Researcher and Policy Analyst at FIRST Union

At the time of writing, Ritchies buses sighted across the country still display the NZ flag and the words "100% NZ Owned and Operated". This is despite a December 2021 Overseas Investment Office (OIO) decision (made public on 1/2/22) that their business - Ritchies Transport Holdings Inc - could now be sold to New York private equity firm Kohlberg Kravis Roberts (KKR), the original 80s' corporate raiders that had made a reputation for themselves by leaving a trail of mass redundancies, casualisation, and offshored jobs across the globe.

Why Private Equity Loves The Bus Industry

KKR gained notoriety in 1989 with their leveraged buyout of food and tobacco conglomerate RJR Nabisco (immortalised in the film "Barbarians At The Gate"). KKR debt-funded the purchase, and then repaid their debt through years of squeezing labour costs - breaking RJR Nabisco into constituent firms, dismissing tens of thousands of workers over a decades-long period and then reorienting and selling those firms. KKR made hundreds of millions of dollars from these transactions.

The purchase of Toys R Us in 2017 displayed a similar dynamic, with KKR and other partners terminating 33,000 workers while pocketing $US470 million in fees and interest. The purchase of Dunedin firm Education Perfect in July 2021 - where a quarter of staff were soon made redundant and their work outsourced on a gig economy basis to workers across the globe - shows that their anti-worker approach is still in full operation.

In a time where the climate crisis and rising petrol costs is driving down private car use, it's unsurprising that public transport contracts that lock the public purse into long-term financial relationships have attracted private equity players like KKR. Other major bus operators in the NZ market like NZ Bus and Go Bus have already been purchased by private equity funds (Masterton-based Tranzurban is now the only major bus operator that is New Zealand owned).

Selling a business pockets millions for a bus company's shareholders, and the best way to guarantee a high share price is by keeping a tight control on costs, which, for the bus industry means smashing workers' bargaining power to keep wages down. Because they're privately-owned, most bus operators don't publicly report their profits, however 2019 financial statements from NZ Bus showed a $75 million profit.

Ritchies already has a reputation for being the worst employer in the bus industry, with wages scarcely over the minimum and a reputation for punishing workers that join the union out of their jobs. This kind of behaviour was evident in a June 2020 case in the Employment Authority in which Ritchies was found to have discriminated against union members by excluding them from a planned pay increase.

Ritchies is a beneficiary of the Public Transport Operating Model (PTOM), a competitive tendering system implemented in 2016, which, according to a 2018 review commissioned by the Government, had led to a more than 50% increase in Ritchies' market share in Auckland, the country's largest public transport market. This was no doubt attractive to KKR, which is now rumoured to be sniffing around other bus operators like NZ Bus (itself the remnants of the privatised Wellington City Transport).

The sale was opposed by FIRST Union, the largest bus driver union in Aotearoa, which said that the sale was likely to frustrate the objectives of the Government's ongoing reform agenda for PTOM, as well as undermining workers' rights and climate action. In November 2021 FIRST Union submitted to the OIO, highlighting the history of KKR and calling for the OIO to undertake a national interest test, arguing that it would pose risks to public order and 'have outcomes that were significantly inconsistent with or would hinder the delivery of other Government objectives'. The next month the union was told that this would not be necessary and that the deal had been approved.

For half a decade the union has campaigned for the abolition of PTOM, arguing that the tendering system encourages councils to choose the cheapest bidding bus operator, which almost invariably favours the lowest-paying option and provides low quality services (60% of the weighting for choosing a bus operator is determined by cost). Low-paying bidders like Ritchies are emboldened, while competition amongst bidders with higher wages encourages hardnosed negotiating at collective bargaining, with the 2021 Wellington NZ Bus lockout the most prominent recent example of this(1).

As a result, roughly half of the cost of bus services in Aotearoa covers wages, while in some comparative jurisdictions where wages are higher, this figure is up around the 70% mark. In late 2020 the Government announced a review into PTOM, motivated by both the concerns of workers and unions, as well the Labour government's policy that from 2025 councils could only buy electric buses.

Employment And Service Provision Post-Privatisation

Prior to industry restructuring in the early 1990s, being a bus driver was a well-paid profession. The 1990 award rate was more than 60% higher than the minimum wage, and overtime and night shifts were well-compensated. If relativity had been maintained between the 1990 minimum hourly wage rate of $6.13 and the 1990 award rate of $9.88 then the minimum hourly rate for bus drivers in 2021 would have been $32.23 (with night-time allowances and overtime rates further increasing this).

While data is incomplete, we know that the Auckland average rate is only $23.31, just 16% above the minimum and a hair's breadth above the Living Wage (Ritchies' rates sit below this Auckland average). In a city in which the average house price is now $1.3 million and median rents have now cracked $600 a week, these rates are laughably low. Low rates mean that many bus operators have historically relied heavily on both migrant workers and older workers who struggle to find work in other industries. Closed borders have further complicated this picture, resulting in huge pressure on drivers to take additional shifts.

However, in addition to low wages, most drivers have to endure regular unpaid book-off times (that are usually not long enough to return home in a congested city), meaning work days can often stretch to 12-14 hours, while wages only cover working time. The growth in driver assaults, often motivated by factors like cancelled services and high bus fares, has further made the job unattractive. Auckland Transport is even stationing security guards on key routes to reduce the likelihood of driver assaults.

The degree of employer bullying that takes place in the bus industry is breathtaking. In one recent case a driver who had no passengers on his bus was disciplined for covering up his cameras on the bus while he urinated into a bottle, since there are no facilities available during the run. The driver had forgotten to remove those covers after, with management arguing that he was trying to hide something. In another recent case, a worker was disciplined for kicking a belligerent passenger who, without provocation had just punched him in the face.

No Climate Justice Without Workers' Rights

There is no climate justice without workers' rights, and nowhere is this clearer than in the bus sector. According to the Climate Commission, to meet NZ's Paris 2030 climate goals we'll need to more than double the public transport share of total travel, including a tripling in Auckland. However, bus driver wages are so low that recruitment has basically stalled in all major centres. Many drivers in fact use the bus industry as a stepping stone; they're hired by bus operators who fund their heavy vehicle licences, then once they pay back the costs they move on to other jobs, for example in the trucking industry, where the industry average is more like $27 an hour or more.

Indeed, for now it seems that the only thing preventing the bus industry from a total system collapse is that the pandemic has temporarily reduced bus patronage, meaning that operators can reduce services without significant financial penalties. This has not been without its complaints. Auckland Transport was heavily criticised for its lateness in ending holiday schedules in January 2022 despite the fact that many workers across the city had returned to work, with complaints of a long delays and insufficient buses on key routes during rush hours.

To address the recruitment deficit, Greater Wellington Regional Council has recently taken the unprecedented step of increasing Tranzurban driver wages to $27 an hour, an improvement of up to $4 for many drivers. While this step is significant and will improve living standards for hundreds of drivers, it represents a piecemeal approach, and was the result of Council initiative. It is councils, after all, who deal with the complaints when services fail and, while PTOM fines operators for late or cancelled services, these fines have not deterred the private equity vultures from swooping into the industry.

Publicly-Owned & Fares-Free Public Transport

To this end, a lot of hope has been put in Fair Pay Agreements (FPAs) as a solution to this situation. However, there are no greater supporters of FPAs than bus operators, particularly the lowest paying operators. To find out why, you only have to look at how recent rounds of collective bargaining have been resolved, with the councils that rely on services consistently stepping in to top up wages and end strikes and lockouts so the buses can get back moving again.

In effect, this works as ratepayers subsidising the profit margins of offshore private equity funds. FPAs promise the same thing on a grand systematised scale, with those with the lowest wages - like Ritchies - now likely to secure the largest subsidies. Even before these wage top-ups, the public share of fares was roughly half-paid by councils, a trend that PTOM was supposed to address (termed as increasing the "commerciality" of services in the legislation).

This has clearly failed; however, it is worth considering the overall desirability of this approach. Public transport is a public service, and the idea that enabling profit-seeking private corporations to provide a quality service that creates decent work at lower cost is unrealistic, to say the least. Public ownership of public transport is the clearest policy response to address the issues across the industry. Instead of transferring public wealth to offshore private equity funds, we can redirect it into increased labour costs (to lift wages, end unpaid book-offs and provide other employee benefits), reducing fares and investing in public transport infrastructure.

Reducing fares is also crucial to promoting mode shift, and FIRST Union supports a managed transition to fares-free public transport over a five-year period, beginning with more vulnerable commuters (e.g., younger and low-income individuals). Fares-free public transport encourages the use of public transport, reducing congestion, air pollution and road transport emissions. It also speeds up services (no more tagging on or off or arguing with drivers about the cost of fares), while leaving drivers safer overall. It is both an equity and climate policy.

Fares-free public transport currently enjoys the support of Auckland Councillor and 2022 Mayoral candidate Efeso Collins. In 2019 Auckland Transport undertook a study on the cost of implementing fares-free policies, concluding that based on existing demand it would cost an additional $170 million, while additional induced demand would push this figure up to around $230 million. This may seem like a lot but in 2021 alone the value of houses in Auckland made an untaxed capital gain of around $230 billion.

It is unclear what the exact impact of high petrol prices has on this picture, but in 2008 when petrol prices spiked so too did bus ridership. On top of the rising costs of living, environmental concerns have grown, and the argument for bold post-covid stimulus measures has increased. Once the threat of covid (hopefully) recedes and with it the risks associated with public transport, demand for bus services could grow significantly.

The Ministry of Transport is yet to release the outcomes and recommendations of its PTOM review, however issues like public transport, climate change and the cost of living are likely to be at the forefront of voters' minds in local government elections across the country in October 2022. While the review itself didn't see direct public ownership as an option (with a transition to electric buses on the table there was discussion around public ownership of infrastructure assets but not public provision of services), councils and public transport authorities that have a public mandate to move in that direction shouldn't be prevented from doing so, as they are under the current regime.

International agreements would likely make it harder for councils to end existing contracts (that generally run for nine years), however new services could be run by councils or council-owned companies, with increasing public ridership as the key metric for success. While councils are notoriously bad at levying funds (with the three waters reform being a key example), funding from the Ministry of Transport to promote objectives like decarbonisation, decongestion, the reduction of air pollutants and reducing the road toll could bridge the gap while creating decent universal public services for all.

No More State Bailouts To Private Equity Funds

State bailouts to private equity funds are the end of the line for the private operation of public transport. While we support Fair Pay Agreements, the State will inevitably be increasing the overall proportion of funding for bus services to well over half, while private sector profits will remain consistent. This is a clear failure of imagination, which commuters across our urban centres pay for in a multitude of ways. By putting drivers' and passengers' interests first, we can build a world-class public transport system that helps climate-proof our economy while supporting our most vulnerable.

Endnote

1. NZ Bus is owned by Australian private equity firm Next Capital. During the dispute, commuters were particularly upset by claims on Next Capital's website that the fund received an average internal rate of return of 30%.