Arriva pulls a surprise on fuel costs

Jun 26 2008

Liverpool bus operator Arriva today brushed aside fuel cost concerns and said half-year revenues would rise by more than 50% amid strong performance across the group.

The Sunderland-based firm, which runs more than 13,000 buses and trains across the UK and Europe, said the outlook for 2008 was positive, despite the fuel price hikes blighting the transport sector.

Arriva confirmed it has fixed fuel at 28p a litre for 2008, roughly in line with last year’s costs and had 75% of next year’s fuel prices set at 39p per litre on average.

Arriva shares have come under pressure in recent months, but the firm today gave a bullish outlook for the year ahead.

It said it was “confident of reporting considerable revenue and earnings growth at both the half year and for the full year”.

Arriva’s UK bus business had been buoyed by more passengers and network development and the acquisition of its new airport-based operations, Tellings Golden Miller and Excel.

Its trains arm had also seen “pleasing” trading, like-for-like passenger revenues at its new CrossCountry franchise - the UK’s most extensive in the UK, stretching from Aberdeen to Penzance - up 10% year-on-year in the first 24 weeks of the group’s financial year.

Arriva Trains Wales has also enjoyed a double digit increase in passenger revenues, up 10.7% in the year to date, the group said.

It added: “The outlook for 2008 remains positive. We will continue to benefit from a strong balance sheet, a strongly cash-generating business and the resilience of our diversified portfolio of contracts with a high proportion of non-passenger revenues.”

The group hit passengers with a 4.8% increase in peak fares at the start of the year, with off-peak tickets rising by an average 7% - well above the rail industry average of 5.4%.

In March, Arriva posted a 7% increase in annual operating profits to £128 million, although the figure was impacted by fuel prices and the cost of bidding for three rail franchises.

Growth in its mainland European business has also been behind the recent results strength and Arriva said today that the division has expanded further.

It is expecting to complete a deal soon to buy an 80% stake in Eurobus, which will give the group access to Hungary and Slovakia.

Investec analyst Joe Thomas said the trading update indicates a “steady performance across most divisions”.

“Most pleasing is the improved performance of the Cross County rail franchise,” he added.

Arriva is one of the largest European transport companies with operations across 10 countries and around 40,000 employees.