The Stagecoaching of Britain

From two buses firm now has a pounds 501m turnover, writes Christian Wolmar
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The "Stagecoaching" of Britain is gathering what seems to be unstoppable speed.

Having grown from a two-bus operation in 1980 to a multinational, publicly quoted con- cern, Stagecoach now has a turnover of pounds 501m and profits of pounds 43.6m, as revealed in its annual report, published yesterday.

In the past year, the company, run by brother and sister team of Brian Souter and Ann Gloag, has added a string of bus companies to its holdings. It has won the prize rail franchise of South West Trains, the largest on the network, with a turnover of pounds 260m - most of which is not included in last year's accounts, as the company did not take over until February).

All this growth has taken place in an industry which is so unfashionable that it seldomfinds a mention in this or any other newspaper. Buses are for the poor, the young and the infirm, those who cannot afford to use a car and normally receive little commercial interest.

Buses may not be trendy, but they are attractive for companies wishing to grow quickly. Apart from the buses themselves, little investment is required, and almost all the revenue is in the form of cash.

Until the industry was deregulated a decade ago, most bus services were run by local councils with timetables that had been unchanged for years, and buses were subsidised from the rates. Deregulation changed all that. Anyone with an old banger could register to run a bus service, and there was fierce competition on the popular routes. Inevitably, some smaller companies grew quickly.

Cross-subsidising little-used services with the profits from the most popular ones was no longer possible. Only loss-making routes continued to be subsidised by local councils and these were tendered out, with private companies often winning the contracts.

In the ensuing bus wars, Stagecoach came out the winner. It used strong tactics, often running buses just in front of those of the existing company to ensure that it mopped up the passengers. There have been 20 references to the Monopolies and Mergers Commission, and four enquiries.

The reports have been highly critical. In Lancaster, for example, the acquisition of the local transport company was found by the MMC to be "against the public interest".

On two occasions the firm has been forced to sell 20 per cent stages in adjacent bus companies. In Strathclyde, Stagecoach was told it could not merge with another local firm; in several other places it was criticised for tactics against local operators.

The height of Stagecoach's aggression was in Darlington, a town which has now become more famous for its bus war than for its railway history.

In the summer of 1994, Stagecoach lost out in its attempt to buy the local municipally owned Darlington Trans- port Company (DTC) to a rival, Yorkshire Transit.

Stagecoach did not take its defeat lying down. Instead, its local subsidiary, Busways, recruited many of DTC's drivers by offering them a pounds 1,000 bonus and a guarantee of three years' work, and began running free buses, claiming it could not charge because it took a month to obtain a licence.

DTC went bust under this pressure after just three days, and the council's bus firm became valueless.

Yet, despite the widespread criticism of Stagecoach, there is general acceptance that the firm tries to run good services. It has recently bought nearly 1,000 new buses, a scale of acquisition unheard of in the industry since deregulation.

Brian Souter, the chairman, boasted yesterday that the average age of the fleet had been reduced from 9.1 years to 8.7, and that as the new buses came on stream over the next year, the figure would go down to 8.1. Ironically, for such an aggressive private company, Stagecoach argues that local monopolies are the best way of operating services. Added to this, the Tory ethic has been to create competition, and this has caused much of the conflict between Stagecoach and the regulatory regime.

The bus industry will inevitably see more acquisitions and mergers: its economics dictate that bigger companies are more cost-effective. They can use their muscle to buy buses at up to 20 per cent compared with their smaller competitors, and can save even more on spares and equipment.

They can also make profits on property acquisitions by moving bus stations and depots out of town. And Stagecoach is famously lean, with few levels of managers. It is the white-collar workers who tend to be shown the door when the company makes an acquisition - rather than the drivers, who are made to work longer hours but usually keep their jobs.

With fewer bus companies remaining on the market, Mr Souter said that Stagecoach, which has already bid for most rail franchises, will try for all 12 remaining companies . It is already shortlisted for the Cardiff Railway franchise.

The economic pressure towards bus mergers and rail bids means that Mr Souter may achieve his aim of running a pounds 2bn company by the end of the decade. This is a tall order: the company will need to quadruple in size between 1995 and 2000.

Business comment, page 17