Management & Operations

Getting the Word Out About Motorcoach Travel

Posted on April 1, 2001 by Leslie Davis, Managing Editor

While some fundamentals of the motorcoach business have changed, the desire to attract riders and increase revenue has not. Unfortunately, that desire is unfulfilled these days, as revenues are not keeping pace with the expenses of new technology and vehicles. That was the state of the industry as presented at the United Motorcoach Association’s (UMA) annual meeting in February in Atlantic City. “The motorcoach industry is looking at a decline unless we build brand awareness,” said Victor Parra, CEO of the UMA, at the meeting. “We’ve got to change our operating model. We’ve got to get away from selling price.” As part of the UMA’s industry plan, the association targeted four strategies to help reach a target of an annual 3% increase in revenue per coach. The strategies are: 1. Build brand identity. 2. Create a partnership with government. 3. Increase general business skills. 4. Create an ongoing new-business development program. Parra says those strategies may help rejuvenate an industry that has seen per-coach revenue stagnate at about $120,000 a year since 1982. That number has remained the same while the cost of a new coach rose from about $180,000 in 1982 to $350,000 in 2000. Some aspects of the industry that are keeping margins down are driver turnover and training costs, advances in technology and increased operating costs. “It’s costing us more to take out buses than it ever did before,” says Dale Bunce of IMD, the marketing/ consulting firm that compiled information on the state of the industry for the UMA meeting. “To run a better business, you need to focus on revenue growth and margin. You have to market the unique aspects of your products and move to a sales mentality. The industry must unite to apply these solutions.” The motorcoach industry is currently a $7 billion industry and, while the market is expected to become more attractive, it’s also going to become more competitive, Bunce says. That competition comes from the fact that many motorcoach operators cover the same markets (commuter, seniors, school and corporate) and do not do much to distinguish themselves from each other. Peter Pantuso, president of the American Bus Association (ABA), says companies need to look for traditional customers and not forget the base of adult and student travelers that make the market strong. “But they must look beyond just the traditional groups for niche opportunities to provide travel opportunities,” he says. “State associations or other travel and tour-related associations are great resources where networking can yield relationships and information about potential partners.” The top four things the industry needs to highlight when marketing itself are safety, efficiency, economy and flexibility, Pantuso says. “The uncertainty in the economy and consumer confidence could have an impact on travel by consumers. At the same time, these influences on our industry also impact auto, train and air travel,” he says. “For those consumers who do intend to travel, the motorcoach is still the most economical and efficient. There are many positives that the motorcoach industry has that cannot be matched by any other mode, and can be enhanced.” Building brand identity To many customers, one motorcoach operator is the same as another, unless that operator takes it upon himself to market services and create brand awareness. “Brand is something that lives in the mind of your customers,” Parra says. “The customer determines value, but we can determine all of the bells and whistles.” Unfortunately, as small, mostly family-owned business, motorcoach operators do not always have the financial means to make sure their business stands out. “Operators are relying on price to build volume, and there’s very little marketing,” Bunce says. “We don’t run our businesses as well as we could.” To help create a brand identity, the UMA is building a national recognition program to help differentiate motorcoach operators from other travel providers. “It’s all about perception, trying to entice people to the product,” says Jim Bernacchi of ABC Bus, a member of UMA that is involved in creating the program. “We’re miniscule, so we have to work twice as hard to be heard.” The program will take some techniques from the airline industry, as well as do such things as educate the public on the industry’s safety record and develop a “transportainment” marketing campaign. The program will also create a list of criteria with which the public can identify what makes a particular operator the best choice for them. That criteria could include the operator’s safety record, driver training, fleet size, association membership and what services are offered. “We have to pull together as an industry in order to elevate our image,” Bernacchi says. While the industry is collectively doing a good job marketing itself, some individuals operators could better market themselves, Pantuso says. “We are moving 860 million persons in the U.S. and Canada annually—more people than the airlines move,” he says. “On a case-by-case basis, some operators are not effectively marketing themselves. Problems the operators have marketing, says Pantuso, include: focusing on business the same way today as they did in previous years, in part due to lack of knowledge of trends or outside actions; not reaching beyond traditional markets and customers and expecting the traditional customers will continue to fill seats; and a lack of knowledge as a direct result of no communications or networking with operators. Partnering with government With the creation of the Federal Motor Carrier Safety Administration (FMCSA) last year, the federal government showed the industry that it is now making a commitment to the industry’s issues. The organization addresses the congressional concerns about motorcoaches and their safety and is developing such things as a driver fatigue video and a manual to help customers select an operator. “We must work together to achieve our goal, which is saving lives,” says Julie Anna Cirillo, acting assistant administrator and acting chief safety officer of the FMCSA. The unparalleled safety of the industry is one of its strongest marketing tools, and working with government agencies to enhance that safety, as well as support other issues, is important. “We need to sensitize all sections of government about the industry,” Parra says. “There is much more we can do to reach out and educate.” He says the industry should continue to develop a close relationship with the federal and state departments of transportation, as well as establish tools and programs in conjunction with the FMCSA, the Small Business Administration and the Environmental Protection Agency. Increasing business skills Increasing general business skills can be as obvious as not underselling your product and making sure you have competitive rates. “You’re inevitably going to run out of volume and you’ll need to raise rates,” says Dave Bolen, president of New World Tours in Washington, D.C. “One of the biggest setbacks is the great supply of equipment—the demand and supply are uneven.” For those just getting into the motorcoach market, the UMA is developing a start-up guide that has information on everything from how to draft a business plan to financial management. The guide also has sections on regulatory compliance, forms and documents and industry statistics. The UMA also recently released its first annual Benchmarking and Operating Ratios Study. The study surveyed 175 operators on revenue, fleet size and service type. “It’s a helpful tool in going forward to upgrade the business skills of the industry,” Parra says. “It enables [operators] to get a sense of how to best use their resources to generate profit.” The study found that the average company earned total operating revenues per coach of $128,146. Revenue per coach was highest among operators with 20 to 70 coaches, while those with 70 or more coaches averaged the lowest revenue per coach at $92,977. The debt to equity ratio, which expresses the relationship between what is owed by a company (current and long-term debt) and what a company is worth (net worth or equity), ranged from 2.41 among the companies in the under $2 million revenue category to 7.9 among the more than $8 million revenue category. That ratio is often used as a test of long-term solvency, though accounting methods differ between companies so the numbers may not be indicative of the entire industry. “We clearly need to get this information into the hands of the operators,” Parra says. “We want to help the operators focus on profitability. We have to change internally before we can change customer perceptions.” The ABA also holds its annual Marketplace and Business and Education Conference, where operators can focus on strategies for marketing and business management. “Most operators’ businesses remain regional, and they must look for regional opportunities to grow,” Parra says. Expanding the market The motorcoach industry could do a better job of marketing itself to the public and other industries by doing such things as attending other industry’s trade shows to build awareness. “We need to introduce the coach into their thinking,” Parra says. He also suggests creating some type of speaker’s bureau or ambassador program to get representatives for the industry out to events to show what motorcoaches can offer. Developing relationships with the regional transit authority may also be a good way to get business and start getting recognized by the community. “There are opportunities for business for us there,” Parra says. Partnerships can also be formed with tour operators, other motorcoach companies that may need to meet a growing market of their own, schools, radio stations who may be offering trips and airlines. “We can’t forget that, just as operators have done very well by taking customers to Canada, there is an entire country to the south of the U.S. Since the border will be opening under the North American Free Trade Agreement, that will create new tourism opportunities as well as partnership opportunities,” Pantuso says.

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