DELAYED INDEFINITELY

Regulatory Reform of the Irish Bus Industry

Patrick Massey

Compecon Limited

Presented to Dublin Economics Workshop Annual Policy Conference Kenmare

15^th October 2006.

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1:         Introduction.

The past 20 years have seen major changes in the way the bus industry is regulated in many countries throughout the world. Such changes were part of a wider programme of regulatory reform which involved a major re-appraisal of industries such as telecommunications, electricity, air transport as well as bus transport. Throughout this period successive Irish transport Ministers have promised to reform the bus transport market in Ireland. Bus passengers are still waiting for such reforms to be delivered. The latest announcement by the current Minister in the Dail on 28^th September this year, suggests that meaningful reform has been postponed yet again. What the Minister has proposed amounts to an attempt to copper fasten the existing Dublin Bus monopoly, with competitive tendering to be introduced only in respect of “new routes” in Dublin City. As in the case of other State monopolies such as ESB and BGE, the Government appears unwilling to expose Dublin Bus and Bus Eireann to serious competition. This is despite widespread evidence from many other countries and indeed within Ireland that competition can provide better quality bus services at a lower cost to the taxpayer. The present paper makes the case for a more thoroughgoing reform of bus transport.

The failure to undertake serious regulatory reform in many sectors of the economy previously supplied by State monopolies appears to be a sizeable hidden cost of social partnership. Massey (1991) reported that social partnership type arrangements as operated in Australia during the 1980s had hindered attempts at microeconomic reform. Massey and Daly (2003) pointed out that one of the arguments made by the Government for a two year derogation from EU requirements to allow competition in telecommunications was that the ICTU had threatened to pull out of social partnership arrangements. That particular attempt to protect an incumbent monopolist from competition was quickly dropped once it was seen to have serious adverse effects on foreign direct investment. The General Secretary of the ICTU reportedly wrote to the Taoiseach, when a previous Minister for Transport proposed to open up 25% of Dublin City Bus routes to competition, stating:

“I would fear for the very survival of the [social partnership] agreement if industrial confrontation is provoked in sectors of the economy under the control of government.”[1]

It is perhaps ironic that the predecessor to the current social partnership agreement provided for:

“More aggressive implementation of competition policy, including dealing with sheltered sectors where unnecessary barriers exist.”[2]

One would have thought that bus services in Ireland would qualify under such criteria.

2: Structure of the Bus Industry in the Republic of Ireland.

Bus transport in Ireland is still largely governed by the Road Transport Act, 1932, which prohibits the operation of scheduled road passenger services except under licence. Barrett (1982) argues that this legislation was originally designed to limit competition in order to protect the railways.

The majority of scheduled bus services in the Dublin City area are operated by Dublin Bus, a wholly owned subsidiary of the State owned CIE. A second CIE subsidiary, Bus Eireann provides bus services throughout the rest of the State. There are around 1,800 private bus operators who, between them, own almost 5,000 buses. (Goodbody, 2005). This compares with Dublin Bus and Bus Eireann which have approximately 1,100 and 600 buses respectively.[3] Many private bus operators are very small firms and are not involved in operating scheduled services. Goodbody (2005) reported that there were around 125 private bus firms with five or more buses operating scheduled services. Estimates for the number of route licences held by private bus operators range from 518 (Goodbody, 2005) to 571, although, in the latter case, it was suggested that not all of these licences were actively used.[4] (SDG, 2002) Many of the routes licensed to private operators are for limited types of services, e.g. late night services; once weekly or restricted mid-week services; school term only or weekend university/college services. Slightly less than half private sector licences are for local services outside of the major cities.

The current regulatory regime gives rise to a number of problems.

1.      The monopoly afforded to Dublin Bus and Bus Eireann results in serious inefficiencies.

2.      The current system of paying a block subsidy to CIE for operating so called social services, results in inefficient cross subsidies and provides poor value for money for taxpayers.

3.      Existing licensing arrangements lack transparency and give rise to a clear conflict of interest.

4.      Exchequer funding of new buses for Dublin Bus and Bus Eireann further distorts competition and is questionable on wider public policy grounds.

Each of these issues is now considered.

3:         Analysis of Performance of the State Bus Companies.

The current regulatory regime has been widely criticised for preventing competition and giving rise to serious inefficiencies and/or restricting consumer choice. (See, for example, Barrett, 1982, 2000, 2004; Competition Authority, 2000; Forfas, 2004; Massey and Daly, 2003; Ribault-O’Reilly, 2005). The Oireachtas Committee on Transport observed in 2004.

“That having been said, Dublin Bus cannot be exonerated from the poor performance in recent years. It has struggled to respond to the public’s needs.  It has not demonstrated great flexibility or innovation. It continues to conceal public information on the performance of individual routes. It has undoubtedly suffered severely from congestion and the longer journey times that have affected the whole city. However, it has failed to capitalise on the additional bus priority measures afforded to it. It is particularly disappointing to find that the number of passengers using bus services in the morning peak has been virtually unchanged since 1998.” (p.12) 

Table 1 provides some summary performance indicators for Dublin Bus. Since 1998 passenger numbers have increased by almost 9%, although they have fallen back to some extent over the past two years. Revenues have increased by 35% but operating costs have increased twice as fast. The net effect is that Dublin Bus’ operating deficit has increased from just under €9m in 1998 to almost €63 in 2005. There has been a corresponding increase in Government subsidies from just over €11m in 1998 to €65m in 2005.

Table 1: Performance Indicators for Dublin Bus

Source: CSO Statistical Yearbook and Dublin Bus Annual Reports.

Similar figures for Bus Eireann provincial city services are given in Table 2.

Table 2: Performance Indicators for Bus Eireann Provincial City Services

Source: CSO Statistical Yearbook and Bus Eireann Annual Reports.

Bus Eireann provincial city network has recorded a 14% increase in passenger numbers since 1998. Revenues have doubled but costs have risen even faster so that the operating deficit has increased from €2.9m to €10m. Operating costs doubled in a four year period between 1998 and 2001 before being partially scaled back. CIE’s Annual Report for 2003 (p.4) records that losses on Bus Eireann services were reduced significantly “without the withdrawal of existing services or a reduction in customer service quality. It coincided, in fact, with the introduction of new services.” This confirms the impression that there is scope for improved efficiencies in the State bus companies.

Table 3 compares vehicle operating costs for the State bus companies with those of British bus operators.

Table 3: Bus Operating Costs per Vehicle KM 2004 (cents)

Note: Figures for UK regions are for 2004/5. Figures in parentheses exclude Dublin Bus estimates of the excess costs imposed by congestion.

Source: CSO, Statistical Yearbook, Dublin Bus and Bus Eireann Annual Reports and UK Department for Transport (2006).

The Irish State bus companies operating costs are far higher than those of bus operators in Britain. Bus Eireann’s provincial city services recorded the highest operating costs at 413.5 cents per vehicle kilometre, while Dublin Bus operating costs were 411.7 cents per vehicle kilometre. These figures are more than 25% higher than bus operating costs in London, and are far greater than costs in other British regions. For example, bus operating costs in British Public Transport Executive (PTE) areas which correspond to the large urban areas outside of London were just 173.9 cent per vehicle kilometre. The excess costs cannot be attributed to congestion. Even if one strips out €49m, which Dublin Bus claimed was the excess cost incurred due to congestion, from its total operating costs, its operating costs per vehicle kilometre were still just above those in London, although presumably services there also incur some congestion costs. Alternatively if Dublin Bus could reduce its operating costs per vehicle kilometre to London levels, its operating costs would have been €45m lower in 2004. (Corresponding savings in the case of Bus Eireann would amount to €7m).

The State bus companies real operating costs have increased faster than the British average and significantly faster than those in PTE regions since 1998. In the case of Dublin Bus real operating costs, which had increased much faster than those in London up to 2003, have shown some improvement in relative terms. Bus Eireann vehicle operating costs increased dramatically up to 2001 and, despite some improvements since then, have still increased much faster than those in Britain.

4:         Payment of Subsidies to State Bus Operators.

State subsidies paid to the two State bus companies have increased from €18m in 1998 to €90m in 2005. It should be noted that this figure excludes State payments to Bus Eireann in respect of the school transport service which amounted to a further €100m+. Serious questions need to be asked as to whether tax payers are receiving value for money for such payments.  

Over 20 years ago, the National Planning Board (1984) recommended the introduction of tendering in the case of loss making routes, in order to ensure that such services are provided at the lowest possible cost to the Exchequer. Such measures have not been implemented. In December 1996 the then Minister informed the Dail that “…with effect from 1997 it is proposed to replace the existing State subvention for socially necessary, non-commercial services with public service contracts which will be transparent, objective and performance based.”[5] No such public service contracts have been put in place. The current regime for the payment of subsidies to Dublin Bus and Bus Eireann is fundamentally flawed since no attempt is made to identify which services are commercial and which are not. Instead both companies simply receive a block allocation and define all of their services as non-commercial public service obligation (PSO) routes.[6]

EU regulations provide that only services which an undertaking acting in its own commercial interests would not provide or would not provide to the same extent as it does can be classified as PSO services. There is considerable evidence to suggest that many of the existing Dublin Bus and Bus Eireann routes are commercially viable and do not satisfy the definition of PSO.[7]

In its 2001 Annual Report, Dublin Bus stated:

“The increased costs associated with the operation of the increased NDP fleet has severely reduced the profitability of the company and serves to re-enforce (sic) the need to formalise Public Service Contracts on a route by route basis clearly identifying those routes which serve a social need.” (p.2, emphasis added)

The statement clearly indicates a lack of any objective basis for deciding which routes serve a social need.

SDG (2002, para 7.5) commenting on the Government subvention to Bus Eireann, states: “it would appear from discussions with the company that the relatively limited funds are principally allocated to urban areas and commuter services”.[8] This statement would indicate that, except for provincial city routes, local services do not absorb any significant proportion of the subvention paid to Bus Eireann which in turn suggests that they are commercially viable. SDG also reported that Bus Eireann had a 74% cost recovery rate on its provincial city services during 1999 and stated:

“If a constant cost base is assumed, the viability in individual cities would range from around 50% to approximately breakeven.”

The implication that some of the city service networks operated on a break even basis indicates that a number of the individual routes are profitable. Even though the cost recovery rate has fallen to 70% in 2005, it would still appear to be the case that a number of Bus Eireann’s provincial city routes are not PSO services.

The Bus Eireann website under the heading “Our Social Role” states:

“The social dimension of the city and rural services is recognised by the State. A level of State funding ensures the continued operation of many routes, which are not profitable on a commercial basis. The continued feedback which we receive from local communities and public representatives confirms the important social role of both city and rural bus services.”[9] (Emphasis added).

 Outside of Dublin, there are large numbers of local routes operated by private bus companies without any need for subsidy. There are also examples in Dublin and in other parts of the country where private operators compete with the State companies, again without any subsidy. Yet the State companies define such services as PSO routes. As Barrett (2004, p.23) observed where “subsidised bodies charge higher prices than those without subsidies the subsidy is a rent paid to the monopoly recipient rather than a payment for social benefits.”

Even where routes are loss making, the practice of simply providing a block subsidy means that there is no mechanism for evaluating whether expenditure on individual routes is justified on social grounds. SDG reported that Bus Eireann had introduced 42 additional rural services around 2000/1, most of which had lost money and stated:

“Bus Eireann would welcome guidelines from the Department of Transport to provide an objective basis for deciding what services can and cannot be removed.” (Para 4.32)

As a first step in any regulatory reform, a full audit of all existing Dublin Bus and Bus Eireann services should be undertaken to identify those that are commercial and those which genuinely satisfy the PSO defintion.

5:                The Licensing System.

The existing regime for licensing bus services suffers from a number of serious shortcomings. These include:

Ø      A lack of transparency in the licensing process;

Ø      Lengthy delays;

Ø      No objective mechanism for evaluating the merits of licence applications;

Ø      Where licences are granted, they are frequently subject to restrictions which may impede the development of services; and

Ø      Allegations of favourable treatment toward Dublin Bus and Bus Eireann.

At the very least there is considerable potential for conflicts of interest, given the dual role of the Department of Transport which is the owner of Dublin Bus and Bus Eireann, while simultaneously being responsible for dealing with licence applications by their competitors.

The record shows that private bus operators have persistently been refused licenses to operate on routes serviced by CIE or its various subsidiaries. In 1979, the Minister for Transport informed the Dail that 11 licence applications had been refused in the previous two years, following consultation with CIE in each case, on the grounds that existing services were deemed adequate, and he did not consider that there was any need for an independent appeal mechanism. (Barrett, 2000). The Department of Public Enterprise (2001) reported that:

“…the policy adopted in implementing the licensing provisions of the 1932 Act up to 1990 was extremely restrictive and designed to ensure that the position of CIE as the major State transport provider was not eroded.”

Clear evidence of favourable treatment of State operators can be seen in a January 2004 statement to the Dail by then Minister, Seamus Brennan T.D.

“Let us be clear about delays and giving out licences. The people who are waiting for the licences are almost exclusively, with the odd exception, private operators. The people we are holding up are the private sector by not giving them the licences they are demanding. There are substantial companies, including international, multi-national and local companies being held up. We are not holding back Bus Eireann, Dublin Bus and others.”[10] (Emphasis added).

SDG (2002) reported that licensing procedures have been strongly criticised by private operators, both in terms of time taken to receive a decision, and the lack of transparency in the decision making criteria. The Competition Authority (2000) reported that the time taken to decide on a licence application varied from 14 days to 2 years. Goodbody (2005) reported that in spite of efforts by the Department to speed up the decision making process, delays were still considerable. Out of 196 applications for new and/or amended licences received in 2003, 57 (29%) were carried over into 2004. In one case, it was reported that a firm withdrew a service after being threatened with prosecution by the Department for operating without a licence. A decision on a licence application by the firm had been outstanding for ten months.[11] Forfas (2004) reported that, in some cases, it had taken several years before operators received a response to a licence application (successful or otherwise). They also pointed out that the practice of licensing routes on an individual basis made it more difficult for operators to establish networks of inter-related bus services.

Documentation prepared by the then Department of Public Enterprise (2001) indicated that no public interest test was carried out when assessing applications for bus licences. It states:

“…we do not have any means of assessing actual or potential passenger numbers, public demand or the reliability of the operator concerned. Consequently we are not concerned with whether the service is actually needed or of use to the travelling public but whether someone else has/had a historical interest in acquiring a licence for a similar service.”

Barrett reported how Bus Eireann increased its services to 13 per day in response to entry by Nestors, although the Department had previously concluded that four services per day were adequate.

Goodbody (2005) reported a lack of transparency in the licence application process. It found that the extent to which decisions are evidence or research based was unclear. It also reported that very little information was provided on reasons for refusing licence applications, with comments from the Department largely restricted to general references to the 1932 Road Transport Act.

6:         Other Issues.

Another aspect of unfair State assistance to the CIE bus companies arises from the Exchequer funding the purchase of new buses by both Dublin Bus and Bus Eireann. Obvious questions arise as to whether such funding constitutes an illegal State aid. Such a policy provides little incentive for operators to use buses efficiently and effectively to satisfy the needs of passengers. As Hibbs (2003, p.18) observed:

“Ultimately, having to pay for your own productive capital and make a decent return on it, is the most powerful motive for satisfying customers.”

There is also a serious question as to whether it makes sense from a public policy perspective and in particular whether such investment represents value for money.

In its 1999 Annual Report, Dublin Bus indicated that it had received 150 new buses funded by the Exchequer and stated:

“As these buses are primarily for peak-only operation, the company is pursuing the need for increased revenue support from the Department of Public Enterprise, to offset the shortfall due to the sub-optimal utilisation of these vehicles.”

In its 2002, Annual Report CIE stated:

“The need to purchase extra buses to address peak traffic needs only is the main reason for the growth in subvention received by Bus Atha Cliath. In this regard the company is implementing the Government backed strategy to fast-forward the purchase of peak only buses.”(p.2)

The most obvious question is whether it makes sense for the State to undertake increased capital expenditure to meet peak load demand, when such investment is unprofitable, given that private operators are prepared to undertake such investments. Ironically the Government has exacerbated the peak load problem by abolishing the restrictions on free bus travel for social welfare recipients. Ponsonby (1958) showed that the tendency for some operators to compete on routes only at peak times benefited incumbent operators as they needed fewer vehicles which would otherwise be underutilised at other times of the day.

7:         Competitive Bus Services – Postponed Indefinitely.

The Minister has recently announced proposals for a new regulatory regime for bus transport in Dublin. Essentially this proposes to retain the existing Dublin Bus monopoly on all existing routes. Private operators will exclusively be permitted to tender for new services up to a limit of 100 buses. Any further new services will be subject to open tender. Such proposals protect the existing inefficient Dublin Bus monopoly operation and would clearly give rise to serious competitive distortions as Dublin Bus would have two major advantages in any open tender due to:

1. Exchequer funding of new buses; and
2. The ring fencing of its existing monopoly which would give it considerable scope to cross subsidise new routes and undercut rival bids.

While no formal announcement has been made regarding services outside Dublin, it appears that the Department favours retaining Bus Eireann’s monopoly control with private operators being largely confined to acting as sub contractors for the State company.

Opponents of bus competition claim that it has been an unmitigated disaster in the UK. Casey (2005) dismisses deregulation and franchising as having failed. Such arguments are flawed on two counts.

1. They ignore the experience from many other countries which shows that bus competition has been a success.
2. Evidence from the UK suggests that, while there were undoubted problems, the results have been nothing like as bad as some critics have claimed.

International experience suggests that competition is preferable to a public sector monopoly in urban bus services. Cox and Duthion (2001) report that urban bus services in US, which are predominantly public sector monopolies, performed poorly, while cities such as Las Vegas, San Diego and Denver, which had introduced competitive tendering, recorded considerable improvements in bus service performance. They also found that competitive tendering had produced major improvements in Copenhagen, Stockholm and a number of other cities throughout the world and conclude that it increased the amount of service provided per unit of expenditure. Bayliss (2002) concluded that:

“Public monopolies are, almost always, less efficient than competitive regimes.”

SDG (2002) report that an EU Commission survey of 30 large EU cities found that competitive tendering was more successful than complete deregulation, both in terms of attracting new passengers and financial performance. Gulibon (2006) notes that, although the justification for state ownership of bus services was that they would be cheaper and more efficiently run than under private ownership which sought to earn profits, experience showed that public monopolies in urban areas had led to continually rising costs and promised efficiency gains had failed to materialise.

8:         A Brief Reappraisal of British Experience.

Two different models were adopted in the UK. Outside of London, the bus market was opened up to on street competition with anyone who wanted to operate a bus service free to do so, subject to vehicles meeting certain safety standards and a requirement to give a minimum period of notice before commencing or altering service schedules. A different model was applied to London Transport, which was broken up into a number of different bus companies that were subsequently privatised and routes were put out to competitive tender, with the successful bidder being given a monopoly on a particular route.

Table 4 illustrates the structure of the British bus industry in 2005. The big three groups (FirstGroup, Stagecoach and Ariva) between them accounted for 51% of industry turnover with the remaining 49% split between smaller groups, management owned companies, public sector operators and independents, with the latter group accounting for 15% of the industry total. At an aggregate level the industry could be defined as moderately concentrated.[12] The bus industry comprises a large number of local markets so that aggregate market share and concentration figures provide little information about the degree of competition in individual markets.

Table 4: % Shares of British Bus Market

Source: TAS (2006).

Analysis of UK experience is complicated by the fact that the introduction of competition outside London coincided with the privatisation of state owned bus companies and a decision to cut subsidies to public transport in the context of the overall fiscal policy objective of reducing public expenditure. It is difficult to disentangle the effects of these different measures and some commentators have argued that some parts of the process were not handled particularly well. The privatisation of the former state and municipal bus operations, for example, created a large number of small companies, with no sustained or established trading record, managing directors with limited experience in such roles who were expected within months (or sometimes weeks) to lead bids for the privatisation of their companies.

“With hindsight, it is miraculous that all managed to remain in business.” (TAS, 2006, p.45).

It is fair to say that the outcome has differed considerably from the predictions in the Government’s 1984 White Paper on liberalisation. In part this was because a number of assumptions contained in the White Paper proved erroneous, although more importantly the reality is that it is virtually impossible to accurately predict the full impact of moving from regulation to competition in a particular industry beyond a view that competition will be beneficial.

Since deregulation the long run decline in bus travel in Britain dating back to the 1950s has slowed considerably. Initially, in some urban centres there was a large influx of competitors, filling the streets with buses, resulting in considerable confusion with services being introduced and subsequently withdrawn. (Hibbs and Bradley, 1997). Some changes in route networks, many of which were based on old tram routes, was inevitable following liberalisation, while new operators invariably had to engage in some degree of experimentation in order to identify routes where there was sufficient demand for services. After fifty years of state monopolisation it was unrealistic to expect a smooth transformation overnight. Much of the criticism of bus deregulation in Britain focuses on the short-term disruption experienced following deregulation. Winston (1998) points out that industry adjustment to deregulation can take up to 20 years to work through fully so that focusing on short-term effects provides a misleading picture. There was also evidence of predatory behaviour which the competition agencies were too slow to respond to, although it is suggested that some claims of predation were unfounded.[13]

Overall the literature suggests that, after an initial period of considerable confusion, liberalisation has worked reasonably well. According to Nash (1993, p.1042) deregulation outside of London “has proved neither as good as its proponents expected nor as bad as its opponents feared”. Heseltine and Silcock (1990) reported significant cost reductions as a result of the reforms most of which they identified as being due to improved labour productivity. Hibbs and Bradley (1997, p.39) argue that:

“It is blind prejudice to repeat the old slogan that ‘bus deregulation has been a disaster’ since the evidence now shows that it has in fact reversed the systematic decline of services over the three decades that preceded it.”

Hibbs (2003) reports that liberalisation outside of London has produced considerable benefits with bus services in many areas running closer to people’s homes than previously; increased frequency on urban services; many new routes and reduced subsidies, although he concedes fares have risen.[14] TAS (2006, p.8) report that, in terms of lost passenger journeys, “the deregulated regime has performed rather better than the previous systems”. It is worth noting that the UK Government’s 2004 White Paper on transport contained no proposals for changing the regulatory regime for the bus industry outside London.

Table 5 provides some comparisons on customer satisfaction levels with bus services in Ireland and England.

Table 5: Customer Satisfaction with Bus Services in Ireland and England (%)

Notes: Overall satisfaction ratings refer to 2001/2 in the case of Dublin Bus and 2002/3 for Bus Eireann. 2000/1 figures for England are included in parentheses. The vehicle cleanliness figures for Dublin Bus relate to the period March – July 2002. Vehicle comfort figures relate to 2003.

Source: Forfas (2004) and Department for Transport (2006).

Survey results indicate that 81% of bus passengers in England were satisfied with bus services. Interestingly satisfaction was lower in London. While Bus Eireann compares reasonably well on such measures, Dublin Bus performs poorly in terms of overall satisfaction, vehicle cleanliness and driver standards.

The debate internationally is no longer about whether liberalisation is desirable but, particularly in the case of urban services, is about the form that liberalisation should take, i.e. whether it should involve full on the road competition, as happened in most of Britain, or whether it should involve franchising/competitive tendering as in London. Mathews et. al. (2001) note that the arguments that competitive tendering has proved superior to on road competition are largely based on the fact that bus patronage in London has risen in contrast to other parts of Britain but notes that there are a number of other factors which tend to contribute to higher bus patronage in London and suggest that one cannot conclude that tendering is superior without taking such factors into account. For example, most UK regions with the exception of West Yorkshire and London experienced population declines in the years after deregulation. The number of households and household density is much higher in London than in other British cities. They also point to the fact that parking and other costs of using a car are much higher in London, which thus tends to have far lower levels of car ownership than other regions.[15] Romily (2001) reports that the decline in passenger numbers outside of London largely reflects reductions in subsidies which more than offset the positive impact of deregulation on fares and passenger numbers.

Hibbs (1999) has pointed out that competitive tendering suffers from a number of shortcomings. First, in some cases, most notably London, it has involved establishing a large and expensive bureaucracy to oversee services. Second it has proved to be highly inflexible making it difficult for operators to alter routes and timetables in response to changes in passenger demand. Third, it means that cutting costs is the only way operators can increase profits which can give rise to underinvestment and lead to poor quality vehicles being used. (In contrast, with on the road competition, innovation and marketing allow operators to increase revenues as with any other product). Thus, while it avoids some of the short-term problems associated with full liberalisation, whether competitive tendering constitutes a better option over the medium term is another question. Cantillon and Pesendorfer (2004) confirm that competitive tendering in London had resulted in increased service quality and lower costs although they observe that it is not clear if the tender system used was the most appropriate. Competitive tendering would appear to have much to offer in the case of PSO services. 

Henscher and Stanley (2002) argue that performance based contracts which have been used in Norway and New Zealand, for example, are superior to traditional forms of competitive tendering. Operators are paid a subsidy per vehicle kilometre for the provision of minimum service levels with incentive payments for increasing passenger journeys beyond the minimum level. The contracts are tendered and leave issues such as route design in the hands of operators on the basis that they have a better understanding of what customers want than regulators. Such an approach has the benefit of reducing the sizeable bureaucratic costs involved in traditional competitive tendering regimes.

Another criticism of competition is that it undermines integration. Roberts (2003) notes that while integration tends to be regarded as important by policymakers, bus operators tend to have a different view. The question of whether integration is desirable is not addressed here. Hibbs (1999) reported that integrated ticketing developed in the UK without State intervention. In fact the development of integrated ticket systems was hindered by the OFT which was concerned that such arrangements would facilitate collusion. It is interesting to note the recent report of the Comptroller and Auditor General which criticises Dublin Bus for delaying the introduction of an integrated ticketing system in Dublin.[16]

8:         Conclusions.

International experience clearly demonstrates that state monopoly bus operators are inefficient and provide poor value for money. While there has been much criticism of British experience with deregulation, in terms of costs and customer satisfaction, the State companies’ performance compares unfavourably with that of British operators. Despite all of this the Government remains opposed to genuine reform of the bus industry. Rather than maintaining the existing State monopolies a more radical approach is required.

• A full audit of all Dublin Bus and Bus Eireann services (excluding coach tour and Expressway to identify which services are commercial and which are genuine PSO routes.
• PSO routes should be put out to competitive tender with such tenders being phased in over a five year period.
• There should be some liberalisation of the licensing regime. This would involve
  • Reversing the burden of proof so that there was a presumption that approval of applications was in the public interest with the onus being on objectors to prove otherwise.
  • Automatic approval of new licence applications on non-PSO routes where entrants commit to offering lower fares and/or higher service frequencies for a minimum period of time.[17]
• The potential for performance based contracts as employed in Norway and New Zealand should be examined.

Speaking in the Dail last week in respect of the Ryanair bid for Aer Lingus, the Minister for Transport stated:

“A monopoly is bad for business. It is bad for this country, the customer, the travelling public and tourism interests.”[18]

It is somewhat disappointing that the Minister has failed to apply the same logic in the case of bus services.

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