Rates are a tricky thing to balance. Fuel, drivers’ wages and compliance are mounting costs – how do operators harmonise them with the rates they charge?
The next big industry change can be the ultimate test of an operator’s fortitude in the face of rising costs and setting rates.
Some operators, like Edinburgh Coachlines, prioritise keeping their prices low. But how low can operators go?
“If we increased the rates, we would not be competitive. Customers are always looking for the cheapest option,” says Edinburgh Coachlines Transport Manager Neil Bailey.
To set its rates, Mr Bailey explains that the company prices jobs based on previous costs and future forecasts – such as fuel rates – to ensure it can set fair prices at the beginning of the new season.
There is always cheaper competition. To encourage its potential clients the firm capitalises on its reputation. “The local aspect sells the business well,” Mr Bailey adds, noting that the firm uses its resources and longstanding reputation in Edinburgh to solve any problems customers might encounter.
But the escalating fleet renewal costs affect the business each year.
Rates increase with compliance
Scottish operators have not been particularly affected by Euro 6 standards, notes Mr Bailey. But the findings of a public consultation into Edinburgh’s Low Emission Zone (LEZ) boundaries are scheduled to be reported to the City Council’s Transport and Environment Committee this month.
Edinburgh Coachlines falls within the proposed area, which means the firm will need to upgrade its fleet to be entirely Euro 6 compliant. That would take time to achieve. Around 50% of the company’s coaches are currently Euro 6, Mr Bailey says, adding that retrofits are unavailable for its Volvo B11R and B13R models. This means it will look to move its vehicles to other operations less affected by the need for compliance and buy replacements.
Fellow Scottish operator Hunters Executive Coaches of Alloa faces the same challenges.
“We compete as best as we can,” says Director Julie Jack. “It’s about trying to get a happy median. Costs rise every year, but you can’t just put that cost on the customer. We’ve not been able to increase our rates a lot over the years.”
Like Edinburgh Coachlines, Euro 6 has not affected Hunters too greatly up to press, but Ms Jack is worried about the cost implications for the future. “A lot of our vehicles are Euro 6,” she adds, “but to get the entire fleet converted will cost thousands.
“It’s very difficult for some operators to change their vehicles all the time. Electric will be the big cost after Euro 6. The charging points alone can cost tens of thousands.”
Worth the investment
But, in the end, Ms Jack says she wants Hunters to be newer and better all the time, especially as its customers expect the same standards seen across Europe. “It’s worth the investment,” she says.
But when it comes to the challenge of balancing the investment with the rates acceptable to customers, many operators face a tough choice. “Eventually there’s a moment when you need to make a decision,” Ms Jack adds. “When your fleet reaches a certain size, it becomes harder to make a profit. You have to ask yourself – do you claw back, or push on?”
One fleet which has worked to be majority Euro 6 compliant is Bayliss Executive Travel of Kent. The firm’s commitment to compliance is reflected by a premium charge, says MD Alistair Bayliss, but that has brought its challenges.
“We’re competing against operators who don’t run vehicles to a similar standard,” he says, adding that some of the greatest competition takes place in school work. “A lot of schools are only interested in the cheapest operator.”
Another difficulty, no matter what rates the firm charges, is the driver’s wages. Mr Bayliss says he pays as much as he can – but never feels it is enough.
“It’s immoral that we are paying our staff wages governed by the rates by which we can hire out a coach. Our drivers have the massive responsibility of children’s lives behind them. It’s an embarrassment to the industry that it pays them the paltry rates that it does.
“The whole industry needs to be governed much better in this regard.
“Compliance has pushed the rates up, but it’s still at a level that is too low.”
The struggle between balancing higher costs of ownership with rates charged and wages paid is a struggle that has no clear end in sight, worsened by uncertainty over future regulations relating to compliance with emission control zones.
“And at the end of the day,” adds Mr Bayliss, “operators need to make money to stay in the business.”