Go-Ahead and FirstGroup cheered as government indefinitely extends coronavirus scheme for bus operators

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Go-Ahead and FirstGroup cheered as government indefinitely extends coronavirus scheme for bus operators

Bus operators have welcomed the government’s decision to extend the industry’s coronavirus (COVID-19) support package indefinitely.

Over the weekend, The Department of Transport said a further £218.4m would be allocated to the sector over the next eight weeks under the COVID-19 Bus Service Support Grant Restart (‘CBSSG Restart’).

This will be followed by rolling funding of £27.3mln per week until such a time ‘as it is no longer needed’, said the government. It also announced plans to publish a National Bus Strategy to establish how services can operate successfully in future.

Scotland’s government announced an additional expenditure of £68mln to extend its support scheme in the country until November 8, 2020.

In a statement, Go-Ahead PLC (LON:GOG) chief executive David Brown welcomed the additional support measures and said it is seeing an uptick in people using public transport as people return to work but passenger numbers are still 50% lower than pre-COVID levels despite industry efforts.

“With enhanced cleaning of our buses, mandatory wearing of face coverings, and guidance on social distancing and hygiene, customers can travel safely and with confidence on our services,” Brown said.

Meanwhile, in its own statement, peer FirstGroup PLC (LON:FGP) noted that the CBSSG Restart programme has already allowed the industry to increase bus service capacity while maintaining social distancing.

The Aberdeen–based firm said operations across England have increased operated mileage from around 40% to almost 90% of pre-pandemic levels, with passenger volumes increasing from 10% to 40% since the low point.

Matthew Gregory, FirstGroup chief executive, noted that the company has “recently introduced seat signage, enhanced and long-lasting anti-viral cleaning regimes, and upgrades to our mobile app so that customers can check in real-time how full each bus is and the availability of wheelchair spaces”.

A pilot scheme has also started in Bristol, he added, to allow key workers to book reservations on specific buses,while a new tool for passengers has been initially launched in Glasgow that predicts how busy a given bus will be up to seven days in advance.

Government to do ‘whatever it takes’ 

Liberum said it believes the new measures are broadly similar to the current arrangements, which are supporting bus operations at around breakeven, and hence cash flow positive, while passenger numbers are depressed and to facilitate social distancing through the provision of excess capacity.

All four of the major UK listed public transport operators stand to benefit from the greater clarity on government financial support for regional bus operations, said the broker, though Stagecoach Group PLC (LON:SGC) is the most sensitive, being the market leader in this segment and having the greatest proportion of (pre-pandemic) profit.

“We see this move as a clear indication of the government’s intention to do whatever it takes to support bus operators through the pandemic, until passenger numbers recover enough to allow operations to become self-supporting on a commercial basis again,” added the broker.

“The structure of the scheme means that funding reduces automatically as passenger revenues improve or as social distancing requirements are relaxed, reducing the amount of seats that must be kept empty.

“Consequently, reductions in underlying operating losses accrue in favour of the government rather than the operator, until losses are no longer incurred and funding to offset losses is no longer required.

“This also creates a clear incentive for operators to get off government support to drive financial benefits for themselves.”

Stagecoach shares jumped 8% to 50p, FirstGroup 8% to 42.4p, Go-Ahead 3% to 609p and National Express Group PLC (LON:NEX) 3% to 163.7p.

– adds share price, comment –

Proactiveinvestors.co.uk

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