A platform for growth: Interview with Giles Fearnley

Having spent the last two years rehabilitating First UK Bus, MD Giles Fearnley believes that the business is now on a solid footing ready for growth. This hasn’t happened by accident, but as part of a clear plan. But, as he explains to Mel Holley, there is much still to do to improve.

When is a job ever complete? In transport, probably never. But, having taken the helm as MD of First UK Bus three years ago, Giles Fearnley is confident that the structural changes implemented as part of its business transformation strategy have positioned it ready for growth.

In short, it’s seen a revised management structure, with local managers having sensibly-sized geographical areas. This has seen devolution of decision-making to a local level, whereas previously virtually all business decisions were made at Aberdeen with instructions to be implemented locally.

The brand itself has been refreshed. No pretentious slogans, but the return of local identities in keeping with areas.

Underneath the skin has been its ‘Better journeys for life’ campaign, and change-management at depots, to put the focus on passengers; with everything from cleanliness, punctuality and reliability tackled, to how staff engage with each other and how problems are solved.

Steaming ahead

It’s been a massive task, and while the first phase has been completed it is, admits Giles, a process that will continue. While the business transformation is now tapering in emphasis, it will not stop.

“We are clearly now a super-tanker steaming in the right direction,” he says. “I’m measuring that by the external signs which are improved.

“So it’s performance – although that can get better – but we are now able to hold it consistently. That’s important because you can improve too rapidly and then fall back. This is sustainable stuff.

“And we’ve got volume growth of the all-important fare-payers. That’s the first time the business has seen organic growth for an awfully long time.

“And this is the truly good bit – we’ve got the external markers of the Passenger Focus survey, which took place a year ago. We do our own monthly survey of our networks, which gives tracking data, and that is indicating to us that broad satisfaction is continuing to go the right way.”

That’s important, because it is reflected in increasing numbers of passengers: “And that’s despite some pretty tough economic conditions in some of the towns and cities that we serve.” Given that First’s major mileage is in the north of England and south Wales, which are still struggling to recover from the recession, it’s no mean achievement.

In some markets, work to stimulate growth, such as fare reductions, has had an effect. “It’s coming through in spades in Bristol,” says Giles, “which gives us great optimism for the future.”

Observers might note that Go-Ahead has largely flat growth (dragged down by the harsh economic conditions in Tyne and Wear) while Stagecoach’s growth is less than 2%. It’s also fair to say that First had some catching up to do, but it does seem to be bucking a general trend.

“There’s no question that after years of passenger decline – a lot of it brought on by unacceptable service quality, reduced frequencies and higher-than-inflation fares – we have bucked that and have a great opportunity to pull it back, and we are doing that.”

IT progress

Less visually arresting than the buses, but “hugely important,” is the work on IT – particularly customer-facing technology. “We have made huge strides from where we were,” says Giles. “We were first with Barclays Pingit, and our apps have won awards, stuff we never dreamt of two years ago.

“We won’t stop this work. We’re learning so much more about what our customers want and their travel habits. We’ve gone from having no data to having a lot, and you have to learn how to use it skilfully.”

Other work has included network reviews to “repair damage” to mileage and frequency – along with longer operating hours, plus the fare reviews and work to repair “reputational damage.” It aims to be the partner of choice for local authorities and others.

While the work on fare reviews is now complete, as mobile ticketing uptake grows, there is the opportunity to provide bespoke discounting in a way that wasn’t possible before. The value-for-money scores have “shot up.”

With fare reductions, the response – in terms of passenger growth – has varied from area to area. “Now we’re getting better, we’re able to be bolder and more confident about our messages.”

At some point fares will go up – but “unless there are exceptional circumstances, that won’t be more than annually, and we’d expect it to reflect inflation and the changing cost structure,” says Giles. “It’s got to be linked to reasonableness and maintain the volume trend – we don’t want to damage the volume trend.”

Overall, First is enjoying around 3% year-on-year passenger volume growth. It’s been hard won, and it’s clear that these gains are not going to be squandered by short-term measures.

First is also seeing a “very noticeable shift” in the Manchester and Sheffield markets – both of which have seen substantial fare cuts – with people moving from singles to days, days to weeklies, and weeklies to monthlies.

“These are the most mature markets as they were the earliest to have fare changes, and we’re still seeing volume growth in those markets,” says Giles.

“But now we are seeing people who are investing in longer-term products – and that’s great because we’re seeing the results of the business model coming through.”

This is important, “because we need a growing volume base to justify the investment, which is a circular argument. Also a sub-text is to instil customer loyalty.”

Targets

The financial target is clear – that First UK Bus will achieve a double-digit profit margin. “It’s what we need, to continue to invest in the way we want to.” The current margin is around 5.5%.

While announcements have not been made, it’s expected that 2015/16 new bus orders will be similar to the previous years. “Real-term commercial revenue growth will come through sustained volume growth.

“Since we started this work we have seen our commercial revenue growth lagging behind the volume growth.

“You’d expect that because we really took a very sharp knife to some of our fares, such as day tickets in Sheffield and Manchester, plus the work we did in Bristol.

“That was deliberate to increase the size of the customer base. As we head towards anniversary dates (for season ticket renewals), we are seeing those two growth lines coming together.

“We know that there is more potential, so that revenue will continue to grow.”

It’s not easy to compare profit margins between the big groups as some aspects, such as overheads, are treated differently, but also pensions.

First was “very much late to the party” in closing its defined benefits pension scheme to new entrants, “so we have a much greater proportion of payroll to pension-cost than Go-Ahead or Stagecoach.”

On the cost side, the changes haven’t been about cutting, but improving efficiencies, particularly on overheads, IT systems, and fuel – thanks to new vehicles with better mpg, such as Wrightbus’ StreetLites.

“A few years ago our new buses had poorer fuel consumption than older ones we were replacing,” says Giles. “But now we’ve turned that corner and that’s very, very valuable.”

Economy

The bus industry holds a mirror up to the local economy, and growth is not always easy where local economic activity is poor. First sees that in its operations. “In some locations, such as Glasgow, it’s very difficult,” admits Giles. “If you look at the economic statistics behind Glasgow, they are quite frightening. The Commonwealth Games gave it a short-term boost.”

The Glasgow Simplicity network and work on fares is designed to not only help First, but also “breathe life into the local economy,” recognising the part that public transport plays.

Leeds and Manchester, he adds, have seen “extraordinary growth in the centres, but the periphery towns are completely different cases, such as Oldham, Rochdale and Stockport.”

Despite this, every part of the business is being touched by investment, even those that haven’t seen a new bus for years, such as East Scotland, Portsmouth and Weymouth.

Other ways of increasing growth have included partnership, such as in Sheffield – the clearest example of partnership working – where all actions are aligned to a common agenda. In South Hampshire the partnership is not as “deeply defined” but is long-running and deeply embedded. “We are now trying to find a way forward with Hampshire County Council on how to fund extending Eclipse on the Gosport peninsular.”

The relatively low-key launch of the multi-operator Solent smartcard has been a success, and heralds similar roll-outs across the rest of the country. “There’s been no real trumpets blown on this; it’s been a soft-launch, but it’s a lesson in smartcard development and introduction.”

Places such as Eastern Counties where the “business was very tired” are also responding to treatment following new buses, and partnership working, with growth starting to come.

Respect

Has the brand of First been detoxified? “I’d like to think so, but we mustn’t be complacent, and people have long memories,” says Giles. “An issue for us is that politicians have even longer memories, but I think we’ve come a long way, and demonstrated through our consistent actions that we do what we say: That we are really determined to work with our local authority partners, to understand their needs, to make commitments and see them though consistently.

“A huge step forward in terms of relationships locally has been a return to the local management style. They have someone with authority they can talk to, rather than someone they saw as more of a ‘postman’ delivering messages.

“We have to accept there are people out there who used to be our passengers, and we caused them to no longer to travel with us. We haven’t necessarily cleansed the brand in their eyes yet, and that’s a harder task. But we hope that by word of mouth, and by what they see on the street, they see that this is different.”

There is no doubt that Giles – already a very able and experienced figure – has a strong grip not only of the detail of what is happening all around First UK Bus’ operations, but that he understands clearly the different regional dynamics and needs.

Steady progress, with the model being adapted to fit local needs – such as the launch of the Buses of Somerset, with its distinctive brand and livery – demonstrates that flexibility is the key.

He is under no doubt that partnerships that work are the key to unlocking further opportunities for sustainable growth, and in turn the long-term future of a thriving and profitable business – whose aspiration is to re-invest large sums and play a full and committed part in the local economy.