The key shortcomings are summarised below. 1. Margins As shown in section 3.2 of Oxera’s report, there is strong evidence to suggest that margins earned from commercial bus operations in West Yorkshire lie considerably below those published within the Assessment, with the Assessment estimating commercial EBIT margins of 12%–13% in West Yorkshire. Data from statutory accounts indicates that total margins for the three biggest operators in the region have margins which lie considerably below these levels. Further these cannot be explained by accounting for losses made on supported service contracts. Where this is indeed an error, we conclude that it is likely to materially distort the potential for savings which might be secured through lower margins within a franchising scenario. The Net Present Value (“NPV”) of the franchising option could be reduced by £200m to £250m. We understand from Simon Warburton’s letter of 3 rd January that adjustments have been made to operator data to account for patronage recovery and growth since the period the data covers, and to allow for the end of Bus Recovery Grant payments. However, we consider this cannot explain the difference between Oxera’s estimates of commercial margins and those assumed in WYCA’s Assessment, given confirmation provided by your advisers during our meeting on November 24 that the impact of these adjustments on operator margins lies within 1%.
2. Fleet requirements The Assessment underestimates the current peak fleet requirement and accordingly, the number of zero-emission buses that WYCA is expected to purchase under Franchising. In turn this means that the Capital Expenditure requirement on WYCA could be under-estimated by up to £223m and could be even higher if WYCA’s assumption around ZEBRA funding does not come to fruition. Whilst we acknowledge that when we met on 24th November, you provided some clarification on figures relating to the size of the fleet used in the Assessment, including the proposed fleet strategy and the approach to the acquisition of vehicles, your responses have not addressed the discrepancy between the current fleet size of 1,755 and the 893 buses assumed in WYCA’s lotting strategy. We refer you to section 4.2 of Oxera’s report.
3. Network enhancements We are concerned that the timetable coordination, service rationalisation and removal of duplicate services proposed within the Assessment are unlikely to collectively deliver material efficiencies. We note that you have confirmed that the costs of operating the additional service frequency are included in the Assessment. However, based on analysis contained within section 3.3.1 of Oxera’s report, we remain concerned that the frequency enhancements proposed of between 20 - 50% across 51 routes, based on Oxera’s findings and First’s operational experience, will likely come at considerable additional costs, including many more drivers, and we cannot see that these have been adequately accounted for within the Assessment.
