Many operators say that regularly diversifying into new markets is a sure-fire way to ensure continued success in a difficult and competitive business. However, it’s a big move that’s not without risk. We talked to some operators to find out how they were able to successfully expand into other promising markets and boost their bottom lines and got some tips.
1. Cross-utilize resources
In the 1990s, New Britain, Conn.-based DATTCO added a bus sales component and is also in dealership bus sales and parts business, Don DeVivo, president, DATTCO, says.
DATTCO also took on paratransit business about 15 years ago, deciding to diversify into the new market primarily to meet an underserved need in the area. It was also a great way for the operation to spread some of its fixed cost, DeVivo says. One of the best advantages of diversification, he adds, is the ability to spread fixed cost and overhead over a larger revenue base. DeVivo recommends cross-utilizing staff such as dispatchers and phone personnel.
“For example, if I’m paying a dispatcher to dispatch 20 motorcoaches, if that dispatcher can also dispatch 20 paratransit vehicles, ideally the cost to my bus operation is cut in half for that dispatch because you’re paying for half what [you normally] would for those 20 paratransit dispatches,” he says.
It may not be a cost savings since the operator is still paying the same amount to that dispatcher, but the cost is spread over more vehicles. DATTCO is also able to use its vehicles for corporate and parking lot shuttles.
Expanding into paratransit required different training for drivers on ADA and clientele who have special needs, and using different equipment.
2. Know your costs
The most important thing when considering diversifying into a different market, DeVivo says, is to know your costs.
“The best tool you have is your accountant or controller, who can break your costs down and [help] determine the true costs of operations,” he says.
If you know your costs then you’re able to figure out whether diversification can help you by contributing to both your overhead and your bottom line, he adds. “The good part about diversification is it spreads your fixed costs. The bad part is that it puts a strain on your infrastructure, because you’ve got more training and distraction.”
DeVivo advises operators to ensure that their core operation isn’t suffering in the process. “People tend to focus on the new thing,” he warns. “If your staff is focused on the new thing and your service level slips, then you have a problem.”
Jack Wigley, president of Mesa, Ariz.-based All Aboard America! agrees. He emphasizes the importance of operators closely examining every RFP to determine the requirements in providing the service, and ensuring they’re capable of doing everything that’s required. Then, he says, the next step is to create a budget that includes the actual costs to provide that service.
“You can’t just take your charter rate for some piece of service and hours or miles or days and say, ‘That’s my price,’” Wigley says.
For example, All Aboard runs vehicles for construction projects, carrying construction workers from a remote parking lot to the job site. Wigley says All Aboard had to factor in finding and leasing transit buses, how much that would cost, and put that into the budget.
“You have to be willing to do your homework,” he adds. “Sit down and look at the scope of the project, what kinds of vehicles are you going to acquire, how much will you have to pay drivers, do [you] need to expand facilities, get new facilities, what is the cost of the staff that’s going to be required to operate?”
In addition to the service cost, select a realistic margin as well.
“There [have] been bids we’ve submitted [for] and lost, some by 20 or more percent. And if we’re beat by 20 percent, there’s not a 20 percent margin in it,” Wigley says. “In the end, I know that that’s not going to be a great deal. Sometimes people aren’t truly looking at the scope of that specific contract, properly dealing with the budget and what it’s going to cost to operate it. Nobody wants a contract you’re going to lose money on. Make sure you create a budget that’s going to ensure that it’s a profitable venture.”
3. Partner for success
Forming a crucial partnership is really important for an operator considering diversification, especially if it’s in an area that the operator doesn’t already service or have expertise in. All Aboard America did just that when it recently got involved in school transportation for the first time, partnering with Student Transportation Services, which Wigley knew of through owner Jeff Polzien, president, Red Carpet Charters.
“You get a bid opportunity but you have no previous experience in that specific [market],” Wigley says. “I wanted to make sure we had the expertise to do it correctly and [a] reference [for] the RFP. When this opportunity came up I knew that [Polzien’s] staff would have the expertise and the references to get that done.”
When a job goes out to RFP, the company wants to know the operator they’re eventually going to contract with is competent and capable of providing the service, Wigley adds. [PAGEBREAK]
4. Be open to non-coach work
Wigley also advises operators not to overlook any opportunity, whether it is directly or indirectly related to what they do.
Many of the opportunities All Aboard has received are from being geographically diverse, with locations in Arizona, New Mexico and Texas, and maintaining relationships with the transit providers and departments of transportation in those states.
“Other contract opportunities would come up because we’ve serviced them in some other way, and we’re already on the vendor list so we get the opportunity,” Wigley explains.
“We have always been interested in all aspects of our industry,” Wigley says. “If it has to do with transportation, we’re interested in it.”
Dennis Copyak, GM of Salt Lake City’s Le Bus, echoes this point.
“I think every company needs to eventually look at diversifying in areas other than direct transportation. That’s been pretty good for us,” he says.
The carrier has taken on mail contracts with trucks, and used car dealerships. Le Bus also recently diversified into more city tours.
“We’ve diversified into a whole bunch of areas and a lot of it was not planned,” Copyak says. “A lot of it is people calling you and you fall into some different niches you didn’t know existed.”
5. Utilize, update resources
The most lucrative diversification for Le Bus, Copyak says, is its gambling tours, which it started about 12 years ago. Since then they have turned into about 25% of its business.
“We’re one hour and 15 minutes from the Nevada state line. Several tour operators were doing trips out to Nevada and the casinos started making contact for daily trip departures out of our area. We contracted with them and became a tour operator for Nevada,” he says. “We’re probably running pretty close to 2,000 people a week to Nevada, which was not ever planned but we just keep adding tours.”
Church tours were another beneficial new market for Le Bus to expand into. Utah, with its predominantly Mormon population, has many young tourists traveling to the Mormon Trail in Wyoming for two- to four-day hiking treks.
“That turned out to be 50, 60 trips a summer,” Copyak says. “Independence Rock, which is right on the Oregon Trail, is a real popular destination for these kids.”
Le Bus then took that experience and put together tours for seniors, leading to diversification into another market. “That’s starting to take off [at] some senior citizens centers. It will be a little less hiking, if any; it’s just to see the area,” says Copyak.
Trips to Nevada have caused Le Bus to add reservation blocks and purchase a larger telephone and computer system to keep track of all the reservations.
“Those are some of the costs that as you go, you grow into,” Copyak says. “For example, it’s not uncommon for us to have about a thousand calls a week for just Nevada.”
Like DATTCO’s DeVivo, Copyak points to the need for cross-training.
“You have to have somebody here that can answer those calls, while at the same time, a Boy Scout troop calls to do a four-day charter. We trained our people to do both, so that when the phone rings, any person can take on any kind of sales order,” he says.
Copyak advises operators to ensure they have everything covered before taking a job, and warns that some companies take on bookings when they don’t have the necessary equipment.
“When local transportation companies are sold out, you’re not going to get any help from them. Don’t overbook, [thinking] ‘We’ll take it all on, then figure out how to do it.’ Find equipment and drivers as you go, otherwise you’ll get into a real bind,” he says. “Once you open those phone systems, people start booking the trips. Keep up with it on a daily basis.”
6. Tap into employers
When San Jose, Calif.-based Royal Coach Tours president Sandy Allen’s parents started the company 51 years ago, it was basically a commuter shuttle.
“My dad sold tickets on an individual basis to Alameda Naval Air Base in Alameda, California. They were $2 a week in 1959. Then they got enough people for two buses,” Allen recalls.
The operation has come back full-circle, she says. In the last three years, 40% of Royal Coach’s business comes from commuter shuttles to high-tech firms in Silicon Valley, picking up employees at various locations throughout the San Francisco Bay Area. All of Royal Coach’s 27 coaches dedicated to this service feature 50-passenger capacity, Wi-Fi and leather seats. Because the employers asked for less seating so it’s more spacious and comfortable for laptop users, some vehicles also have tables.
Royal Coach was able to expand from mostly tours into employee shuttles because bus manufacturers referred the company to local corporate employers.
“We’re a fairly small company, but we have great maintenance,” Allen says. “The high-tech people got to know what buses were out there. They spec them out and in their RFPs they tell us what to buy. We finally got in that door, and then we did a great job,” she adds. “When you do good service, it gets you more contracts.”
Allen advises operators to encourage larger corporations in their area to provide transportation for their employees. “We want to get those 40 cars off the road. Someone in New York — or even someone in Nashville — can [bring] people in from outlying areas,” Allen says. “We [travel about] a 60-mile radius to bring [commuters] in to work: to San Francisco, Livermore, and Santa Cruz.”
For companies that have outlying employees that see a need to bring them in to work, she adds, make it comfortable and enticing for them, with features such as two-in-one seating, so employees can work while they are commuting.