IN JUST four weeks, FirstGroup chief executive Moir Lockhead will step on one of his trains at Glasgow Central station on the maiden voyage of his company’s tenure at the helm of the ScotRail train franchise. For the thousands of passengers across Scotland who use the network every day - who largely associate the word ScotRail with delays - that 07.20 service to Gourock will hopefully come to represent the beginning of a new age in their commuting lives.
For Lockhead, the deal marks another step-change in the growth of his company. It is only 15 years since Lockhead led the management buy-out at what had been Grampian Regional Transport, and just eight since it took its initial steps into the rail in
dustry. But once it has ScotRail in its hands, FirstGroup will be confirmed as the UK’s biggest surface transport company.
Through its fleet of 9,300 vehicles, First will control 20% of the UK bus market. With the ScotRail network adding to its First Great Western, Trans-Pennine and First North Western franchises, it will have a similar grip on the rail network.
And while Lockhead has had to sweep some leaves from the track to get his hands on ScotRail, he believes that this will all prove to be in his - and his passengers’ - best interests.
"Don’t forget that while we were running for ScotRail, we were going through a full Competition Commission inquiry into our market position in Scotland," says Lockhead. "This wasn’t just an OFT [Office of Fair Trading] thing, where they take a quick look. It involved all the stakeholders.
"The outcome from that is that there are very few areas of overlap where the commission considered competition to be at risk. There were a few - a total of 22 in the whole of the network in Scotland - which was fine.
"But that all means we can integrate. As long as we make sure that we are not manipulating the market, we can integrate the network, buses to rail.
"What it proved is that competition is with the car: public transport is competing with the car, it’s not competing with itself.
"The thing is that we now have to integrate buses and trains to an extent that people will choose to use that, rather than, for example, drive along the M8 between Glasgow and Edinburgh. Whether they choose to use the railway or the coaches, it is all about getting people out of their cars."
He adds: "We’ve said many times that the journey doesn’t start at the railway station or the bus stop. The journey starts where you are. Our ambition is to make it end to end. We’ve got to find a way to make it easy end to end - bus, rail, bus and rail, rail and bus. The way to do that is technology."
First has pledged to invest £40m in the ScotRail network. Much of this will be spent in refurbishing the stations, along with smaller touches such as decking out the 3,600 staff in new First ScotRail uniforms from day one and revamping the on-train catering facilities.
Ultimately he wants to wrest control of the track from the Scottish Executive and Network Rail, which he reckons would allow him to tinker with timetables and cut journey times, as the firm has done on the Great Western services running from London Paddington.
But Lockhead also believes that his longer-term plan to introduce technology that will inform passengers of delays to their services via text messages can have a material impact on the number of people willing to use the service - and help the switch towards public transport.
"We know from our research," he says, "that if you tell people the truth and let them know their bus or train is going to be 20 minutes late, they can find another way - get a cab, walk. If you don’t tell them and 20 minutes later they’re still waiting, they’re never going to use you again."
Despite its tightening grip on the UK rail market, there are further opportunities for First to expand. It has thrown its hat into the ring for the Great Eastern franchise currently run by GNER, pitting itself against the incumbent, Danish rail group DSB and the Stagecoach/Virgin consortium. First is also bidding to run the Kent commuter network, which runs into south London. Lockhead reckons he stands a chance with both.
In the bus market, however, he acknowledges that there is no possibility of First making any more acquisitions and that organic growth is the only option.
Now that ScotRail is in First’s hands for up to 10 years, Lockhead is using it as a base to simultaneously ramp up his investment in bus services in Scotland, bringing new buses into the Glasgow and Edinburgh areas. Indeed, he has already announced a £29m plan to introduce 220 new buses into the Glasgow network.
But there are further innovations the company is working on to help stimulate the market. This week, Lockhead will formally unveil the company’s hybrid bus/tram.
Although it will still, in essence, be a bus, it will have lower steps, wider doors and will be easier to use than a bus - while also being tied into higher quality bus shelters and better infrastructure.
"There could be guideways in some places but there won’t be any metal rails in the ground or any overhead electric cables," says Lockhead. "Although in time it could be converted to a tram. There is a part of this concept that could see it converted, and the fuel converted. And we will, over time. We will convert it to electric, battery, duo - all the various energy opportunities that we have. That’s how we will grow our bus network. That’s how we can grow our existing networks."
In the shorter-term, growth across the business is not being helped by the bumper oil prices. Lockhead insists his forthcoming half-year results won’t show any major hit from the high oil price due to a hedging deal he struck last year.
He also revealed that First has the right to appeal to the Scottish Executive to raise ticket prices on ScotRail trains if the high oil price situation continues. But fuel costs are rising due to more than just crude prices.
"There is an added aspect to the fuel issue. All the legislation that flows in from Europe which is focused on emissions always increases the fuel consumption of the vehicle. It either makes the vehicle heavier through the extra gubbins you have to put on it, or measures to improve the burn quality of the engine end up with you burning more oil to run that engine.
"It’s a complicated thing that needs an engineer to explain in full, but you burn more oil to produce a cleaner burning engine - that’s the basic principle, that’s the way these engines work.
"So we’re facing an added burden because not only are fuel prices higher, but consumption keeps increasing. Of course, the buses are running cleaner, which is the benefit, but we’re paying for it."
Lower sulphur diesel being introduced at the EU’s behest next October will add to the burden further. The oil companies are all investing heavily in finding ways to lower the sulphur content - and Lockhead expects these research costs to be passed on to him at the pumps.
"It’s all good stuff," he adds, "but it all comes at a cost."
To combat this, First is working on a number of alternative fuel ideas - some of which are tied in with its hybrid bus/tram. It already operates three buses in London which run on hydrogen fuel cells and only produce water as emissions.
But FirstGroup’s attitude to diversification spreads beyond ways to cut the fuel bill. The company’s US operations are best-known as a fleet of school buses spread across several states. While Stagecoach got its fingers burnt in its leisure-dominated Coach USA business in the wake of the September 11 terrorist attacks, the children served by FirstGroup still had to go to school.
Although Lockhead insists there is still much room for expansion in the school bus business, First is also developing a US-based support services business, which is growing at about 30% annually. Within the next two to three years, Lockhead plans to ship this idea back to the UK.
The division currently runs vehicle maintenance and office management contracts. But a relatively recent diversification has moved it into a totally new sphere.
"In America," Lockhead explains, "they entitle disabled people to be given free travel. As a result of that we’ve developed a new business.
"We run a call centre which takes calls on behalf of the local authority from the people who need the service, then we schedule the vehicles. In some cases we don’t run the vehicles, and just schedule it. In others we do both. The biggest centre is in New York. It employs 350 people and we’ve just extended our contract for five years. It handles 8,500 calls a day and we schedule between 11,000 and 11,500 people movements a day - buses or even taxis, getting people to hospital appointments, leisure centres, shopping centres wherever they want to go.
"We’re rolling that out across the US. We’ve got a new one in Denver - and one in Canada, in Ottawa. They have similar legislation in Canada. That’s a new area for us, but it could really drive the US growth through faster."
