Bus Competition in Ireland

Transport Minister Seamus Brennan has come in for considerable flak recently over his proposals to introduce competition into the bus market. The current version of social partnership, Sustaining Progress, advocates: “More aggressive implementation of competition policy, including dealing with sheltered sectors where unnecessary barriers exist.” One might be forgiven for thinking that measures to break up the state monopoly on bus services would qualify under this heading.

Bus Competition in Ireland has worked.

For over twenty years private bus operators, operating as travel clubs have provided regular daily services between Dublin and various parts of the country. A report carried out for the Department of Transport by SDG, estimated that journeys on such services were equivalent to 20%-25% of the number of journeys on Bus Eireann’s expressway services.[1] It also found that private bus operators held licences for 71 routes, of which 25 were in respect of daily services to Dublin. Private bus companies also operate many local bus services without any state subvention. Such private operators have invested their own money to purchase buses and it is clear that many of them operate modern fleets.

There are two private sector operators competing with Bus Eireann on the Dublin-Galway route which has a total of 26 services daily. Bus Eireann’s fare on this route, in terms of pence per mile, is lower than on the Dublin-Cork route, where it is the only operator. Bus competition works.

How bad was UK liberalisation?

Opponents of bus competition claim that it has been an “unmitigated disaster” in the UK. Bus liberalisation in Britain began in the mid 1980s, although in many urban areas local authority monopolies remained in place for a number of years. 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.

The conventional view of the UK experience is that passenger numbers declined, services proliferated in an ad-hoc fashion with buses in urban areas racing to stops in a battle for passengers, while many rural areas were deprived of services. Local bus services in Britain had experienced a continuous decline in passenger numbers since 1950. This trend continued in the early years of liberalisation but over the past decade passenger numbers have stopped falling as Table 1 illustrates.

Table 1: GB Local Bus Passengers - Annual Average % Change

1950 - 1970	-3.1
1970 - 1985/86	-2.9
1985/86 - 1993/94	-3.0
1993/94 - 2001/2	-0.2

In London passenger numbers have risen since liberalisation. Bus passenger numbers in Scotland have also been on the increase since early 1998.

Since liberalisation, bus operating costs have fallen in real terms, as have Government subsidies, while bus services have increased. UK Department of Transport figures reveal that the proportion of households in Britain within 13 minutes walk of a bus stop with an hourly service increased from 77% in 1992-94 to 89% in 1999-2001. Operators in a number of centres outside of London have introduced integrated ticketing systems without State intervention.

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. 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 would be unrealistic to expect a smooth transformation overnight.

In a number of instances, larger, dominant firms, succeeded in eliminating smaller operators through predatory pricing and other anti-competitive behaviour. The authorities failed to prevent such behaviour, although they were undoubtedly hindered by ineffective competition legislation until relatively recently. It seems clear, however, that more should have been done to prevent anti-competitive behaviour.

UK Rail Privatisation.

In the case of the railways, passenger numbers have increased substantially since privatisation in the UKas has freight traffic. (See Table 2). Both passenger numbers and freight traffic had been in decline before privatisation. Train services have increased, while the numbers of collisions, derailments, deaths and injuries on the railways have all fallen since privatisation, which casts doubt on claims that safety standards have been compromised. Predictions of a decline in safety standards that were trotted out at the time of airline and road freight liberalisation in the US in the 1970s have also been proved wrong.

Table 2: UK Railway Performance Since Privatisation

Passenger Journeys	+38.3
Passenger Kms	+32.8
Collisions	-20.0
Derailments	-49.0
Deaths	-53.3

Delays have increased markedly over the past three years, however, while the Government has also sharply increased spending on the railways. Both these developments were prompted by concerns about safety. Rail accidents, like plane crashes, frequently involve multiple fatalities, thus creating a mistaken impression of the risks involved in the public mind. The British Government has set far more stringent safety standards for railways than for roads where the death toll is far higher. Critics ignore the fact that the railways in Britain had suffered from decades of underinvestment while in public ownership.

Bus Liberalisation is a Worldwide Phenomenon.

Claims that transport liberalisation in the UK have been an unmitigated disaster have largely tended to ignore the positive aspects and greatly exaggerate the problems, which in some instances have been due to misguided regulatory interventions rather than competition. It is often overlooked, however, that transport competition is by no means a policy that has been limited to the UK. Countries throughout the world have introduced competition into the bus industry with positive results. SDG reported that international experience indicates that liberalisation of long distance bus routes could increase travel on such routes by up to 50%. They also point to “a massive increase” in the level of such services in Scotland in the five years following deregulation.

In the case of urban bus services, international experience indicates that public monopolies are, almost always, less efficient than competitive regimes. 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 as in London.

Competitive tendering of urban bus services has been introduced in cities throughout the world from San Diego to Melbourne. SDG reported that a study of thirty EU cities found that franchising was superior to on the road competition. In the US, urban bus services, which are predominantly public sector monopolies, were found to perform poorly, while cities such as Las Vegas, San Diego and Denver, which had introduced competitive tendering, recorded considerable improvements in bus services. Competitive tendering was also found to have produced major improvements in Copenhagen and Stockholm.

Competitive tendering has certain 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.

We need to avoid climbing on the decrepit ideological bandwagon on the road to nowhere advocated by those opposed to the introduction of competition in bus services. Competition on long distance routes is already working in Ireland and should be encouraged further. It can also work in the case of urban services as other cities throughout the world have discovered.

[1] Regulation of Bus Services Outside the Greater Dublin Area, report prepared for the Department of Transport by Steer Davies Gleave, 9 September 2002.