DELAYED INDEFINITELY: REGULATORY REFORM OF THE IRISH BUS INDUSTRY Patrick Massey* During the past 20 years successive transport Ministers have 1. promised to reform the bus transport market in Ireland. Bus Introduction passengers are still waiting for such reforms to be delivered. In September 2006 the current Minister announced proposals for the introduction of competitive tendering but only in respect of “new routes” in Dublin City with Dublin Bus being allowed retain its monopoly in respect of 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.1 While no formal announcement has been made regarding services outside Dublin, it appears that the Government favours retaining Bus Eireann’s monopoly with private operators being largely confined to acting as sub contractors for the State company. The Minister’s announcement suggests that meaningful reform has been postponed yet again. The current regulatory regime for bus transport in Ireland has been widely criticised for preventing competition. (See, for example, Barrett, 1982, 2000, 2004; Competition Authority, 2000; Massey and Daly, 2003; Forfás, 2004; *The author is a Director of Compecon Limited and can be contacted at [email protected]. I am grateful for the helpful comments of an anonymous referee. Any remaining errors or omissions are the responsibility of the author. 1 Dail Debates, 29 September 2006. 38 Quarterly Economic Commentary, Spring, 2007, pp.38-61. Ribault-O’Reilly, 2005).2 The present paper argues that the existing regulatory regime is anti-competitive, results in significant inefficiencies and provides poor value for money for bus users and taxpayers. It suggests that a more radical reform programme would benefit bus passengers and provide better value for money for taxpayers. Bus transport in Ireland is still largely governed by the Road 2. Transport Act, 1932, which prohibits the operation of scheduled Structure of the road passenger services except under licence. The majority of Bus Industry scheduled bus services in the Dublin City area are operated by in the Republic Dublin Bus, a wholly owned subsidiary of the State owned CIE. A second CIE subsidiary, Bus Eireann, provides bus services of Ireland throughout the rest of the State. Goodbody (2005) reported that there were around 125 private bus firms with five or more buses operating scheduled services and estimated that private bus operators held licences in respect of 518 routes.3 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 with just over 100 being for scheduled daily services. (See Figure 1). Figure 1: Estimates of Privately Held Bus Route Licences in Ireland in 2002 Weekly , 145 Other Daily, 39 Daily, 110 Inter-urban, 71 Other, 316 Source: SDG, 2002. 2 The focus of the paper is on bus services in urban areas and local rural services. Studies in other countries frequently distinguish between such services and long- distance or inter-urban services with the latter being classed as coach services. The issue of competition in coach services has been extensively addressed by Barrett (1982), (2000) and (2004). 3 Steer Davies Gleave (SDG, 2002) estimated the number of route licences held by private operators at 571, although it conceded that some of these were not actively used. 39 Table 1 provides some performance indicators for Dublin Bus. 3. Since 1998 passenger numbers have increased by over 8 per cent, Performance although they have fallen since 2003. Operating costs have of the State increased twice as fast as revenue with the result that Dublin Bus’s Bus operating deficit has increased from just under €9 million in 1998 to almost €63 million in 2005. Government subsidies have increased Companies from €11 million in 1998 to €65 million in 2005. Table 1: Performance Indicators for Dublin Bus Operating Passengers Revenue Costs Deficit Subsidy m €m €m €m €m 1998 134.4 133.5 142.0 8.8 11.3 1999 139.1 136.4 149.4 13.5 16.8 2000 134.2 143.3 175.4 32.2 41.2 2001 142.9 153.4 204.2 51.2 52.4 2002 146.6 159.3 214.3 52.6 56.1 2003 149.9 172.9 221.2 46.5 53.9 2004 149.9 177.6 239.9 59.7 61.8 2005 145.7 181.5 245.8 62.9 64.9 Per Cent Change +8.4 +35.9 +73.1 +614.8 +474.3 Source: CSO Statistical Yearbook and Dublin Bus Annual Reports. Similar performance indicators for Bus Eireann provincial city services are given in Table 2.4 Table 2: Performance Indicators for Bus Eireann Provincial City Services Passengers Revenue Operating Costs Deficit m €m €m €m 1998 18.9 11.7 14.6 2.9 1999 18.7 11.7 15.7 4.0 2000 19.2 15.8 23.5 7.7 2001 20.1 17.3 30.5 13.3 2002 21.0 18.6 30.6 12.0 2003 20.4 20.7 30.3 9.6 2004 21.1 22.7 33.2 10.5 2005 21.6 23.4 33.4 10.0 Per Cent Change +14.2 +100.6 +129.0 +442.0 Source: CSO Statistical Yearbook and Bus Eireann Annual Reports. Bus Eireann provincial city network has recorded a 14 per cent increase in passenger numbers since 1998. Revenues have doubled but costs have risen even faster so that the operating deficit has increased from €2.9 million to €10 million. Operating costs doubled in a four year period between 1998 and 2001 before being partially scaled back. 4 A breakdown of the subvention paid to Bus Eireann distinguishing between city and other services is not available. The total subvention to Bus Eireann in 2005 amounted to €35 million. This relates to all services except Expressway and school transport. 40 State subsidies to Dublin Bus and Bus Eireann have increased from €18 million in 1998 to €90 million in 2005. It should be noted that this figure excludes payments of more than €100 million to Bus Eireann in respect of the school transport service. Serious questions need to be asked as to whether taxpayers are receiving value for money for such payments. In the case of Dublin Bus subsidies as a proportion of operating costs increased from 8 per cent in 1998 to 26 per cent in 2005. Mackie (2001) notes that a significant portion of subsidies are lost in x-inefficiencies and cites studies of the UK bus industry prior to deregulation which indicated that every 10 per cent increase in the proportion of operating costs covered by subsidy raised average operating costs by 4.5-5 per cent. He also points out that bus operating costs in Britain fell by around 40 per cent following reform of the industry and argues that this figure gives an indication of the level of x-inefficiencies that existed under the former regulated monopoly system.5 Table 3 gives details of staff numbers, pay costs and productivity for Dublin Bus. Staff numbers increased while productivity per employee declined with bus kilometres per employee dropping by 4 per cent and passengers per employee down 8 per cent over the period. MVA (2006) reported that increased congestion only partly accounts for the decline in productivity. Pay increased from 52 per cent to almost 60 per cent of total operating costs over the same period. In part this reflects the increase in staff numbers but it also reflects the fact that average earnings in Dublin Bus have risen relative to average industrial earnings as illustrated in Figure2. Table 3: Dublin Bus Staffing, Wage Costs and Productivity Pay as Per Cent Staff Operating Costs Productivity Per Employee Passenger Bus Km Nos. 1998 2,901 52.4 18,228 46,331 1999 3,004 53.9 17,742 46,288 2000 3,093 55.4 17,500 43,385 2001 3,332 56.4 17,069 42,891 2002 3,319 57.9 17,355 44,170 2003 3,367 58.8 17,197 44,520 2004 3,408 58.5 17,102 43,970 2005 3,407 59.5 17,537 42,762 Per Cent Change +17.4 -3.8 -7.7 Source: CSO Statistical Yearbook and Dublin Bus Annual Reports. 5 Heseltine and Silcock (1990) and White (2001) estimate that the bulk of the cost reductions (60-70 per cent) were due to increased productivity, although part was also due to a fall in average real wages of bus industry staff which declined by around 6 per cent between 1986 and 1999. 41 Figure 2: Average Earnings Dublin Bus vs. Industry Dublin Bus Industry €50,000 €40,000 €30,000 €20,000 98 99 00 01 02 03 04 05 19 19 20 20 20 20 20 20 Source: Dublin Bus Annual Reports and CSO. Between 1998 and 2005 average earnings of Dublin Bus employees increased by 68 per cent compared with an increase in average industrial earnings of 53 per cent over the same period. Average earnings in Dublin Bus were 10 per cent above average industrial earnings in 1998 but by 2005 they were 21 per cent higher. In real terms average earnings of Dublin Bus staff have increased by 31 per cent in spite of falling productivity which suggest that higher subsidies are, to some extent, absorbed by rising costs. Table 4 compares vehicle operating costs for Dublin Bus and Bus Eireann provincial city services with those of British bus operators.