What does Red Bus' loss of business mean for the future of this city council company?

Thursday, 27 February 2020

Red Bus has lost out on winning contracts for three major urban bus units, comprising 13 routes, including the orbiter, orange and blue lines. (Video first published on February 27, 2020)

The future of Christchurch's ratepayer-owned bus company has been thrown into doubt after losing a big chunk of its business to competitors.

After a $5.3 million financial loss in the last year, Red Bus Ltd had pinned its hopes on winning more bus routes in the latest Environment Canterbury (ECan) tender round.

Instead, six of its 11 city routes were awarded to iwi-owned Go Bus, and its school contracts went to privately owned Ritchies Transport. Shut out of the routes for between nine and 15 years, it will lay off staff and sell buses.

Red Bus is a company under the CCH umbrella.

Red Bus is the worst performing of the trading companies that the Christchurch City Council owns through its business arm Christchurch City Holdings Ltd (CCH).

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Red Bus is owned by Christchurch ratepayers.

Cr Mike Davidson, chair of the council's urban development and transport committee, said the news was 'very disappointing' for Red Bus. The new tenders take effect in November.

There were 'conversations that need to be had' between the council and CCH board, said Davidson, who also sits on the greater Christchurch public transport joint committee and the regional transport committee.

Red Bus chief executive Paul McNoe says the outcome of ECan's latest tender round is 'disappointing' for the company.

'It's difficult for a council that has companies under its umbrella but also want public transport to work. There's also the question about ECan running public transport and the [city] council doing the infrastructure,' he said.

'With the new ECan council there's a really strong approach to making public transport work. What's happened with Red Bus is only one part of that – we need to invest in public transport and get it working for the city's future.'

In the 2018-19 financial year, Red Bus took in $20.8m from running buses and tourist coaches, of which $17m came from ECan and $3.6m from charters and private hire.

Its $5.3m loss was a worse outcome than forecast, and was attributed to the drop-off in value of its mainly diesel-powered fleet in the face of the global shift to electric vehicles. The company made a small profit of $117,000 the previous year and $207,000 in 2017.

In most years since the earthquakes Red Bus has not paid a dividend to the city council. However its latest loss helped reduce the tax bills of other council businesses such as the airport and port companies and fibre installer Enable.

Red Bus has confirmed it will sell buses.

Wages and salaries cost Red Bus $11.4m last year, and the company is moving towards paying all staff a living wage. It has nearly 250 workers in operations, driving, workshop and administration.

Chief executive Paul McNoe was paid $314,000 including a performance bonus, and four other staff members were paid between $100,000 and $200,000. Its eight-strong board of directors received a total of just under $220,000 in 2018-19, including chair Bryan Jamison's $50,000 fee.

Charter and hire services form part of Red Bus's business.

Its assets, mostly buses, are worth $32.5m, down from $39m the previous year.

McNoe said Red Bus had the highest customer service rating in the city and put 'significant effort' into the tender process to try grow the business and boost profitability.

Like other bidders, it was required by ECan to submit three proposals mixing diesel and electric use to meet targets for low-emission vehicles.

Jamison said the board had some key decisions to make. He said he could not speculate on those decisions but said they needed time to consider 'appropriate business changes'.

A Red Bus driver, who spoke on the condition of anonymity, said there was a lot of anger towards McNoe.

'There's a few drivers like myself who want him to go,' he said.

'This is the second time he's been in charge of tenders and we've lost out badly. If this were a publicly-listed company, he'd be gone first time.'

The driver said Red Bus drivers were not guaranteed jobs with Go Bus, but the company would be stupid not to take on most of them given their experience and knowledge of the routes.

ECan said the new contracts would add 25 new electric buses and 39 new low emission buses in the first year. With Red Bus's three existing electric vehicles, it will mean 14 per cent of the fleet will be emission-free.

In the year to June 2019, Red Bus's urban and school bus services carried 3.9 million passengers and travelled 5.9 million kilometres.

Its tourist coach business, Red Travel, operates across the South Island, an operation it expanded with the purchase of a local coach company to capitalise on the fast growing Asian tour market.

From November, Go Bus will operate 80 per cent of Christchurch's main routes.

Cr Sara Templeton, who is on the CCH board, said it was important for Christchurch to have good public transport. However, she did not want to discuss whether it mattered to the city who owned the transport providers. Fellow board member Cr Jamie Gough did not wish to comment on Red Bus.

Simon Kingham, a Canterbury University geography professor and the Ministry of Transport's chief science advisor, said the benefits of public transport to a city could not be measured by business success.

He agreed with Templeton that a good service was the most important outcome.

'The reality is, if the best service is from Go Bus, there's something to be said for that,' Kingham said.

'But if we ever have only one company getting the contracts we'll end up with a monopoly.'