Charter revenue dips 4.5 percent

PERTH, Scotland Coach USA/Coach Canada and megabus.com were the fastest growing divisions of Stagecoach Group plc during fiscal 2012, helping offset a weak performance by Stagecoachs British rail unit.

Revenue at the North America operations of Stagecoach rose 7.9 percent, to $498 million, during the year ended April 30, paced by the expansion of its megabus curbside service.

In fiscal 2011, Coach USA/Coach Canada and megabus had combined revenue of $461.7 million.

Operating profit for Coach USA/Coach Canada/megabus in fiscal 2012 was $31.4 million, up 4 percent from fiscal 2011 operating earnings of $30.2 million.

The significant start-up costs incurred for the rapidly expanding megabus operation continues to depress profit growth for Stagecoachs North American business.

And that will continue to be the case for at least the next two, three or four years as megabus expands into the Southwest and West Coast.

In those regions of the U.S. and Canada where megabus has matured or is starting to mature, the operation is posting remarkable operating margins. For example:

The megabus operations that were started in 2006 produced revenue of $17.3 million in fiscal 2012, and an operating profit of $4.1 million, for an operating margin of 23.7 percent.

The megabus operations started in 2007 produced revenue of $4.9 million and an operating profit of $1.1 million in fiscal 2012, for an operating margin of 22.4 percent.

The megabus operations started in 2008 and 2009 produced combined revenue of $51.7 million, a combined operating profit of $8.4 percent in fiscal 2012, for an operating margin of 16.25 percent.

The newest expansion, started June 19 in Texas, Oklahoma, Louisiana, Arkansas and Tennessee, isnt likely to produce those kinds of returns, in part, because the distances are much greater and the population less dense.

Still, Stagecoach Group CEO Sir Brian Souter said he was "excited about the next phase of our growth plan" for megabus, including expanding the brand into continental Europe.

In May, Stagecoach/Coach USA purchased nine motorcoach operations out of bankruptcy from Coach America. The company says the additions will help it expand megabus faster into California and Texas and at a lower cost.

"The (Coach America) acquisition ... gives us access to people, depots and vehicles in new locations and that allows us to move faster than had we used a subcontractor model," said Martin Griffiths, Stagecoachs finance director.

In reporting its results for fiscal 2012, Stagecoach Group noted that its North American division increased its operating profit for the year despite the start-up losses on megabus operations and the sale of its school bus operation in Wisconsin. The school bus business that was sold represented $17.5 million in annual revenue.

Additionally, "our focus on megabus.com and our scheduled service and commuter business has included redeploying fleet away from charter work to these businesses. This approach is reflected in the change in the mix of revenue."

Heres a breakdown of revenue for the North American operations of Stagecoach Group for fiscal 2012, compared to fiscal 2011:

megabus: Fiscal 2012 revenue $115.9 million, versus $75.4 million in fiscal 2011, up 53.7 percent.

Scheduled service/line run/commuter: Fiscal 2012 revenue $213.6 million, versus $194.9 million in fiscal 2011, up 9.6 percent.

Charter: Fiscal 2012 revenue $78.6 million, versus $82.3 million in fiscal 2011, down 4.5 percent.

Sightseeing/tour: Fiscal 2012 revenue of $20.9 million, versus $19.9 million, up 5 percent.

School bus (remaining): Fiscal 2012 revenue of $7 million, versus $6.5 million, up 7.7 percent.

Contract: Fiscal 2012 revenue of $42.2 million, versus $40.3 million, up 4.7 percent.

Coach USA/Coach Canada/megabus fuel costs increased $9.8 million in fiscal 2012, reflecting in large measure the increased mileage operated by megabus. Additionally, the companys fuel hedging arrangements meant the average fuel cost per unit was higher than fiscal 2011.

Insurance and claim costs decreased as a percentage of revenue in fiscal 2012. Fiscal 2011 insurance expenses were inflated by "provisions for a small number of significant individual claims."

Staff costs fell as a percentage of revenue as the company continued "to focus on cost control. Other external charges increased as a proportion of revenue mainly as a result of sub-contracted megabus services."

Stagecoach said it "continues to see excellent prospects for long-term growth" in North America.

"As we roll out our megabus.com brand to new locations, we expect the benefits of continuing revenue growth at our established operations and improving profits at some megabus.com hubs as they mature to be offset by start up losses incurred at the newer megabus.com hubs.

"The planned acquisition of businesses from Coach America will further add to operating profit. Looking further forward, the outlook remains positive with the prospect of improving profit across the newer megabus.com operations and ongoing growth in the other businesses."

Corporatewide, Stagecoach Group reported an 8 percent increase in revenue for fiscal 2012, but total operating profit declined from $385 million in fiscal 2011 to $369 million for the year ended April 30, 2012.

Operating profit at Stagecoach Groups United Kingdom rail unit dropped by half in fiscal 2012.