Stagecoach on track as UK bus revenue falls

Stagecoach Group updated the market on its current trading on Thursday, confirming its earnings expectations for the year to 28 April 2018 remained unchanged.

The FTSE 250 passenger transport operator saw revenue fall across its UK bus operations in the financial year to date - by 0.4% regionally and 0.1% in London - while its North America business saw revenue growth of 0.8%, UK rail was ahead 3.8% and Virgin Rail Group grew 4.4%.

Its UK rail figure excluded South West Trains, as it lost that franchise in August.

On the operational front, the Stagecoach board had explained in its annual report that it implemented targeted mileage reductions and selective fare rises in its UK Bus regional operations division, as the company made changes to services that it considered would support the “long-term success” of the business.

“The effects of these actions on our core local bus businesses has been broadly as we expected, with revenue per mile up 2.8% year-on-year and the fare rises contributing to increased yield per journey,” the board said in its statement.

“In addition, our costs remain well-controlled.”

In light of those factors, and notwithstanding lower-than-expected demand in recent months for the company’s longer distance inter-city coach services, the board’s expectation of the division's operating profit for the year was unchanged.

In London, as previously reported, its bus experienced a small net reduction in contracts with the local regulator Transport for London.

“We continue to anticipate an increase in the rate of revenue decline later on in the year, reflecting the timing of contracts expiring,” the board said.

“We are satisfied with the overall outcome from our bids for new contracts so far this financial year and we believe our strategy of bidding prudently is the right one for the long-term sustainability of the business.”

Across the Atlantic, trading at the company’s North American Megabus inter-city coach business continued to show some signs of improvement, the board claimed.

It said the market remained “challenging” due to the previously-highlighted effects of sustained lower fuel prices, which had increased car and air competition.

“The like-for-like revenue increase of 0.8% for the division includes a 4.4% decline for Megabus North America, with Megabus revenue per vehicle mile remaining broadly stable,” the board said.

“Trading at the other businesses in North America remains in line with our expectations.

“Like-for-like revenue at these businesses increased by 3.1%, which includes revenue from new contracts.”

And finally at its UK rail operations, which include the wholly-owned East Midlands Trains and the joint venture Virgin Trains franchises on the east and west coast main lines, Stagecoach said revenue growth had been “broadly consistent” with the trends seen in the second half of the prior year.

“We continue discussions with the Department for Transport regarding the terms of our ongoing operation of the Virgin Trains East Coast franchise.

“The Department for Transport has formally exercised the pre-contracted one year extension to our East Midlands Trains franchise through to March 2019,” the board noted.

“It has also indicated its intention to negotiate us continuing to operate the business to at least August 2019, with an option to extend the contract further by up to one year.”

Stagecoach said it had worked collaboratively with the new operator and industry partners to ensure the smooth transition of the South Western franchise during the handover in August.

“We are proud to have operated the franchise for more than 20 years and are most grateful to all of our employees and partners who have contributed to its success during that period.”

The board said its next planned update was the announcement of the group's interim results for the half-year to 28 October, on 6 December.