Motorcoach

How Greyhound, Coach USA sales will impact intercity bus lines

Posted on July 11, 2019 by By Joseph Schwieterman and Brian Antolin

In mid-April, the Scottish firm Stagecoach Group completed the sale of all of its North American operations, including Coach USA, the parent of Megabus, to Variant Equity Partners.
Megabus
In mid-April, the Scottish firm Stagecoach Group completed the sale of all of its North American operations, including Coach USA, the parent of Megabus, to Variant Equity Partners.
Megabus
The battle of giants – Greyhound versus Megabus — has been part of the competitive landscape of U.S. intercity bus travel for more than a decade. Each national brand has moved aggressively when the other invades its turf. Consumers have reaped the benefits of the new schedule options and steeply discounted fares resulting from this competition, which in many instances has pushed the price of bus travel to less than half that of Amtrak and barely a quarter of that compared to flying.

But the nature of the competition is changing as these carriers undergo major transitions. In mid-April, the Scottish firm Stagecoach Group completed the sale of all of its North American operations, including Coach USA, the parent of Megabus, to Variant Equity Partners, a California investment firm. Stagecoach had owned Coach USA since 2017. Then, last month, FirstGroup announced it was selling Greyhound, including the Boltbus subsidiary, which it had owned since 2008. By all indications, the U.K.-based company will move quickly.

Industry analysts can only speculate what strategic moves come next. Will the new owners push to expand their market share, even if this means more aggressive fare discounting? Or will they focus on consolidating past gains and strengthening operating margins? The answer is anything but obvious, since bus travel is only beginning to emerge from a period of soft demand. Either way, expect shifts and surprises over the next 12 months.

The recent financial results notwithstanding, the latest news from Greyhound brings optimism, heralded by its hiring of a new chief commercial officer with air travel experience and the adoption of an airline-style revenue management system.
Joseph P. Schwieterman
The recent financial results notwithstanding, the latest news from Greyhound brings optimism, heralded by its hiring of a new chief commercial officer with air travel experience and the adoption of an airline-style revenue management system.
Joseph P. Schwieterman

Retaining a spirit of innovation amid difficult times

For both Greyhound and Megabus, the frenetic expansion that took place between 2008 and 2014, which was sustained by their deep-pocketed owners investing heavily in new services, is now only a distant memory. Both lines have nonetheless remained innovative and opportunistic. Tech-oriented enhancements, including Megabus’s introduction of reserved seats, Greyhound’s industry-leading “bus tracker” system, and the introduction of e-tickets on both lines, have raised the bar on customer expectations.

But the latest financial results show that margins remain distressingly thin. Stagecoach reported a 3.2% drop in its North American revenues, which includes its charter and school bus service, for the six months between April and October 2018. There was a 1.7% drop in “like for like” revenue at its North American Megabus unit, and revenues for other scheduled service on the continent dropped by an equal amount. Some of the revenue decline appeared to be partially attributable to competition from new bus lines, particularly in the Northeast and Southwest.

The slump appears to have precipitated Stagecoach’s decision to sell to Variant, which last December agreed to pay $271 million, a transaction competed in April. Stagecoach did not report results for Megabus for the months leading up to the sale, but revenues for North American business, as a whole, appear to have been flat.

Although Variant has yet to play its hand, most expect it to study its options deliberately before making a move. With the busy summer travel season here, and signs of a recovery in the air, there are good reasons for patience. The latest uptick in fuel prices has been beneficial to bus companies, due to their comparative fuel efficiency relative to cars and planes.

FirstGroup’s impending sale of its iconic Greyhound unit was similarly motivated by disappointing results. In its May earnings report, FirstGroup cited challenges ranging from low oil prices over most of the period to increased competition from low-cost airlines. Operating profits during the fiscal year dropped from $32.8 million in 2018 to this year, while revenues fell 7%, in part due to cutbacks in western Canada. The operating margin narrowed to 1.7%, down from 3.6%. The planned sale of Greyhound, announced in June, is being touted as a way to “unlock value” and allow it to focus more intensively on its contract and school services. 

FirstGroup announced it was selling Greyhound, including the Boltbus subsidiary, which it had owned since 2008.
Joseph P. Schwieterman
FirstGroup announced it was selling Greyhound, including the Boltbus subsidiary, which it had owned since 2008.
Joseph P. Schwieterman

The recent financial results notwithstanding, the latest news from Greyhound brings optimism, heralded by its hiring of a new chief commercial officer with air travel experience and the adoption of an airline-style revenue management system — investments that are apparently paying dividends. Revenues from the U.S./Mexico border region have also been rising due to the growing business of transporting migrants. Thousands of full-fare tickets, some costing more than $250, are being bought by migrants and their relatives to allow them to reach other parts of the country to be reunited with family. Based on published schedules from last fall through June, the carrier’s schedules in certain core corridors, including El Paso, Texas – Phoenix and Phoenix - Los Angeles have grown by at least 30%. The New York Times reports traffic in the Southwest has grown from 8% to 11% of Greyhound's overall revenue.

The growth of this traffic shines a spotlight on one of Greyhound’s strengths: the one-stop shopping available on greyhound.com, which offers users travel options over hundreds of thousands of city-pair combinations throughout the continent. Several dozens of carriers selling tickets on the platform have interline agreements allowing for “through” ticketing and purchases via a single smartphone “click.” The nearest competitor, Amtrak’s portal (amtrak.com), similarly sells travel between a multiplicity of locations, but it is constrained by the federal requirement that all transactions involve some form of rail travel, principally rail-only tickets and bus-train connections. This renders Amtrak’s platform a weak competitor in certain regions, particularly in the Mountain States and Texas.

New competitors emerge

The prospect of growing competition from German-based Flixbus adds uncertainty to established bus lines focusing on shorter-distance routes. The app-based platform contracts with local bus operators to provide service while it handles pricing, marketing, and ticket sales. Flixbus already dominates parts of the European market and is testing the waters in the U.S.

Since Flixbus’ launch in Arizona, California, and Nevada last year, expansion has been the order of the day. In March, Flixbus launched services linking Austin, Dallas, Houston, and San Antonio, as well as interstate service between those points and Baton Rouge and New Orleans and Biloxi, Miss. The following month, the company added a link between Las Vegas and Salt Lake City, while an El Paso — Phoenix route began in May.

As we note in our recent bus travel newsletter, the competitive overlap with Greyhound and Megabus grew larger with Flixbus’ East Coast debut in May, which it achieved by striking an agreement with Eastern Bus, an existing bus line using curbside locations in Chinatown and outside Penn Station in New York. Up to 11 buses, daily, link New York City to Baltimore, Washington, D.C., and Richmond, Va. 

Flixbus already dominates parts of the European market and is testing the waters in the U.S.
FlixBus
Flixbus already dominates parts of the European market and is testing the waters in the U.S.
FlixBus

Established lines like Greyhound and Megabus are also feeling the effects of competition from more upscale travel providers. In the past 18 months, six new premium brands emerged, mostly specializing in routes in the 200- to 300-mile range. As evident on our interactive map, among the largest of the first- and business-class operators with competing routes include:

  • LimoLiner, which caters to comfort-oriented travelers with its New York and Boston service, typically running three times daily, and is notable for having hot towel service, a wide variety of snacks, and full-flush toilets.
  • RedCoach, which has a core route system stretching from Miami to Tallahassee, and a few months ago expanded to Atlanta. RedCoach’s first-class buses have leather seats that recline to an almost horizontal position, as well as a state-of-the-art entertainment system.  
  • BestBus Prime, Tripper Bus Elite, Vamoose Gold, and Washington Deluxe’s Lux Bus serve the New York – Metropolitan Washington route. These premium offerings by established bus lines boast expanded legroom and 2x1 seating.

On longer distance routes, ultra-low-cost airlines such as Frontier and Spirit are growing rapidly. A strong economy has also boosted car ownership and fostered new “car-sharing” options, which allow travelers to borrow cars from regular car owners in the same neighborhood, such as Turo.com.

Amid such heavy competition, expect Greyhound to put great emphasis on strengthening its network of connecting routes through greyhound.com — something competitors can’t match — and on working with government agencies to connect poorly served places. Look for more Amtrak “Thruway” routes, such as the one announced in June linking Green Bay to Milwaukee.

Expect Megabus to experiment with more niche routes, including service to airports and secondary markets, as well as inviting new partners to its megabus.com platform. The Megabus brand has a particular cachet among university students and value-oriented Millennials who seek to avoid using traditional bus terminals.

All of this will make the next phase of the Greyhound versus Megabus competition fascinating to watch.  

Joe Schwieterman is a professor at the Chaddick Institute for Metropolitan Development at DePaul University. Brian Antolin is founder and president of Co-To Travel. They are authors of an annual Outlook for Intercity Bus Travel report released each January. Readers interested in joining Chaddick’s Intercity Bus listserv should contact chaddick@depaul.edu.

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