News today:
The OFT today referred Stagecoach Group PLC's (Stagecoach) anticipated acquisition of the North Devon business and assets of First Devon and Cornwall Limited (First) to the Competition Commission, due to concerns the merger will reduce competition in local bus services in the area.
Stagecoach and First operate competing local bus services in North Devon, including in and around the town of Barnstaple. The OFT is concerned that the proposed merger would reduce competition on a number of route sections where the parties currently compete and create a monopoly for several journeys in the area around Barnstaple.
Given this expected reduction in competition, the OFT considers it appropriate to refer the merger to the Competition Commission for an in-depth review.
Although the annual value of the markets concerned is comparatively limited (between £2.5 million and £3.2 million), the OFT considers that the potential impact of the merger in terms of harm to passengers in North Devon is particularly significant. The OFT is also mindful that, as the Competition Commission noted in its recent market investigation report, mergers involving the sale of local bus operations are highly replicable across the country; this fact reinforces the OFT's view that a reference to the Competition Commission is appropriate in this case.
Amelia Fletcher, Senior Director and Decision Maker in this case said:
'The Competition Commission's market investigation into the bus industry showed how important competition between bus operators at local level is.
'Mergers between rivals in local markets can result in price rises or a reduction in journeys for passengers.
'As such, we believe it is appropriate that the Competition Commission reviews this merger in detail to ensure that the interests of passengers in Devon are protected.'
The Competition Commission is expected to report by 24 December 2012.
Office of Fair Trading New Release
Stagecoach have responded as you would expect as have withdrawn their offer to purchase the operation.
We do not believe we can justify spending further money and management time on what has already been a lengthy process.
Madness?
I have to wonder if the OFT are living in a different world to the rest of us. I can well understand that in an ideal world bus companies would compete for business and passengers would win as everyone upped their game to win their custom. This is not an ideal world. First group are very clearly struggling and need to sell off some of their ‘estate’ yet its looking increasingly difficult to do so. In order to achieve the cash that they want, First are going to have to make some pretty substantial sales. When it comes to larger operations the main players will be Stagecoach who have already announced they are keen to talk to First regarding some of the operations currently for sale and probably Go Ahead who have made one large purchase and have been quite active in the market over the last year or so. If OFT are going to refer most sales to the CC then how many potential sales will be lost?
So what will happen now? First clearly want rid of the operation but who else would want to take it on? Who else would want to come in and compete with Stagecoach who are there to stay and seem to be doing a very good job. The North Devon operation, has benefitted from SCs continued investment in new buses where First Group have allowed their fleet to decline as they cut back on buying new buses across the group. So no one would be that surprised to see First just pull out of the area altogether leaving the way for Stagecoach to pick and choose what they want for nothing. How will the CC stop that happening?
As always your thoughts will be welcome in the comments – I can see this being a contentious issue!
Completely agree with Graham. Big groups such as Stagecoach and Go-Ahead will take over First's operations by stealth in the face of obstacles by the CC and OFT. Most, but not all, of the First operations up for sale are in areas where they have already been weakened by competition from the likes of Stagecoach and Go-Ahead. If they are prevented from buying, I see nothing to prevent them turning the screw on First still further until it de-registers its services and pulls out, leaving an open playing field for the same company that was refused the right to purchase. It doesn't make sense. There is also an increased likelihood of staff redundancies in the absence of a properly agreed purchase. Surely the current scenario is the natural result of a privatised, deregulated bus market. So why interfere with market forces?
ReplyDeleteWhilst competition is a good thing surely the OFT can see that First don't want operations there so surely could impose some rules on Stagecaoch taking over, such as price rise restrictions etc... First will just pull out, this also means I suspect that Go Ahead would not be able to buy their Plymouth ops if they wanted to. Perhaps First could sell Plymouth to Stagecoach if they want and Go Ahead to North Devon but I can;t see anyone wanting North Devon against strong Stagecoach opposition!!! I think First are already dumping their old buses up there so can see them just pulling out of North Devon altogether later in the year. On seperate note First website vstates UGOBUS changes in July are temp until end August only...lets hope they revert back to the original timetable in Sept !!!
ReplyDeleteThis is just another example of the shortcomings of deregulation. A company can make a profit in one area, but if another area makes a loss, this will not be welcome by the board, or the shareholders and so will have to be dealt with accordingly. I can't see First continuing to operate in North Devon at a loss, and as said above, Stagecoach may likely just register routes to force First out quicker. The downside to this is that the current employees will not be protected by TUPE.
ReplyDeleteThe problem I see with OFT imposing prise rise restrictions is that it's almost price fixing, which to me seems to be the opposite of a capitalist market. They may as well make it a public company owning the service, but have it tendered to private companies in a similar way to National Express (but I don't see this happening ant time soon!).
i heard the publicity guy at first saying the RATP Group we're interested in north devon
ReplyDeletePersonally I am glad that the OFT has referred the anticipated Stagecoach purchase of First's North Devon operations to the Competition Commission.
ReplyDeleteIn fact, they should have done so much more readily in the past to prevent private monopoly operations where through the lack of any competition they run services as they like and set fares as they so desire.
I always thought that deregulation was to encourage competition amongst operators?
I can't say that I'm surprised by the decision to refer this proposed sale to the Competition Commission. Clearly the sale would have the effect of reducing competition within north Devon.
ReplyDeleteIf Stagecoach are now no longer interested in pursuing the purchase, it leaves First in a quandary. Is there another potential purchaser? This seems to me to be unlikely given that the purchaser will immediately be engaged in a competitive environment from the outset. Let's face it it is likely that Stagecoach would take the opportunity to strengthen their position before a new operator took over so the task would in all likelihood be more difficult.
Another option is for First to cut their losses and de-register their services and write off any prospect of realising a cash contribution towards their sales target.
The other option as I see it is for First to dig in in north Devon and look to grow the operation. They must never forget that they are the incumbent operator in this area, having purchased the old Red Bus operations with Southern National in the 1990s. It's not the best bus operating terroritory in the country but it's not a lost cause.
I think that some of the bus groups have grossly unrealistic ideas over the level of returns they will make. Yes it is likely to be the case that an operator will make higher returns in a densely populated urban area (albeit where there isn't much in the way of competition) but it can still make returns in rural areas if it manages it's resources well, puts on a service that people find useful and markets that service effectively. It may not be the profit level expected by the stock market but if it's profit and not a loss it's still positive.
Stagecoach appear to be managing to expand their services. I've heard that they have experienced significant growth in Kent recently. It's therefore not impossible for First in north Devon to make its network work.
There is also a responsibility to the drivers. A sale to Stagecoach or another of the whole operation would result in a TUPE transfer of those drivers and give some measure of protection. Simply shutting down and making people redundant in an area not known for being awash with job opportunities I am sure is something First will want to do everything in their power to avoid. However retaining the operation seems to me to be the best for everyone.
If First retain north Devon, passengers continue to benefit from choice in the services they use. The drivers remain employed and First maintain territory against a major competitor.
I think if First concentrated on beefing up the major commercial parts of the north Devon area they could move into a strong position. Routes 1/2 between Barnstaple and Westward Ho!/Appledore could be enhanced in frequency. The same to apply to the 3 from Barnstaple to Illfracombe. Services out from Barnstaple to South Molton, Lynton, Combe Martin, Woolacombe and Croyde Bay/Georgeham at better frequencies than offered today could offer returns.
2 key areas for expansion would be a high quality link between Barnstaple, South Molton, Tiverton and Tiverton Parkway Rail Station operating mainly up the North Devin link road and connecting north Devon to the outside world. The second an Exmoor coaster service from Illfracombe to Minehead operating at least hourly.
All the services would need to be branded and publicised to the maximum extent possible. But people would use them. The Purbeck breezer does well between Bournemouth and Swanage do why shouldn't an Exmoor coaster do well?
These are just a few thoughts but with a bit of imagination and putting resourcing in this operation could be a success.
The
Bus companies have to survive in the real world not in some taxpayer supported dream world. What is wrong with a monopoly when two companies are unable to make a go of it because usage is insufficient to sustain both? The real competitor is the private car. The result of the OFT's declared intention to intervene will probably be that the bus passengers of North Devon can look forward to a poorer service. Stagecoach have to make a profit to survive - an alien concept to the OFT.
ReplyDelete