• Year in review
• Market overview

Overall performance

After a record profit in 2009, the UK Coach business consolidated its position this year. Although greater investment in marketing, new facilities and services reduced operating margin by just over one percentage point, the business continues to lead its market and has, under new management, completed a review to identify future opportunities to build this exciting network and brand.

Overall revenue grew 3% in 2010 to £250.3 million (2009: £242.9m), with underlying revenue in the Express coach business also up 3%. Despite the highly competitive pricing environment, as many rail companies continue to heavily discount fares, yields in Express coaches improved by 1% and underlying volume increased by 2%. The division also saw good growth in The Kings Ferry commuter-hire operation and from Eurolines.

Normalised operating profit decreased slightly during the year, from £34.3 million in 2009 to £32.0 million in 2010. The operating margin was 12.8% (2009: 14.1%). This reflected an increase in scheduled operating costs, including fuel costs for third party operators. However, the key drivers were an increase in marketing expenditure, investment in new facilities (including the state-of-the-art Birmingham Coach Station, which opened in December 2009) and tactical campaigns to defend aggressive competition and successfully retain our leading market share.

Driving revenue

The National Express scheduled business enjoyed a strong recovery in airport traffic during 2010, offsetting some cross- country weakness. Customer access continued to improve in 2010 – the website, which now accounts for over 50% of passenger revenue booking, was relaunched in September. Customers tell us that coach station facilities are important to them; in addition to Birmingham, new stations were opened at Milton Keynes, Swansea, Derby and Blackpool, all significantly improving passenger experience. In addition, station facilities at Manchester, Leeds and Liverpool were all refurbished.

The Hotel Hoppa service and The Kings Ferry also saw growth, the latter including high profile executive contracts for football clubs and politicians. Eurolines had a strong 2010; following the Icelandic volcano eruption in April, 28,000 people were repatriated to the UK from continental Europe during the affected period. The value offered and ease of use demonstrated by Eurolines during this period have helped it gain many new customers and this business will provide a platform to support the Group’s planned expansion as continental European countries liberalise their domestic markets.

The UK Coach division benefited from a number of contract-based projects during the year. At Gatwick Airport, National Express provided the inter-terminal monorail replacement service through most of 2010. Our co-ordination of pilgrim transport for the papal visit to Birmingham, as well as the ongoing partnership with a number of music festivals, contributed to overall performance. Offsetting this, the impact of Network Rail’s reduced engineering programme during the year was seen in lower activity in our Rail Replacement business.

Managing costs

The division’s flexible cost base structure continued to benefit cost management. With around 80% of services run by third party operators under long-term contracts, capacity was successfully flexed to meet changing customer requirements, and under-performing operators were replaced without interruption to service. The bus-based, real-time information system called Traffilog has been extended to UK Coach and is already improving fuel efficiency, providing improved route planning and helping to assess driving standards. The fitting of automatic alcohol testing to all express coaches provides a further safety feature.

Developing opportunities

The Coach division has been substantially overhauled in 2010, with a new management team recruited from the transport and consumer goods sectors. The Express coach business has been reorganised around its key segments – Airports, Long Distance, Multi-hopper and Short Distance. This will ensure a sharper focus, create new journey opportunities and improve revenue management. The division will continue to extend its application of new systems, with a new booking platform being developed in conjunction with the ALSA sister business in Spain and better yield management support under development. Innovation is a major area of focus. On-board coach tracking was trialled during 2010 and will be fitted to all coaches by March 2011. This is already providing operational benefits to re-route coaches caught in traffic congestion and is providing customer benefits on the key Stansted-London route, where it is used to ensure customers always find a coach on stand for this ‘turn up and travel’ service. During 2011, new applications will deliver more real time information to customers through information screens, internet and mobile channels.

Our Airports business has renewed its five year contract with BAA to operate Heathrow Central Bus Station, leading to additional investment and services at this key network hub. We expect other airport contract and rail replacement business to remain at current levels. The UK government’s CSR also abolished the funding of the half price over-60s concessionary coach travel scheme from October 2011. This was worth £14 million to National Express in 2010. Through mitigating actions we consider approximately £5 million of this to be at risk.

Through the improved targeting available via better customer segmentation, we expect to make steady progress in the development of new services, allowing us to increase customer retention and frequency of travel. We expect to achieve significant gains from our programmes in the medium term and further develop the strength of the National Express coach brand. Dramatically higher rail pricing in future years, together with the retendering of major rail franchises and the commensurate impact likely on the profitability of rail competitors, should provide further opportunities for the Coach division to leverage its unique network and value-orientated customer proposition.

National Express is the only scheduled national coach network in the UK and the largest in Europe, running 500 coaches a day serving over 1,000 domestic destinations.