Who Says People Won’t Ride Buses?
COST Commentary: How often have we heard rail proponent’s state that “people will ride trains but not buses.” The article below is one of many which debunk this myth. This story is about profit making bus companies. If profit making were a criterion there would be almost no riders on any passenger train in the United States, whether it is a trolley/streetcar or, an urban, a commuter, or an intercity passenger train. All passenger trains, especially high speed trains, are highly subsidized by taxpayers, but even with subsidized train fares, intercity buses are carving out profitable and growing market segments. These niche markets are generally in the range where it is too long for a casual car trip and two short for the cost of an airplane.
The Megabus Effect
After decades of decline, the bus is the U.S.’s fastest-growing way to travel, led by curbside service from Megabus, BoltBus, and others
By Ben Austen, Bloomberg Business Week , April 7, 2011, 5:00PM EST
On a Chicago morning in late December, 60 people are lined up outside along a downtown street, waiting for buses headed to Des Moines, Indianapolis, and Kansas City. It’s 20F, the wind talons, and the travelers sway and stamp. A student of clinical psychology at the University of Illinois at Chicago, standing near four dreadlocked white guys, says he paid $26 for a 200-mile trip to Iowa City, which prompts someone else to brag that his seat on the same double-decker bus cost $5.
They’re all there to catch rides offered by Megabus, the largest of the private companies to corporatize New York’s “Chinatown bus” model of street-side pickup, express travel between sizable cities, and cut-rate fares. Half a mile from the Greyhound depot and barely on the periphery of Union Station’s Beaux Arts grandeur, the Megabus stop’s only identification is a modest street sign displaying the company name above its mascot, a cherubic, Benny Hill-like character in a yellow driver’s cap.
After the Des Moines bus departs, a dispatcher shouts that Indianapolis-bound travelers can sit on the “warming bus.” He points to a white coach idling 50 feet up the street. The crowd migrates that way, leaving on the sidewalk Dale Moser, chief executive officer of Megabus’s parent company, Coach USA. Bundled only in a thin leather jacket and earmuffs, Moser, 55, says he has been watching the operations for more than an hour. He immediately begins detailing the company’s merits: how 90 percent of customers book online, many simply showing tickets texted to their phones to board; how the buses all offer free Wi-Fi and power outlets at every seat; how every trip includes at least one $1 fare, with prices going up as the departure date nears and as the bus fills; how there are no terminals or storefronts, just a bare-bones back-office staff; how the bus fleet is in constant use. “You cut all that overhead out of your business, you find you can pass that savings on to customers, thus driving volume,” Moser says. About once a month he rides the buses himself, as a sort of secret shopper, chatting people up and asking about their travel experiences. “If they look at me like I’m a real creeper, I tell them who I am,” he says.
When the ink in my pen freezes, I ask if he would mind continuing our conversation inside. The head of the biggest “curbside bus” carrier—a mode of transportation that is by far the fastest-growing in the nation—surveys his teeming Chicago hub. He suggests the Dunkin’ Donuts across the street.
Megabus and Coach USA are owned by the British company Stagecoach Group, and they have fundamentally changed the way Americans—especially the young—travel, so much so that they may help kill plans for new railroads.
In 2010, Megabus launched its third and fourth hubs, in Philadelphia and Washington. It currently does $100 million in business annually, operating 135 buses each day to 50 U.S. cities. While other companies downsized over the past two years, Megabus hired 270 additional workers and invested $36 million in the business. Each month this year it will add five to six new double-deckers to its fleet.
Appearances to the contrary, Megabus and the other major curbside bus companies contend that their model has little to do with the Chinatown carriers. The difference may be a matter of scale. Fung Wah, for instance, still makes 24 trips daily from New York to Boston, its only route. Megabus began with nonstop service from Chicago to seven Midwestern cities, all with populations of around 1 million, and has grown from there.
About the business model’s undeniable similarities to the Chinatown buses, Moser says: “We’re nothing like them, except for the curbside.” (Fung Wah Transportation declined to comment.) Why Megabus and others distance themselves from the non-corporate carriers became even more apparent in March, when a charter bus returning to New York’s Chinatown from the Mohegan Sun casino in Uncasville, Conn., flipped on I-95 in New York and was sheared in two, killing 15. Just days later a bus serving mostly Chinese immigrants ran off the New Jersey Turnpike, killing the driver and a passenger. Suddenly there were calls to investigate the practices of all discount bus companies. “There’s a perception that we’re a cheap company,” says Moser. “But to provide low-cost service, we don’t cut corners on safety. Safety is our top priority.”
Last September four passengers died when a Megabus driver missed an exit and crashed near Syracuse, N.Y. But the company still maintains the top rating from the Federal Motor Carrier Safety Administration. And Moser stresses that being part of a large, international corporation means there’s the wherewithal to implement rigorous safety standards that include driver training; rules regarding the length of work shifts and the frequency of rest stops; GPS monitoring of all buses to ensure they’re on course and away from low overpasses; and on every bus purchased since 2006, seat belts for passengers—something the law does not require.
In Britain, the publicly traded Stagecoach Group is a transportation monolith, moving 2.5 million people each day on its buses and a full quarter of all U.K. rail passengers on its commuter lines and trams. The company first tried the Megabus idea there in 2003, and the service now links 50 cities in England, Scotland, and Wales—and hooks up with Megatrain—with fares starting at, yes, £1. The company’s American division, Coach USA, operates charter, sightseeing, and even school buses throughout the U.S. and Canada.
Surprisingly, the initial expectations for Megabus in the U.S. were low. At the 2006 kickoff party, held at Chicago’s Navy Pier, Moser’s boss, a Scotsman, asked the Pennsylvania native to assess their prospects. “I told him, ‘We’re Americans, we’re attached to our cars. That’s our identity. It’s going to be a challenge, but let’s give it a shot,'” Moser recalls as we sit in the Dunkin’ Donuts, watching his buses pull up along the opposite curb and depart.
Gas prices soared, however, and ridership rose along with them. Within six months officials from other Midwestern cities were offering Megabus prime pickup locations and help with promotions if only it would, please, include them on a route. In 2008, Greyhound and Peter Pan formed BoltBus, which says it turned a profit after only three months of service between Northeast Corridor cities. After startup it took Megabus a mere two years to move 2 million passengers to and from New York, and on all its U.S. routes it now handles about 4 million passengers annually.
For bus travel as a whole, the number of daily departures increased by 6 percent in 2010, twice the growth experienced by air travel and 12 times that of Amtrak. The number of curbside passengers rose by at least 33 percent, with Megabus ridership expanding 48 percent. (Amtrak ridership grew by just 6 percent, and the airlines by 5 percent.) The company says growth, including the 20 routes it added last year, is an astounding 65 percent. Curbside buses now account for more than a fifth of all daily bus departures in the country. The American Bus Assn. maintains that traditional intercity bus service on Greyhound, Trailways, and others has even experienced a positive spillover—the group calls it “the Megabus effect.”
There’s a battle going on to control the in-between routes, the 200- to 300-milers. Air travel, despite its enormous carbon footprint (and meager profitability), is unlikely to be displaced anytime soon as the transportation of choice for long-haul travel. For short distances, the car is still king. But of the most traveled American routes, many fall into this middle category: New York to D.C. (or Boston), Los Angeles to Las Vegas, Chicago to Detroit (or St. Louis), Dallas to Houston (or Austin or San Antonio), Miami to Orlando, Nashville to Atlanta (or Memphis). These routes are too far for a leisurely drive and too near for most Americans to justify the expense, or increasing hassle, of a plane. In 1990 a third of Americans flying domestic traveled these medium-haul distances. By 2009, though, that portion had shrunk to a quarter of all fliers.
In Europe, these are the routes owned by rail, and transit policy experts in the U.S. hope that in coming decades high-speed rail will serve that market. But it’s the intercity bus, the tortoise of the transport world, that is taking over much of the medium-haul market. On most city-to-city trips under 300 miles, the curbside bus offers tickets that cost a tenth of those of Amtrak and far less even than the price of the gas to get there by car. The bus is also at least four times more fuel-efficient than a car. Researchers at DePaul University’s Chaddick Institute for Metropolitan Development estimate that curbside carriers, at their current capacity, already reduce fuel consumption by 11 million gallons annually, the equivalent of taking 24,000 cars off the road.
Much of the recent success of the curbside business derives from its nimbleness. In February the Obama Administration unveiled some specifics of its long-term plan for high-speed rail, requesting $53 billion over the next six years to build and upgrade intercity service—a proposal that has already met opposition. By contrast, the bus simply uses existing roads, requiring no policy debates, government funding, or land management studies. It needs only a curb and a sign. Bus companies are also able to gauge demand quickly, gather rider input online, then alter pickup locations or routes just by posting changes to their websites. While we’re having coffee, Moser explains that since he’s seen numerous requests on transit blogs for new service from Chicago to Memphis, he figures he might as well give the route a try. A couple of weeks later he has the buses up and running.
The curbside bus can also easily add and subtract departures. During Thanksgiving and Christmas in 2010, Megabus continued to sell as many tickets as were requested on its website, adding buses as needed. In Chicago, the buses were lined up all the way around the corner at the pickup location. “It’s astounding how few constraints there are to its development and expansion,” says Joseph Schwieterman, the director of DePaul’s Chaddick Institute. “That’s why it’s an exciting product to watch. Adding two big hubs in six months—we just don’t see that anymore in transportation.”
The comparison with rail is revealing. Consider that even after the Obama Administration budgeted $10.4 billion in federal stimulus money to jump-start high-speed rail projects around the country, the states had to submit proposals, federal transportation officials had to select the most viable ones, and state and federal governments had to negotiate these plans with the freight companies that own most of the nation’s track. After all that, politicians, citing budget shortfalls, ended up scuttling many of the plans.
A generation and a half ago, more than 2,000 Greyhound, Trailways, and other intercity buses crisscrossed America’s roads, linking some 15,000 communities. The bus remained a national icon—a conveyor of adventure, homecomings, and fresh starts. An early ad for Greyhound Lines promised “all the color and romance, all the scenic and historic interest of this American Wonderland are yours to enjoy when you go the Greyhound Way.” It was Greyhound, with its $99-for-99-days deal, that allowed many foreign visitors and young Americans to explore the vastness of the country.
Women, too, frequently traveled alone on buses. The Big Band-era ditty Love on a Greyhound Bus promised that a single lady riding coach, rather than being harassed or scared, might find a charming companion seated next to her: “Soon the sun disappeared from view/The stars came out as they always do/And then I cuddled up next to you.” Bus travel, though, began to fade as car ownership and air travel increased, and inner cities, where the terminals were located, decayed. After 1960, ridership steadily decreased, and routes were slashed. The U.S. Government Accountability Office estimated that the number of riders dropped from 140 million in 1960 to 40 million in 1990, the year Greyhound filed for Chapter 11 bankruptcy protection—and the figure sank further over the next 16 years. By then bus travel had acquired the stigma of second-class citizenship, the transport of last resort. The back seat of a Greyhound bus was the kind of place a derelict like Ratso Rizzo, Dustin Hoffman’s character in Midnight Cowboy, would go to die.
In the late 1990s, though, mostly secondhand buses began ferrying immigrant passengers between the Chinatowns of New York and Boston. The “Chinatown bus” quickly grew into a tangle of private companies offering dirt-cheap curbside-to-curbside express service to cities along the Northeast Corridor. It wasn’t an elegant mode of travel. In those first years there were incidents of buses catching fire en route and wheels falling off on the highway, and many stifling rides without air conditioning and with the ’80s music dubbed into Cantonese blaring overhead. Legislatures occasionally wrestled with issues of congestion around pickup locations and regulating the businesses.
Still, the buses were a hit with college students, and without advertising, name recognition, or even a Web presence, demand continued to rise. Despite four decades of steep declines in city-to-city bus travel, both the number of routes traveled and overall passengers spiked in 2006, the year Megabus hit the road.
The new bus riders are not the old ones. These days they are likely to be young, well educated, and digitally connected. Megabus says more than half its riders are aged 18 to 34. BoltBus claims three-quarters of its passengers are in that demographic and that 82 percent of riders are in college or are college graduates.
These riders are returning for additional trips in no small part because Wi-Fi-enabled buses allow them to surf the Web, write papers, and watch their own movies as they idle in traffic or barrel down the Interstate. There’s even a bit of an “overheard on the bus” Web genre, as well as a Twitter complaint account named “Megabus fails.” Last year researchers at Schwieterman’s Chaddick Institute embarked on 235 bus, rail, and plane trips, observing 19,500 passengers to assess the frequency of portable technology use on these various modes of transportation. In a paper released in January, Schwieterman and his team reported that curbside passengers use technology at greater rates than any other riders except those on Acela Express, the premium rail service that offers a great deal more space to spread out and work in. When Schwieterman’s students surveyed 200 BoltBus and Megabus travelers in New York, 92 percent said they planned to use an electronic device on their trip and 37 percent agreed that the availability of Wi-Fi and power outlets were central to their decision to travel via curbside bus.
In ways similar to neighborhood gentrification, the college kids and bohemians have settled territory that now appeals to less adventurous groups. Curbside travelers have come to include large numbers of “silver surfer” retirees, business commuters, and—once again for intercity bus travel—women riding alone. Moser says a quarter of Megabus’s passengers are unaccompanied women. In surveys the company conducted before its Chicago launch, women consistently said they were excited by the prospect of not having to drive or park downtown and of visiting the city at a price that left them with more money to spend on shopping or theater or meals. But this group also proved especially averse to the idea of a bus depot. For them and others, a street-side stop transformed the bus into an entirely different mode of travel. “Would I want my daughter or my wife in a bus terminal by themselves? I’d say no,” Moser says. “We’re creating new bus customers and a different demographic.”
Schwieterman points out that the curbside bus may be too down-market to draw business travelers or go fully mainstream. Still, he believes it could change the balance of transportation in the country if it manages to operate successfully between medium-size cities throughout the country. “Then you would see continued growth without constraint,” he says. The business is already displaying the versatility needed to take this leap, and any new regulation of the industry following the recent fatal accidents would harm small competitors far more than the corporate players that can better afford compliance. Both Megabus’s Moser and David Hall, who heads BoltBus, are reluctant to talk about specific expansion plans, but they agree that their business could flourish in California, Texas, Florida, and just about anywhere in the country. “We’re trying to get people out of their cars,” Moser says. “That’s an unlimited market.”
One of Schwieterman’s students, Brian Izzo, describes the experience of riding curbside carriers while working on the technology study—the social atmosphere on the buses, their affordability, their connectivity. “For a young person like myself, it’s an easy way to get out and explore, to see the country,” he says. Originally from St. Charles, Ill., Izzo, in a year of research, has become as seasoned a traveler as most corporate lifers. I mention jokingly that it sounds like he’s parroting one of the old Greyhound campaigns extolling the unbridled adventure and romance of the road.
“But it feels that way,” he says with utter earnestness. “It really does.”
Austen is a Bloomberg Businessweek contributor.
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