UK transport companies: bus drivers

First class upgrades all around. Shares in UK transport companies have staged a relief rally since the Conservative party won the general election last week. There had been worries that challengers Labour would be less business friendly in general, and would target government-regulated sectors such as transport in particular. Shares in Stagecoach, Go-Ahead, National Express and FirstGroup have risen an average of 5 per cent since the election.

Go-Ahead and Stagecoach have been the sector's star performers lately, outperforming the latter pair by more than 40 percentage points over the past five years. The secret ingredient? Buses. They both generate most of their earnings before interest, tax and amortisation from their UK bus divisions. And buses have provided exceptional returns. Bus fares in UK cities have climbed at twice the pace of inflation over the past decade. On the other hand rail, often in the news for the wrong reasons (usually delays), provides less than a quarter of their profits.

But the threat to the bus operations has not gone away with Labour's defeat. The previous (Conservative-led) administration had planned to devolve more bus regulation to local authorities. That could have led to lower fares (threatening the profitability of franchises), or even retendering existing agreements. A more business-friendly government may see less urgency for this shift but it could still be on the agenda.

Rail is likely to be more of a struggle, though. The rail companies have captive customers who will always complain, particularly on the congested networks into London. Both Go-Ahead (Thameslink) and Stagecoach (South West) own rail franchises that score poorly on the national customer satisfaction surveys. Stagecoach has two franchises, East Midlands and South West, up for renewal by 2017. Unhappy customers do not make renewal bids easy. Regardless of the benefits of a Conservative government, the transport companies still have work to do in the cheap seats.

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