CEE INGS Twenty-sixth Annual Meeting Theme: "Markets and Management in an Era of Deregulation" November 13-15, 1985 Amelia Island Plantation Jacksonville, Florida Volume XXVI Number 1 1985 TRANSPORTATION RESEARCH FORUM In conjunction with CANADIAN TRANSPORTATION 4 RESEARCH FORM 327 Deregulation of Intercity Bus Service: An U.S. and U.K. Comparison By Wayne K. Talley* and Russell P. Kilvington** I. INTRODUCTION petitions for regulatory reform, and in response to economic deregulation of U.S. transport in general. In recent years, two significant pieces of legisla- Specifically, from 1980 to 1982, the net operating tion with respect to intercity bus passenger service in income of all intercity bus carriers declined by 56.8 the United States (U.S.) and the United Kingdom percent, falling from $132 to $57 million annually (U.K.) have been passed. Both pieces of legislation (OTA, 1984, p.4). One reason for this decline was deregulated intercity bus passenger service in their competition from alternative modes of travel. Since respective countries. Specifically, the Bus Reg- 1945, intercity bus carriage's share of total U.S. ulatory Reform Act of 1982 deregulated U.S. inter- intercity passenger traffic dropped steadily (i.e., city bus passenger service; the 1980 Transport Act measured in passenger-miles) from 7.9 percent in deregulated u.K. express coach service. The purpose 1984 to 1.8 percent in 1980 (Talley, 1983, p. 251). of this paper is to compare deregulation of intercity Alternatively, private automobile travel increased bus passenger service in the U.S. with that in the from 63.8 percent of total 1 intercity passenger traf- U.K. The results of such a comparison will not only fic in 1945 to 83.3 percent by 1980; the airline share be useful information to intercity bus policy makers increased from 1.2 percent of the total in 1945 to in both countries but will also be useful to policy 14.2 percent by 1980. Since 1945, an interstate makers concerned with transport deregulation in highway system has been built and 84 percent of all general. U.S. households now own automobiles(OTA, 1984, p. 27). Also, the once competitive edge traditionally held by intercity bus carriers, low fares, has been II. THE PREDEREGULATION PERIOD eroded to a great extent with the stabilization of gasoline prices and increased price competition from A. The U.S. Experience deregulated airlines. With the passage of the Motor Carrier Act of 1935, U.S. intercity bus carriers engaged in inter- B. The U.K. Experience state commerce became subject to federal economic regulation and were placed under the jurisdiction of Rather than referring to bus services as intercity the Interstate Commerce Commission (ICC). The and local bus services, these services in the U.K. are legislation gave the ICC the authority to regulate referred to as express and stage carriage services entry, exit, fares, financial activities, and service respectively. The express coach system in the U.K. levels. By encouraging mergers and purchases of began in the 1920s when improvements in vehicle existing route authority, the ICC and state regulatory design and the road network allowed long-distance agencies fostered the development of a highly con- scheduled bus services to become practicable. How- centrated intercity bus carrier industry (MCRSC, ever, growth of the U.K. express coach network was 1984, p. 25). Specifically, such encouragement re- constrained by the passage of the 1930 Road Traffic sulted in the development of two national competing Act. This act introduced economic regulation by systems—Greyhound Lines and Trailways. means of quantity and quality controls. The former Greyhound grew primarily by absorbing existing bus was done through a system of route licensing. These carriers and by acquiring operating bus-route au- regulations were applied to all types of bus and thorities from railroad subsidiaries (Farris and coach services other than contract and private hire Daniel, 1983, p.4). Greyhound developed from a operation. The act also defined express and stage holding company established in 1926. In 1936, a bus services in terms of a minimum fare criterion number of independent bus carriers organized the (i.e., standing as a proxy for distance travelled). To National Trailways Bus System. One firm, Trail- clarify, an express coach service was defined as a ways, has grown to dominate the system. service not charging a fare below a stated minimum By the late 1970s, a movement was under way for amount. In addition to the above quantity regula- federal economic deregulation of the intercity bus tions, the act also provided for such quality regula- carrier industry. This movement was in response to tions as design, safety, and fitness of vehicles as well the downward trend in the industry's financial per- as the licensing of drivers and conductors. formance, in response to industry proposals and The introduction of route licensing under the 1930 Act had similar effects to the 1935 legislation in the U.S. It fostered the development of service provi- * Research Professor of Economics, Old Dominion sion by large companies, developing a semi-monop- University. olistic role, by often taking over smaller independent ** Assistant Director, Transport Studies Unit, Ox- operators. By 1980, the main characteristics of ex- ford University. press services were: 1) dominance of year round 328 TRANSPORTATION RESEARCH FORUM services by publicly owned operators, National Ex- as the base rates for the upper limit, the upper limit press and the Scottish Bus Group; no major network of the zone during the first year of the act was 10 of services by any independent operator, although percent over the base rate; in each of the following these operators did retain a major share of seasonal two years, the upper limit is to increase by another 5 services and unscheduled (excursion and tour) oper- percent over the initial base to a cumulative effect of ations; b) extensive network of places served; a large 20 percent. The base rates for the lower limit are the number of pick up and set down points (far more rates in effect on the date of the act or the rates in than British Rail) leading to generally slow operat- effect one year prior to the effective date of the ing speeds and indirect routing; in particular, the proposed rate changes, whichever are the lesser. The licensing system had prevented direct competition lower limits for rates may be 20 percent below the with intercity rail services to any significant degree; base rates in the first year with an additional 5 c) relatively low fare levels; in general these were percent in each of the next two years or a possible around 50-70 percent of the normal rail tariff; 3) cumulative reduction of 30 percent in the first three low market share; the 1979/1980 Long Distance years. Within this rate zone, rates may not be inves- Travel Surveys credited (ordinary or express bus" tigated, suspended, modified, or revoked by the ICC with 2 percent of journeys within Great Britain in unless the rates are found to be discriminatory or excess of 25 miles; excursions and tours, separately predatory. After November 19, 1985, the ICC will defined, had the same share; by contrast, rail had 14 have no authority to regulate rates of intercity bus percent, an auto 78 percent; and 3) a declining carriers that are set independently (i.e., that are not market; National Express alone lost 20 percent of its set collectively as by rate bureaus) and which are not passengers between 1975-79. deemed by the ICC to be discriminatory or preda- tory. Rates for special or charter services by intercity bus carriers are not subject to ICC regulation unless III. DEREGULATION ACTS the rates are predatory. As indicated above, the regulation of U.S. inter- A. The U.S. Bus Regulatory Reform Act city bus service has been conducted at the federal and state levels. At the state level, intrastate portions The Bus Regulatory Reform Act of 1982(BRRA) of interstate routes have been the regulatory respon- represented the first significant change in 1 intercity sibility of state commissions. Historically, state bus regulation since passage of the Motor Carrier commissions have enforced a lower price structure Act of 1935. The objective of the act was to deregu- for intrastate bus service than the price structure late intercity bus transportation so that competitive enforced by the ICC for interstate bus service. Also, market forces would be substituted for regulatory state commission have been less willing to approve decree in the determination of fares and schedules. requests to abandon unprofitable service than the The major provisions of the act are entry policy, exit ICC. As a result, it has been advocated that the policy, pricing policy, and discriminatory state reg- higher fares on interstate bus routes have often cross- ulation. subsidized non-profitable local (or intrastate) bus The BRRA substantially reduced both entry and routes or service (OTA, 1984, p. 71). As a conse- exit controls by the federal government as well as by quence, the BRRA gave the ICC the power to pre- state governments. The BRRA provided for a "pub- empt state regulatory commission decisions which lic interest" entry standard for certain types of entry deny higher fare requests or requests to abandon requests. However, the burden for demonstrating unprofitable intrastate intercity bus routes.(The pre- that the granting of new operating authority is not emption concerning abandonment of intrastate serv- consistent with the public interest rests upon those ice was discussed previously.) If fares on intrastate who would protest such a granting. There are three portions of interstate routes are determined to be exceptions for which the public interest standard lower than comparable interstate fares, the ICC may would not apply and the "fitness only" standard rule that the lower fares impose a burden on inter- instead would be used for entry petitions (see state commerce and therefore must be brought up to MCRSC, 1984).