Interview with Stagecoach Group Chief Executive Sir Brian Souter, July 2012
Stagecoach Group Chief Executive, Sir Brian Souter, discusses the challenges facing the transport sector,
what sets Stagecoach apart and why the Group is well placed to deliver on the opportunities for growth
in the future.
How was 2011-12 for public transport in general and for Stagecoach Group in particular?
Sir Brian: We’ve had another strong year right across the whole Group. There’s no doubt the general weakness in the economy and the
reduction in public sector spending on transport have brought their challenges for our sector, but Stagecoach has been resilient and is
continuing to grow strongly. We’re seeing commuters and leisure travellers switching from the car to our bus and rail services in the UK
and North America. The Group is also well positioned to benefit from opportunities for growth in the year ahead.
Why has Stagecoach been able to manage the challenges better than some other businesses?
Sir Brian: Stagecoach has always been different from other transport groups – and that is one of our strengths. We manage a portfolio
of business assets and look at how we can do that to deliver value to our shareholders. It’s not about getting bigger for the sake of it.
I think we have pursued the right strategy over several years by targeting organic growth. We’ve developed a successful mix of
innovation, value-for-money travel, continued investment in our services and strong operational delivery. Our management teams have
used tailored solutions in their specific markets, regardless of their geography. All of these factors have meant we’ve had a resilient
business that has been able to continue to grow through the economic cycle.
There’s been a lot of focus in the media over the past year about the threat to bus networks in the UK. What is your view on
the future for the bus?
Sir Brian: We have always been focused on having at our core a strong commercial bus business. That has stood us in good stead. You
can’t expect the level of public sector cuts and cost pressures we are seeing not to impact prices and bus networks. But it’s how you
respond to that challenge which is important. Stagecoach is the best value major bus operator in the UK and our approach has been to
work hard to continue to offer the lowest fares, maintain strong networks and keep on investing in our bus fleet. That is why, in UK Bus,
we have consistently delivered organic growth and sector leading profit margins over many years and I’m confident the bus can play a
major role in our transport future.
What about the London contracted market - how is your turnaround plan progressing?
Sir Brian: It’s going well. Turning around an under performing business is a challenge and one we went into with our eyes open. The real
positive is that we have been able to make significant cost savings and changes in working practices, productivity and the culture of the
business with the support of our people. We said it would be a three-year programme and we remain comfortable with that forecast.
It’s encouraging that our new more sustainable tender strategy is now resulting in contract wins and retentions on more acceptable
profit margins. We still have a lot of work to do, but we are certainly well on track to meet our objectives.
What support do you think the UK transport sector needs from Government?
Sir Brian: Public transport has a big role to play in regenerating our economy, ensuring people have easy access to employment and
helping tackle the twin challenges of congestion and climate change. The best way to protect services and get more people on board is
for operators, Government and local transport authorities to work in partnership. That way we can ensure there are the right policies
and measures on the ground. If we do that, it can make a real difference to our existing customers, help more switch from the car and
maximise the wider social and environmental benefit from buses, coaches, trams and trains to our communities. Above all else we need
a regulatory framework that gives to transport operators the freedom to innovate and grow the market for safe, good value, high
quality transport.
UK rail is under the microscope, with several policy reviews looking at franchising, fares and regulation. Do you still feel it
is a sector Stagecoach wants to be involved in?
Sir Brian: Absolutely. There is a real opportunity to develop a new low cost, high quality model for UK rail if Government gets the
balance right. I believe Stagecoach is well placed to benefit from reform. We have a strong record of controlling costs and giving
passengers high levels of performance. It’s no coincidence we have high levels of customer satisfaction at our rail networks. We have
also been able to deliver significant returns for taxpayers and good returns for our shareholders by attracting more people to rail travel.
We are currently shortlisted for both the Greater Western and Thameslink rail franchises. Our joint venture, Virgin Rail Group, has just
submitted a great bid for the new Intercity West Coast franchise. Several other rail franchises will also be market tested in the next three
years. We will be working hard to expand our existing portfolio where we believe this can be achieved on the right risk-reward profile
and where we can add value for our shareholders.
Are you worried about the threat from continental European transport groups bidding for UK rail franchises?
Sir Brian: We operate in a competitive market and continental European transport groups are already involved in running parts of the
UK rail network. We will continue to follow the same strategy of bidding for franchises that have the right risk-reward balance and have
the potential to add value for shareholders. There is a tendency in some quarters to look to continental Europe in a simplistic way and
see it as offering a better railway. The reality is that it is a different railway in some respects, due to the higher levels of public sector
funding. When you look at the big picture, the growth achieved in the UK, the efficiency of train companies and the levels of
performance and customer satisfaction here stand comparison with that in continental Europe.
You recently announced the creation of an Alliance with Network Rail at South West Trains. Why did you do it and what do
you hope to achieve?
Sir Brian: We’ve been working closely with Network Rail for many years, for example through the integrated control centre at London
Waterloo. Network Rail has also been taking steps recently to devolve operational responsibility to regional units. The new Alliance takes
that joint working to a new level with a single senior joint management team with responsibility for both trains and track. It’s a real
opportunity to deliver change that will benefit both passengers and taxpayers and support our objective of growing the railway. We can
cut delays for passengers, provide better customer service, deliver more effective management of disruption and improve the efficiency
of the railway. This approach can be the new model for future franchises and by leading the way I believe it can give the Group an
important competitive advantage.
Turning to North America, how is the Group performing in the United States and Canada?
Sir Brian: North America is the fastest growing division in the Group and we are really excited about the future. Our budget coach brand,
megabus.com, has been central to that growth story, but the other services in our North America portfolio are also performing well.
What is exciting is that we are getting people in North America, where so much of the infrastructure is centred around the car, on to
public transport. megabus.com now covers around 90 locations and we believe there’s huge scope to grow that further. That’s why we
invested this past year in nearly 100 new double-decker coaches for megabus.com in North America. We are continuing to look at
various ways to grow our business in the US and Canada.
You have also launched new megabus.com routes from the UK to continental Europe. Do you see Stagecoach expanding in
Europe?
Sir Brian: Stagecoach has operated transport services in mainland Europe before and our preference is to operate in deregulated
markets. Our new megabus.com services linking London with Paris, Brussels and Amsterdam are an extension to our existing UK
network and a good opportunity to test the market in continental Europe. These new international routes have already proved popular
with many journeys sold out. We are monitoring closely the moves by several countries in mainland Europe to further deregulate
domestic coach services and we are also considering the potential for services running from the UK to other locations in France,
Belgium and the Netherlands.
Do you have any plans for major acquisitions or to enter new markets?
Sir Brian: During 2011-12, we returned approximately £340m in cash to our shareholders in addition to the regular dividends. We
looked at whether there were any significant opportunities at the time and we decided the best way to use shareholders’ money at the
time was to return cash. However, we are always open to the right deal at the right price that might create additional value for our
shareholders, as our recent announcement of a planned acquisition in North America demonstrates. We are progressing with our
turnaround strategy at London bus and we will evaluate opportunities to acquire smaller UK bus businesses that would complement our
existing regional operations. We are also excited about the next phase of our growth plan for our budget coach brand, megabus.com, in
the UK and North America, as well as testing the market in mainland Europe.
What is your message to investors for the year ahead?
Sir Brian: Stagecoach has delivered sector leading returns to its shareholders over several years. We’ve had a clear strategy - built around
organic growth, selective acquisitions and targeted rail opportunities – and we’ve delivered on that for the benefit of our customers,
taxpayers and our shareholders. Underpinning our success is the strength of the Group’s financial position. Across our business, our new
ideas and partnerships are helping shape the future of public transport and we are positive about the year ahead. Higher motoring costs,
increasing road congestion and the pressure on governments to address climate change are all positive drivers for our sector. With our
record of innovation, good value and high quality transport, Stagecoach and its investors can look forward with confidence to the year
ahead.