Operations

How To Create Profitable Charter & Tour Packages

Jim Luff
Posted on July 3, 2018

What kind of packages can your client expect from your service?
What kind of packages can your client expect from your service?
When limo buses arrived in the industry in the mid 1990s, operators simply priced them by the hour as they had done for years with limousines. However, the party bus fad came and went, and more operators began running traditional motorcoach-type vehicles without bothering to learn how the charter bus industry calculated pricing. It is a completely different model, and one that requires a look back in time to be competitive and profitable.

The Charter Price Model

Charter bus companies have long used a pricing model that includes either an hourly or a per-mile rate. When I bought my first limo bus in 1997, I just assumed since it had a capacity of 19 passengers I should double the price of an eight passenger limousine and add a few dollars. I arrived at a price of $195 per hour. Once people found out I had a bus, they began calling to go to sports events, concerts, amusement parks, and wine tastings. Except, they wanted to take 40 people and were looking for a big bus.

If I could farm out limo work, why not bus work? This is when I learned I could get a 47-passenger bus for $95 an hour or $1.25 per mile, whichever was greater. At 234 miles, that equates to $292. If the trip lasted seven hours, it was $665. Using my hourly rate, my little 19- passenger bus would cost a client $1,365. You can clearly see why limo pricing will not work and why limo companies nationwide are now using charter bus price models instead of flat hourly pricing. It is important to note many companies offer a daily rate that covers an entire 24-hour period rather than either a per-mile or hourly rate.

Setting Prices

In addition to my personal experience, I spoke with veteran operators Paul Thompson of Santa Fe Valet, George Jacobs of Windy City Limousine, and Tom Holden of Rose Chauffeured Transportation, who all agree having a price matrix set in stone will never work for setting prices. The best we can do is set pricing based on each individual trip and the associated costs of the actual trip. These costs can vary widely based on the length of the trip and increased costs due to compliance with hours of service rules set by the DOT.

Paul Thompson of Santa Fe Valet
Paul Thompson of Santa Fe Valet
Thompson uses a base formula of $650 for the first three hours (minimum) and $125 for each additional hour with a maximum of $1,500 per day in his local service area. However, his market is seasonal and he drops his daily rate to $1,300 from November to June. On long distance trips, he charges by the mile with the price determined by the cost of a gallon of fuel. Jacobs also uses a flat daily rate for local jobs, and tacks on a $1 per mile charge for long-distance trips plus an additional $350 to the daily rate. That covers $250 a day in wages and $25 for a per-diem amount. In providing local service, the flat daily rate would cover multiple moves during the day, and Windy City doesn’t ever change its daily rate except to add on a fuel surcharge when fuel prices surge.

Before Thompson presents a price, he says, “I try to get a sense of whether they are looking for three-star or five-star service.” Thompson says his buses are all five-star vehicles, but believes it’s important to meet the budgetary needs of the group as much as possible. Thompson’s rates also fluctuate based on the day of the week, with Monday through Wednesday being priced at lower rates.

A Guide to Determining Costs

Before you can determine a sell price, you must be able to identify your costs to operate your vehicle down to an hourly cost. Jacobs says it’s extremely important to keep historical data, such as how many hours a particular vehicle worked in the previous year, how many miles it traveled, and what the expenses were in operating the vehicle. He says repair and maintenance costs will increase each year as a vehicle ages, and you must factor that into your projected operating costs.

George Jacobs of Windy City Limousine
George Jacobs of Windy City Limousine
Multiple Long Distance Drivers

Thompson’s company, Santa Fe Valet (aka Accent New Mexico), is based in Santa Fe, and handles long distance tours that include trips to Las Vegas and Los Angeles. While the Vegas trip can be done in under 10 hours, a Los Angeles trip requires two drivers and a series of leap frogging drivers that keep the bus rolling.

In a recent trip, Thompson flew a driver to Phoenix in advance of his bus arriving there. After sleeping, the fresh driver took over for the original driver who jumped on a plane and traveled on to LAX. Once there, the original driver got a hotel and slept. He met up with the bus the next day to take over again while the relief driver went to sleep. Thompson charges the actual cost of airline tickets, hotels, meals, and ground transportation as a single line item with no mark-up. This amount is added on to Thompson’s $1,500 daily rate. Thompson shares this nugget: “It is important to note when a driver is in the air flying, that is considered On Duty Not Driving Time for logbook purposes.” As you know, that means you must pay the driver for his time in the air.

Tom Holden of Rose Chauffeured Transportation
Tom Holden of Rose Chauffeured Transportation
Factoring In The ELD Mandate

Even day trips to amusement parks and sports games can add a significant expense to a charter, since drivers are likely to run out of available driving hours if the trip includes significant driving distance. Holden and I have both added shuttle vehicles to our fleet that are not DOT regulated for the purpose of compliance. We send a driver in advance to a venue city and place them in a hotel to wait for the arrival of a bus. “The arriving driver jumps in the shuttle car to drive home, and is no longer under the mandate,” Holden says. While this maintains compliance, it adds payroll expense and the associated costs of travel for the particular trip.

What is the break-even point on your motorcoach? Here's some sample math.
What is the break-even point on your motorcoach? Here's some sample math.
Overnight Stays & Meals

When a tour group elects to spend the night in a hotel while traveling, Jacobs asks his clients to simply add a room for the driver and invite the driver to dine with the group when they eat. The overnight room is non-negotiable, but he does have a provision to provide a per-diem of $25 for his drivers while they are on the road and he pays them a higher dollar amount for multiple days on the road. As an alternative, I charge a flat rate of $175 for any overnight stay, and that includes the room and a $50 per diem for meals. Sometimes this means the driver has to stay at another hotel within the $125 price range. Jacobs absorbs meal allowance and doesn’t pass it on to his clients. Thompson expects his clients to feed his drivers.   

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Related Topics: charter and tour, charter and tour operators, George Jacobs, limousine packages, motorcoach operators, motorcoaches, service pricing, Tom Holden

Jim Luff Contributing Editor
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