London's biggest bus operator, which also operates in 12 European countries, is seeing the benefits of people shifting from cars and aeroplanes to buses and trains, with a 59 per cent increase in revenue in the first six months to June 30.

Arriva, which took over the UK's CrossCountry rail franchise last year, said revenue had risen by £1.4 billion from £902 million last time. Pre-tax profits at the group climbed to £66.3 million, up from £47.3 million in the first half of 2007.

Operating profits in the UK rail arm jumped to £14.8 million from £1.1 million a year earlier, due to the contribution from CrossCountry, which stretches from Aberdeen to Penzance and saw revenues on the service improve 10 per cent year-on-year.

The company's European operations delivered a 50 per cent increase in revenue of £626 million and a 24 per cent rise in operating profit of £34.9 million, boosted by the acquisition of 80 per cent of Hungary-based bus business Interbus Invest.

Sunderland-based Arriva, which runs more than 16,000 buses and trains in the UK and continental Europe, said it was well placed to avoid an economic downturn because of the long-term nature of its rail and bus operating contracts, which underpin its future earnings. It has also taken prudent steps to hedge against rising fuel costs and has a strong balance sheet.

The company said that higher fuel prices and slower macro-economic growth was a challenge to the industry but also presented an opportunity. "We have attractive value-for-money propositions, both for fare-paying passengers looking to switch from more fuel-intensive car and air journeys, and for public authorities as they increasingly acknowledge the proven financial benefits of private-sector service delivery," Arriva said in a statement.

Arriva will pay an interim dividend of 6.15p a share, up 10 per cent on the payout a year ago. The shares rose 4.2 per cent to 743p on the day.

See also:

Boost for Arriva as Britons leave cars at home

Financial Times: August 22 2008
By Amanda Vermeulen

“A man who, beyond the age of 26, finds himself on a bus can count himself as a failure.” This statement, once erroneously attributed to Margaret Thatcher, has occasionally been blamed for doing more damage to the rail and bus industry than any other factor.

But since privatisation in the early 1990s, slow but steady growth has transformed an industry once sneered at into an investor darling that seems resilient to economic decline.

Arriva, one of the UK’s five listed bus and rail operators, is a case in point.

A very strong showing in all three of its businesses – bus, rail and Europe – fuelled a 40.2 per cent surge in pre-tax profits in the half-year to June. Earnings per share rose from 18.1p to 23.8p, and the interim dividend was up 10 per cent to 6.15p.

Andrew Fitchie, a Collins Stewart analyst, said: “The listed bus and train companies have the best business profiles in the transport sector in the current economic climate.”

There is now hard evidence of a modal shift, underpinned by the solid growth in both passenger numbers and fares that have been reported by the five transport groups.

Two recent surveys for Arriva rivals First Group and Stagecoach indicate that, increasingly, British motorists are leaving their cars at home, and travelling on trains and buses.

The YouGov poll carried out in July for First Group revealed 39 per cent of the 2,200 adults questioned thought public transport use would increase in the next five to 10 years, up from 30 per cent since November, when the poll was last taken.

It is not hard to see why. Fuel has become expensive, with petrol and diesel going up 20-30 per cent since the beginning of the year.

Traffic chokes the UK’s main cities and motorways, and congestion charges in London, and soon Manchester, add to a financial burden that is threatening to increase as recession looms. Growing environmental awareness and health concerns play their part too.

Arriva has been one of the beneficiaries, although its business mix is somewhat different to its peer group, being less exposed to UK rail than its rivals. It expanded into Europe in 1997.

At the half-year, Arriva reported a 50 per cent rise in income from its European business, which includes both bus and rail.

With about £1bn of an estimated £200bn a year market in revenue terms, it sees much potential, especially with European legislation driving the liberalisation of the continent’s state-owned transport infrastructure over the next 10 years.

Although Arriva’s business is skewed towards contracted income – fees earned from government authorities to run buses and trains – it still gets 40 per cent of its revenue from bus and rail fares.

The inclusion of income from its Cross Country rail franchise was behind a more than threefold increase in rail revenues in the half.