Group overview

How we work

We operate according to several different business models which vary by country, by region, and by the mode of transport.

Deregulated services

In a ‘deregulated’ bus market, the key commercial relationship is directly between Arriva and our passengers - they are our customers, and their fare payments are the dominant source of income for the business. Our services have to be profitable in order to be sustainable, to generate the profits which underpin investments in replacement vehicles, our depot facilities, and the expansion and development of services.

In a deregulated market we compete against other forms of transport, and against other operators of similar transport, in just the same way as a high street retailer competes for the spending power of the public. We bear the ‘revenue risk’, which is to say that if the travelling public decides to switch to another form of transport, the lost revenue directly affects our finances.

Even deregulated services are subject to significant oversight, scrutiny and regulation in various ways, and there is usually a layer of sector-specific regulation. In our UK Bus operations, for example, the quality of operation and fitness for service of our vehicles and drivers is regulated by Traffic Commissioners.

Most of the bus operations in the UK, outside London, are deregulated and operate on a purely commercial basis. Contracted services are more common in other European countries, and Spain and Portugal operate on a more commercialised basis.

Contracted services

In most of our mainland European bus and rail markets, the London bus market, and the UK rail market, our primary customer is some form of public-sector body. A regional government or transport authority may offer various forms of contract which give an operator the right to operate services, usually exclusively, on a particular route or in a specific area. Increasingly, as European transport markets become more liberalised, these contracts are awarded on the basis of competitive tendering. During a transition period, however, contracts may be awarded directly following negotiation with an incumbent operator.

The main variations include:

Gross cost contracts

In a gross cost contract the tendering authority agrees to pay an operator a specified sum to provide the specified service for a specified period. Revenue from fares is passed to the tendering authority, which bears the ‘revenue risk’. The service provider generally carries the ‘cost risk’, though there may be provisions for cost increases to be passed through, such as elements of wage or fuel costs. Generally the tendering authority will take responsibility for working out routes, and may also specify the vehicles to be used.

Because the operator has no direct commercial relationship with passengers it is common for the tendering authority to provide a system of bonuses and penalties to give operators a financial incentive to provide the desired quality of service.

The UK London bus business, some of the rail operations in Germany and bus contracts in Denmark, are examples of where Arriva operates gross cost contracts.

Net cost contracts

In a net cost contract the operator takes on both the revenue risk and the cost risk. It keeps the revenues from fares, and the tendering authority provides a contribution in the form of additional contracted income. This offsets obligations that the tendering authority may have to ensure the provision of a public transport service, or to meet social objectives where the cost of providing such a service would not be commercially viable if it depended solely on the fare income that it could achieve.

On especially popular and important services it may be possible for the tendering authority to reap a premium payment from the operator running these routes rather than providing financial support.

UK rail franchises and bus and rail contracts in the Netherlands are examples of where Arriva operates within this form of business model.