Bus giant facing major hike in fuel costs

Apr 24 2008 by Tony McDonough, Liverpool Daily Post

MERSEYSIDE’S biggest bus operator, Arriva, spooked investors yesterday after revealing it had seen “substantial” hikes in fuel prices since the beginning of the year.

The Sunderland-based group, which runs more than 6,500 buses in the UK, has a hedging policy protecting it from a “material” hit this year – but was silent over the potential impact on 2009’s figures.

Its shares fell almost 5% yesterday as travel and transport stocks such as rival FirstGroup and budget airline Easyjet were hit by oil prices surging towards $120 a barrel.

This came despite Arriva’s comments on a “positive” outlook for 2008, and a “robust” balance sheet offering prospects of more investor returns following last year’s dividend hike.

Arriva's policy is to hedge fuel costs up to 15 months in advance, leaving it exposed to the higher prices in the second half of next year.

It has around 90% of its fuel consumption protected in 2008 at rates similar to last year, although only 50% is covered in 2009.

Cazenove analyst Edward Stanford said: “ The group does have 12 months to react and historically the industry has been adept at mitigating fuel price increases.”