LCT EAST: If that’s all you do, your luxury transportation won’t be remembered much or stand out very well.
ATLANTIC CITY, N.J. — Have you taken the plunge and added buses to your fleet, or are you thinking about it?
I recently hosted a session about tips and strategies to help operators maximize their return on motorcoach investments and stay afloat. My fellow panelists were Andy Hernandez of CTA Worldwide Chauffeured Transportation in San Antonio, Texas, and Scott Margolin of Coachman Luxury Transport of Farmingdale, N.Y.
Below are some bullet points of topics we covered which will lead to more detailed articles in future issues of Luxury Coach & Transportation Magazine as we get deeper into operations. I’ve divided our wide-ranging session into three key segments to walk any operator, whether experienced or novice, through some basics:
Segment 1: Factors To Consider
1. Size of the vehicle you really need
2. What is a bus?
Hernandez started this session looking at his market segment, which he decided is primarily in the chauffeured transportation sector. He had business from destination management companies (DMCs) and affiliates in his corporate accounts. As an operator of minibuses, Hernandez recently bought two 50-passenger “larger-style” minibuses each costing less than half the amount for a full-sized motorcoach. What he focused on was business he knew he had and could serve with the vehicles.
When my company, Rose Chauffeured Transportation in Charlotte, N.C., started in the motorcoach business, it wasn’t actually looking to get into it. We were running several minibuses, which included 24-passenger Krystals. And we wanted something a bit larger to carry more people, so we looked at larger Krystal models, such as the KK-33s as some of you may remember.
At the time, Rose did not want to spend $125,000 on a minibus just for a few extra seats. Out of nowhere, a guy pulls up in a stallion motorcoach which was an off-brand vehicle that sold for more than $300,000. We certainly weren’t interested in spending that kind of money since we were a limousine company. But the guy says, “I’ll tell you what, I got a bus I just took in on trade. It’s 45-passengers. I’ll sell it to you for 50 grand.” I said, “Okay, let’s buy it.”
Well, we pulled up to our first university and they said, “That’s not a motorcoach.” I replied, “Yes, it is, it’s 45 passengers.”
“No, it’s not a motorcoach like the rest of the teams have,” came the response. So, we bought our first used motorcoach, going from zero to 23 motorcoaches during the last 10 years. We now buy new and slightly used motorcoaches.
Choosing a new versus used bus depends on your market and on how aggressive you plan to get the bus on the road. A new bus costs more than $500,000 today. Learn how to finance it, deploy it, and most importantly, track how much business you are farming out to motorcoach affiliates to see if your revenue can sustain the first coach.
Project your costs, including your yard cost before even starting the engine. Who will be your clientele? You’ve got to get your motorocoach out on the road about 60% of the time. If you can’t do that, you shouldn’t consider owning one. You’ll just spend far too much money and regret the decision.
Hernandez prefers to work with a seasoned motorcoach operator who he has developed a relationship with. He attends their monthly safety meetings and speaks to their drivers about the customer service aspect of chauffeured service. Hernandez estimates he farms out about $475,000 per year in motorcoach work.
Margolin said if he can’t produce $250,000 in revenue per year on a motorcoach, he has no business providing one. You’ve got to figure out what your service area could generate in sales to make it worthwhile when it’s time to buy one, he says. Margolin also mentioned once you have a motorcoach, you will need to lean on affiliates. If a customer calls asking for two buses, and you have one, a willing affiliate can help you get that business.
At Rose, we were farming out $250,000 before we purchased our first motorcoach, and we were anywhere from 20% to 30% net profit on a ride. The problem we faced in our market was the lack of quality service from bus companies; that’s what made us buy it. In Andy’s market, his net is around 20% thanks to high quality affiliates.
Segment 2: Know Your Numbers and Finances
1. Business versus personal credit
2. Type of lease/finance agreement
3. Difference between revenue and profit
Once you get into the motorcoach business, the game is won or lost before the first motorcoach arrives at your yard, Margolin said. Few operators know their business score, viability rating, Paydex, and D&B ratings. This is important because such data determines the length of term for the bus you are buying, your interest rate, and how many loans you can get within a period of time.
For example, two operators buy the same bus at a cost of $500,000 each. One has a great rating and gets a loan for $6,800 per month while the second, not so well rated, gets a 10% interest loan and pays $8,300 a month. That’s $1,500 dollars per month more over a period of seven years, which equals $126,000 straight from your bottom line.
You also should ask yourself, what do you anticipate? How long are you going to keep that motorcoach? A traditional motorcoach company often keeps its coaches for 20 years. The chauffeured transportation industry is not used to that. Now that falls into the type of lease and finance agreement you will get. Rose recently did a track lease on a motorcoach, and we have a balloon of $290,000 on a new one financed for four years at 3.37% interest.
At the end I can either say, “Bank, here’s your motorcoach,” or I can refinance the balance. This gives me the option to move my inventory sooner than later. Also, a track lease does not go on your balance sheet like a traditional finance agreement will. Because of the recent tax reform bill just passed, Section 179 grows from $500,000 to $2 million, and the bonus depreciation now includes new and used vehicles. This new bill has a life until 12/31/22.
Segment 3: Operational Challenges
1. Preparing for roadside inspection
2. Electronic logs
3. Fuel tax reports
All three are hot topics today and will be well into the future. Preparing for a roadside inspection, whether you’re running minibuses or motorcoaches, means you must follow rules.
Primarily, you have to follow the schedule of 10 hours of driving, with no more than 15 hours on duty, and no less than eight hours off duty. You can also use a 100-air-mile radius. With these stringent rules, I’m surprised at the companies that don’t follow them. This can ultimately put you out of business.
While I was at the LCT East Show, I attended a dispatcher session where our limo mentality is best described as: Give the customers whatever they need.
For example, let’s say you run a busy company and are always booked out. You have a minibus driver out there and it’s a wedding contracted to finish at 11 p.m. You are also sold out the next day and all of your drivers are scheduled. Your availability is maxed out. You know you’re putting the same driver on another bus job tomorrow. He needs his eight hours off, but it’s so tight of a schedule that you have him coming in at 8 and a half hours.
The wedding party comes out at 11 o’clock and says, “We need to continue the wedding. We are going to extend it for another hour.” What do you do? Do you give the customer what they want as a limo operator? Do you follow the rules as the federal government says you have to follow the rules? You’re in a bad situation. Now if you are a 24-hour operation you have a second shift dispatcher, a third shift dispatcher. Is that dispatcher making the right decision to protect you?
The federal cutover date for electronic logs was Dec. 18, 2017. If you have succeeded at installing your new electronic log product and your drivers are trained, the federal government will not put your driver out of service for making mistakes until April 1.
With fuel tax reports, it’s surprising to know many people are not aware of them. I was not aware until I attended a UMA Expo years ago. Every quarter we get $1,600 to $1,700 back in fuel taxes. That’s important; it goes to the bottom line. In addition, you can get another seven cents per mile if you do charter schoolwork.
For all of these requirements, the approach is: Do your homework.
Tom Holden is the GM/operations manager of Rose Chauffeured Transportation in Charlotte, N.C. He can be reached at [email protected]
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