Over the past two months, millions of UK citizens have become involuntary participants in a homeworking revolution. Coronavirus forced the country into lockdown on 23 March, pressing ‘non-essential’ employees to maintain their duties remotely – or, indeed, to cease said duties entirely under the government’s furlough scheme. At the same time, public transport use has been discouraged by officials and shunned by the population, with 80 per cent of those who travelled in early April opting to go by road, according to a Transport Focus survey. Bus and rail services have been slashed by operators.
But now, with the easing of the rate of coronavirus infection, there is recognition – albeit with different levels of enthusiasm across devolved governments – that it is time to get Britain back to work. The member states of the UK are under varying restrictions, but the advice in England is that those who are unable to work from home can now travel to do so. Driving, cycling and walking to work have all been encouraged.
Car retail
That should, ostensibly, be positive news for car retailers, who have during lockdown been limited to providing services to key workers. Nearly half of UK public transport passengers surveyed by Auto Trader last month said that they would be less likely to use public transport with restrictions removed, while 56 per cent of driving licence holders who don’t own a car said that the pandemic had made them consider purchasing one. Cars and vans are already used for the bulk of UK commutes – accounting for 58.2 per cent of the total in 2018.
There is, of course, an argument that consumers will think twice about immediately splashing out on a new vehicle, given that this health crisis has translated into a major economic recession. Still, a car scrappage scheme has been mooted to jump-start automotive sales, while the Financial Conduct Authority (FCA) has outlined support measures on motor financing including a three-month payment freeze to customers in difficulty.
In any case, the way car retailers do business will change when their doors reopen. Social distancing measures will include unaccompanied test drives, while there will be a far heavier onus on online service, with ‘click and collect’ sales already available to consumers. There will also be medium-term ramifications. “I suspect we’ll see an acceleration of trends,” predicts Vertu Motors (VTU) chief executive Robert Forrester. “You’ll still need dealerships, but I think we’ll see a smaller number of dealerships in the UK,” he says.
Rail industry
Coronavirus has dealt a severe blow to rail industry passenger numbers. Passenger volumes collapsed 95 per cent in April, and the government has stepped in to assume all revenue risk for rail operators including FirstGroup (FGP) and Go-Ahead Group (GOG). Since 17 March, more than 100,000 season ticket holders have claimed season ticket refunds totalling over £150m in response to travel restrictions.
Early data suggests that commuters are slowly returning to public transport use following the government’s new guidance, although stations' morning peak footfall across the country at the start of this week sat at 5 to 10 per cent of pre-pandemic levels, according to Network Rail. Chris Heaton-Harris, a minister for the Department for Transport, said in late April that “it is too early to predict” the impact of coronavirus on the rail industry so far.
Identifying a rail operator’s exposure to passenger volumes is important, however, and may help investors to unearth some unlikely candidates in this battered industry. Go-Ahead’s receipt of a new Southeastern rail management contract in March meant around 90 per cent of its turnover was derived from contracts that aren’t exposed to changes in volumes, according to broker Peel Hunt. “In isolation, this award would lift operating profits by around £10m for FY21E,” wrote analyst Alex Paterson, “but we leave forecasts unchanged for now.”
Rail commuters may take more convincing. A 2018 study by academics at University College London and the University of Bristol established a link between public transport use and the airborne transmission of flu-like illnesses. To that point, online ticketing company Trainline (TRN) believes that a reluctance to use physical ticket machines or to queue in stations may play into its hands, as people opt to buy tickets on its app instead.
But passengers may also simply ditch trains in favour of a car. An annual rail season ticket between Blackburn and Lancaster sells for £2,472 on ticketing website Northern Railway. A used car could prove more cost-effective – and government upgrades to Britain’s road network, announced as part of a £1.7bn programme in May, could also make it quicker.
Alternatives
The upgrade initiative is also targeted at cyclists. And a developing trend towards pedalling to work, which only made up 4 per cent of commutes in the 2018 National Travel Survey, could provide food for investment thought. The share price of retailer Halfords (HFD), which sells bicycles and car parts, has more than trebled since the collapse of markets in March. Moreover, the possible legalisation of e-scooters in the summer may add further gains. However, cycle commutes beyond towns and cities seem unlikely. And within cities, commuters are exposed to other safety risks in their bid to avoid coronavirus.
