Arriva revenue growth losing steam

Published on Tuesday 30 June 2009 21:36

ARRIVA yesterday became the latest major transport group to warn that the recession was eating into its previously optimistic growth expectations.

The company's share price fell by 4 per cent yesterday after it warned that slackening growth on its CrossCountry rail franchise would dent first-half results.

Arriva admitted yesterday that the franchise – which includes services from Aberdeen to Penzance and Bournemouth to Manchester – experienced a slowing of revenue growth to 2.4 per cent in the first five months of 2009. That compares with 4.5 per cent reported in the firm's last update two months ago.

Arriva – which won the CrossCountry franchise in 2007 – needs passenger revenue growth of about 10 per cent a year to maintain 2008 profits. Revenue support measures from the Department for Transport (DfT), designed to counteract downturns in passenger numbers, do not kick in until 2011.

Arriva said: "The results for the six months will reflect the lower revenue growth rates in CrossCountry, and are otherwise expected to be broadly in line with management's overall expectations."

Revenues from the group's other rail franchise, Arriva Trains Wales, also eased slightly, to 8.7 per cent from 9.7 per cent.

"Economic conditions make it difficult to predict with accuracy the short to medium-term trends in passenger demand," the firm added.

There were also signs of faltering growth in Arriva's UK bus business, which runs services in London, Liverpool, Leeds, Glasgow and Newcastle and other cities. The group said the division was "trading strongly" but revenues rose by 5.2 per cent, less than the 7.1 per cent reported two months earlier.

Sunderland-based Arriva is labouring under a 60 million rise in fuel costs this year. The firm has cut its commercial mileage to make savings and it aims to claw back 30m next year through its fuel price fixing policy.

In Europe, where revenues are more than 10 per cent higher, the group has absorbed the higher cost of fuel and expects first half results to benefit from the strength of the euro against the pound. The group has 44,000 staff and operates in 11 European countries alongside the UK.

Arriva's gloomy statement comes as rival FirstGroup is to press ahead with its bid for the National Express group, which is also suffering in the downturn.

National Express has net a debts of 1.2 billion and suffered a setback when the DfT said it would not renegotiate the subsidy payments for the east coast main line franchise which it operates.

A merger of two of the country's "big five" would create the largest transport group in the UK. The combined firm would own seven of the UK's 19 rail franchises and have a combined turnover of more than 2bn.

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