1: Competition, revenue risk and profit margins in London
In London, operators cannot deter competition with a short burst of unsustainable lower fares and higher frequency services for passengers which quickly disappear when the challenger withdraws. Franchising means that operators compete with one another in the boardroom in advance of providing services across the length of a contract with Transport for London (TfL). When each contract ends, competition is reopened to multiple operators. Due to scale of the market in London and the clear framework for operators to compete, London has the widest range of large bus operators of any city in the UK — other cities have more operators, but most are very small — attracting investment from around the world (one of the aims of deregulation was to encourage investment by the private sector into buses). Many of these firms are present in London but nowhere else in the country.
More effective competition for every route means that operators generate lower profit margins in London than they do elsewhere in the country. TfL takes on the revenue risk of running bus services by collecting the fares and paying operators a fixed fee. Operators have greater certainty about their returns over the course of the contract and accept a lower margin for lower risk. The introduction of franchising would let mayors elsewhere drive down profit margins to make more efficient use of fare revenues and public subsidy to procure a better bus service.