Operations

Good Reasons To Get Into Motorcoach Service

Martin Romjue
Posted on September 15, 2014
Mike Haggerty, chairman and co-owner of CH Bus Sales and founder and previous owner of Ryan’s Express charter bus company and Stardust Limousine, both of Los Angeles, led a seminar at the 2014 International LCT Show titled Tour Bus Operations: How to Get Into the Charter Bus Business.
Mike Haggerty, chairman and co-owner of CH Bus Sales and founder and previous owner of Ryan’s Express charter bus company and Stardust Limousine, both of Los Angeles, led a seminar at the 2014 International LCT Show titled Tour Bus Operations: How to Get Into the Charter Bus Business.

LAS VEGAS, Nev. — Two primary differences between chauffeured transportation and charter and tour bus service should be understood before venturing from the first to the second: It’s easier to get into limousine service, but charter buses yield stronger overall payoff and market potential.

That was the main point of a Feb. 17 seminar at the International LCT Show led by Mike Haggerty, the chairman of the board and co-owner of CH Bus Sales, and the founder and previous owner of Ryan’s Express charter bus company and Stardust Limousine, both of Los Angeles. Titled “Tour Bus Operations: How to Get Into the Charter Bus Business,” Haggerty offered a point-by-point primer for limousine operators who want to tap the growing opportunities in running motorcoaches for charter and tour service.

“Motorcoaches are a commodity, limousines are a service provider,” Haggerty told attendees. “There is a world of difference.”

Limousine operators who expand into motorcoach service retain a competitive advantage over traditional charter bus only operations, Haggerty said. “You are in a great position to attract a different type of client. People are lazy by nature, and they like going to one company and getting everything from a van up to a large motorcoach. One-stop shopping is a competitive advantage.”

Limos To Buses
Haggerty started in the limousine business 30 years ago, buying a stretch to serve the Olympic Games in Los Angeles and creating Stardust Limousine. Ten years later, after growing Stardust and acquiring other limousine services, Haggerty bought his first motorcoaches. In 1998, he sold Stardust and the next year founded Ryan’s Express, a full-service charter bus and tour company based in Los Angeles and Las Vegas. By 2006, Ryan’s Express had grown to 150 buses and $34.6 million in annual revenues. In 2010, Haggerty started CH Bus Sales, the U.S. distributor of Turkish-built TEMSA buses, and in 2011 sold his majority stake in the 180-vehicle Ryan’s Express to a private equity firm called Century Park Capital Partners. Ryan’s is now based just one block from LCT Magazine in Torrance, Calif. Haggerty has been chairman of the board of CH Bus Sales since 2011.

While there are greater barriers to entry in the charter bus business, there’s also less competition than in the limousine industry, he said.

“You take the limousine mentality and put it on the motorcoach side,” said Haggerty, whose limousine operation ran 63 vehicles, mostly in Los Angeles. The company also was involved with the Destination Management Company (DMC) market. “If you have good chauffeurs and great equipment, they will find you. Many times a year, there just aren’t enough buses in this country. If I can do it, you can do it.”

Appreciable Assets
Haggerty said he liked limousine service, but in that business “you are only as good as your last service.” Once his company grew into buses, it saw a 30% EBITDA — earnings before the deduction of interest, taxes, depreciation and amortization expenses.

A motorcoach fleet generates more revenue, and makes the company more attractive to investors, he added. “It’s hard to attract investment bankers in the limousine business. It’s hard to get them interested unless you are large.”
Another factor for operators to consider is the added competition generated by Uber and Transportation Network Companies. Limousine operators can offset any revenue and service losses by offering bus service, which TNCs cannot do. “I’m not sure where Uber is going. They are hammering the taxi side but you have to know when to get out. That could be motivation to focus on a different segment of the [transportation] market.”

Entity & Identity
Operators building a bus business also should consider creating a separate corporate entity and branding identity, Haggerty advises. He recommends either an incorporated company or limited liability company (LLC).

“I prefer LLC because you get full depreciation for a bus,” he said. “These buses are the mother of all tax shelters. You can put it into a corporation, but you are limited to depreciate only on the basis of what you put into the bus. You want an arm’s length entity. In case of an accident, you don’t want exposure to your other company. If you exceed insurance limits, you would have exposure, and people could go after your equipment. By creating LLC, you can protect all of your assets.”

Chauffeur-Type Training
Success in motorcoach service depends on the training and behavior of bus drivers. “Our competitors hire unimaginable people. Some hire anyone. Why do that with a $500,000 piece of equipment? We would hire only one out of five people who come through our doors.”

Haggerty suggests assigning vehicles to drivers and chauffeurs, so they take more ownership of them. “We would go into sales meetings, and they would ask, ‘Do your drivers have teeth? Do they bring their families with them?’ They walk into one of our buses and say, ‘I can smell the difference.’”

Haggerty advises operators to invest in multiple locations, allowing easier shifting of vehicles among cities and markets to accommodate breakdowns and last-minute changes in demand. Locations should be in good proximity, such as Los Angeles and Las Vegas, or Dallas and Houston.

“If you get too many buses in one market, you start taking jobs you normally would not take. You have to draw the line. If you have too many vehicles, you start hiring [bad] drivers. You want to create demand for your product.”

SIDEBAR: Tipsheet
Other quick points and recommendations Haggerty listed in his seminar:

  • Spend money on the front end with your legal expenses; if you don’t, you’ll be spending on the back end.
  • Work with wholesale tour operators to attract better drivers, since they like to be on the road earning cash tips and are more career-oriented, Haggerty said.
  • Rates for most markets should be about $100 per hour, with a three-hour minimum for Las Vegas, for example, and a five-hour minimum for Los Angeles. Premium markets such as New York and San Francisco can command higher rates. Rates based on mileage should average about $4 per mile.
  • Fuel costs should never exceed 12% of revenue. At Ryan’s Express, Haggerty assessed a 20% fuel surcharge without any pushback. Operators should stay in front of fuel surcharges, and factor one gallon of diesel per hour per vehicle when idling. Operators should monitor and limit the practice of “dieseling the engine,” since over time excessive idling can shorten engine lifespans.
  • Select tours wisely. National park excursions are the least desirable, given the risk of mechanical breakdowns in remote locations. Operators should be careful how far away buses travel from essential services and support. Bus service for military- and defense-related clients is a palatable market, but requires special licensing and approval.
  • Growth is more likely to happen by word of mouth, and offsets the need for advertising. It helps to avoid just having one or a few big accounts, in favor of multiple accounts serving multiple locations.
  • Clients focus more on base rates instead of add-ons such as fuel surcharges, environmental and administrative fees.
  • Operators who don’t raise rates when needed will not flourish. You need to be conscious of value-added service, such as good equipment and good chauffeurs. Bottom feeders always will find someone cheaper. Don’t be afraid to charge higher rates commensurate with quality.
  • Buy new or at least newer buses with a good fit and finish that have after-sale potential. And make sure you have more to offer instead of just good equipment.

Related Topics: building your clientele, buses, CH Bus Sales, charter and tour, charter and tour operators, expanding your business, industry education, Mike Haggerty, motorcoach operators, motorcoaches

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