Operations

Bargain Buses Drive Up Market Share

Posted on September 23, 2011 by - Also by this author

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Deanna Ballard and Rush Merheb, co-owners of Star Limo in Albuquerque, N.M., bought their first motorcoach in February, a completely refurbished 1998 MCI, for a bargain price.
Deanna Ballard and Rush Merheb, co-owners of Star Limo in Albuquerque, N.M., bought their first motorcoach in February, a completely refurbished 1998 MCI, for a bargain price.

ALBUQUERQUE, N.M. — Operators of Star Limo make sure their bus business builds upon the strongest foundation possible: Buying buses at bargain prices, whether pre-owned or new.

The approach worked for its mini-buses and limo buses; now they’ve applied it again. Star Limo’s spouse-operator team of Rush Merheb and Deanna Ballard added their first motorcoach in February — a completely refurbished, 56-passenger 1998 MCI bought for only $80,000 at a liquidation sale.

That followed a purchase practice that netted two 28-passenger 2010 Starcraft Chevrolet C-5500 mini-buses, which were new but came with some depreciation, for $79,000 and $75,000 instead of the $85,000 MSRP. Those buses followed a 2008 purchase of a 35-passenger w/luggage Starcraft minibus for $107,000, well below the $125,000 MSRP.

Lesson 1: Keep it affordable
Chauffeured operators can be intimidated by the six-figure prices of motorcoaches, with top of the line new charter buses costing $600,000 or more. Star Limo serves as an example of how a small to medium-sized chauffeured transportation company can find affordable buses to expand its client reach. Getting a reasonably priced pre-owned bus keeps overhead low enough to make a profit during the first stages of building up a charter and tour clientele.
That industry trend has accelerated in the last four years as chauffeured transportation operators and their clients collaborate on more efficient group ground transportation.

Since LCT Magazine first reported on Star Limo in its February 2009 issue, the company has grown its fleet from nine to 21 vehicles. Its total number of buses has risen from two to six, including the motorcoach. About 30% of Star Limo’s annual revenue comes from bus-related services, although the luxury sedans still rank highest in terms of profit margin. But the mini-buses rank a very close second.

Star Limo charges motorcoach rates of about $900 and $1,250 per day, depending on the nature of the trip run; and $750 to $950 per day for its mini-buses. Hourly rates are $225 per hour for a motorcoach; $85 to $117 per hour for mini- and limo-buses, based on passenger counts. Hourly rates can work in an operator’s favor. Star Limo has found that some clients only want to pay for morning and evening runs instead of a full day with the driver waiting. Split hourly runs can net more revenue than a day rate.

“We were kind of pushed into getting into this line of business,” Merheb says. “When the economy took a tumble, we saw more group than individual travel. Everyone started bundling up into larger groups. We took a leap of faith.”

Lesson 2: Check out your first bus, carefully
Star Limo was in the market for another mini-bus last winter and at first considered buying a new 40-passenger bus for $150,000, Merheb says. He came across a liquidation sale at a bus operation and MCI service center in Idaho, where the certified, pre-owned motorcoach was available for $80,000. Merheb and Ballard took along a certified Greyhound driver and bus mechanic to check out the bus before closing the deal. Merheb even contacted the previous owner, who had traded in the bus, to talk about his experiences with it. The MCI had 621,000 miles on it, but had been completely refurbished and overhauled at 500,000 miles.
“When you get into this, make sure you pull all the records on the vehicle and contact the prior owners,” Merheb advises.

New Mexico operators Deanna Ballard and Rush Merheb grew from a traditional chauffeured transportation operation with nine vehicles in 2009 to a diverse 21-vehicle fleet with a motorcoach and mini-buses.
New Mexico operators Deanna Ballard and Rush Merheb grew from a traditional chauffeured transportation operation with nine vehicles in 2009 to a diverse 21-vehicle fleet with a motorcoach and mini-buses.

Lesson 3: Do your research
Star Limo ventured into mini-bus and motorcoach service after doing its research and making the most of its connections. “We were getting groups and they were getting bigger,” recalls Ballard. “We didn’t know anything about bus industry. We saw other limo companies getting into buses, so you just think if they can do it, we can do it. We invited the DOT (Department of Transportation) to our location to approve the vehicles, and listened to customers to see what they wanted and what the hang-ups would be.” The DOT reps helped Star Limo understand the required paperwork, maintenance, and training for mini-buses and motorcoaches. “We wanted to make sure we were on the right path,” she adds.

The DOT review also helped educate Merheb and Ballard on federal labor rules governing length of driver shifts. “You have to be prepared with back-up drivers when you have a group,” Ballard says. “Tour directors don’t understand that drivers can only drive for so long. They think drivers are robots. They think drivers go here and there and then rest in between. You can still get driver fatigue. You really have to carefully explain to them that a driver can go only for so long, and come up with creative solutions.”

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