In a trading update, Arriva reported a 2.1% rise in CrossCountry revenues for the year to date, accelerating to a gain of 6.1% over the past 13 weeks.

Despite the upturn Arriva said the improvement was still insufficient to compensate for declining franchise support payments.

The company warned at the start of this year that it needed passenger revenue growth of around 10% a year to maintain 2008 profits. Revenue support measures from the Department for Transport do not kick in until 2011.

The CrossCountry franchise, which Arriva secured in 2007, covers 1,400 miles and calls at more than 100 stations between Aberdeen and Penzance, Bournemouth and Manchester and Cardiff and Stansted in Essex.

Across the business, which operates in 12 European countries, Arriva said it continued to trade in line with expectations, helped by ongoing cost reductions as it offsets recessionary pressure and a £60 million fuel cost rise.

The company said: "Whilst the economic environment remains challenging there is evidence of recovery in passenger revenue growth in our UK trains division."

At Arriva Trains Wales, passenger revenues growth was 7%, compared with the 6.7% improvement reported in October.

Revenues in the UK bus division increased by 4.4% in the 11 months to November 30, compared with 4.9% in the nine months to September. The company said it had cut mileage on regional routes in a bid to reduce its cost base.

See also:

Arriva accelerates despite fuel rises and franchise subsidy falls

Guardian: 17 December 2009
Nick Fletcher

Cost cutting and signs of recovery in train revenues have helped transport group Arriva offset a hefty £60m hike in year-on-year fuel costs.

In a trading update Arriva said bus revenues rose 4.4% in the eleven months to the end of November, while passenger revenues at CrossCountry trains rose by 2.1% in the first 48 weeks and by 6.1% in the last 13 weeks. Its two train franchises have cut costs by £15m but the company warned this would not be sufficient to make up for falling franchise support payments.

The company expects a £45m credit from an agreed change to the largest of its defined benefit pension schemes, a £70m gain from a tax settlement, but a £30m charge from scaling back its Portuguese operations.

In all Arriva said it was trading in line with expectations, and it was confident about its medium term prospects. Its shares have added 3.7p to 485.9p.

The update prompted a buy note from company broker Royal Bank of Scotland:

"There were two key messages that we were keen to hear to continue to support our buy case at this point: 1) group is trading in line with expectations and this is management's view and; 2) that CrossCountry is continuing to stabilise - in fact revenue trends are improving."

Meanwhile Panmure Gordon repeated its hold recommendation, with analyst Gert Zonneveld saying:

'The company is one of the most defensive in the subsector, with the vast bulk of its profits coming from resilient UK bus and mainland European bus and rail operations. The medium and long term outlook is good, supported by a £13bn order book and the fact that more than 60% of its revenues are from government contracts.

"The stock is now trading on a prospective PE of 9.8 times 2010 estimates and the dividend yield is 5.5%. We downgraded to a hold a few months ago when the share price was near 500p. Even though the shares do not look expensive at current levels, we believe they are unlikely to bounce strongly in the current market environment."

And Investec went the whole hog and issued a sell note:

"Arriva's trading update this morning is in line with its expectations. While bus remains solid and the rail recovery continues, Continental European operations appear to have weakened. Although we are now more comfortable that the potential scale of rail-related risks is diminishing, we continue to think it too early to buy the shares and retain our sell recommendation for now."