Transportation Planning Casebook/London Bus Deregulation

From 1933 until 1984, London local government agencies, known as London Transport, provided bus service. This system, in addition to strict regulations, limited private entry and became very expensive. Seeing this, Prime Minister Margaret Thatcher included London Buses in her privatization agenda. In 1984, the British Parliament passed the London Regional Transport Act, starting the privatization process. Today, London's bus service is provided by private operators but overseen by London Regional Transport, a local governing agency.

Privatization
There are two types of privatization. The first refers to the process of completely transferring a publicly-owned business, agency, or organization to the private sector. The second refers to the process of outsourcing public services to the private sector. In this case study, London decided to use the second definition by outsourcing, through competitive tendering, its bus service to private bus operators while maintaining regulatory control through London Regional Transport (LRT) and Transport for London (TfL). The greater United Kingdom, however, chose the first definition by completely giving its bus service over to the private sector.

Supporters of Privatization
Prime Minister Margaret Thatcher (Conservative Party) Conservative Party Secretary of State for Transport Nicholas Ridley Private Bus Operators Urban Transit Riders Taxpayers

Opponents of Privatization
Labour Party Established Bus Operators Rural and suburban transit riders

Timeline
1933 - All London buses, urban (London Transport) and rural (Green Line), are brought together under London Passenger Transport Board 1948 - London Transport Executive takes over bus services 1963 - London Transport Board takes over bus services 1969 - Newly created National Bus Company takes over Green Line Coaches 1970 - Greater London Council takes over bus services 1979 - Margaret Thatcher is elected Prime Minister June 1984 - London Regional Transport Act passed July 1984 - Ridley introduces "White Papers" which leads to Transport Act of 1985 1985 - Transport Act is passed 1992 - Parliament announces that London Buses would be sold off to private operators 1994 - London Buses begin selling off process 1997 - London Regional Transport mandates bus appearance standardization, forcing all buses to have 80 percent red livery 2000 - Greater London Authority assumes authority while Transport for London (TfL) becomes executive agency. 2008 & 2012 - Bus vehicle type is discussed during mayoral race

Public Transit Policies Before Privatization
Before privatization, entry into the bus industry was restricted by a licensing system that controlled fares and schedules. The licensing system was created to limit the bus operation to "established operators" that had a history of providing quality service and safety. The licensing system led to most communities having bus monopolies, either locally or privately-owned. However, most private franchises were taken over by the state-owned National Bus Company. The combination of the licensing system and monopoly control made it difficult for new bus operators to enter the market. Cross-subsidization was also occurring. This is the practice of using revenue raised from profitable routes to pay for unprofitable routes and service at unprofitable times of day. Nash (1993) argued that this practice led to unnecessary high fares and poor service on popular routes and times. Rural and suburban users reaped benefits off of urban users. There were a number of negative consequences due to these policies. Between 1970 and 1982, unit costs (cost per bus mile) rose by two-thirds. Annual grants paid to London Transport increased from £6.5 million to £370 million. With these negative policy effects in mind, talks of privatization arose in the 1980s with the election of conservative leader Margaret Thatcher. Privatization supporters contended that privatization would increase competition. Increased competition would improve efficiency and encourage innovation. The end result would be lowered fares, increased urban service, and improved quality. On the other hand, those against privatization argued that certain bus industry characteristics, such as the use of subsidies and collective time schedules, would suffer if left to the market. Some argued that some areas would see duplicated services while other areas, such as rural and suburban communities, would see fewer or no services. There was also the possibility that competition would create aggressive behavior by entrants and established providers, leading to schedule matching and excessive service. Lastly, established operators had an advantage over entrant operators due to the fact that they had knowledge of the service area, name recognition, and an economy of scale.

Introduction of Privatization to Great Britain and London
In June 1984, Parliament passed the London Regional Transportation Act. This act did three things. First, it created a new regulatory agency to oversee buses called the London Regional Transport (LRT). It assumed the role that the Greater London Council had held prior. Some of its duties included reducing unit costs by 2.5 percent a year, increasing quality service, and maintaining consistent fares. Second, it created London Buses Limited (LBL) to provide public sector bus services. Third, it forced bus services to be tendered. This meant companies could bid to offer route service at a fixed price. LRT then gave a time-limited contract to the operator that offered the best price. The first tendering occurred in 1985, bringing in the first private operator, London Buslines. While tendering allowed private operators into the market, LRT still oversaw the bus industry and regulated it through policy. This was done to use collective time schedules and to prevent duplicated services.

The next month, Secretary of State for Transport Nicholas Ridley proposed removal of the licensing system and privatization of buses outside of London. Recognizing that rural routes would be negatively affected, he advocated the continuation of subsidies to private operators that chose to provide those lines. He also suggested that the privatization process be handled in stages, where the first stage would be the reorganization of the National Bus Company into separate parts and the second stage would be to sell off those parts. These ideas were put together to create the Transport Act of 1985. The main difference between these two pieces of legislation is that while both London and UK buses allowed private companies to enter the market, London still held regulatory power of its buses.

London Buses Today
Due to the privatization allowed under the London Regional Transport Act, London has 33 independent local operators today. These operators provide the service, but local government, in the form of Transport for London, still regulates the industry. With the introduction of new operators, new vehicle types and designs were used. LRT allowed different vehicle types but chose to regulate design. For example, in 1997, LRT required all buses to have 80 percent red livery. As for vehicle types, twenty-two different vehicles currently run London's streets. This became a hot button topic during the 2008 and 2012 London mayoral race. At issue during the 2008 race was London's articulated "bendy" buses, introduced to the city by incumbent Ken Livingstone (Labour). Livingstone used the bendy buses to replace London's iconic, yet delapitated, Roadmaster buses, also known as double deckers. Conservative Party candidate, Boris Johnson, promised to replace the city's "bendy" buses with newly-designed Routemaster buses. Johnson believed bendy buses took up too much street space and that its open boarding method promoted free rides. He would do this by changing the bendy buses' renewal process by forcing them to update their vehicle type to Roadmasters if they wanted a new contract. In the end, Johnson won. By the end of his term, London had eight new Roadmaster buses. The battle was renewed in the 2012 race. Again, it was the Conservative Party's Boris Johnson against the Labour Party's Livingstone. This time Livingtone advocated hybrid buses instead of Johnson's expensive Roadmasters. Johnson came back saying that Roadmaster buses were green and the same price as hybrids. Johnson won reelection.

Current Independent Operators
There are thirty-three providers of local and commuter service within London.

This list does not include the other providers of demand response, tourist, school, and event transportation.

Bus Wars
One of the unintended consequences that has developed after privatization of the London bus system is the bus wars. The term bus wars describes the intense competition to maximize profits using unsavory methods. These methods have turned into safety hazards, quality issues, and criminal behavior. Congestion at Piccadilly Square, a retail and tourism hotspot, has arisen as bus lines compete for passengers, leading to unsafe conditions for pedestrians. The congestion occurs because two competing lines have buses scheduled to stop every five or ten minutes at the station. Accusations of blackmail have come up as bigger providers bully smaller providers into giving up routes. Outside of London, privatization has led to more aggressive behavior. One driver in Inverness, Scotland was jailed after setting fire to four minibuses after being heckled by a competing driver. In Manchester, Stagecoach parked its busses in front of another provider's stop preventing access to the stop. The allegations went on to say that Stagecoach operators stood in front of doors and "herded" passengers to the waiting buses.

Economic
Tendering did lead to decreased costs, estimated near 14 percent. This equates to savings of £123.5 million between 1987 and 1992 (in 1992 pounds). This was done through a number of reductions. First, there was a reduction in overhead costs by ending management slack, increasing efficiency, and decreasing staff expenditures. Second, labor costs were reduced through changing work practices to increase productivity, decrease wages or hours, and lower overtime compensation. Fares to riders also went down, at first. Today, fares are on the rise and this has upset many passengers.

Public Opinion in London and in Greater United Kingdom
There have been many calls for re-regulation citing increased fares accompanying decrease in services. Five major companies provide 69% of local bus services in the United Kingdom. In most areas, these companies have no competition for service so to keep profits high they are cutting services or increasing fares. To keep it this way, these big companies use predatory pricing to keep startups from surviving. This puts a burden on rural residents who don't have alternative modes of public transportation available.

The public maintains that bus service in unreliable and of low quality. Even members of the House of Commons Transport Select Committee have called for an end to deregulation describing the costs of involvement of TfL plus the private costs are greater than they would be if regulated In London, bus ridership has increased since privatization. Excess waiting time has decreased since 1990, with a major decline in 2000-2001 that accompanies the takeover by TfL. Operating kilometers have increased from 300 million kilometers in 1990 to 490 million kilometers in 2011. Outside of London, where monopolies are common, ridership has dropped. In Merseyside, the county that includes Liverpool has seen ridership decline 25%.

Santiago, Chile
Santiago's transit system has been through many changes in the last thirty years. The system was originally deregulated from 1980-1989. From 1990 to 1992 there was an attempt to re-regulate the service, which was generally considered a failure. The system remained deregulated and chaotic with safety and environmental concerns. Transantiago was implemented in 2007 under President Bachelet. Transantiago limited the number of private companies operating in Santiago to seven. This was intended to enhance the quality of service. With Transantiago came a system integrated with the metro line, eliminating cash fares, and new smart buses. The new system was implemented overnight leading to long lines and frustration. In 2012, Transport Minister Pedro Pablo Errazuriz planned on many changes to the system to improve quality and efficiency. Transantiago is generally considered a failure by most Chileans.

Melbourne, Australia
Numerous changes have occurred in the oversight of bus service in Melbourne over the past fifty years. A period of increased regulation occurred leaded to the Transport Act of 1983 that formed the Metropolitan Transit Authority which later merged to become the Public Transport Corporation. This organization was then responsible for contracting out bus service in Melbourne. During the 1990s there was deregulation and privatization, leading to 32 independent metropolitan bus operators currently administered by Public Transit Victoria. Bus service in Melbourne is generally considered to work well with other transit methods.

Common Characteristics
A pattern of many changes in regulating organizations can be seen, implying that in recent years the correct management of privatized bus systems is still trying to be developed. In Santiago and Melbourne, there has been a shift away from many smaller operators to achieve better organization with a more manageable number of private companies. The private operators of the bus systems of London, Santiago, and Melbourne all have payment methods that are integrated with the other public transit systems that serve the respective metropolitan areas.

Additional Readings

 * Privatisation of London Bus Services - Wikipedia
 * Bus Deregulation in Great Britain - Wikipedia
 * Bus Trends
 * Bus Wars Gets Drivers Suspended (Video)
 * London‟s Bus Contracting and Tendering Process
 * List of Bus Types Used in London