Stepping Up

Posted on February 3, 2009 by LCT Staff - Also by this author

Telling a struggling operator to buy a $420,000 motorcoach at first may seem like a far-fetched investment, or a stretch, if you will. More overhead, more passengers, more liability, more regulations, more parking — none of it sounds too appealing during a recession and industry contraction.

Yet the combination of the recession and shifting ground transportation tastes means all those “mores” can lead to more opportunities. And there may not be much of a choice, given the declining demand for stretch limousines and the increasing preference for buses, mini-buses, vans, shuttles, and SUVs among chauffeured clients.

From Limousines to Motorcoaches

DURING THE LAST economic upheaval following the terrorist attacks of Sept. 11, 2001, Aventura Worldwide of Miami decided to venture into the charter and tour business, creating a new company called Aventura Limo and Bus Service Inc., doing business as A-1 Luxury Coach.

A-1’s vice president and CFO, Ron Sorci, obviously has no regrets. In the last six years, A-1 Luxury Coach has grown to 18 motorcoach buses and two mini-buses. Revenues hit $3 million in 2008 and are rising. After six years, A-1 has only a 10% client overlap with Aventura Worldwide, a chauffeured transportation company where Sorci also is the CFO.

At first, most clients of A-1 came from the Aventura client base. The challenge was being a new entity without a proven track record with clients. But the new company began cold-calling and looking for new markets. “We really went out and used word of mouth relationships to blossom into a bigger business,” Sorci says.

A-1 soon learned that Miami-area professional sports teams needed motorcoaches. It ended up getting transportation contracts with the Florida Panthers, the Marlins, Miami Heat, Miami Dolphins, and the visiting teams in each professional sport, Sorci says. “We made it a boutique part of our business.”

A-1 also arranges transportation for cruise lines and gets a major share of the area’s public schools market, including sports teams and high school marching bands. A-1 succeeds with 61-passenger Van Hools, which have restrooms and wheelchair access.

Sorci notes that A-1 business has increased during the recession. “From what we see, more corporations are doing more grouping where previously they would have used separate vehicles,” he says. “Instead of sedans or minibuses, they have grouped people together into motorcoaches.”

Banking Big on Double Deckers

ANOTHER OPERATOR WITH less experience than Sorci but enjoying the same trajectory of charter motorcoach success is Ken Caldwell, founder and CEO of Designer Limousines of Port Washington, N.Y. Caldwell has been a chauffeured transportation operator since 1980 and started branching out into the motorcoach market last year with the purchase of three charter buses. He plans to add about four to six more motorcoach buses to his fleet.

Designer Limousines’ signature bus so far is a 48-foot double-decker luxury lounge bus, with a sports bar, party room, and entertainment center all in one. Rentals range anywhere from $650 to $1,500 per hour, and the buses come with an onboard host/bartender or “concierge” in addition to a chauffeur. “The chauffeur has to stay in his own compartment because he can’t be bothered with so many people onboard,” Caldwell says.

Caldwell says he took on the motorcoach business as a way to generate more revenue as the economy slowed. “We make sure our clients know they can upgrade to a charter bus at any time,” Caldwell says.

“We have limousine intelligence going into a taxi-style business,” he says. “We’re going to give them limousine chauffeurs who can provide a better experience. We supply the type of things you should find in a limousine, such as WiFi, satellite TV, and stocks of food and beverages.”

Caldwell draws upon vast experience with smaller limousine buses, stretches, SUVs, and vans. His company operates about 75 vehicles, including Krystal 38-passenger buses. One observation Caldwell quickly recounts about bus clients: “Everyone wants a bathroom.” Caldwell says it takes about a year or two to generate consistent business. He has tapped into the ample, consistent demand among public and private schools, and colleges.

The Other Side of the Story

WHILE OPERATORS WHO evolve from limousines to motorcoaches can certainly recite the rules of the road, the operator who goes the reverse route — from motorcoaches to limousines — can offer another informed perspective.

Stephen Story, president of the 80-year-old James River Bus Lines of Richmond, Va., bought a Carey Transportation limousine and corporate sedan franchise in 2001, and combine the best of both transportation worlds. He brings two decades of experience in the mid-Atlantic motorcoach market.

“Many motorcoach clients needed Town Cars and executive-style vans,” Story says. “They wanted to know what we were doing, so it all kind of fit. Now we have the full spectrum and can do anything for a client.”

Limousine operators already excel at working with high-end users, Story says. The key is to transfer those skills into the motorcoach market. “Only a few motorcoach companies out there have picked up on that,” he says.

Story says the chauffeured transportation and the motorcoach charter business operate in two different legal and regulatory climates. Understanding and navigating the differences are paramount for operators, regardless from which industry they are crossing over.

“Motorcoach is a whole different animal and requires a lot of compliance,” Story says. “Small businesses in general are not used to having to deal with government compliance. Even if you are a small company, you look big because you take up a lot of space with buses.” In addition to aggressive federal regulation, motorcoach operators, like limousine operators, must follow varying state rules and agencies. Accidents happen most often because of non compliance, Story says, with drivers falling asleep due to medical problems or deficiencies.

Along with regulatory compliance is the vigilant need for regular maintenance and safety. “That’s probably the biggest hurdle people go through,” Story says. An average motorcoach travels 80,000 miles in one year, and requires thorough maintenance checks about every 5,000 to 10,000 miles.

Story advises operators to accurately figure the costs for each bus, the rates needed to sustain them, and a healthy profit margin. “The advantage that limousine operators have is they’re used to asking hourly rates, and for higher rates,” Story says. “A client will never pay for what you don’t ask for. If you’re too scared to ask for what you’re worth, you’ll never get it. If you back it up with good service, you’d be surprised with what customers are willing to pay. A large number of people are willing to pay premium dollars for premium service.”

Customer service must distinguish a motorcoach service, just like in a limousine operation, Story says. You have to anticipate what the client wants, and meet their expectations. “A client did not call you on the phone because you are safe and on time. That’s a minimal expectation. You need to find a different way to get a better message across. Customer service must be far ahead of the competition. It’s not just being safe and on time. You have to go way beyond that. Most limousine operators know how to do that.”

Taking It Slow And Steady ONE OPTION FOR limousine and motorcoach operators is to arrange farm-out contracts. This enables chauffeured transportation operators to test the motorcoach market while referring additional business to full-time motorcoach operators.

Such an arrangement has been a boost to Robert Vaughan, owner and CEO of Best Worldwide Chauffeured Transportation of Huntington Beach, Calif. Vaughan estimates that 10% of his company’s entire revenue stream comes from farm-outs to Transportation Charter Services, a motorcoach company based in nearby Orange. Best owns 13 mini-coaches.

“We haven’t gotten into big buses yet because we just don’t have room for them,” says Vaughan, who has explored buying motorcoaches but plans to wait until the recent economic uncertainty passes.

“The trend we are seeing within group business is that planners are going to larger vehicles instead of using smaller, individual rides,” says Vaughan, who works with meeting planners and destination management companies.

“Whereas you had 100 attendees to an event with everyone getting their own Town Car, now we’re seeing more use of shuttles and grouping people into larger vehicles.” Vaughan strongly advises operators to identify and develop a demand for motorcoaches before buying or leasing one.

“I would get the business and farm it first, and then measure it, and then get the first vehicle,” Vaughan says. “Then, you grow it from there. It’s an important step to make sure you have the business first before you make that type of investment.”

First Steps

Experienced motorcoach and limousine operators offer these tips for expanding into “big-bus” motorcoach markets.

1) Speak to existing clients to determine needs for motorcoaches. This will give an operator a good indication if the client base can put up additional revenues for bus equipment.

2) Consider farm-outs with motorcoach companies.

3) Contact local motorcoach vendors to see if they have overflow work that can be a source of revenues.

4) Talk to destination management companies who need large equipment to see if that’s another source for income.

5) Do plenty of overall market research before buying or leasing a bus.

6) Get organized and educated about the myriad of regulations set for motorcoach businesses by the Department of Transportation. Keep meticulous logs and records of motorcoach runs. Make sure either you or hired help have the skills to navigate regulations.

7) The D.O.T. is quick to issue fines for minor violations, such as not entering correct dates on transportation records. Operators need to make sure they comply with all rules.

8) The D.O.T. also requires more stringent health requirements for bus drivers/chauffeurs.

9) The D.O.T. is known for surprise inspections of motorcoach operations, bringing a group of inspectors. Be prepared.

10) Background checks, drug tests, and health screenings for chauffeurs should be mandatory, whether operating motorcoaches or limousines.

11) Don’t price your motorcoaches based on competitor rates. Calculate what a vehicle must earn to yield a decent profit. Stress that quality service is worth paying for. Many operators charge too little.

12) Almost every location has a niche to be filled with a high-quality motorcoach service.

13) There are key niche markets within motorcoach service: College/university, social/leisure, corporate, including incentive travel, social events, dinners; airport service; the schools market — private and public; contracted transportation services such as shuttles, and temporary parking lot access service.

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