Access to financing, competitive bidding are key to obtaining lucrative contracts.
Many an operator has laid in bed at night dreaming about an exponential increase in both his fleet and his overall business. For most, this is just a dream. For Robert Gaye of Transtar Transportation in Orlando, FL, it is a reality.
When Gaye first bid on the Disadvantaged Business Enterprise (DBE) Multi-Service Transportation Concessionaire contract for Orlando International Airport, he had only five vehicles. The contract demanded that the chosen operator must either have, or prove he could get, 25 vans and 10 limousines. With a letter of intent from his financial institution under his belt, he went ahead and bid on the contract—and won it.
Airports and municipal transportation commissions are not the only prospects for vanpooling and shuttle bus services. With the advent of Clean Air Acts being instituted around the country, large corporations are being forced to incorporate vanpooling for employee transportation. Additionally, a lingering sluggish economy is compelling these companies to look outside for transportation services.
With the proper pre requisites, operators can sign contracts to provide multi-vehicle service on a consistent basis. Leasing arrangements, competitive bids, and the ability to handle the increase in volume are all key to getting and maintaining these lucrative contracts.
Obtaining The Contracts
Even though the two previous DBE Orlando Airport contractors couldn’t handle the work, Gaye felt sure his company could The livery company that would eventually win this contract had to prove it was qualified, demonstrate an ability to perform, and have a proven track record of experience in the industry.
“What we did was propose a business plan that included explaining our management team, financial, and other pertinent company information. We also got letters of recommendation from our corporate clients. It was important to show that we could adapt to this type of business. But the main priority was showing we could get the number of vehicles to fulfil the contract. We were one of six companies that bid for this contract and we were rated number one,” Gaye explains.
The best advice Gaye can give to other operators who might find themselves in this type of bidding situation is to, “Look to your own banks or lenders to give you a guarantee of financing so that if you do get the contract, you can get the number of vehicles you will need. After that, the rest is business based. You need to prove you can handle the reservations, dispatching, scheduling, and maintenance.”
Even though Transtar has to pay a privilege fee, the contract allows the company an advantage over other ground transportation companies at the airport. “We can load on a certain level of the airport where others can’t. This is a great advantage when passengers come off the planes. Also, we have three locations at the airport that are right outside the baggage claim areas,” he adds. Since obtaining the contract, Transtar now commands 36 percent of the on-demand ground transportation business at the Orlando airport.
Jon Epstein of Royal Coachman Transportation Group in Verona, NJ, is another operator with a similarly lucrative contract. But Epstein had a much easier time gaining his contract “We have a contract with PSE&G, a state utility company, that calls for 50 vans for employee vanpooling,” he explains. “We got this contract because the transportation company PSE&G originally contracted with had gone out of business. We had been doing business with the utility company through our livery service, so they came to us and asked if we would like the contract. They knew we had the finances to accommodate the extra vehicles and they wanted good service.”
For his part of the contract, Epstein supplies the vans, maintenance, emergency on-road service, and will facilitate the utility company in obtaining insurance. PSE&G provides the drivers. “We have been providing this vanpool service for the past four years and have just been renewed for the next four,” he adds.
Epstein believes the key to obtaining these types of contracts is to either have extensive knowledge about leasing or to own a leasing company. Royal Coachman has functioned as a livery operation since 1969 and as a leasing company since 1973. Additionally, the company also rents cars and trucks.
“If you are going to survive in this business, you need to have a quick avenue to get both the funds and vehicles. You need to have extensive credit lines. It helps if you own a leasing company,” he adds.
Reap Huge Benefits
Once an operator obtains van-pooling and shuttle bus contracts, he can be guaranteed a steady income. For Gaye, the DBE contract now accounts for 75 percent of his total business. “We move 50,000 people per month from the airport and put approximately 100,000 miles per year on each vehicle,” he admits. “After we first got the contract, we discovered that 25 vans just wouldn’t cut it-we needed a lot more. We now operate 40 vans, including handicap-accessible ones, and have 10 more on order. We also have two minivans and two large motorcoaches.
“This type of work is a silver spoon for the mouth of small transportation. I encourage other small operators to seek out these types of contracts. It provides a steady income. Some of the types of transportation contracts operators should consider are airports, working with country clubs-any type of mass shuttle work. I have a competitor at the airport, but most times with these types of contracts there are no competitors.”
For Epstein, there is a definite profit motive. “We experienced tremendous growth after obtaining this first contract. This first order was for 50 vans. What helped us increase our profits even more was the fact that we had our own mechanics and weren’t paying to sub out that work,” he says.
Epstein isn’t resting on his laurels. He is determined to find more of these types of contracts. “Corporations are having to comply with the Clean Air Act. They are going about that in different ways. One way is to look to transportation companies to provide the service,” he says. Epstein is contacting companies that he has a working relationship with. “It is easier to break into a company when you have already done business with them. You will be dealing with different contacts at the company —the fleet department vs. the travel department—but it helps if someone in the corporation knows your reputation,” he adds.
While his company handled the increase in business relatively easily, there were some adjustments. “We expanded our maintenance staff. Other than that, everything has been pretty normal,” he admits. Some of the problems his company did experience were accommodated by the livery portion of the business. “Since people are going to work in the morning, we need staff avail able starting at around 5 a.m. We need to be able to react on a moment’s notice in case there is a mechanical breakdown. We also need to be sure there are runners avail able if a vehicle needs to be delivered,” he adds.
About the only problems Gaye has experienced have been dealing with the federal agencies that govern the airport and keeping on top of the airport and FAA rules and regulations.
Marc Kaplan of Catalina Transportation Services in Tucson, AZ, is another operator who is a believer in the van and bus market: While he doesn’t have the types of large contracts Gaye and Epstein have, he does very similar work. A full 90 percent of his business is generated by hotels and destination management companies. “Vans, sedans, and minibuses are where it’s at today. Limousines are great, but not as many people are using them,” he says.
The seasonal aspect of the Tucson market demands that Kaplan be flexible with his fleet size. One way he has found to accomplish this is to rent vehicles. “During our busy times, I just rent the number of vehicles I need. I have a policy with my insurance company where I pay an extra $1,000 per year and that covers me for both collision and liability with the rentals,” he adds.
Less Expensive Equipment
One of the reasons operators find this type of work to be so profitable is because the vehicles are cheaper to purchase and operate. Kaplan believes it is not important to buy brand new vans or shuttle buses. “I recently bought two 29-passenger minibuses for $28,000 each. That price includes the purchase price plus completely refurbishing the vehicles. Both vehicles had under 100,000 miles on them,” he says.
Kaplan also recently bought a 1990 minibus for $39,500. The vehicle had under 100,000 miles on it and was completely refurbished. He estimates that if he had bought it new, the vehicle would have cost him $100,000. “The minibuses paid for themselves in less than one year. I can’t, keep the 1990 minibus in the yard. It isn’t uncommon for it to be booked for four or five days straight at $500 per day,” he adds.
Gaye also finds vans and shuttle buses are cheaper to operate than limousines. “The capital cost vs. the income generated is much greater with vans. A limousine today costs over $50,000 and commands an hourly rate of about $55. You need to try to keep that vehicle out at least 10 hours a day to make it pay for itself. With the shuttle vans, they cost us between $19,000 and $22,000 which makes our monthly payments between $400 and $700. We can charge between $12 and $13 per passenger. We average 6.7 passengers per trip and six to seven trips per day per vehicle. We can easily generate around $500 per day. Multiply this by 30 days and you are doing pretty well,” he admits.
Understand Client’s Needs
For operators to be successful in this specialized sector of the market, they must be certain to purchase vehicles that will meet the specific needs of their clientele.
According to Ken K. Sieloff of Commuter Conversions in Troy, MI, “You need to look at who you will be transporting and how long they will be spending in the vehicles. Tailor your specifications to best fit these needs.”
Sieloff suggests that if your clientele will be in the vehicles only a short time, luxurious appointments are not essential. He recommends bench seating for this application because it is easier to get into and out of the vehicles. For longer trips, high-back, reclining seats and other amenities are recommended.
Sieloff advises operators to explore the van market. “Vans provide more flexibility and are a good way for operators to supplement their limousine and sedan income. They allow for an opportunity into the corporate market. It is just another opportunity to stay afloat,” he adds.
Similarly, Sheldon Walle of ElDorado/National in Salina, KS, advises operators to examine the number of passengers they will be transporting. “If you will be doing a lot of vanpooling, make sure the vehicles also have extra luggage room. That way you can use the vans for delivering parcels during the day to earn extra income,” he says.
One wave of the future that Walle predicts is the need to incorporate more home-type amenities into vehicles. “With air quality laws being implemented around the country, there will be a need for operators to lure commuters out of their private vehicles and into vanpools. Operators will be more successful if they can provide the comforts of home such as big reclining seats and TV/VCRs. That way, people can watch ESPN on the way to work,” he adds.
When deciding on the type of vehicle that is right for you, Walle suggests going to your local airport and metropolitan area and finding out what kinds of vehicles are being used in your area. “Look at the performance history of each vehicle. It is also worth paying a little extra to buy a vehicle from a local dealer. They will be able to provide you with parts, service, and technical assistance.”
For a converted van, including the base price of the vehicle, operators can expect to spend between $22,000 and $29,000, according to Sieloff. Along those same lines, operators in the market for a small- to mid-sized bus will be paying in the area from the low-$30,000 to the mid-$50,000 range, says Walle. “Including everything—driver, insurance, maintenance, etc.—the operating cost of a shuttle bus will be around 90 to 95 cents per mile. While this may be a little higher than the operating cost of a limousine, it’s not a lot more. You need to keep in mind that with the higher seating capacity of these vehicles, you can generate a higher revenue,” he adds.
For operators who are wavering on whether or not to plunge into this segment of the market, Gaye tells operators this, “By diversifying your fleet, you will be increasing your cash flow. Also, the industry needs to get away from having names that involve the word ‘limousine’ and think about adding the word ‘transportation.’ Your clients who aren’t in this business don’t recognize that you have different types of vehicles.”
Kaplan adds, “You have to get away from the word ‘limousine’ in your company’s name. You have to offer everything these days.”