Some interesting insight into the thinking of NZ Bus is in the latest issue of Infratil’s investor update which came out last week.
NZ Bus was acquired by infratil in 2005 at a price which was a discount to the value of the assets of the business. A transaction at such a price is saying “if you were starting again with these assets, you wouldn’t put them together in this way”. the subsequent six years has involved changing the way the company operates so that capital invested in new systems, staff, buses and depots does not represent $0.90 coming out for $1.00 going in.
This has meant developing stronger relations with the regional transport agencies and a more efficient business. Government has also done its bit by developing a regulatory and contracting regime based on commercial incentives and clearly differentiated roles for transport agencies and private operators.
2012 will be a watershed year for bus public transport, especially in Auckland, as new contracts are offered to operators through a mixture of tenders and private negotiations. The contracts will provide operators with the certainty necessary for investment in services, and with the opportunity to position for longer term growth.
NZ Bus currently provides about half of all Auckland’s public transport passenger trips. It aims to win its share of the new contracts, but achieving this will depend on NZ Bus being both relatively efficient and able to earn a fair return on the capital required. If a normal contract entailing 20 new buses means investing up to $10 million the returns have to justify the allocation of funds.
At the time of its acquisition in 2005 it was hoped that NZ Bus would be able to expand by competing on a level playing field with private cars and trains. It was believed that if Government (central and local) allocated funding to where it would create the greatest urban transport benefit for Auckland and Wellington, then that funding would favour an expansion of bus public transport. The cost of additional roadways or rail services was an order of magnitude greater than expanding and improving bus public transport. In fact transport decisions were made on political rather than economic grounds and the bus share of the urban transport funding pie shrank. The more open contracting regime, greater government focus on value-formoney, and high fuel prices all auger well for bus public transport in the future.
I certainly get the feeling from that last part that they aren’t happy about the investment that has happened in rail over the last decade, regardless of how justified it might be but I guess that is understandable as they would want more money invested with them.
In 2012 NZ Bus expects to agree new long-term contracts with Auckland Transport. These contracts have evolved through a prolonged consultation between regulators and service operators and they should result in better public transport at a lower cost. In anticipation NZ Bus has been improving its efficiency and its ability to deliver services people want to use.
There is also a series of graphs which are probably the most interesting bit of the update. The first graph shows just how poor patronage is compared to a number of other cities but it isn’t something we didn’t already now. The targets set by the council as part of the Auckland plan should have us at about 70 trips per person per year in a decade which would put us near where Wellington is today and the long term goal is to have 100 trips per person in 30 years. The second graph is probably the most concerning for NZ Bus, over the last 7 or 8 years their share of PT trips has continued to drop, this is largely due to growth on the rail network and on the North Shore with the NEX which is run by Ritchies.
Over the last five years NZ Bus’s costs per passenger have been almost flat which has allowed a 12% fall in the real level of contract subsidies and a less than 3% increase in real passenger charges.
In this second series of graphs, the first one is quite interesting as it focuses on patronage on Mt Eden which is one of the ‘B Line’ routes. They were introduced in early 2010 and you can see that since then there has been almost consistently solid growth, as they say, this has come largely from increased frequencies and reliability which are two critical factors for customers. It will also be really interesting to see what happens to that last graph once PTOM comes in fully.