First Delivers Higher Profits by Closing Depots and Stripping Costs

John Ficenec of the Telegraph reports that in the UK the bus business managed to deliver higher profits after closing depots and stripping out costs in the face of passenger volumes dragging revenue lower.

Weaker demand hit the Greyhound bus operations in the US where both revenue and profits declined.The net debt levels remained flat at £1.4bn, against £1.6bn in shareholders equity at the end of March.

Nicholas Megaw at the Financial Times put a more positive spin on the 10% jump in FirstGroup's share price stating that "...the rail and bus operator reported higher profits and a positive outlook for the year ahead — as it continues to turn itself around after losing a key UK franchise in 2012."

Revenues declined for the year due to bad weather in the UK and staff shortages in the US. Revenues fell 14% to £5,218.1m after the company lost out on several rail contracts but underlying revenues on the rest of the business was broadly flat according to Megaw.

"In North America, where the company generates the majority of its revenues, the group was affected by a lack of bus drivers and reduced passenger demand as lower fuel prices cut motoring costs. Lower oil prices and wildfires in the Canadian oil sands region, where FirstGroup provides shuttle bus services, also had a negative impact. However, Mr O’Toole said oil prices should have a more positive impact this year, thanks to new hedging arrangements for fuel."

FirstGroup released it's full year results to March of 2016 and Chairman Wolfhart Hauser indicated that over the last several years the emphasis has been on improving margins through pricing and cost efficiency programs with a view to long term sustainability as opposed to short term fixes. A part of this has been the retooling of Greyhound's entire business model.

Greyhound revenues for 2016 came in at $914 million (US) down from $986 million (US) in 2015, a decline of 7.3%. Operating profit for Greyhound fell by $14.1 million (US) from $68.5 million in 2015 to $54.4 million (US) in 2016, a decline of 20.6%.

In the US, the decrease in revenues reflected the drop in fuel prices which, while they reduce Greyhound's cost base, also improve the affordability of alternative modes of transport for some trips relative to Greyhound. Point to point Greyhound Express revenues were more resilient to the drop in fuel prices where like-for-like revenue decreased by 1.9% over the year. Like-for-like revenues decreased by 4.9% for the division as a whole. 

Greyhound Canada is of concern to FirstGroup and is identified as one of several "future priorities" going forward - "We are also determined to improve our returns in Canada, which currently mask our performance in the US." The major obstacle in Canada is identified as the Government regulatory and structural constraints affecting the market.

"Compared with our US operations, the lower oil price has had a more adverse effect on passenger demand for our services in Canada (approximately 16% of Greyhound's revenues), both directly and through the impact on the health of the economy. There are regulatory and structural constraints in this market and, despite extensive management action, Greyhound Canada was loss-making in 2015/16. We are pursuing further options to address the performance of our Canadian business."

FirstGroup intends to build and grow the "iconic" bus brand that is Greyhound based on the Bolt Bus and Express Bus business model. This translates as having free wi-fi, power outlets, leather seats, extra leg-room and guaranteed seats on all buses, and coupling that with airline style yield management, real time pricing, upgraded website, mobile apps and bus tracking technology to the larger, traditional Greyhound network.

"All of these changes complement the complex transformation of our entire pricing and ticketing business model, which has now been upgraded to give us access to algorithmic pricing and yield management tools across our entire network of 3,800 locations generating more than 50,000 different journey combinations in a typical month. Amongst other opportunities, these tools will increase our ability to stimulate demand throughout the macro-economic cycle, and allow us to shift demand to off-peak times more easily, resulting in better utilisation of existing seat inventory. This project enhances Greyhound's opportunities for growth, margin expansion and returns over the medium term."

In the coming year FirstGroup reports that Greyhound will continue to cut costs by reducing mileage by 5.8% and will continue to monitor their property portfolio to sell off assets as was done in Raleigh, Fresno and Baltimore.