, Brendan Rodgers
sport LIVEFollow the latest news and scores from today's Premier League as Liverpool make a blistering start against Norwich
VIDEO
News
People White House officials refuse to make comment on 275,000 signatures that want Justin Bieber's US visa revoked
News
Sir Cliff Richard is to release his hundredth album at age 72
PEOPLESir Cliff Richard has used a candid appearance on an Australian talk show to address long-running speculation about his sexuality

Sport
Lukas Podolski celebrates one of his two goals in Arsenal's win over Hull

Arsenal strengthened their grip on a top-four finish with a straightforward 3-0 win over Hull City.

Arts & Entertainment
Quentin Tarantino, director
arts + ents Samuel L Jackson and Michael Madsen have taken part in a reading of Quentin Tarantino’s axed follow-up to Django Unchained.
News
The speeding train nearly hit this US politican during a lecture on rail safety
news As the saying goes, you have to practice what you preach
Sport
Mercedes Formula One driver Lewis Hamilton of Britain (front) drives ahead of Red Bull Formula One driver Daniel Ricciardo of Australia during the Chinese F1 Grand Prix at the Shanghai International circuit
sport Hamilton captured his third straight Formula One race with ease on Sunday, leading from start to finish to win the Chinese Grand Prix

Arts & Entertainment
Billie Jean King, who won the women’s Wimbledon title in 1967, when the first colour pictures were broadcast
tv
News
Snow has no plans to step back or reduce his workload
mediaIt's 25 years since Jon Snow first presented Channel 4 News, and his drive shows no sign of diminishing
Life & Style
food + drinkWhat’s not to like?
Voices
Clock off: France has had a 35‑hour working week since 1999
voicesThere's no truth to a law banning work emails after 6pm, but that didn’t stop media hysteria
Arts & Entertainment
Maisie Williams of Game of Thrones now
tvMajor roles that grow with their child actors are helping them to steal the show on TV
Arts & Entertainment
Kingdom Tower
architecture
Life & Style
Lana Del Rey, Alexa Chung and Cara Delevingne each carry their signature bag
fashionMulberry's decision to go for the super-rich backfired dramatically
Have you tried new the Independent Digital Edition iPad app?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

1st Line Helpdesk Engineer Apprentice

£150.00 per week: QA Apprenticeships: This company has been providing on site ...

Telesales & Sales Support Apprentice

£221.25 per week: QA Apprenticeships: This company is a well established Inter...

Client Relationship Manager - SQL, Python

£40000 - £50000 per annum: Harrington Starr: Client Relationship Manager - SQL...

**Financial Services Tax**

£35000 - £50000 per annum: Pro-Recruitment Group: Take your chance to join the...

Day In a Page

How I brokered a peace deal with Robert Mugabe: Roy Agyemang reveals the delicate diplomacy needed to get Zimbabwe’s President to sit down with the BBC

How I brokered a peace deal with Robert Mugabe

Roy Agyemang reveals the delicate diplomacy needed to get Zimbabwe’s President to sit down with the BBC
Video of British Muslims dancing to Pharrell Williams's hit Happy attacked as 'sinful'

British Muslims's Happy video attacked as 'sinful'

The four-minute clip by Honesty Policy has had more than 300,000 hits on YouTube
Church of England-raised Michael Williams describes the unexpected joys in learning about his family's Jewish faith

Michael Williams: Do as I do, not as I pray

Church of England-raised Williams describes the unexpected joys in learning about his family's Jewish faith
A History of the First World War in 100 moments: A visit to the Front Line by the Prime Minister's wife

A History of the First World War in 100 moments

A visit to the Front Line by the Prime Minister's wife
Comedian Jenny Collier: 'Sexism I experienced on stand-up circuit should be extinct'

Jenny Collier: 'Sexism on stand-up circuit should be extinct'

The comedian's appearance at a show on the eve of International Women's Day was cancelled because they had "too many women" on the bill
Cannes Film Festival: Ken Loach and Mike Leigh to fight it out for the Palme d'Or

Cannes Film Festival

Ken Loach and Mike Leigh to fight it out for the Palme d'Or
The concept album makes surprise top ten return with neolithic opus from Jethro Tull's Ian Anderson

The concept album makes surprise top ten return

Neolithic opus from Jethro Tull's Ian Anderson is unexpected success
Lichen is the surprise new ingredient on fine-dining menus, thanks to our love of Scandinavian and Indian cuisines

Lichen is surprise new ingredient on fine-dining menus

Emily Jupp discovers how it can give a unique, smoky flavour to our cooking
10 best baking books

10 best baking books

Planning a spot of baking this bank holiday weekend? From old favourites to new releases, here’s ten cookbooks for you
Jury still out on Manchester City boss Manuel Pellegrini

Jury still out on Pellegrini

Draw with Sunderland raises questions over Manchester City manager's ability to motivate and unify his players
Ben Stokes: 'Punching lockers isn't way forward'

Ben Stokes: 'Punching lockers isn't way forward'

The all-rounder has been hailed as future star after Ashes debut but incident in Caribbean added to doubts about discipline. Jon Culley meets a man looking to control his emotions
Mark Johnston: First £1 million jackpot spurs him on

Mark Johnston: First £1 million jackpot spurs him on

The most prize money ever at an All-Weather race day is up for grabs at Lingfield on Friday, and the record-breaking trainer tells Jon Freeman how times have changed
Ricky Gervais: 'People are waiting for me to fail. If you think it's awful, then just don't watch it'

Ricky Gervais: 'People are waiting for me to fail'

As the second series of his divisive sitcom 'Derek' hits screens, the comedian tells James Rampton why he'll never bow to the critics who habitually circle his work
Mad Men series 7, TV review: The suits are still sharp, but Don Draper has lost his edge

Mad Men returns for a final fling

The suits are still sharp, but Don Draper has lost his edge
Google finds a lift into space will never get off the ground as there is no material strong enough for a cable from Earth into orbit

Google finds a lift into space will never get off the ground

Technology giant’s scientists say there is no material strong enough for a cable from Earth into orbit