Fuel costs drive down FirstGroup profits

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Mojo

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From: http://business.scotsman.com/transport.cfm?id=2200442005
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RISING fuel costs are undermining FirstGroup's profitability despite a successful crackdown on ScotRail fare dodgers, the company is expected to reveal this week.

JP Morgan, the broker, expects the transport operator headed by Moir Lockhead to announce pre-tax profits of £46.5m for the first half of the financial year, down 28% a year before.

The Aberdeen company cannot push through bus fare increases fast enough to pay for more expensive petrol, according to Damian Brewer, a transport analyst at JP Morgan.

Brewer, who slashed £4.6m from his forecast of full-year profits for FirstGroup, said: "Cost pressures from fuel, and a lagged mismatch of fare increases to the operating cost rises, are being seen ... this lost revenue is hard to recover."

Increasing fares may not help First, Brewer warned, because the higher fares may deter passengers from using buses.

Rising fuel prices mean First's UK bus division is its poorest performer. Fuel prices have been at historically high levels for more than a year, but have taken a while to impact on corporate profits because heavy fuel users like FirstGroup tend to hedge against price rises.



JP Morgan's Brewer said that FirstGroup could rescue its bus division profits by moving buses to areas where passengers were more likely to accept higher fares.

FirstGroup's rail operations, including ScotRail, have performed much better - in part because of the introduction of ticket barriers at major stations. The UK rail business is likely to show a modest increase of around 5% in operating profits.

Analysts also see the railway division as offering First's best prospects for growth. The company derives less profit from its rail franchises than competitors Stagecoach, National Express and Go-Ahead, so it has more to gain from the current round of new franchise allocations.

First is in the running for the Greater Western franchise, an enlarged version of the Paddington to Wales network which it already manages, as well as the Integrated Kent network and the Thameslink commuter lines though London.

UBS, the broker, upgraded its recommendation on FirstGroup from hold to buy because it has these three opportunities to win rail franchises. Tim Marshall, a UBS analyst, said: "It is on the shortlist for each franchise, but we believe this is not reflected in the price."

Analysts also expect First to expand its bus operations in the US through a programme of acquisitions. The company was recently beaten by National Express to acquisition talks with a Spanish bus company, Alsa.

Aberdeen City Council recently gave First permission to build a new headquarters on the outskirts of the city, reversing an earlier decision by the council's planning committee to block the scheme.

First's shares closed at 326.75p on Friday, down from a peak of 379.25p in February.
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Surely, if they don't want to push up bus fares (which are expensive enough ATM), they could always leave them as they are and give their shareholders a smaller dividend for a while.[/img]
 
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Tom B

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Bus fares are extortionate as it is. I know many people who refuse to use the buses because of the high cost, they should lower the fares. Don't see why they're moaning, the £46m should have been spent on some decent buses and proper drivers.
 

yorkie

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Cockfosters said:
Bus fares are extortionate as it is. I know many people who refuse to use the buses because of the high cost, they should lower the fares. Don't see why they're moaning, the £46m should have been spent on some decent buses and proper drivers.
[Sarcasm mode]
Oh but it goes to a good cause. Those fat cats who benefit from huge profits deserve every penny. Honest.
[/Sarcasm mode]
 

Angus

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I hate using First buses because a) fares are too high and b) drivers are too rude. So I tend to walk home from school now (it's about three miles) and very rarely catch the bus, even though it would save a lot of time.
 

yorkie

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Angus said:
I hate using First buses because a) fares are too high and b) drivers are too rude. So I tend to walk home from school now (it's about three miles) and very rarely catch the bus, even though it would save a lot of time.
Why not cycle? it may even be quicker than the bus?
 

devon_metro

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yorkie said:
Angus said:
I hate using First buses because a) fares are too high and b) drivers are too rude. So I tend to walk home from school now (it's about three miles) and very rarely catch the bus, even though it would save a lot of time.
Why not cycle? it may even be quicker than the bus?

Yes that is a good idea; i cycle about 2 miles and still beat the bus which goes right past my house by about 5 mins! its far cheaper!
 

Met Driver

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I used to ride to school - it slashed the time I used to take doing the same journey by tube in half. If only my bike hadn't been stolen by a bunch of low-lifes. :roll:
 

Mojo

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I ride my moped thingy to school, for a start, it's cheaper than the bus, runs when I want it to (unless it's broke), takes a quarter of the time and is way more reliable.
All last week, when I had to get the bus, I wasn't getting home 'til half 5 on days I finish at 1530, and I had to get up at half past six instead of half past seven.
 
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