Initiating with a positive sector view

Within this note we analyse three core debates in the industry:

  1. the impact working from home will have on future revenues (we think it's likely to be a small one),
  2. the regulatory outlook for UK bus and rail operations (rail is in a state of transition), and
  3. the potential for UK bus operators to benefit from positive modal shift (in theory they could but our analysis indicates increasing e-commerce penetration, working from home, congestion and levels of car ownership will likely lead to continued volume declines).

Changing consumer behaviour a manageable risk for the bus operators

Regional bus passenger volumes have fallen by a c1.5% CAGR over the past decade and we anticipate a continuation of this trend over our forecast period. However, we think fare increases which historically have exceeded inflation will offset the negative volume impact. Increasing e-commerce, and working from home, has been the greatest headwind to traffic and accounted for c70% of total declines. An annual 1.1% in ecommerce penetration since 2007 has corresponded to an annual decline of 0.7% in the proportion of bus trips taken for shopping. Outside London, commuting in Britain related to work accounted for only c22% of all bus journeys pre-Covid-19. This is not an immaterial proportion, but our analysis suggests the long-term risk of material declines in patronage from working from home trends is limited as 

  1. even during the height of the current lockdowns only 35% of the UK national working population worked exclusively from home, indicating physical limitations to working from home, and
  2. of those currently working from home, only c12% are doing so out of preference, indicating a psychological resistance too.

Recovery profile and regulatory opportunity and risk as UK moves towards carbon neutrality

The sector is one which could benefit from customers' increasing environmental awareness which could in turn drive modal shift towards clean forms of transportation including public transport. As we set out in our accompanying ESG Risk Radar, we see the government's recently announced £3bn support package, which promises to deliver zero emissions buses and an end to the sale of new diesel buses, as key to supporting the transition to a lower carbon economy. Further, positive modal shift represents a significant source of upside for the bus operators and we estimate that moving 1% of work commutes currently done by car to bus could increase total bus passenger volumes by 2%.

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