Infratil wants bums on bus seats

More passengers, not more public money, is how Infratil intends earning profits from buying Stagecoach buses.

The listed investment company, which had previously invested in airports and energy, last year paid $252 million to Stagecoach's UK owners for this country's biggest bus company.

Moving into such a business, with its local body complications and political wrangling, raised eyebrows when first announced.

But Infratil has now published a document outlining its strategy for Stagecoach, saying strong brand development will be a big focus.

"Someone getting on an Infratil bus must be able to recognise and differentiate that bus. If they have a good experience, they will seek out an Infratil bus next time," it says.

Each regular passenger provided a bus company with about $1000 a year in fare income, so there was a real material incentive to gain and retain passengers. "This is the focus point of branding."

The company is also keen on getting involved in the provision of smart-card technology used for ticketing different types of public transport travel. Such cards are used in other countries to provide other services and promotions, often tied in with retailers or other businesses.

Feedback from the investment community had raised concerns about the reliability of council payments to public transport providers.

Two particular risks were perceived. "First, that the Government could stop acquiring public transport services ... . Practically, this is unlikely. The arrangements are contracted but, more materially, without Government support, the availability of public transport would reduce markedly and road congestion would increase exponentially."

The second risk related to the criteria used to decide which public transport services were acquired. Could the "goal posts" be moved to make Infratil's bus and ferry services somehow ineligible?

While a bias in favour of public funding of rail would be an ongoing concern, minimisation of the risk of being usurped by a better operator was within Infratil's control.

Compared with Australia, New Zealand bus operators received a relatively high proportion of their income from fares and little from council payments. In some Australian cities, fares covered less that half of bus costs.

"New Zealand has among the most efficient bus public transport operations in the world. Despite relatively low use per-capita, they require only low levels of public funding."

Infratil founder Lloyd Morrison said last year opportunities in public transport would be constrained by the challenge of keeping profits flowing to shareholders, all the while keeping public bodies and regulators happy with the service they were paying for.

Any concerns about Infratil heading into uncharted waters with the Stagecoach purchase have not been apparent on the stock exchange, where the company's shares have enjoyed a good run since November.

Trading at around $3.68 before the announcement, Infratil shares rose in value immediately, hitting a high of $4.35 in March this year. On Friday, Infratil closed up 2c at $4.32.

An opportunity to relaunch the brand will come in the next five years because Infratil will have to stop using the Stagecoach name altogether after that time.