Recent price rise in ticket prices by Travel West Midlands

Representatives from Travel West Midlands (TWM) attended yesterdays Transportation and Street Services Scrutiny Committee to explain the recent price rises on TWM buses.

The following was explained:

The price rise was triggered by an increase in running costs for TWM.
a) The bus drivers have had a significant wage increase from £6 per hour to £7.50 per hour. TWM are noted for having the highest paid bus drivers outside of London.
b) increase in diesel to run the buses
c) increase in elecricity and gas prices to run the garages - the garages are expensive to run since they are run 24 hours per day - buses are maintained and cleaned at night. The garages are huge open spaces with large open doors

The price rise was needed to maintain a TWM profit margin of between 12-15% of turnover. In 2005, the turnover ( this is money received from tickets) was £208million. After deduction, the pre-tax profit was £29.7million - ie a profit margin of 14.3%. After tax deductions the profit is reduced to approx £21million. This profit is then re-invested in the company. TWM buys 115 new buses per year at a cost of £18million. The remaining £3million is invested in garage improvements, real time information investment and other capital costs.

The 12-15% profit margin is considered to be reasonable to maintain a sustainable business. Other bus companies with lower profit margins tend not to invest in new buses.

TWM decided not to evenly spread the proposed increase in fares over all tickets and bus cards. Instead they felt that there was an imbalance between the cost of normal bus tickets and pre-purchased bus cards and saver tickets. This was based on experience from other cities like London and Brighton, which have been successful in increasing bus patronage - in these cities the bus fares are skewed to encourage bus passenger to pre-purchase their tickets.

The increase in fares will affect 25% of passengers who purchase their tickets on the bus. It is not known what the economic background of these customers are.

The remaining 75% of passenger will see no increase in fares - and instead a reduction in real terms.

TWM feel that the new pricing strategy will increase bus patronage, since customers who buy travel cards or saver tickets are more likely to use the bus more.