Like Old Faithful, the trusty geyser that can be counted on to spout water every 45 minutes, school bus transportation provides a level of reliability that has become appealing to motorcoach operators looking to increase cash flow in trying times.
School transportation is not affected by the economy, global politics or even wars, says David Benedict, president of Philadelphia-based David Thomas Tours. “Kids still need to go to school, that still happens,” he says. This stability led Benedict, a tour and charter operator, to begin offering school bus service three years ago. The cyclical nature of the motorcoach business, with its peaks and valleys, can leave service gaps. Because school transportation is for the most part a contract-based service, it can complement motorcoach service by offering a steady revenue stream.
More and more motorcoach operators looking to diversify their operations are turning to school bus service. Currently, as much as one-third of all United Motorcoach Association (UMA) members provide school bus transportation in addition to standard coach services, according to UMA President Victor Parra.
Research and network
Before jumping into the water, motorcoach operators should research school bus markets. Prospective operators need to be well versed in federal and state regulations and requirements, as well as those for their own local districts. “Once operators research and understand more about the school bus component within their existing school districts and regional school districts, I think that they would be much better poised to handcraft an ideal solution for those districts,” says Barry Stock, president-elect of the National School Transportation Association and senior vice president of National Express Corp.
When looking to enter a new state, operators must learn about that particular market. Stock
recommends going to pre-bid meetings ahead of time to see how they work. You should know what the procurement laws are for a particular state as well. “Massachusetts is a low-bid state,” he says. “It’s a law there.”
Each state is different, and school districts have their own requirements. “In the state of New Jersey, the school bus industry doesn’t have any fuel increase clauses in contracts,” says Nick Paglione, president of Rio Grande, N.J.-based Lion Trailways.
Before investing in vehicles, operators need specification requirements for their particular state and for the school district they are working for. Some school districts require that buses be under a certain age. “Many school contracts require you to have 10-year-old buses or newer,” says Louis Klug, co-owner of Cincinnati-based Charter Bus Service.
“We send out letters each year to the superintendents to give them the age of the buses and the mileage of what vehicles are being used in their district,” says Tom Weeks, president of Ridge Road Express in Lockport, N.Y. “So, they are aware of it.”
Researching the industry can be made easier by joining a national association (See sidebar on pg. 52). It is also recommended that operators join their state student transportation associations to find out state-specific requirements and network with regional operators.
Developing relationships at the district level is important for operations looking to privatize the service. “You need to have someone at the school district, ideally at a high level, that knows what you want to offer them,” Stock says.
For motorcoach operators thinking about getting into the school bus market, it is best to start small. “Try not to have too much capital investment in the beginning,” says Paglione, who started in the school bus industry by bidding on contracts. His fleet has grown from three school buses to 60 serving 10 different schools. “Start out small and grow gradually and safely.”
Having a variety of customers within the school bus market is also a key. “We don’t want to depend on just one [market],” says Benedict of David Thomas Tours. Rather than putting all of its eggs in one basket and going after a big school district, the company works with a variety of customers, including private schools, which have constituted the company’s niche market.
“Our goal was to diversify the company’s school work and not do an 80-bus or 300-bus school district,” says Benedict. “If you lose the contract, you don’t have anything [left].” In the future, he says, the company may take on district work, but for now it is focusing on courting private school business. Private schools are smaller and price is not a major factor, he says. “They are looking for a quality contract. It is not a low-bid situation.”
Contracts and accounting
In reviewing contracts, the two most important aspects to evaluate are equipment and labor terms. Because there is significant investment made in terms of capital costs, do not enter into any contract that is too short in duration, recommends Stock. “The norm in the business is five-year contracts, because of the capital costs that need to be amortized over time,” he says.
Understanding your labor force or potential labor force is another important contractual element. “Your labor force will significantly impact the type of proposal that you will put on the table,” says Stock. Operators should consider whether their drivers will be used in some other aspect of the company, such as filling in on the motorcoach side in the off-season.
In addition to being contract smart, operators should be business savvy when it comes to tapping into a new revenue stream. Setting up separate accounting procedures for school bus and motorcoach service — so that costs can be pinpointed accurately — is the philosophy followed by Weeks. “You don’t want to throw them in the hopper together because I think you could possibly distort either your revenues or your expenses,” he says.
Separation is not necessary but be advised if you plan on growing your school bus operation, says Benedict. With different insurance requirements for school buses and different liability exposures between the two operations, as well as different requirements for drivers, distinguishing between the two sides makes sense. “We set up a separate corporation for the school bus operation,” he says.
In addition to bidding on contracts with school districts, there are various ways for motorcoach operators to get into the school bus market or grow their existing service. Acquisitions are seen as the easiest way to do this. “With acquisitions, you can take your time to learn about the school bus business through the experience you buy,” says Stock. While acquisitions are the easiest way to get into the business, it can be expensive, especially paying for “goodwill,” which is the loyalty that is built up over the years in business. “The value is there because the business is operational and as such you don’t have to incur start-up expenses from scratch,” Stock says. “It costs extra to pay for this built-up value vs. a bid where you have to start from scratch.”
Conversion of school districts from self- to privatized-operation is another way to obtain contracts. In the U.S., two-thirds of school transport is provided by school districts themselves, according to Stock. “Every time we have an opportunity to grow that part of the marketplace, the better it is for private enterprise.”
Escalating costs from healthcare and state pensions that are typically offered to district drivers can create opportunities for conversions. According to Weeks, school bus drivers at one particular N.Y.-based district he did business with were given benefits similar to those of teachers and custodians, which was costly. “The district approached us and said ‘it was just getting too expensive,” says Weeks. “I’d be hard-pressed if I couldn’t find a district and save them money.”
While it may seem the drivers lose out during a conversion, they become eligible to pick up charter work on the side, which is not allowable as a public employee, Stock says.
Providing school bus transportation via contracts is not the only route motorcoach operators can take. Some opt to provide charter service. Klug says it was part happenstance and partly by choice that the company ceased servicing school-route contracts and focused solely on school bus charters. He says his company has ample work from local recreation centers and servicing schools whose drivers are tied up with route work. “We don’t have the challenges of having to bid on contracts or all the parents that you have to answer to with regular route service,” Klug says. “When we are taking kids somewhere, there is always a coach or a chaperone onboard, so, in that respect it makes it a lot easier than route service.”
School bus contract work can lead to motorcoach charter work. “Because the school districts are used to using your service for contracts and can rely on you, they call you up for motorcoach charter work for field trips,” Paglione says. Route work also gives companies a lot of exposure by putting their name in the public eye.
While motorcoach operators know that transporting adults can sometimes be challenging, transporting children can be more so, and requires drivers with special people skills. “Drivers have to be nice,” says Benedict. “If you’re nice, you keep accounts.” It all starts with hiring drivers with good people skills and safe driving skills. “You have to have the right temperament to drive a school bus and handle the kids, and not everybody is cut out for it.”
Customer service has to be uppermost in the company’s mind, says Greg Beach, vice president of Beach Transportation in Missoula, Mont. “If you serve the customer the best way you know how, then you are able to retain that business.”
Besides needing people skills, drivers of school buses are required to have specialized training that can be quite different from motorcoach training, especially in terms of hours. Having a licensed trainer on staff is advantageous for operators wanting to develop their own personnel. “If you can train your own drivers, it makes entry a lot easier,” Benedict says.
In addition to transporting students for school purposes, school buses can also be used as a more cost-effective alternative to the motorcoach. “When financial markets went bad for example, it reduced seniors’ disposable income, so instead of running 40 people on a bus we started running 25,” says Weeks. If a customer’s price cannot be met with a motorcoach, then a school bus is offered as an alternative. “Our sales department sells both, so you can always go with the school bus for what might be half that of the coach price.”
Lion Trailways’ Paglione agrees that downgrading from a coach to a school bus is an ideal way to not miss a sale. “I’d say [our] school bus costs two-thirds the price of a motorcoach.”
In Ohio, school buses are not permitted to transport adults without being properly licensed with the DOT, says Charter’s Klug. “Now we have some school buses properly licensed so we can offer this inexpensive transportation.”
Besides crossover vehicle usage, some school bus/coach operators can benefit from using drivers, if properly trained, for both school bus and motorcoach trips. “If we’re not busy on the motorcoach side, [the driver] can drive a school bus if he’s qualified, and vice versa,” Paglione says.