Behind Greyhound's get-tough stance
If the Greyhound Corporation pulled in $130 million in profits last year, why is it so intent on getting its union employees to accept major wage cuts? In some ways, the corporation's move does not seem justified. After all, Greyhound is asking for wage reductions in the face of a strong national recovery. Its transportation division, of which Greyhound Lines is a part, earned $20 million last year. For a business so closely tied to fuel prices, the last few years have been relatively kind to the Phoenix-based company. And, because of deregulation, Greyhound is now free to structure its routes as it pleases - presumably in the most profitable way.
But company officials say its management is taking a long-term look at its bus operations. While the transportation division made a profit last year, Greyhound bus lines actually lost $16 million last year.
''It makes no sense at all to wait until we drive ourselves into the ground before we realize we have a problem here. Basically, we're planning - trying to prepare for what is happening down the road,'' says a high official at Greyhound , who asked not to be named.
The official says a recovery is not enough to make the bus line profitable again. For one thing, the carrier hasn't felt the recovery yet - traffic is still declining. But, says the official, even if traffic were improving, Greyhound still couldn't compete with other carriers because it doesn't have the same costs as competitors.
''The main reason we're in this position,'' he explains, ''is because over a period of years, we ended up with wages that are 30 to 50 percent higher than other Class 1 carriers (bus companies with revenues greater than $3 million).''
According to the Interstate Commerce Commission, the average Greyhound employee earns $23,861 a year, not including benefits. The average Trailways employee earns $19,899, and the average wage of the largest 15 independent, Class 1 carriers is $19,047.
''If they had the labor costs that Trailways has, earnings this year would be labor costs, she says, are the main reason Greyhound has so much trouble matching Trailways fares.
For the last year and a half, Greyhound has been trying to cut costs at the bus lines. But now, the Greyhound official says, there is nothing left to trim but labor costs.
''Labor is 62 percent of our operating expenses. Fuel is 8 or 9 percent. Overhead - you can't do much about that. And insurance is pretty well fixed. There are not too many things you can push and pull other than labor,'' he says.
Greyhound executives also point out that they can't count on recovery because the traveling public may not choose to ''Go Greyhound.'' The newer discount airlines are already drawing passengers away from buses by offering lower fares, they say.
But the average bus traveler only rides a distance of 120 miles. Hops between small towns still make up a good deal of bus travel, so how can the airlines be a considered a competitive threat?
''Air competition is very real. It extends down to distances as short as a couple hundred miles,'' says Gerald O'Donahoe, a transportation consultant in Boston. ''The competition is spotty now. You don't have a People Express or Southwest Air covering the entire US. But they are growing. With airline deregulation, everyone sees a continuation of this.''
Malcolm Myers, vice-president of traffic for Trailways, points out that while a lot of traffic is from small town to small town, about 40 percent of Trailways revenue comes from long-haul routes - where the airlines do compete.
''The air industry used to be only slightly competitive to us. It has become increasingly competitive since airline deregulation,'' he says.
Miss Neves, at Merrill Lynch, says airline competition is a factor, but not the major justification for wage reductions at Greyhound. She points to Trailways.
''A year ago last spring, Trailways really started some massive cuts of rates. It's very competitive for Greyhound. If all other companies have the lower labor rates, they can afford to make (price) cuts,'' she says. But Greyhound's wage structure puts it at a disadvantage. It meets the rates, but it is taking losses because of labor costs.
Some corporations continue to maintain unprofitable divisions. Why can't Greyhound? It's still making a profit in other areas and the strike is a costly price to pay. A two-month strike could mean a 10 percent reduction in overall earnings, Neves estimates.
The answer has a lot to do with new management at Greyhound. Two years ago, John Teets jumped into the driver's seat as chief executive officer.
''With the new chairman, you have a man attacking the problem areas. He's very tough on making sure his businesses are profitable,'' Neves says.