Motorcoach

Economic Shifts Boost Intercity Bus Industry, While 'Disruptive' Tech Takes Hold

Posted on February 28, 2017 by Joseph Schwieterman and Brian Antolin

Megabus
Megabus
Last autumn marked something of a turning point for the country’s scheduled intercity bus operators. After months feeling the pinch of lackluster economic growth and low fuel prices, which heightened automobile and airline competition, the industry found itself cutting fares, only to find ridership unresponsive due to a weak economy. Many anticipated that winter would bring “rough sledding.”

As the leaves turned, however, so did the mood of bus industry executives. Oil prices turned upward, pushing intermediate crude from around $46/barrel at Labor Day in 2016 to $52 by the end of year — a change immediately felt by motorists at the pump.  An improving economy drove unemployment rates down to levels well below those a year earlier. Consumer confidence — and the stock market — rose accordingly.

The bumpy road experienced in 2016 nonetheless has brought anxiety to an investment community that has come to expect traffic in the intercity bus industry to enjoy uninterrupted growth. Analysis at DePaul University found passenger revenues fell slightly during the 2016 fiscal year, which ended in June, on both megabus.com (Megabus), a unit of Scotland-based Stagecoach Group, and Greyhound, a unit of U.K.-based FirstGroup. The number of passengers apparently dipped in some markets. Although information is not available on how total ridership changed over the year, it appears to have been relatively flat in the U.S., at about 60 to 65 million passengers. Intercity bus ridership remains about twice as large as that on Amtrak.

A Turbulent Ride
In addition to the down-and-up pattern during 2016, several important trends stand out. Consensus emerged among analysts that fuel prices are projected to rise further, perhaps reaching the $55 range by late 2017 — a level that has spurred many travelers to avoid driving and air travel in favor of motorcoaches. Investment houses have adopted a bullish outlook. London-based Liberum, for example, projects that Greyhound revenues will rise sharply in 2017, although some of the increase appears to be due to the more favorable exchange rate following Brexit. Similarly, the Federal Open Market Committee recently increased its forecast for national GNP to 2.1% in 2017 — significant higher than in 2016.

The recent hardships for scheduled bus operators posed by low fuel prices were not as severe in the Northeastern states as in other regions. Go Buses last year became the fifth carrier to offer high-frequency service along the entire length of the Northeast Corridor from Boston to Washington, D.C., which heightens competition for BoltBus, Megabus and Greyhound/Peter Pan. (Greyhound and Peter Pan, while separate carriers, jointly sell tickets in the Northeast Corridor with a pooled-service arrangement).  

Go Buses, the intercity bus division of Academy Bus, launched this new service from New York to Washington, D.C. and Northern Virginia early this year, complementing its existing service between New York and Boston/Providence. Academy’s aggressiveness in the corridor suggests that it may be eying opportunities to spread its wings in other parts of the country.  Illustrative of this, the company earlier this year started running Go Buses between Miami and Key West, Fla.

Greyhound
While business was down slightly in recent years for Greyhound, London-based investment house Liberum projects revenues will rise sharply in 2017.
 
Greyhound
While business was down slightly in recent years for Greyhound, London-based investment house Liberum projects revenues will rise sharply in 2017.
 

Megabus defended its turf by going head-to-head against its new rival by launching twice-daily trips between Newton and New York. Competition also intensified between Boston and Hyannis, Mass., after Peter Pan launched six daily roundtrips on the route, competing with buses of the Plymouth & Brockton Street Railway Co.

Despite all of this, Greyhound remains the top dog in the Northeast. The legacy carrier has a particularly large stake in the unfolding plans for the Port Authority Bus Terminal in midtown Manhattan. The Port Authority of New York and New Jersey has begun the arduous task of planning for the replacement of this aging facility, which sees a staggering 7,800 buses daily. Restricted capacity, however, impedes rush-hour traffic flow.

Most key players agree that a new terminal is needed, but exactly where it should be, how it will be built, and — of course — who will pay, remains unresolved. The latest agency budget includes a $3.5 billion fund for design and environmental studies. What lies ahead? Expect sparks to fly as the massive effort lumbers forward.

New Services Nationwide
A largely unpublicized trend in bus travel is the gradual expansion of the Federal Transit Administration’s Section 5311 program. Through 5311 grants to states, which largely serve communities with populations of 50,000 or fewer, bus companies often receive about $2 per bus-mile to operate thinly traveled routes. Greyhound has been adept in forging arrangements for smaller carriers to sell these services and those funding by other subsidy programs on greyhound.com, strengthening its hub-and-spoke system. Greyhound is also its own services through negotiated subsidy arrangements, including three intrastate Florida routes launched in 2016.

Most of last year’s action, however, centered on high-volume routes, on which mobile-apps, improved onboard Wi-Fi, and “bus tracker” programs are now fully expected by tech-dependent consumers. Furthermore, Megabus has a full year selling reserved seats across its entire U.S. system, with reportedly successful results.

Even so, none of these intercity bus giants offer business or first-class service in North America, leaving niche operators to fill the void. First-class operator Vonlane, vying to attract frequent flyers, launched an Austin to Houston route in 2016. Vonlane’s custom-designed buses, complete with an onboard meeting room and meals served by an attendant, can now be seen on all sides of the Texas Triangle, due to previous expansion from Dallas Love Field Airport to both Austin and Houston.

Eddie (Username)
Berlin-based FlixBus bills itself as “a combination of tech-startup, e-commerce platform, and transportation company.”
Eddie (Username)
Berlin-based FlixBus bills itself as “a combination of tech-startup, e-commerce platform, and transportation company.”

Last spring, Concord Coach doubled its “Plus” service between New York and Portland, Maine from one to two daily roundtrips, giving passengers morning and early afternoon options. Concord’s first class-style seating, and the allure of avoiding time-consuming transfers between buses in Boston, keep customers coming back. In September, Fla.’s RedCoach launched a premium-level route from the Fort Lauderdale-Hollywood International Airport to University of South Florida campus in Tampa, with a stop in Naples.  All this suggests that luxury and business-class operators have remained strong despite tough economic times.
 
Disruptive Technologies
Arguably, the biggest bus travel story of last year was Flixbus’s meteoric expansion in Europe. FlixBus bills itself as “a combination of tech-startup, e-commerce platform, and transportation company.” The Berlin-based company contracts with existing carriers to rebrand themselves as “Flixbuses,” with Flixbus assuming responsibility for pricing, scheduling, and promotion. To be part of Flixbus, carriers are required to adhere to a rigid set of quality control guidelines.

Beginning as two separate bus carriers, FlixBus and MeinFernbus merged in 2015 in the wake of Germany’s deregulation of its transport industry. The combined carrier morphed into a juggernaut, which made headlines last June when Flixbus acquired Megabus’ retail business in Continental Europe. This made Stagecoach (parent company of Megabus) a contractor for select FlixBus services in Belgium, France, Germany, and other EU member states, solidifying its status as the largest intercity bus network on the continent. Flixbus is now eying expansion elsewhere, possibly in the U.S., supported by an infusion of fresh venture capital late last year.

Similar outside-the-box thinking is also shaking up the marketing of intercity service here at home. A Manhattan-based startup called BusBot is using artificial intelligence to help intercity bus operators reach revenue goals. Its algorithms help bus companies “leverage [their] own historical data as well as external data to make better demand predictions.” Several carriers are now using BusBot’s scheduling and pricing tools with reportedly successful results.      

Another trend, “crowdsourcing,” is also on the rise, led by companies like RallyBus and Skedaddle. If enough travelers express a willingness to pay for a route at a set time and day, these firms will operate a bus. Fares rise as the number of reservations increase, but if the trip fails to attract enough riders, it does not operate and no money is collected.

Our informal analysis shows that Skedaddle advertised about 240 routes on Jan. 9, 2017. Just a week later, in the buildup to the Presidential Inauguration and the Women’s March on Washington, D.C., the number of routes — the majority of which served the District — surged. Although most routes are initiated to travel to festivals, music and sporting events, and other cultural activities, some resemble intercity services, with routes leaving from locations advertised as “near “the New York Port Authority Bus Terminal.

Crowdsourced bus lines like Rallybus and Skedaddle should still be regarded as an infant industry. But with seemingly inevitable growth on the horizon, these firms could become disruptive to traditional carriers. Regulatory challenges associated with curbside pickup and drop-off, however, are likely to arise with continued growth.     

The tried-and-true intercity bus, long a staple of American travel, is poised to take some sharp turns as innovative technologies afford companies new ways to reach consumers. New, competitive routes and business-class services remain strong indicators of the industry’s financial health. With renewed optimism about growth, expect a flurry of product rollouts in the months ahead.

Joseph P. Schwieterman is director of the Chaddick Institute at DePaul University.  Brian Antolin is CEO of CoTo Travel and a research associate at Chaddick. For a copy of their study, email [email protected].

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