TfGM Bus franchising

[Bletchleyite]

Why wouldn't they be pro-franchising though? It's the standard way of running buses across much of Europe as well as beyond. It's deregulation that's the outlier.

They wouldn't be pro, because it will be less profitable than commercial operation, but also they won't, unlike a private business owner like Souter, make decisions based on personal views rather than business fact.

 

[RT4038]

Why wouldn't they be pro-franchising though? It's the standard way of running buses across much of Europe as well as beyond. It's deregulation that's the outlier.

Because you are confusing what might be best for public transport as a whole with what might be good for Stagecoach as a company at the time of any change. The new owners will not want to see the value of their investment going down.

 

[Goldfish62]

They wouldn't be pro, because it will be less profitable than commercial operation, but also they won't, unlike a private business owner like Souter, make decisions based on personal views rather than business fact.

Things have changed somewhat over the past couple of years. All those so-called commercial operations are being propped up with public money!

Let's see how commercial they are once the funding finally ends in the autumn. There's no money in running buses anymore.

Because you are confusing what might be best for public transport as a whole with what might be good for Stagecoach as a company at the time of any change. The new owners will not want to see the value of their investment going down.

Not sure I follow. Stagecoach, as a private business, has always only ever been interested in one thing, making money. That's its sole purpose. The fact that it does it through providing often good public transport just happens to be a consequence.

 

[RT4038]

They wouldn't be pro, because it will be less profitable than commercial operation, but also they won't, unlike a private business owner like Souter, make decisions based on personal views rather than business fact.

There is also the post-covid prospects to consider - the financial landscape, not brilliant before covid, has now completely changed.

Things have changed somewhat over the past couple of years. All those so-called commercial operations are being propped up with public money!

Let's see how commercial they are once the funding finally ends in the autumn. There's no money in running buses anymore.

Quite. This will have contributed to their acceptance of the ruling - I think it quite reasonable to change your stance when the surrounding circumstances have changed.

 

[chorleyjeff]

Stagecoach Manchester is one of their best, most profitable operations. Profit margins are lower in London than in Manchester.

Moreover, they bought Greater Manchester Buses (South) from its management. It has an intrinsic value to the business, ahead of its physical assets. They will lose that without compensation, the buses weren't going to be underwritten either (has that changed?) and the depots will be purchased at market rates (which will probably be less that what they are actually worth).

Another way of looking at it...

If you're Abellio, you don't mind buying a ticket for a raffle and you might end up with a 3 bedroom house as a prize. For Stagecoach, you might well object to buying a ticket for a raffle when you have a 4 bedroom house now, might end up with a 3 bedroom house in future OR have no house at all and you're left with the costs of moving out too.

How is market value less than they are actually worth ?

 

[RT4038]

And their to-be new owners are pro-franchising so best to get off on the right foot.

I think this assumption is a little far fetched. Does this mean that any UK company operating buses in Europe is pro de-regulation, just because UK buses are? Pro profit more likely, in whatever guise this appears.

How is market value less than they are actually worth ?

Market value as a bus depot, or re-developed as something else?

 

[Bletchleyite]

Not sure I follow. Stagecoach, as a private business, has always only ever been interested in one thing, making money. That's its sole purpose. The fact that it does it through providing often good public transport just happens to be a consequence.

That's true now it's a purely commercial operation. But when it was Souter's baby it wasn't purely for making money, though as you say it was always quite good at doing so. Family owned businesses, even large ones, are often labours of love and don't take decisions that will necessarily result in the most profit.

I think this assumption is a little far fetched. Does this mean that any UK company operating buses in Europe is pro de-regulation, just because UK buses are? Pro profit more likely, in whatever guise this appears.

There's not an awful lot of point in campaigning for something that won't happen.

 

[RT4038]

That's true now it's a purely commercial operation. But when it was Souter's baby it wasn't purely for making money, though as you say it was always quite good at doing so. Family owned businesses, even large ones, are often labours of love and don't take decisions that will necessarily result in the most profit.

However, Stagecoach has been a company listed on the Stock Exchange for more than 25 years, and as such has had to turn in a good profit. Probably the main difference with the other big groups is that it has had a knack of making good profits, and has been able/ willing to spend more money on what could be described as 'Research & Development' , rather than thinking that there has been fuzzy family business and labour of love in any quantity.

 

[Goldfish62]

That's true now it's a purely commercial operation. But when it was Souter's baby it wasn't purely for making money, though as you say it was always quite good at doing so. Family owned businesses, even large ones, are often labours of love and don't take decisions that will necessarily result in the most profit.

I don't accept that's ever been the case with Stagecoach. Right from the very start Souter and Gloag were utterly ruthless business people with no time for sentiment. That's why they've been so successful.

Anyway, getting back on-topic I'm told that Rotala is likely to appeal the JR decision. Sorry, can't reveal my source.

 

[TheGrandWazoo]

However, Stagecoach has been a company listed on the Stock Exchange for more than 25 years, and as such has had to turn in a good profit. Probably the main difference with the other big groups is that it has had a knack of making good profits, and has been able/ willing to spend more money on what could be described as 'Research & Development' , rather than thinking that there has been fuzzy family business and labour of love in any quantity.

Exactly. The culture has been entrepreneurial but always with an aim to making more money. Whilst prepared to invest in R&D, they have also been hard-hearted in their approach - they wouldn't have entertained the Greyhound concept that First tried but did a more pragmatic approach with Megabus. Also, little personal pride/hubris - operations divested when appropriate, rather than a focus on being biggest!

However, drifting of topic so before I get my chain yanked, fair to say that they were implacably opposed and for obvious reasons. They believe that the battle with the judicial review has been lost and so the approach changes. Seems eminently understandable

I don't accept that's ever been the case with Stagecoach. Right from the very start Souter and Gloag were utterly ruthless business people with no time for sentiment. That's why they've been so successful.

Anyway, getting back on-topic I'm told that Rotala is likely to appeal the JR decision. Sorry, can't reveal my source.

It's on the website!! http://otp.investis.com/clients/uk/rotala/rns/regulatory-story.aspx?cid=182&newsid=1558876

On 26 March 2021, the Company announced that on 25 March 2021 the Mayor of Greater Manchester had made the formal decision to franchise the bus market in the Greater Manchester region. The Company made an immediate claim to the High Court of Manchester to judicially review the process by which the consultation was continued by Greater Manchester Combined Authority ('GMCA') in light of the COVID‐19 pandemic, and the decision of the Mayor to franchise the bus network. The outcome of this claim has been handed down by Mr Justice Julian Knowles today. Throughout the Company's court claim, the Board has remained confident that both these decisions were irrational and/or unlawful. Therefore, although of course fully respecting the court's decision, nevertheless it is extremely disappointing to announce that Mr Justice Julian Knowles has dismissed the claim. The Board still believes these decisions to be irrational and/or unlawful and is in the process of applying for permission to appeal the decision to the Court of Appeal.

 

[Goldfish62]

However, drifting of topic so before I get my chain yanked, fair to say that they were implacably opposed and for obvious reasons. They believe that the battle with the judicial review has been lost and so the approach changes. Seems eminently understandable

It's on the website!! http://otp.investis.com/clients/uk/rotala/rns/regulatory-story.aspx?cid=182&newsid=1558876

So it is!

 

[WatcherZero]

Rotala said during the verdict delivery they would be appealing while Stagecoach said they wouldnt appeal.

Also significantly Rotala legally objected to both the initial decision to implement a Franchising scheme and the decision to proceed after Co-Vid review while Stagecoach only objected to the decision to proceed after Co-vid review and didnt object to the initial decision to implement franchising.

 

[Goldfish62]

Rotala said during the verdict delivery they would be appealing while Stagecoach said they wouldnt appeal.

Also significantly Rotala legally objected to both the initial decision to implement a Franchising scheme and the decision to proceed after Co-Vid review while Stagecoach only objected to the decision to proceed after Co-vid review and didnt object to the initial decision to implement franchising.

While I'm no fan of Rotala I can understand why they're trying all possible avenues to stop the scheme. It's they are potentially most impacted first, given that they could lose most of their GM business as early as next year.

 

[Xenophon PCDGS]

l

While I'm no fan of Rotala I can understand why they're trying all possible avenues to stop the scheme. It's they are potentially most impacted first, given that they could lose most of their GM business as early as next year.

The attitude of the current Conservative Government to the TfGM franchising proposals seems somewhat different to those holding sway in past Conservative Governments.

 

[Goldfish62]

l

The attitude of the current Conservative Government to the TfGM franchising proposals seems somewhat different to those holding sway in past Conservative Governments.

In what way?

 

[Xenophon PCDGS]

In what way?

Acceptance of an opposite political ideology. Another example being the seemingly bottomless money-pit that was visited during the Covid-19 pandemic that was even far in excess of the usual Labour Party mantra of..."We would have spent more".

 

[M803UYA]

While I'm no fan of Rotala I can understand why they're trying all possible avenues to stop the scheme. It's they are potentially most impacted first, given that they could lose most of their GM business as early as next year.

They took a business decision to purchase a business from First knowing full well Franchising was on the agenda - so it's poor due diligence by them.
Previously they were in favour of franchising so it's an interesting 180 degree turn in position.
Maybe they've worked out they stand to lose a lot of money from a very profitable commercial business and this has brought about their change in stance?

 

[johncrossley]

They took a business decision to purchase a business from First knowing full well Franchising was on the agenda - so it's poor due diligence by them.
Previously they were in favour of franchising so it's an interesting 180 degree turn in position.
Maybe they've worked out they stand to lose a lot of money from a very profitable commercial business and this has brought about their change in stance?

They bought from First *specifically* to take advantage of franchising in the future. They thought having an existing presence would be useful. Now the method of franchising is different to what they thought, they are suddenly against franchising on principle.

 

[Goldfish62]

Maybe they've worked out they stand to lose a lot of money from a very profitable commercial business and this has brought about their change in stance?

Yes.

They bought from First *specifically* to take advantage of franchising in the future. They thought having an existing presence would be useful. Now the method of franchising is different to what they thought, they are suddenly against franchising on principle.

Poor decision making on their part because the option for area instead of individual route tendering was on the table from very early on.

 

[WatcherZero]

The form of franchising was made clear at the start, it wasnt unveiled part way through. Rotala was one of the few bus companies to say they supported franchising (when they didnt operate in the area), then they had the opportunity to pickup Bolton from First cheap (£5.3m for routes, depot, 500 staff and two year lease on over 100 buses, for comparison Stagecoach paid £12m for the Wigan operation seven years earlier which included depot, 300 staff and outright sale of 100 buses) as First were doing a fire sale due to their debt issues, then Rotala immediately flipped to being anti-franchising.

 

[Xenophon PCDGS]

Will the new Rotala appeal put a legal hold on matters proceeding until a judicial decision is reached or can matters now proceed?

 

[Goldfish62]

Will the new Rotala appeal put a legal hold on matters proceeding until a judicial decision is reached or can matters now proceed?

Given that the original judicial review didn't put a hold on matters I see the no way that any appeal, if granted, would.

 

[Volvodart]

Mr Burnham did say that he hoped that the bus companies would not appeal, so the appeal is likely to have some effect.

 

[Goldfish62]

Mr Burnham did say that he hoped that the bus companies would not appeal, so the appeal is likely to have some effect.

The only effect possible is that the courts instruct the mayor to halt the process while the appeal takes place. Given that the bus companies' request to do likewise with the original JR application was refused this is incredibly unlikely to happen.

So there'll be no impact.

 

[domcoop7]

The only effect possible is that the courts instruct the mayor to halt the process while the appeal takes place. Given that the bus companies' request to do likewise with the original JR application was refused this is incredibly unlikely to happen.

So there'll be no impact.

As people have found out (it was mentioned up thread), court cases take a long time, and awful lot longer than most people think or expect. It will be around 3 months or so before we find out whether the Court of Appeal actually gives permission to appeal or not (Rotala can't just appeal as of right, they have to persuade a Court of Appeal judge to let them). It will be quicker if permission is given on the papers, but if not, it has to go to a hearing to decide permission.

Once (if) permission is given unless the Court of Appeal decide to expedite the case and rush it through, it would usually be another 6 to 9 months before the appeal is heard and a decision given.

Now TfGM don't have to stop Franchising for this period of time, which is uncertain and could be 2 weeks or could be 18 months. But if they don't there is a risk the Appeal wins, the Franchising scheme is declared unlawful, and then what?

At that point there would be two choices open to the court.

• The court could issue a declaration saying the scheme is unlawful, without actually cancelling Franchising and TfGM would probably agree a compensation package with Rotala (and other operators) to buy them off. I suspect there would be a figure that would keep Rotala quiet. TfGM then pause (rather than cancel) the Franchising scheme, re-consult, issue a fresh scheme, and then carry on. (Judicial review does not declare a scheme itself is wrong, just the decision making process leading up to the scheme - so in most cases a public authority gets a second crack at the whip when they've lost a judicial review).
• The court's second option would be to quash the scheme. Rotala would still be looking at compensation, but then whichever operators have resource could run whatever services they wish. TfGM could issue another Franchsing scheme, but they'd have to start from square one, and in the meantime Franchising would be cancelled altogether, not just paused.

So TfGM and their legal team will weigh up the possibilities. If they pause the scheme now, they avoid any risk of paying compensation if the court eventually overturns Franchising. If they don't pause the scheme now (assuming the court don't order them to), what is their potential exposure if they lose? If they pause the scheme now and lose, the court will definitely just quash it and the status quo will continue. If they don't pause the scheme, will that tip the court's balance in their favour (because a court will think "this is going to be a mess if we quash this)? If they lose and the scheme is already in operation, could they persuade the court "look, I know you've found against us, but we're already half way through Franchising, so don't quash it, just make a declaration that it was unlawful and let us compensate operators and tweak the scheme to satisfy the court judgment? The court's preferred option in a successful judicial review is to quash the decision that was made wrongly, but if innocent third parties have already taken action and incurred costs as a result of that decision, (i.e. new operators running franchised routes suddenly finding themselves subject to deregulated competition), then the court would be very reluctant to do that. So by not pausing the scheme now, TfGM could force the court's hand to an extent.

A commercial company involved in litigation like this would probably pause action now, as the most money would be saved by awaiting the full outcome of any appeal process.

But remember, it's not just economics, it's politics too. For Andy Burnham, if he loses, the political loss of giving taxpayers money to operators in compensation is probably less than the political loss of being seen to have failed at Franchising. If he has painted his buses in Orange and put his logo on them and regulated fares, he (or Gary Neville who seems to be being lined up as a successor) can go into the next Mayoral election saying "we brought buses under control" even if he ultimately loses the judicial review, and any snipes about paying compensation to operators can be dismissed as "Tories" or "biased courts". Whereas if he pauses Franchising and loses, people will still see buses going round in operator liveries, and he can't claim any action.

So my money is on him going full steam ahead with Franchising unless he is specifically ordered not to by the court as it gives him a visible political win, and also presents a fait accompli to the court in 12 to 18 months time. Yes it may go wrong, but it's not his money he loses.

[Caveat:- nothing is fixed in law. The Court of Appeal may rush a decision. They may refuse permission. Etc., etc.]

 

[Goldfish62]

As people have found out (it was mentioned up thread), court cases take a long time, and awful lot longer than most people think or expect. It will be around 3 months or so before we find out whether the Court of Appeal actually gives permission to appeal or not (Rotala can't just appeal as of right, they have to persuade a Court of Appeal judge to let them). It will be quicker if permission is given on the papers, but if not, it has to go to a hearing to decide permission.

Once (if) permission is given unless the Court of Appeal decide to expedite the case and rush it through, it would usually be another 6 to 9 months before the appeal is heard and a decision given.

Now TfGM don't have to stop Franchising for this period of time, which is uncertain and could be 2 weeks or could be 18 months. But if they don't there is a risk the Appeal wins, the Franchising scheme is declared unlawful, and then what?

At that point there would be two choices open to the court.

• The court could issue a declaration saying the scheme is unlawful, without actually cancelling Franchising and TfGM would probably agree a compensation package with Rotala (and other operators) to buy them off. I suspect there would be a figure that would keep Rotala quiet. TfGM then pause (rather than cancel) the Franchising scheme, re-consult, issue a fresh scheme, and then carry on. (Judicial review does not declare a scheme itself is wrong, just the decision making process leading up to the scheme - so in most cases a public authority gets a second crack at the whip when they've lost a judicial review).
• The court's second option would be to quash the scheme. Rotala would still be looking at compensation, but then whichever operators have resource could run whatever services they wish. TfGM could issue another Franchsing scheme, but they'd have to start from square one, and in the meantime Franchising would be cancelled altogether, not just paused.

So TfGM and their legal team will weigh up the possibilities. If they pause the scheme now, they avoid any risk of paying compensation if the court eventually overturns Franchising. If they don't pause the scheme now (assuming the court don't order them to), what is their potential exposure if they lose? If they pause the scheme now and lose, the court will definitely just quash it and the status quo will continue. If they don't pause the scheme, will that tip the court's balance in their favour (because a court will think "this is going to be a mess if we quash this)? If they lose and the scheme is already in operation, could they persuade the court "look, I know you've found against us, but we're already half way through Franchising, so don't quash it, just make a declaration that it was unlawful and let us compensate operators and tweak the scheme to satisfy the court judgment? The court's preferred option in a successful judicial review is to quash the decision that was made wrongly, but if innocent third parties have already taken action and incurred costs as a result of that decision, (i.e. new operators running franchised routes suddenly finding themselves subject to deregulated competition), then the court would be very reluctant to do that. So by not pausing the scheme now, TfGM could force the court's hand to an extent.

A commercial company involved in litigation like this would probably pause action now, as the most money would be saved by awaiting the full outcome of any appeal process.

But remember, it's not just economics, it's politics too. For Andy Burnham, if he loses, the political loss of giving taxpayers money to operators in compensation is probably less than the political loss of being seen to have failed at Franchising. If he has painted his buses in Orange and put his logo on them and regulated fares, he (or Gary Neville who seems to be being lined up as a successor) can go into the next Mayoral election saying "we brought buses under control" even if he ultimately loses the judicial review, and any snipes about paying compensation to operators can be dismissed as "Tories" or "biased courts". Whereas if he pauses Franchising and loses, people will still see buses going round in operator liveries, and he can't claim any action.

So my money is on him going full steam ahead with Franchising unless he is specifically ordered not to by the court as it gives him a visible political win, and also presents a fait accompli to the court in 12 to 18 months time. Yes it may go wrong, but it's not his money he loses.

[Caveat:- nothing is fixed in law. The Court of Appeal may rush a decision. They may refuse permission. Etc., etc.]

That is of course the correct answer to the original question (apart from the pedantic point that buses are going to be yellow, not orange ).

On the question of whether TfGM decide to pause franchising they didn't with the original case so I think it's highly unlikely they will now. In any case as I understand it things are running late which works in favour of not pausing.

I've not found the actual judgement yet. Is it posted anywhere?

 

[Volvodart]

I've not found the actual judgement yet. Is it posted anywhere?

See here:-

https://www.bailii.org/ew/cases/EWHC/Admin/2022/506.html

 

[Rod Harrison]

Things have changed somewhat over the past couple of years. All those so-called commercial operations are being propped up with public money!

Let's see how commercial they are once the funding finally ends in the autumn. There's no money in running buses anymore.


Not sure I follow. Stagecoach, as a private business, has always only ever been interested in one thing, making money. That's its sole purpose. The fact that it does it through providing often good public transport just happens to be a consequence.

So I assume every single privately owned business, from Chineses takeaways, supermarkets, chemists, newsagents, cafes and restaurants, pubs and bars, could care less about quality of service as long they make money. What absolute rubbish, without profit businesses can’t invest. It is essential to provide a good service as the customers will go elsewhere and the businesses will fail. If the bus companies didn’t invest, they lose custom to the car, motor bikes, cycles, railways or even people jogging to work! If they don’t make any money then they won’t invest - so, so simple!

 

[Goldfish62]

So I assume every single privately owned business, from Chineses takeaways, supermarkets, chemists, newsagents, cafes and restaurants, pubs and bars, could care less about quality of service as long they make money. What absolute rubbish, without profit businesses can’t invest. It is essential to provide a good service asthe customers will go elsewhere and the businesses will fail. If the bus companies didn’t invest, they lose custom to the car, motor bikes, cycles, railways or even people jogging to work! If they don’t make any money then they won’t invest - so, so simple!

Oh, you've so completely missed the point! The fundamental aim of a commercial business is to make money and the best ones at doing it are top of the game in their fields.

I suggest you read Christian Woolmar's excellent book on Stagecoach.

 

[johncrossley]

So I assume every single privately owned business, from Chineses takeaways, supermarkets, chemists, newsagents, cafes and restaurants, pubs and bars, could care less about quality of service as long they make money. What absolute rubbish, without profit businesses can’t invest. It is essential to provide a good service asthe customers will go elsewhere and the businesses will fail. If the bus companies didn’t invest, they lose custom to the car, motor bikes, cycles, railways or even people jogging to work! If they don’t make any money then they won’t invest - so, so simple!

In those other industries, the customer can go elsewhere, hence the incentive to offer a good service. The difference with buses is that the current service is only aimed at people with no choice. The vast majority of people in the region will only use buses if they haven't got access to alternative transport. So it doesn't really matter what the service is like.