Business models
Transport markets vary by country, by region and by mode of transport. We operate different business models according to the structure and needs of the local market.
Contracted services
With contracted services, the primary customer is usually some form of public sector body. A regional government or transport authority may offer various forms of contract giving an operator the right to operate services, usually exclusively, on a particular route or in a specific area.
Most of our mainland European bus and rail markets are contracted services. In the UK, the London bus market and the rail market are contracted services.
There are two main types of contracted arrangement: gross cost and net cost.
With gross cost contracts, the tendering authority agrees to pay an operator a specified sum to provide the specified service for a specified period, keeps the passenger revenue and often sets the routes and specifies the vehicles.
The London bus market, some of our rail operations in Sweden and bus contracts in Denmark, Sweden and Madrid, in Spain, are gross cost contracts.
With net cost contracts, the operator takes on both the revenue risk and the cost risk, and keeps passenger revenue. The tendering authority generally provides a contribution in the form of additional contracted income, where the cost of providing such a service would not be commercially viable if it depended solely on the passenger income that it could achieve.
UK rail contracts, Italian bus contracts and some Dutch bus and rail contracts are net cost contracts.
Deregulated services
With deregulated services, the commercial relationship is directly between Arriva and our passengers.
As passenger payments are the main source of income, services have to be profitable in order to be sustainable. They need to generate the financial returns which underpin investments in replacement vehicles, our depot facilities, and the expansion and development of services.
Operators accept the revenue risk, so if the travelling public decides to switch to another form of transport, the lost revenue directly affects our finances.
Most bus operations in the UK outside London operate on a purely commercial basis. Our operations in Spain (excluding Madrid) and Portugal also operate on a largely commercial basis.
