Management & Operations

Is the Motorcoach Industry Ready to Ride Out the Recession?

Posted on April 28, 2008 by Alex Roman, Senior Editor

Even before 9/11, economists were discussing the possibility, or inevitability, of a recession here in the U.S. The recent woes in the home loan lending industry, the shrinking U.S. dollar in the foreign market and the exorbitant prices of products, specifically fuel, may have finally spun this country into a recession.

The effects of the country’s financial woes are beginning to be felt everywhere. In February 2008, mass layoffs nationwide leapt 24 percent compared to 2007, with cutbacks hitting their highest levels since September 2005, according to the Bureau of Labor Statistics. Financial woes are also beginning to be felt in the motorcoach industry, with many suffering lower-than-usual bookings, while trying to deal with the growing cost of fuel.

Recession: Yes or no?

The most commonly accepted definition of recession comes from the National Bureau of Economic Research (NBER), which says a recession is; “a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production and wholesale-retail sales. A recession begins just after the economy reaches a peak of activity and ends as the economy reaches its trough.” Between trough and peak, the economy is in an expansion, which is the normal state of the economy, according to the NBER.

“If we’re in a recession or getting in a recession is probably a debate they’ll be having in Washington for the next five years, even after its come and gone,” says Peter Pantuso, president of the American Bus Association (ABA). “Whether it’s here, whether it’s coming or not obviously there’s a process involved, it’s not something that just happened out of the sky one day.”

Adds Rob Grassano, president of Bristol Trailways in Orlando, Fla.: “I’m kind of cautious about using the word recession. I’m still taking a wait-and-see attitude,” he says. “We’re definitely close to a recession, how it’s going to affect us in the long run, I don’t know.”

Is the industry feeling it?

The effects of the U.S. economic downturn on the transit industry depends on who you ask. “The fall trips that we’re planning right now are not getting the response that we’d normally have at this time of the year,” explains Jimmy Cantrell, president of Daniel’s Charter and Tours in Gainesville, Ga. “Normally at this time of the year, fall trips are at 50 percent to 65 percent, right now if we’re 25 percent booked we’d be pretty lucky.”

Cantrell adds that in the short term, his operation is still holding strong with bookings for spring, which were at about 80 percent as of March. Aside from the slip in fall numbers, Cantrell is also concerned about his educational business, because of the budgetary hits schools are taking at both the federal and local level.

Larry Williams, owner of LW Transportation in Fredericksburg, Va., is also seeing a noticeable slip in business.

“Normally we’d be about 90 percent operational at this time, but right now we’re running at about 65 percent,” he says. “I am averaging about five cancellations a week right now, but bookings are still looking good for the next four or five months.”

Williams, who says he has been in the motorcoach business since the age of 12, hopes the downturn is only temporary. “The only people that hadn’t seen the bump coming are the people who aren’t looking, because it’s been there,” he says. “It’s been coming slowly, but hopefully it’s just bumping us to see how strong we are.”

Fuel price advantage

Meanwhile, the ABA’s Pantuso says that while he has been hearing about soft travel numbers from a few convention and visitors’ bureaus, he has still been hearing positive things from the industry, mostly due to the high fuel prices.

“We’re hearing from a number of our members that the price of fuel is starting to turn people toward motorcoach,” Pantuso explains. “This happened a few years ago as well. We especially saw the trend after the hurricanes hit the Gulf Coast when prices spiked on fuel, and people, especially on commuter buses, started moving toward coach.”

One of those operators who is actually seeing some positive effects of the economy and high fuel prices is Orlando, Fla.-based Bristol Trailways, which thrives on the local tourist business generated from destinations such as Walt Disney World and Sea World Orlando.

“Central Florida is a different market than a lot of places in the country,” says Bristol’s Grassano. “It’s based primarily on tourism, so we may not feel the recession like other operations across the country would because people are always coming to Central Florida.”

In fact, Grassano says that as of March, his summer numbers are already up 20 percent compared to 2007, with his convention work up as well. He adds that the increased cost of fuel may actually be helping his operation, because many people are finding it more practical to rent a motorcoach then take a trip using several cars that carry fewer people.

Still, Grassano is noticing a bit of a downturn. “We’ve grown almost 30 percent to 40 percent per year for the past three years,” he says, “this year I’m only projecting somewhere around 16 percent growth compared to last year.”

With the aforementioned numbers of Americans losing their jobs, however, the ever-present specter of the economic downturn still looms large.

“The charter and tour business is in fact a discretionary purchase and people make discretionary buys when they’re feeling good about their financial position,” says UMA President Victor Parra. “Will it affect our business if people feel less comfortable about their financial position, because their home is devalued or they’re struggling to make the mortgage payments or whatever it is? Potentially, yes, and that’s the news that concerns me.”

Election year politics

Another factor making it difficult to tell if a recession is going on or not is that it is an election year. Many who have been in the industry for years say they have seen similar slumps in the past.

“I think election year politics, the uncertainty of who will be the next president, the uncertainty of whether there will be higher taxes for the future, the uncertainty of the exchange rates and all of that play a big part, so I don’t know if it’s a recession or just uncertainty,” says Pantuso.

LW’s Williams concurs, saying that in the many years he has been in the industry, there is usually a slowdown in the economy in general and the industry specifically.

Grassano believes that consumer uncertainty will change once a new president is elected.“Come November you’re going to see a turn in the economy, because I think people are tired of the current regime that’s in power and want some change no matter who that might be,” he says. “Republican or Democrat, if they make some change, it might boost consumer confidence and maybe something will happen. It is a wait-and-see thing.”

Be prepared

With many operators still reeling from the effects 9/11 had on their business, the most important thing to do if we are in or are headed for a recession is to be prepared.

“This is the time to plan for the future,” says the UMA’s Pantuso. “Quite frankly, it’s an opportunity for us to get smarter about our business.”

One critical factor that needs to be addressed by operators is figuring how to price trips for 2009, with some believing that fuel prices a year from now will probably be even higher than they are now. At the very least, fuel prices are unpredictable.

Parra believes this problem could be addressed by adding a fuel surcharge. “It is a must for anybody,” he says. “The fact of the matter is people understand.”

Against his own beliefs, Cantrell of Daniel’s Charters recently instituted a fuel surcharge.

“We have always been against a surcharge on fuel, but there’s no way to get around it,” he explains. “Everybody seems to understand that it’s necessary, but we’re still going to try to get rid of it as soon as we can.”

Grassano adds that customers that understand the need for the fuel surcharge are split about 50/50. His operation’s surcharge depends on the trip, but usually ranges between seven percent and 11 percent of the trip cost.

Both Pantuso and Parra agree that now is the time for operators to start looking at their business plans as a way to prepare for the future, by finding ways to maintain their bottomline through cuts or finding cheaper ways to do things.

Parra says that now may be the best time for operators to expand their customer base. “Things are OK right now. Operators should use this opportunity to branch out and expand their business, because when things are tight and they’re struggling to meet payroll or make that bus payment, it’s going to be difficult to focus on expanding when they’re struggling to make it from payroll to payroll.”

Pantuso says it is the opportune time to go against what most companies will do in a financial pinch and boost advertising and marketing programs instead of pulling back or cutting them altogether.

“If people are looking for affordability, because finances are a little bit tight or they’re looking for a better value, now is the time to be promoting that,” he says. “Operators have the best piece of equipment, the safest record; offer the cleanest environmental form of transportation and a good value for the customer. It’s a good time to talk about those strengths.”

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