The Future of Intercity Buses

Like other forms of mass transportation, the intercity bus industry is imperiled by the coronavirus pandemic. Unlike Amtrak and transit numbers, bus data are hard to come by, but the latest report from the Chaddick Institute for Metropolitan Development at DePaul University estimates that intercity bus ridership in December 2020 was down by more than 75 percent from December 2019.

Click image to download this 2.5-megabyte, 26-page report.

Intercity bus travel grew rapidly after 2006 thanks to the introduction of the Megabus model, which was infrastructure-light. Instead of maintaining expensive bus stations and ticket sales offices, Megabus sold tickets over the internet and loaded and unloaded passengers at curbsides. Megabus sometimes contracted out its operations to other companies but also owned a large fleet of its own buses. All of these savings allowed it to sell tickets for much lower prices than Greyhound, which still depended on maintaining its own bus stations.

FlixBus took Megabus’ model a step further by running a bus company that didn’t own any buses, much less stations and ticket offices. Instead, FlixBus contracts to other bus operators, who paint their buses with the FlixBus liveries but hire their own drivers and do their own maintenance. OurBus, which began operating in 2016, went even a step further in that it doesn’t always require its contractors to use an OurBus livery.

Intercity service is only one use for motorcoaches. Others include charter services, tour buses, casino buses, commuters, and airporters. The American Bus Association estimates that there were nearly 3,000 motorcoach operators in 2017 who owned nearly 33,000 buses. Only 22 percent of these operators engaged in intercity bus service, but many of the others would be willing to contract with FlixBus, OurBus, or a similar company to use some of their buses.

The pandemic has reduced business for all intercity operators, says the Chaddick Institute, but the ones at greatest risk are those that are asset-heavy: companies such as Greyhound and some of the Trailways lines. Companies such as FlixBus and OurBus can more easily contract and rebound after the pandemic.

Last December, Congress created the Coronavirus Economic Relief for Transportation Services program, which offers a total of $2 billion in grants to motorcoach, school bus, ferry, and other transportation companies that have lost at least 25 percent of their business due to the pandemic. As the Chaddick report notes, however, this was far short of the $10 billion the bus industry asked for.

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As a result, the report expect that a “major carrier” will soon dramatically and permanently downsize its service “or even shut down entirely and dispose of equipment.” The report doesn’t say who this major carrier will be, but asset-heavy companies such as Greyhound and Megabus are the likely candidates.

Megabus was founded and owned by a British company, Stagecoach, but in 2019 was sold to a U.S. asset management company called Variant Equity Advisors. Greyhound was purchased by another British company, FirstGroup, in 2007. Either FirstGroup or Variant may decide that the risks of owning a large fleet of buses are no longer worthwhile. The asset-heavy companies’ losses, however, may be the asset-light companies’ gains.

Those gains could be offset, however, by increased subsidies to Amtrak. The Chaddick Institute thinks that the “pro-rail policies of the Biden Presidency will foster enhanced coordination between intercity bus and Amtrak services.” The Antiplanner is more pessimistic: While Amtrak is willing to have bus operators provide feeder services into its lines, Amtrak is under no obligation to make money in either the short or long run. As a result, it will happily monopolize the most lucrative routes, leaving the dregs to the bus companies.

For example, Bolt Bus, which like Greyhound is also owned by FirstGroup, is competing directly with Amtrak in the Eugene-Vancouver BC corridor. Amtrak’s line in that corridor has already received more than $800 million federal money for improvements, and it is shown on Amtrak’s ConnectsUS map as a corridor that is supposed to receive “enhanced services.” Only the incompetence of Amtrak and the Washington Department of Transportation (which spent the $800 million) has saved Bolt Bus from unfair competition from money-losing trains.

That incompetence won’t save Bold or other bus companies forever. As the Antiplanner detailed earlier this week, almost all of the routes that Amtrak hopes to add in the next few years are already served by frequent, low-cost bus service. Amtrak can easily use state and federal subsidies to put these bus companies out of business or turn them into marginal feeder lines. That’s not good news for the bus industry.

In the meantime, Megabus’ infrastructure-light model and OurBus/FlixBus’ asset-light business models should provide a sound example for public transit and Amtrak: transportation that depends on dedicated infrastructure and expensive rolling stock will not be as resilient or competitive as asset-light modes. Unfortunately, transit and Amtrak won’t learn this lesson because they expect to be bailed out by Congress every time there is a recession, natural disaster, pandemic, or other event that threatens their business.