Business Irish

Friday 18 August 2017

Passenger numbers are down but wheels are in motion for recovery

One of the longest serving semi-state chiefs, Dr John Lynch says the period ahead will be one of the most difficult ever for public transport, but he is preparing CIE for the future

CIE chief John Lynch says that over the last 10 years, €2.7bn has been spent on procurement, but the company is €40m under budget
CIE chief John Lynch says that over the last 10 years, €2.7bn has been spent on procurement, but the company is €40m under budget

Emmet Oliver

Conventional wisdom has it that certain industries and activities triumph in a recession. Value stores, fast-food outlets, home entertainment, repair shops, pawnbrokers and public transport.

The last activity seems designed to appeal to recession-obsessed commuters, who often decide to sell or discard their car and switch to train or bus.

But unfortunately this is something of a recession myth, explains Dr John Lynch, executive chairman of CIE.

On the contrary, those who use public transport most frequently are usually those who suffer most grievously in a downturn.

Among the groups that lose out in a classic recession, for example, is foreign workers who tend to have insecure employment and low-paid workers, who find themselves in a similar position.

Another group that retreats from spending in a recession is young families, who start using local shopping facilities rather than taking long journeys into the city centre.

Discretionary spending

"Firstly a lot of Polish people were using our services and many of them have left the country, obviously there are fewer people actually going to work and also there is a drop in discretionary spending on Saturdays and Sundays. The shopping that is taking place often moves to the local shopping centre,'' Lynch explains.

Put simply, demand has plummeted for Dublin Bus, Irish Rail and Bus Eireann services, with passenger numbers down by around 10pc across the three services.

Ironically, the falling demand comes at a time when the CIE companies and their staff have been attracting some rare goodwill for keeping train services running during the recent snow storms. Some Irish Rail train drivers walked from their homes to work at 4am along dangerously icy roads, explains a company spokesman.

But navigating icy roads in the dark doesn't ultimately shore up the bottom line. With demand slipping sharply, there are only three simple ways to deal with it: fare increases, increased government subvention or cost reductions, Lynch points out.

"We haven't even looked for a price increase, because there is deflation in the economy. We haven't looked for that. The next thing is government support, but obviously things are bad on that front, so the only other way is to take out costs,'' Lynch explains.

Dublin Bus has already undertaken a cost reduction programme and Bus Eireann is undergoing a similar exercise at present.

Alarmingly for staff at CIE companies, more may still be necessary. It all depends whether demand lurches downward again or stabilises at currently low levels.

"We just have to keep an eye on things from month to month,'' Lynch says. Fuel is hedged at $65 a barrel and while traffic snarl-ups still cost the CIE companies a lot of money, the problem has slightly eased in the recession.

Punctuality on all services is always over 90pc, Lynch asserts, although he explains that sometimes for safety reasons speed restrictions have been implemented.

With a modern fleet on commuter rail, Lynch says some day Ireland will be a position to host high speed trains, but that's many years away. At present public controversy is the order of the day.

CIE and Irish Rail in particular were accused last year of having slipshod procurement processes after members of staff were dismissed following allegations of fraud.

Lynch denies that a report by accountants Baker Tilly, which looked at procurement procedures at Irish Rail, found widespread abuses at the company.

Lynch says most people don't understand semi-state procurement. Urgent projects don't get tendered because they are emergencies, spare parts can only be bought from the original supplier, for instance, he says.

"Over the last 10 years, €2.7bn has been spent via procurement, we are €40m under budget,'' he explains.

"CIE identified the problems ourselves, and Baker Tilly didn't discover anything we didn't discover ourselves,'' says Lynch. He says accounting systems will be better in future, "but you can never account for fraud, if somebody is bad enough and cunning enough they will do it, but eventually they will run out of rope''.

Lynch says one thing he won't tolerate is specifications being changed on major projects. "Once it goes, it goes,'' says Lynch. While keeping an eye on running costs is one thing, watching future liabilities is equally important.

A pension deficit at the company has exploded in the last year, from €163m in 2007 to €567m in 2008. Lynch explains that while the rise in the deficit is significant, there is no crisis.

"A couple of years ago our pension was over-provided, then the big crash happened. We brought in an actuary and he told us it would sort itself out in time.''

He says additional monies may have to be put into the fund, but "hundreds of millions'' will not be needed. A fresh actuarial review will take place in September.

"It is not a serious position, at this stage, of course you will always worry about these things, but we go by what our actuaries say,'' he says.

The pension deficit is a large one, but that figure is dwarfed by what CIE, in conjunction with a private sector, is likely to spend on a new underground rail interconnector for Dublin, which comes with a price tag of about €2bn.

Not surprisingly, international companies are eyeing up the contract, with informal approaches coming from as far away as China.

The precise final cost of course is a subject of some debate, but suffice to say in a construction downturn input costs should be a lot less than they used to be.

On the subject of property generally, Lynch thinks now is a good opportunity for CIE to get its property portfolio positioned for the future.

In that context, it is pressing ahead with planning applications and tender offers on a number of sites, including Horgan's Quay in Galway and Kent Station in Cork.

"The market is down dramatically, so people say 'why are they doing all this?' But the bottom line is we are going for planning permission in the recession. Things are quiet, the best thing we should be doing is line these things up," he says

Planning permissions, once granted, can last up to seven years. Lynch, however, grows tired sometimes of people talking about a CIE property "empire''.

Red herring

He calls talk about CIE's bus garage in leafy Donnybrook as "the biggest red herring of them all''. He asks a simple question: if he sold Donnybrook, where would he put all the buses?

Lynch realises that property sales, even in a downturn, could help the company deal with falling demand and a static government subvention, but other painful surgery will still be necessary.

Having lived through recessions in the 1970s and 1980s, Lynch remains confident a recovery is not far away, but he says the banks need to be fixed up first.

"Good economic activity and transport numbers go hand in hand. On the other hand, bad economic activity and bad transport numbers go hand in hand,'' he says. For him demand will eventually recover, but timing is the key.

As for his own future, Lynch sounds like he may eventually wrap up at CIE, but he won't comment directly, simply hinting about what he might do. "I don't believe you should be in any job for less than five years or more than 10."

Lynch jokes that he has been at CIE for nine -and-a-half years. But the enjoyment has not abated.

"You wake up in the morning with a few appointments and everything looks calm and then a ballistic missile hits you, but that's the enjoyable element of it."

Irish Independent

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