Sunday, 6 September 2015

Franchising: An Opportunity mostly for Foreign Owned Operators?

Labour London Mayoral candidate Sadiq Khan is apparently proposing to set up a 'not for profit' organisation to bid against foreign owned bus operators for London bus routes, if he is elected. The Evening Standard reports he is concerned about money spent of buses going to "subsidise the cost of a bus ticket in other European cities", a reference to ownership of various London bus operators by Deutsche Bahn, Abellio and RATP Group (he is also concerned about money being spent on dividends).

This sentiment isn't new, and has been expressed before with regards to the ownership of certain rail franchises. Personally so long as British companies have equal access to foreign markets I don't have an issue with it, but many do.

I can't help but think introducing bus franchising in England outside of London will be to the benefit of foreign owned companies more so than British ones. First have exited the regulated London market, and Stagecoach did at one point; while returning since it has been kept separate from the rest of their UK operations. Clearly neither business is keen on the franchised model and are far more comfortable in a deregulated operating environment. National Express also exited the capital some years ago and even Go Ahead who are a major operator in London would prefer partnerships outside of the capital. Independent operators could see the loss of significant parts of their business if their current commercial routes are franchised and they are unsuccessful in bidding for them. It is also worth noting that in many places the incumbent operator with potentially the most to loose is British.

The big British bus groups will adapt - they will have to otherwise they would have to significantly downsize. Rotala are enthusiastic for franchising. I'm sure some British independents will embrace a franchised model while others would accept it and get on with it.

However I can see foreign owned companies being the big beneficiaries. They know the franchising model and are comfortable with it and will embrace it. If a large or medium sized independent operators wants to sell up it could be Abellio, Transdev, RATP, Tower Transit or Comfort DelGro that will purchase. They would also have the resources to set up new operations from scratch in any areas likely to have a large franchised operation. What is a threat to First and Stagecoach is an opportunity to yes Rotala, but also to Abellio, Transdev, RATP etc.

If Arriva get refloated on the London Stock Exchange by Deutsche Bahn that could change things a bit given their large London and continental European franchised operations, but even still I do wonder if the biggest winners will be overseas based companies. That is not a problem to me, but it maybe to others.


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