London Transport Buses 1998 Results:
Cost Reductions Continue;
No Operating or Capital Subsidies

London Transport Bus & Underground Operating Costs from 1985
London Transport Ridership from 1950

In 1986, after a long period of significant unit cost escalation, a parliamentary mandate required that London Transport (LT) begin converting its bus services to competitive tendering. By 1996, 57 percent of services had been converted, and all bus operations had been sold to the private sector. The newly privatized companies held transitional non-competitive contracts for the remaining 43 percent of service. All services are to be competitively tendered by 1999.

From 1970 to 1985, LT costs per vehicle kilometer had increased 79 percent, after adjustment for inflation (4.3 percent annually). The new competitive environment created by competitive tendering reversed this cost trend almost immediately (Figure #1), and the improved performance has continued. By 1998, costs per vehicle kilometer had fallen slightly below the 1970 level (inflation adjusted).

  • From 1985 to 1998, costs per vehicle kilometer declined 44.2 percent, or 4.4 percent annually (Table). Total operating costs declined 28.7 percent, while services were expanded 27.7 percent (from 268 million to 342 million vehicle kilometers).

  • If the costs per vehicle kilometer had risen with inflation (RPI) through 1998, an additional £3.7 billion would have been required to operate service (costs per kilometer would have risen an additional 72 percent. Instead of the £8.2 billion that was required to operated bus service over the period, £16.4 billion would have been required. Alternatively, if no additional funding had been provided, a service level reduction of 29 percent would have been necessary.

  • If the 1970-1985 cost trend had continued through 1998, costs per kilometer would have risen an additional 72 percent. Instead of the £8.2 billion that was required to operated bus service over the period, £16.4 billion would have been required. Alternatively, if no additional funding had been provided, a service level reduction of 58 percent would have been necessary.

    By 1998, passenger fares covered the full capital and operating cost of buses for the first time in decades. London Transport earned a £100,000 surplus. Presumably, the private companies offering service also earned profits, though London specific results are not reported. This compares to a 41 percent loss (subsidy requirement) in 1985 (Figure #2).

    Ridership in 1998 was 1,277 million, up 10 percent from 1985. This is the highest ridership figure recorded since 1978.

    London Transport Bus Costs

    Year Bus Kilometers Cost (1998$) Cost/KM Change from 1985
    1985 267.7 £809 £3.02 0.0%
    1986 262.9 £727 £2.77 -8.4%
    1987 259.7 £667 £2.57 -15.0%
    1988 262.9 £637 £2.42 -19.8%
    1989 274.2 £652 £2.38 -21.3%
    1990 282.3 £632 £2.24 -25.9%
    1991 300.0 £643 £2.14 -29.1%
    1992 316.1 £651 £2.06 -31.9%
    1993 321.0 £629 £1.96 -35.1%
    1994 325.8 £586 £1.80 -40.4%
    1995 322.0 £587 £1.82 -39.6%
    1996 329.0 £574 £1.74 -42.3%
    1997 332.0 £579 £1.75 -42.2%
    1998 342.0 £578 £1.69 -44.0%
    Sources: Calculated from London Transport Annual Reports and UK Department of Transport

    Note: Competitive tendering program began 1986. By 1997, 60 percent of services were competitively tendered (all other services operated by private companies under transitional contracts pending full conversion to competitive tendering by 2001)

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