Operations

How To Best Finance Bus And Motorcoach Fleets

Austin Wilson
Posted on September 7, 2018

On the road to making more money with your motorcoaches.
On the road to making more money with your motorcoaches.
A strong global economy and the growth of travel and tourism are propelling a thriving bus and motorcoach industry. Travel bookings hit $1.7 trillion last year.

The sector is also changing in several ways, which presents owners and operators of private sector specialty, tour, and charter companies with a variety of factors to consider when growing, upgrading, and maintaining their fleets.

With evolving technologies influencing vehicle design, a range of new regulations emerging, and environmental concerns rising to the fore, it’s important for owners and operators to stay informed and prepared on how these trends can affect their business cash flow — and, in turn, the ways they acquire and finance fleet vehicles.

Below, we highlight some of the latest trends and how bus and coach providers can make use of varying lease types and structures for efficient and affordable fleet financing.

Factors Affecting The Industry

Rapidly advancing technology is changing the way in which most industries operate, and bus and motorcoach transport is no exception. New rules and industry standards about safety and environmental impacts are requiring bus and motorcoach companies to evaluate their operations and, in some cases, vehicles.

One major technology trend is the advancement toward autonomous vehicles. As companies like Google’s Waymo and Intel’s Mobileye are testing autonomous cars, the bus and motorcoach industry is implementing this smart technology as well. In fact, California’s first autonomous bus service began in March 2018 in the city of San Ramon.

Secondly, new regulations are affecting the industry overall, and individual companies.

A rendering of MCI’s new all-electric J4500e prototype, which completed its phase one testing.
A rendering of MCI’s new all-electric J4500e prototype, which completed its phase one testing.
For example, as of April 1, motorcoach drivers in the U.S. found to be out of compliance with a new mandate requiring an electronic logging device (ELD) or automatic on-board recording device (AOBRD) can be put out of service for several hours. This means companies must not only invest in these devices, but spend additional time and money ensuring they are maintained, function properly, and used by all drivers.

Further, environmental concerns have led to several major public transportation companies boosting their eco-friendly efforts. For example, electric buses are becoming more common in reducing pollution. In fact, the global electric bus market is expected to grow at a compound annual growth rate of 30.2% during 2018-2024, which will likely transform fleets in a relatively short time.

Lease Types for Varying Needs

With changes to vehicle technology and industry standards on the horizon, as well as potential increased costs to ensure compliance, this begs the question: What is the best way to acquire and maintain bus and motorcoach fleets?

The average lifespan of a motorcoach can range from about 12 to 20 years, depending on the mileage and whether or not the vehicle has been properly maintained.

That said, to remain competitive and stay ahead of the curve on efficiency and regulatory compliance, some operators may consider leasing on shorter terms that allow for more frequent, seamless, and affordable upgrades.

With capital leases, a company will own the asset at the end of the lease term. Because some of these commercial vehicles can last up to 20 years, this can be a viable option for fleet owners depending on their specific needs and circumstances.

For example, a vehicle would be owned outright after a seven-year lease term, and could go on to experience another decade of usable life, rendering the purchase a solid investment for the company.  

To remain competitive and stay ahead of the curve, some operators may consider leasing on shorter terms that allow for more frequent, seamless, and affordable upgrades.
To remain competitive and stay ahead of the curve, some operators may consider leasing on shorter terms that allow for more frequent, seamless, and affordable upgrades.
On the other hand, operating leases provide no obligation of ownership when the lease ends and involve lower monthly payments. This leasing option is often favored by some companies because it allows operators to upgrade their fleet more frequently, reduce maintenance expenses, and increase profits.

Motorcoach operators who offer more high-tech or luxury features as a part of their services, or who operate in areas with stricter environmental regulations, might benefit from these structures to allow more frequent fleet updates.

Other lease variations motorcoach fleet operators can consider are terminal rental adjustment clauses, or TRAC, in motor vehicle leasing, which is one of the most popular leasing options for commercial vehicles. This clause requires an adjustment of lease payments to compensate for the difference between the actual value of the vehicle when the lease ends and the originally projected amount.

These leases provide financial incentive for the lessee to perform routine maintenance, therefore improving the overall value of the vehicle. Split TRAC leasing structures can be especially useful for bus and motorcoach companies because it entails the lessor assumes some of the estimated residual risk.

Flexible Structures To Match Company Cash Flow

While the industry is strong, choosing the right leasing and financing options is vital to running a motorcoach fleet with long- and short-term stable cash flows.

In addition to the types of leases, fleet owners should consider leasing payment structures as well. For instance, the flow of business for many bus and motorcoach companies, such as tour operators, depends on the season. A company’s slow season can vary by location and the exact services offered.

In some cases, leases can be structured so payments are non-existent, or minimal during certain months, and higher other months. For example, we offer seasonal-payment lease structures, which benefit fleet operators who experience low and high seasons in their business. We can structure the lease to fit the specific needs of the operator so they can avoid worrying about payments when cash flow slows, whether during winter months or a slow tour season.

The Bottom Line

Bus and motorcoach transportation is strong and dynamic. Owners and operators should consider specific needs when choosing fleet financing strategies.

For example, if operators are concerned with upfront costs or high monthly payments, a TRAC or split TRAC lease might be a more favorable option. If their business is cyclical, they might consider a seasonal-payment lease structure to avoid having to make payments during less profitable months.

While the industry will certainly keep transforming due to new technology, laws, and eco-friendly pursuits, owners and operators can stay ahead and maintain smooth operations by embracing these changes and financing wisely. 

Austin Wilson is an Account Executive at Summit Funding Group ([email protected]). This article first appeared in the July 2018 issue of Metro Magazine.

Related Topics: buses, finance, financial planning, fleet financing, How To, lease financing, leasing, motorcoaches, vehicle financing

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