Business Irish

Wednesday 22 August 2018

'You're trying to build up hope that taking so much pain has been worth it' - Bus Éireann CEO

State transport company Bus Éireann faces a difficult future as it undergoes a transformation and tries to win back public trust, writes Environment Editor Paul Melia

Bus Éireann CEO Ray Hernan. Photo: Gerry Mooney
Bus Éireann CEO Ray Hernan. Photo: Gerry Mooney

Interview: Ray Hernan

Bus Éireann has had a difficult year. The loss-making company was struggling and technically insolvent when unions mounted a 21-day all-out strike last March and April, which cost the firm between €5m and €6m.

The bitter dispute was resolved in the Labour Court, which made some 60 recommendations including the closure of Dundalk garage, changes to rostering, pay cuts and freezes and the loss of 240 jobs, 120 of which were drivers.

The changes were long overdue, chief executive Ray Hernan says - and more are needed.

"The business needed fundamental change. There was recognition on our part we were not competitive on everything. I believed we had inefficiencies, our structures were wrong. The way we operated our business was wrong.

"Very often in the past, Bus Éireann did badly in one year, and implemented temporary pay reductions. The performance improved, but nothing else really changed, and then you're back to losses again the following year.

"The Labour Court recommendation was approved in May last year. It's now about sustaining the changes we've implemented over the last 12 months. In the context of having implemented over 60 work practice changes, it's critical that we maintain and sustain those changes to avoid the boom and bust."

The 53-year-old married father of three joined Bus Éireann as chief financial officer in December 2016, after a career which included stints in Arnott's and Brown Thomas.

From Ballygar, in Co Galway, he was appointed acting CEO in January last year, and was formally appointed in January this year.

In terms of geographical spread, the company is the largest transport operator in the State. It provides public service obligation (PSO) services on behalf of the National Transport Authority (NTA), which are not commercial and which require subvention; it oversees the school transport scheme which caters for 115,000 primary and post-primary pupils, and runs a commercial arm, Expressway.

"I was conscious that because the next PSO direct award will commence in December 2019, we had a period of time to look at the company, benchmark ourselves against best in class, and it was clearly my view that we needed to change the structure across the company," he says.

"That has created challenges for us, against the backdrop of us implementing very draconian changes where just over 50pc of our staff supported them, a very small majority. One of our worker directors described it: 'Ray. What you're trying to do in six months would normally take six years'."

There was a compelling need for change.

In 2016, the company lost €9.5m from operations. The following year, it fell to €7m, before voluntary severance costs of €16m were included. At the end of 2017, there were negative reserves of €17m.

This year, savings of €20m are projected, but problems emerged during the restructuring, particularly with drivers who now work longer hours for the same pay as before. Such was the scale of the financial crisis that there simply wasn't time to engage with staff on the changes needed, he says.

"The niceties of doing presentations to staff and trying to bring them along with you... we didn't have that luxury because it was such a crisis. I'm only doing that now.

"I'm trying to outline what we've done over the last 12 months so people don't feel it's been in vain. You're trying to build up hope that having taken so much pain, it's been worth it. Everyone was very worried about their job last year. There are still pressures there, but we've a far better chance of a sustainable business now given the difficult decision we made."

The business is recovering, and growing. That will be aided by increased subvention, and the fact the Department of Social Protection has increased payments for the free travel scheme after deep cuts over recent years, which will add around €6m to revenues for 2018.

Passenger journeys are expected to rise by 5pc, although recovery is slower than hoped for.

It is also seeking 200 drivers to help expand PSO services including those in Waterford City. It has sought new licences for its commercial Expressway arm (which "lives and dies by its own abilities to survive", he says) and is planning to expand services between Mayo, Galway, Limerick and Cork, among other destinations.

It's also applied to operate new city and town services in Kilkenny and Mullingar, and has increased frequency on Route 30 between Dublin and Letterkenny, increasing the number of return trips from nine a day to 15.

Business growth is contingent on the '3 Bs' being achieved, and building trust with customers, some of whom have yet to return after last year's strike.

"May has been our strongest performance in a year, with revenues up 10pc. Building trust has to be around what is the service you're providing - we call it Building Brilliant Basics.

"It's three things - a reliable service, ie the bus turns up, it's punctual, and it's clean. It's not rocket science. It's not talking about wifi. It's saying if we don't get these three things right, it doesn't matter about the bits around the edges."

The company will lease 20 new vehicles for Expressway this year, at a cost of around €60,000 each. It's not buying them because it has a limited budget.

Perhaps the biggest challenge is congestion, which is of particular concern on commuter services into Dublin, and in Cork and Galway cities. This adds to costs, and impacts on performance.

"We, overall, provide an excellent service, but we need to ensure we are very reliable. If you're a customer looking for our bus to bring you to work, and it doesn't turn up, you'll be pretty peeved.

"I was in Ratoath, Co Meath, listening to people unhappy with the services. These are key routes for us to get right because that's where the growth is going to be.

"We are much more of a commuter nation. We want to be at the forefront of providing transport, which is why I believe there's a huge opportunity for Bus Éireann.

"You'll only get modal shift if you've a viable proposition. There needs to be more joining of the dots. There needs to be investment in fleet, with parallel improvements in bus priority."

Key to his vision is improving the passenger experience. To that end, he has appointed the former MD of Aircoach, Allen Parker, as chief customer officer.

But looming large is the threat of further industrial unrest. Unions are of the view that since it has implemented the work practice changes needed, staff are entitled to a pay rise. Colleagues in Dublin Bus have secured 3.75pc raise, with Irish Rail workers getting 2.5pc.

Mr Hernan says another strike could be "terminal" for the company, but he's not ruling out a pay rise, if further efficiencies can be achieved.

"Critical to the turnaround in our business is not just the work practice changes, and the things we've done internally. We need to get bums on seats. The customer needs to have trust and confidence that you're going to provide that service.

"Having a strike would be a huge issue. You can only run a business based on a cost base that is reasonable, and where revenues are growing. What I've been trying to do is create the conditions to take on board a pay claim. We're not ruling it out. But a 1pc increase in pay will cost about €1.5m."

More work is needed to restore the company's fortunes. "We've implemented a huge amount of change but we've a long way to go. We are still putting the appropriate building blocks in place," he says.

"Our finances are still tenuous and it's going to take a number of years to get back to solvency."

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