Industry leader and California operator Maurice Brewster contributes insights to a Wall Street Journal article.
LAS VEGAS, Nev. — Buying a first motorcoach may appear intimidating, but once you figure out the economics and market for them, the path to service at least takes on more optimism and incentives.
A panel at the 2019 International LCT Show in March explored many of the reasons why motorcoaches can expand an operation’s client portfolio while reeling in a profit margin larger than any other fleet vehicle type in luxury ground transportation. Titled “Diversifying Your Fleet Increasing Sales By Adding Motorcoaches to Your Fleet,” the seminar brought insights from the following veteran owner-operators:
Devlin pointed out motorcoaches are more profitable and present an economy of scale because they are typically used by one reserved group at a time and don’t require as much staff labor as a chauffeured vehicle handling multiple client runs and reservations per day. A motorcoach with a five-hour minimum at $725 would require nine to 10 airport transfers to generate the same revenue, he said.
Devlin entered the motorcoach business after his company reached $500,000 to $700,000 in farm out work to local affiliates which had too many service failures.
“A large percentage of our service failures were with our motorcoach vendors in Dallas and their inability to provide that extra level of service,” he said. “The straw that broke the camel's back was when we farmed out a wedding and the bride wanted to stop at a gazebo to get a picture between the ceremony and the reception. And the driver said, ‘I'm sorry, it's not on my paperwork. I'm not stopping.’ And I'm done. Okay, I'm buying my first coach bus. So we saw the inconsistencies in service and that was the reason we got into the business.”
One primary question facing operators about to venture into a motorcoach purchase is how much work do you farm out before pulling that trigger?
Candeub cited a common benchmark is $15,000 (per month) in farm out work before buying a first coach. Another marker is being able to keep a bus working 20 days a month to break even. “After 20 days, you start making your profit. Under 20 days, you're not cutting it, and that's a lot. To keep a bus moving that much is a lot of pressure.”
Reston Limousine, which had been running shuttles and minibuses for years, bought its first motorcoach out of necessity so it could be a one-stop-shop, Simon said. “The business justified making the decision. Once you're in it, you find there are so many applications and needs, and it just keeps growing.”
Traditional charter and tour companies tended to take a “my way or the highway” approach, Candeub said. Over the years that has spurred limo operators into developing more service-oriented professional practices.
“Buses aren't for everybody,” Candeub told the audience. “It's not the savior for our industry. You have to go in with your eyes wide open and really do your homework, know what you're doing, and look into it. When you go back home, you take a big, deep breath, and you make your own decisions.”
Candeub advised operators buying a first big bus to check out all options and not select one on impulse. “On the show floor you see all these big, beautiful buses, and there's a lot of hype and you want to keep up with the Joneses. But you really have to be careful. It could make or break you. Don't rush into anything. Do your due diligence. Our biggest challenge in the Northeast, and especially in my market, is where I would start...insurance. I can't even begin to tell you what I pay, and this is with a good company, and a good record and training program. So make sure you can afford this, you know what you're talking about, you have the clients, and then move forward from there.”
Bringing chauffeured clients into motocoach usage is a small leap given they are already used to the high-end service and would embrace it in a coach, Simon said.
“You're able to control that client directly and that repeat business has tons of value.”
It’s cheaper for an operator to move a chauffeured client into coach service than try to find new ones, he added. “The cost of acquisition of a new client is four, five, six times that of keeping an existing client.”
Candeub said it’s a smoother transition to take a limousine chauffeur and train him into a bus chauffeur than vice versa.
Motorcoaches also diversify a fleet in a way that gives it a higher value in a company sale, Devlin said. “If you're just a sedan company, your value is diminished 20% to 40% of your total revenue compared to the total than if you have a diverse fleet that includes motorcoaches.”
Furthermore, motorcoaches should be grouped under a separate corporation, with separate DOT numbers and insurance policies, Candeub advised. “A loss with a motorcoach could be devastating. And you don't want one company to take down the other company. You need to diversify yourself.”
The big payoff with motorcoaches is the variety of present and potential client markets.
One niche worth pursuing from a sales and marketing standpoint is private schools. “While they certainly are price-sensitive, they're more about safety and a luxurious field,” Simon said. “Kids who go to private schools are usually more affluent and their parents have more money to be able to spend, and like nicer things. We've really capitalized on the private school vertical of coach bus work.”
Other lucrative market niches include DMCs and evening dine-arounds, since they involve a lot of evening work that starts after daytime school and pupil transportation ends, Simon said. School and university sports teams now can generate year-round demand given the growth and popularity of all forms of private and public school student athletics.
“Each of these segments is really unlimited,” he said. “We're finding more clients are preferring coach buses more than other vehicles because they get their own economies of scale. If they're having airport pickups, they might use a coach instead of combining all that work, and the ride is a lot better. For longer trips, people want a coach based on the bathroom, and the ride is substantially nicer. So it's that added value.”
Candeub added, “That one-stop-shop carries a lot of weight. When you have DMCs come into your area and they have a big group, if you can show them your actual vehicle and you're not farming it out, they'll love the custody care and control you have over that vehicle. So they're more inclined to go with your service as opposed to maybe your competitors that don’t have an in-house motorcoach.”
One emerging opportunity is crowdsourcing, where operators sell a route by the seat instead of the vehicle. This works well with special events and common commuter routes where you have many people going from point A to point B. The concept is as old as Greyhound, and can be adapted to times, days, seasons, and any two locations.
“It's all over the country,” Candeub said. “You're buying a seat, and then you're paying for a seat to come back. If you're in the L.A. area, you might do crowdsourcing for Coachella (in Palm Springs). You pick up people from L.A., take them into the desert, drop them off, and come back a few days later to pick them up and return to L.A.” Another popular route is the Hamptons jitney between New York City and the Hamptons on eastern Long Island.
Candeub invested in weekend runs to Margate, N.J., and Ocean City, Md., and pitched them to Millennial workers and professionals in New York and Philadelphia who did not want the delays and hassles of Amtrak, Greyhound, and other transit. The routes at first did not attract many riders, and Candeub absorbed some initial losses, but then word spread on social media and most seats got filled at a healthy profit, he said.
“Now, remember, we're charging by the seat, not by the unit. So that could have cost me $400 or $500 to take the coach from point A to point B. We had two customers the first week. The second week we had seven. The third week we had 120. And then after that, we never had under 300 passengers per weekend.”
Candeub advised operators to check out and make sure they can legally drop off at desired stops in other cities. “You have to really do your due diligence for each location. I want to do it the right way. I want to be embraced by the city. I want to make sure they will endorse and welcome me. You either do things right or wrong, whether it's DOT regulations or permits.”
Motorcoaches also provide opportunities to create new vertical customer segments. Premier Transportation, for example, started a tour company two years ago called Premier Tours Global. It has an exclusive relationship with a retirement community in Dallas, which has proven to be very profitable, Devlin said. Popular local and regional destinations can fuel day tours, either weekly or monthly.
“It's being creative with opportunities and presenting them,” he said. “It's something new these communities need because they're active with golf courses, tennis courts, pools, and bridge clubs, and they're bored. They want something else to do.”
The panelists advised marketing motorcoaches to the entire client base, whenever and wherever possible.
“You fine-tune everything so at least through [online] searching or through just people thinking of your company, they now think of it as this total transportation source,” Simon said. Make sure wedding, corporate, and DMC clients know you have buses that can carry large groups.
“With all of our documentation that goes out, whether it's an invoice, a quote request, or an e-mail on a simple sedan transfer, it mentions we can not only book your travel anywhere in the world, but we have motorcoaches,” Candeub said. “That's on our invoices. It's on our e-mails. We've got icons you can click on our e-mails that take you to our motorcoach landing page.”
Likewise, reservationists and employees need to be trained to ask the right questions and determine a caller’s overall transportation needs, so they readily present coach options, Simon said.
Devlin and Simon underscored that while a big bus can bring big profits, it comes with the potential for bigger problems and risks. “Everything is exponentially larger,” Simon said. “Profits are larger but your problems are equally as large.” Vehicle loan debt, maintenance, and parts replacement don’t come as easy or as cheap as it does for regular black chauffeured vehicles, he added.
“We just had a bus-on-bus accident where the driver backed in. He was a little too tight and scraped one of the buses, and obviously we scraped the one that scraped it. It took it out of commission for a while to clean up.” A sidelined bus can start incurring losses if it eats into the 20 days per month needed to be hired out on the road.
Candeub cautioned that an operator farming out motorcoach runs easily makes 20% to 30% in profit without overhead, but once an operator enters the motorcoach business, you must factor in all the costs going against the profit margin.
Chauffeur and driver training with frequent refreshers and updates is a must as part of any fully compliant motorcoach service. That should include road tests, defensive driving, practice maneuvers at difficult venues and locations, and regular assessment of each driver.
As a final reminder to operators, the panelists predicted the luxury ground transportation industry will skew more heavily toward motorcoaches during the next five years, which means despite challenges, motorcoaches are a worthwhile long-term investment.
“If you buy it, it will book,” Devlin said. “So if you have the guts to get into motorcoaches and you have the wherewithal to do it and you have the infrastructure, then you should have done it yesterday.”
Related Topics: building your clientele, buses, charter and tour, client markets, Eric Devlin, fleet management, group transportation, ILCT 2019, industry education, line runs, motorcoach operators, motorcoaches, New Jersey operators, Texas operators, Tony Simon, vehicle purchasing, Virginia operators
Industry leader and California operator Maurice Brewster contributes insights to a Wall Street Journal article.
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