The deregulated bus industry, 1986 onwards

It's ironic that the seeds of our current financial worries can trace their roots back to the deregulation of financial markets in the UK back in 1986. This "Big Bang" led to a focus on the free market with minimal government interference, the drive for profits perhaps reaching its crescendo with the recent subprime mortgage crisis – aka the "credit crunch" – which has required massive government intervention in the financial markets. However, it wasn't the only thing to be deregulated that year: the nation's network of bus services was also opened up to the free market from 26th October 1986 – known in another of those hyperbolic labels as "D-Day" – a system which to all intents and purposes still prevails today.

The new system was to be that all bus services outside Greater London should be run commercially, i.e. that they should make a profit. The old established method of cross-subsidising a less popular route with the proceeds of a more popular one was to be abolished. Bus routes were to stand on their own two feet or not at all. For services that were unprofitable but for which there was a social need, the local council could step in to subsidise the route, usually by putting it out to tender for the lowest price. Any bus company could run any service they wanted to, as long as they registered it with the authorities with 42 days notice – although now increased to 56 days.

The majority of bus services up until then were run by publically owned bus companies, either owned by the Government through the National Bus Company, by metropolitan county councils through Passenger Transport Executives (or London Transport in the case of Greater London) or by the borough council owning its own municipal bus company. Given that these companies were now going to be running in a commercial environment, they were transformed into limited companies with the aim of selling them on into the private sector. Below is an example of the marketing efforts for the launch of GM Buses, the operator created from GMPTE's bus division:

It was a leap into the dark in many ways. Councils could no longer subsidise fares from the rates – so the low fares regime in Sheffield came to an end as bus fares more than doubled. Companies that had previously worked together were now competing against each other as they sought to protect their business. There were new entrants into the market – including a Scottish coach company by the name of Stagecoach – who were able to acquire second-hand vehicles from the large operators who were cutting down on routes and vehicles in a bid to become more efficient: such companies were often started by bus staff who had been made redundant.

Innovation was the watchword of those early years. Minibuses allowed for more frequent services, or new routes through housing estates with narrow lanes. Bright new liveries with bold colours gave even elderly vehicles a much more modern look. Promotional gimmicks became popular, with free travel, gifts and dressing up being recurring themes – picture Brian Souter dressed in a giant bunny outfit, handing out sweets to children and using a loudhailer in a Glasgow bus station to promote his new "Magic Bus" operation. This was one of the operators who even reintroduced buses with conductors, using surplus Routemasters from London to speed up services to improve their appeal over the competition.

As with any market, over time there has been consolidation. Large-scale competition is less likely these days as the market has matured. Management buyouts of the former publically owned subsidiaries have tended to coagulate into larger groups – buy or be bought. The "big five" in the UK (First, Stagecoach, Arriva, Go-Ahead and National Express) are all listed on the stock exchange, and have diversified into other countries and industries – some more successfully than others. Yet there is still room for the small players in the industry, operating with a lower cost base, despite the cost pressures of fuel, congestion and insurance.

The Transport Act 1985 was the brainchild of Nicholas Ridley, whose aim was possibly to allow for greater ownership of buses by the people who worked on them – it's alleged he once asked drivers in Newcastle (or was it Southampton) how many of them owned their own bus. He'd have been disappointed by the outcome over twenty years on, with around two-thirds of the UK's bus network operated by the "big five" and an ongoing investigation into the local bus service market. But that isn't to say that it's all doom and gloom.

Today's bus industry is a lean, efficient model. There's been huge investment in new vehicles, increased marketing efforts and improved "turn-up-and-go" frequencies on many routes. Regular passengers get some really excellent deals on season tickets, and after many years of declining passenger numbers, this is now being reversed and passenger numbers are climbing in many areas. Operators are free to make commercial decisions with the minimum of political interference hindering their options – the entrepreneurial spirit mean that bus companies want to maximise the usage of their services rather than manage a slow decline.

Image credits: Iantherev and ElStruthio on Flickr