Coronavirus fears pose threat to public transport revenues

Travel

The spread of coronavirus could hit UK public transport use, affecting not only private operators but public bodies such as Transport for London, commentators said this week.

Operators who carry large numbers of older people could be particularly exposed because they are most at risk of dying if they contract the COVID-2019 

coronavirus. 

Last weekend newspapers reported that the World Health Organization had advised people aged over 60, along with people who have underlying conditions such as diabetes or heart disease, to avoid public transport and consider home deliveries instead of visiting busy shops. 

The UK’s official coronavirus action plan, published this week and endorsed by all four national governments, contains little guidance on travel, other than internationally. It explains, however, that further measures will be considered if the disease becomes established in the UK. 

“Action that would be considered could include population distancing strategies (such as school closures, encouraging greater home working, reducing the number of large-scale gatherings) to slow the spread of the disease throughout the population, whilst ensuring the country’s ability to continue to run as normally as possible,” it says.

Transport consultant Andrew Last, a concessionary travel specialist, pointed out that concessionary passholders were a major market, accounting for about 30 per cent of revenues and 40 per cent of passenger numbers in some areas. “A big drop in those places would have a big impact on operators,” he said.

Many travel concession authorities (TCAs) have struck fixed term arrangements for reimbursement with operators. Under these, TCAs?agree to pay an operator a fixed sum for a fixed period of time. This may protect some operators from any sharp fall in reimbursement resulting from COVID-19. 

Last said DfT data showed that, in 2018/19, 51 TCAs out of 89 had a fixed-term arrangement. In other areas, payments will be made based on actual passenger journeys made by pass holders. 

Last said, however, that the impact of a sharp fall in patronage could be felt even in areas with fixed-term arrangements. 

“A feature of some of these deals will be the potential for retrospective adjustment of payments if outturn concessionary journeys for a given year (or whatever period is agreed) vary from ‘target’ levels by more than pre-agreed amounts e.g. 5 per cent. In the past these may not have been rigorously enforced, but I suspect the potential for fallout from the Coronavirus will significantly exceed the limits of variation set out in many agreements. 

“While the cash flow consequences may therefore be delayed, they could still be non-negligible; and negotiations about similar deals going forward will be confused by debates about how a short-term trough in passenger numbers, if that is what occurs, translates into impacts on long-term trends.”

Although reduced reimbursement payments might provide savings for councils, Last cautioned: “From the point of view of the health of the bus services, it’s not a good thing to have total revenues take a hit of this sort.”

Transport commentator Chris Cheek said reducing operations, including laying off staff, in response to lower demand would be difficult because of “substantial cash downsides”. “I could imagine that it would drive a few independent bus operators out of business,” he said.

Analyst Tom Callan, of Investec Securities, said public transport operator Go-Ahead – for which Investec is broker – was relatively immune from the coronavirus impact because it was the largest bus operator in London, where operators do not take the revenue risk. 

The same applied to the Govia Thameslink Railway management contract.

Transport for London declined to comment on the potential revenue reduction from bus operations, London Underground and its rail concessions.

Cancellation or postponement of sports matches, concerts, festivals and other events could also affect demand for public transport services to and from venues. 

Said Andrew Last: “A five to ten per cent reduction in the number of public events will have a profound impact not only on the entertainment industry but also on the transport providers who would get people backwards and forwards.”

Cheek said rail franchise holders may have some financial protection under force majeure provisions in their agreements. The DfT declined to confirm this, but an industry source said train operators could make a case to the Department if they had year-on-year data showing a reduction in demand linked to coronavirus. They could make that case regardless of what the Government advises people to do.

“If the Government gives specific advice to stay at home, the case then becomes indisputable,” said the source.

Health experts have suggested that COVID-19 could peak in early to mid-summer, but Cheek said people who switched to home working because of the risk might never return to working in offices. Some employers, such as call centre companies, might have to pay for equipment in employees’ homes to sustain their businesses through COVID-19 restrictions. He said greater home working could have long-term effects on transport demand.

The Confederation of Passenger Transport, representing bus and coach operators, said: “The current Government advice is that there is no need for people to stop using buses or other forms of public transport. All bus and coach operators have extensive cleaning and hygiene regimes in place to ensure services are fit for use. These continue to be monitored and adhered to. 

“As the situation evolves the industry will continue to follow the advice from public health bodies and introduce any additional measures that are recommended or required and also keep passengers up to date on any changes to services.”