Fare wars and deregulation stirring up long-haul bus industry
Fare wars and deregulation. To the nation's intercity bus industry, it's like getting stop and go signals at the same time.Skip to next paragraph
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Since November, when Trailways Inc., the nation's No. 2 scheduled-route carrier, slashed prices 20 to 60 percent, most of the industry has been forced to follow.
For Greyhound Lines Inc., a division of Greyhound Corporation and the leader in the industry, it didn't matter that it had a 6 percent increase in the number of summer passengers this year.
''While ridership was up, intercity bus revenues were down 49 percent from a year ago because of the fare war,'' said Leslie White, spokeswoman for the Phoenix, Ariz.-based company. Two weeks ago 12 executives were let go from Greyhound Lines as a cost-cutting measure.
Not only are the unusually low fares slowing down ''the dog,'' they are also knocking the breath from a much smaller tier of bus line operators.
This week, though, the tired industry is getting what it expects will offer some relief - the Bus Regulatory Reform Act of 1982. President Reagan was expected to sign the bill Monday. According to a spokesman at the Interstate Commerce Commission, the act means a letup on requirements for bus lines entering and exiting the market. It will also make it easier for lines to drop and add routes, operate in some cities where they are not now allowed, and change fares without ICC investigation if they file individually. During the first year, they may move fares up 10 percent or down 20 percent; after three years, they would have total rate freedom.
''The industry has always backed the bill,'' says Neil Boggs, of the American Bus Association. The complaint from bus line operators is that regulation has locked them into inefficient routes and kept them from some profitable ones. Both Trailways and Greyhound, which together carry 80 percent of scheduled passenger service and one-third of all bus passenger volume, plan to take advantage of the act with a slew of route changes.
The deregulation bill may help change the tide of what's been a difficult time for bus lines.
''Going into '82 it had not been a good year,'' says Peter Picknelly, president of Peter Pan Lines Inc., a New England line with a fleet of 70 buses. ''We had a bitter winter. We also had five rainy weekends in the spring - disastrous for outside activities.'' This year, Peter Pan's scheduled-passenger, tour, and charter businesses are all either flat or down.
Jefferson Lines, based in Minneapolis, has found diversification one way to ride out the hard times.
''Primarily, we are a regular route carrier,'' says Daniel Prins, president of the 100-bus fleet. ''That business (revenue) is off by 10 or 12 percent since last year. I attribute this to general economic conditions and because of the discount fare war.'' Also ''we are being regulated to death,'' he said.
Besides regular route ridership, Jefferson Lines has a freight and bus maintenance service, sells and leases buses, runs charters and tours, and operates a school in accident prevention.
Overall profits are up slightly over last year. ''Without the diversification , I would have had a horrendous year,'' Mr. Prins said.
Lloyd Zeitman, a senior analyst who follows Greyhound Corporation for the Value Line Investment Survey, describes the year so far for Greyhound Lines: ''The first quarter was a disaster because of weather. After that (business) picked up considerably. It was not spectacular, but so good that if rates had been maintained at last year's level, they wouldn't be where they are now.''
Greyhound has been matching the Trailways fares since May. How long can it afford it?
''It may hurt, but we can keep prices there as long as necessary to maintain our No. 1 position,'' said Frank Nageotte in an interview. Mr. Nageotte is president of the Greyhound Corporation, which is listed on the New York Stock Exchange, and chief executive officer of Greyhound Lines.
''If earnings continue as they are, we will take a much harder look at any capital investments,'' he added. ''We might have to go a little less far and a little less swiftly.''
Some of that capital spending is earmarked for replacing terminals in Chicago and San Francisco, generally upgrading facilities, and expanding a computer ticket-processing system already working successfully in Los Angeles, Arizona, and Florida.
Trailways is a privately held company chaired by James Kerrigan - former chairman of Greyhound Lines. The company started slashing prices ''as an offense against highly discounted air fares in areas where we compete up to 500 miles,'' said Harry Lesko, president of Trailways.
The company seems to be the only operator that has benefited from the drastic price cuts. For the year ending July, Trailways' average trip length per passenger trip rose 7.1 percent; the load factor rose 17.7 percent; passenger revenues had at least a 2 percent gain overall; and profits were up significantly, Mr. Lesko said.
He said Trailways has been able to pull off its pricing maneuver through a combination of marketing and major cost reductions. In this case, cost reduction means route reduction - paring back some of the less profitable lines. Lesko said the East Coast routes were the target for that process, while West Coast and cross-country routes were getting more attention.
Mr. Lesko also said that Trailways ''intends to have the 'lowest fare anywhere' as a flag banner for quite some time.'' He added, ''Of course, conditions change.''