Coach operator National Express said its endeavour to keep price affordable for UK users will limit the pace of its margin recovery.
The company made the headlines when its offer to buy rival Stagecoach was snubbed in favour of German asset manager DWS Infrastructure.
National Express reiterated an expectation for an average profit margin of nine per cent between now and 2027 with recovery to pre-pandemic margin levels of around 10 per cent in the later end of the period.
In the short term, a recovery in profit would lag a revenue recovery, with margins to be lower than its target average. National Express forecast a 2022 margin of some seven per cent.
Margin recovery would be held back by the recovery of UK demand, “underpinned by continuing to provide great value travel at a time when consumers’ spending power is being squeezed,” the firm said on Tuesday.
Its budget travel prices drive both revenue and patronage, it added.
The pace of recovery was also constrained by “unprecedented” levels of wage inflation among school bus drivers in the US.
Shares in National Express fell by more than eight per cent on Tuesday afternoon.
In a trading update, the travel operator said revenue continues to “track close to 2019 (pre-pandemic) levels”, with strong progress on its journey t anticipated 2022 full year revenue of around £2.7bn.
National Express was forced to announce the Stagecoach takeover bid had lapsed after DWS Infrastructure’s £594.9m cash offer was declared unconditional on 20 May after shareholders accounting for 66 per cent of Stagecoach’s shares agreed to the takeover, City A.M. reported.
But according to National Express, a merger would have benefitted Stagecoach’s investors more, pushing the coach operator’ shares up to 170p.
Stagecoach is not the only UK bus company to be taken over by a foreign investment firm, as FirstGroup announced in late May it was considering a £1.2bn takeover bid by US private equity I Squared.