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Bus and Motor Coach Library

Marketing to the Travel Related Sectors of the Bus Industry

Author - Brian J. Niddery (2003)

The focus of this article is to provide our readers with an overview of the factors influencing the bus industry, so that they may gain a better sense of what likely is to happen in the marketplace, and hopefully identify some of the opportunities that lie ahead in the coming years.  Under normal circumstances, marketing researchers tend to consider past performance as a basis for predicting future performance. 

They rely to a large degree on extrapolating the numbers posted in past years to predict future sales and consumer trends.  Unfortunately given the rather unstable present-day economy, brought on by international recessionary pressures, terrorism, threat of war, and oil industry strikes, it is impossible to quantify these numbers as a predictor of what we might expect in the coming year.

In the absence of this we are left to rely more on qualitative information; that is, information not based on numbers but more on market insights, consumer attitudes, and consumer spending patterns.

The National Tour Association carries out continuing studies within the travel marketplace, and annually provides its members with an executive summary.  The NTA has kindly permitted us to publish this year’s summary entitled “2001 Packaged Travel in North America Study”. It should serve as valuable background data for this article. 

In parallel we will be presenting a number of factors and observations that are having some effect on the bus industry marketplace.  In addition we have drawn a few assumptions from these factors.  These should be considered as informational only, and not to be relied upon as a basis for any business or marketing plan.  It should be noted that this feature is generally focused to the travel-related sectors of the industry. 

The US economy remains for all intents and purposes in an economic recession.  There are however a number of signs that the US economy is moving into a recovery cycle.  However this is effectively masked by the threat of war with Iraq, the North Korean uncertainty, terrorism, and the oil price issue foisted upon us by strikes and the political turmoil in Venezuela.  Until at least some of these issues are resolved, the US economy, and those of other nations will continue to stall. But despite these pressures, relatively speaking, the US economy remains basically strong and stable - as attested to certain important indicators - such as steady employment numbers, new housing starts, manufacturing output, and automobile sales.

Whenever there is uncertainty, consumers tend to spend less money.  When consumers spend less money, it effectively slows the entire economic engine, resulting in lower corporate profits, mediocre employment numbers, and so on. When consumers decide to spend less money they most often cut back first on elective expenses, products and services that are not essential, such as leisure travel.  To some extent this has had a negative influence on the travel industry

In Canada, it is a rather different story.  It has not experienced a recession, and unlike most western nations, it continued to show modest economic growth over each of the last three years.  Economically Canada continues to lead the G7 nations and expectations are that it will show record growth, about 4.5%, in 2003.  New job creation in 2002 was the best year since 1987, and it has now reached maximum economic capacity, which is leading to inflationary concerns. 

We bring up this fact because the travel-related bus industry - primarily the motorcoach sector - is in exactly the same sad shape in Canada as its American counterpart.  What does this tell us?  It tells us that the economy probably had little to do with the ills being experienced within the motorcoach sector.  In point of fact it reveals two real and significant issues that continue to beset the motorcoach sector, and to a lesser extent the shuttle and other travel related bus services.

The first is that the motorcoach and shuttle bus sectors have probably been overly dependent on off-shore tourism and international visitation.  International visitation is significantly diminished, and it will likely remain so until international peace and stability returns once again.  On the upside is the fact that over the last few years, many foreign currencies have gained value over the US and Canadian dollar.  This to some degree will make North America a more attractive bargain to international travelers in the future.  However, perhaps the lesson here is that the industry should significantly broaden its market base, to include more domestic travel products, so as not to be so reliant upon international travel.

The second issue identified is the extreme vulnerability of the motorcoach industry.  It does not have the economic depth to withstand even minor adverse changes in the marketplace.  In the booming nineties, replete with soaring economies, motorcoach operators were still not able to generate reasonable levels of profit!  In one of the most lucrative decades in memory, operators could do no more than hang on by their economic fingertips. 

The underlying fact of the matter is that in both countries, the motorcoach industry continues to feed off itself by undercutting its peers, rather than putting the necessary effort into developing new business. 

Unless there is a better understanding of operating costs, and significant change in rate structures, and recognition that it must market its services more broadly, the industry will continue to exist in a survival mode.  And it will continue to lose its most skilled people - everyone from mechanics and drivers, to its entrepreneurial talent.

Domestically and internationally the stock market has taken a terrific hit - almost like the perfect storm!  Firstly, most western economies experienced a recession over the last three years, which alone would have caused diminishing stock prices.

In addition, the high-tech stocks, the darlings of the investment community in the 90's, needed a severe market correction.  There is no way that stocks should ever sell for 100 and 200 time earning ratios.  And many of these stocks never earned a cent, yet for some their stock prices increased by a hundredfold or more.  And what about IPO's - Initial Public Offerings, which were gobbled up by speculators' greed for the quick buck! 

Add to this the revelations that senior officers of some of the largest corporations in the land were reaping obscene levels of bonuses for many years, at the expense of investors, and propping up stock values through nefarious accounting procedures in an effort to show inflated profit positions.

For many members of the public, particularly for our retired and semi-retired generation, this has effectively drained their investment funds, so much so, that they do not now have the discretionary dollars available to them to live a lifestyle that they had expected.  It should be noted that travel is the number one priority in the spending of discretionary dollars.  This will likely continue to have some negative influence in domestic and international travel patterns certainly in the near future.

Domestically, consumer spending patterns and attitudes have changed.  People have returned to more basic values - home, hearth, and family.  This may be temporary, or it may be a more culturally permanent thing - we do not yet know.  But we do understand some of the outcomes.  People are taking less expensive, and shorter duration trips.  North Americans are not traveling abroad as frequently as they did in the past.  They have curtailed air travel to some extent, and given that they are taking shorter trips, there is a preference to travel by private automobile or by alternative means if these were available.

Business travel has significantly been reduced.  Many senior officials have learned that they are able to just as effectively carry on business by relying more upon the Internet and electronic communications, with lesser dependence on air travel and face-to-face meetings. 

Reduced business travel has also resulted in lower management and sales costs, and in some quarters increased productivity, which are proving to be a positive element to corporate bottom lines.  Unfortunately for the travel industry, this may be a more permanent shift in business habits.  This has probably had a negative influence on localized shuttle services, such as hotel, airport, parking lot, and so on.

There seems to be market indicators out there that support increased opportunities for the bus industry to develop more domestic products.  As has been pointed out, consumers are trending toward shorter duration leisure trips, and less costly trips.  This would seem to represent new opportunity for the bus industry.  As supporting evidence certain domestic properties and attractions are reporting increased business.  For example museums are reporting increased visitation, up to 20% in some cases.  Some ski and golf resorts, located near major market centers are also reporting increased visitation.  Rather than traveling across the continent or abroad, skiers and golfers are traveling more frequently to nearer destinations.  This opens up definite possibilities to create a greater range of bus and motorcoach based ski and golf packages.

The American Bus Association (ABA) in their ‘State of the Motorcoach Industry’ report, notes, “While operators are not expected to meet or exceed 1999/2000 levels, a high watermark for the industry, operator members saw strong bookings during the 2002 winter holiday season, and some are reporting strong bookings for 2003.”   

Specific-purpose, active leisure, and themed travel packages are definitely gaining in popularity.  These not only include ski and golf packages, but conform to many other interests such as history and archeology, theme parks, and so on.  The driving force behind this is the dynamics of a changing demographic - more specifically an aging population, and baby-boomers.  The bus industry needs to adapt to this changing marketplace, by putting a greater emphasis on developing travel packages that appeal to this expanding and more lucrative consumer segments.

The ABA’s ‘State of the Industry’ report mentioned “Pockets of Growth”, and goes on to say, “While many destinations, cities, and operators are looking for ways to gain momentum, there is some evidence that there will be incremental growth in 2003, as people begin to increase travel frequency.  Many travelers are reporting a desire to stay closer to home when traveling, resulting in some operators reporting strong holiday bookings to New York City, and cities in the northeast, increased bookings for winterfest tours in the southeast, increased traffic to perennial favorite Branson, MO, and other points in the midwest, and a renewed interest in the national parks of the west.”

Travel agency commissions are disappearing!  In an effort to cut costs, many airlines and car rental companies have discontinued agency commissions.  This has adversely affected the 50,000 or so travel agencies throughout North America.  These retailers are now aggressively searching out alternatives in an attempt to replace these lost revenues.  By some accounts retailers who were overly dependent on direct airline bookings have lost up to half of their revenues.

The bottom line is the travel retail and wholesale industry desperately needs new products!  The motorcoach and travel-related bus sectors need to create new avenues of business! How good a fit is this!      
Obviously it would seem beneficial for bus operators to network and create new alliances with the packaged tour and travel industries in an effort to develop new domestic products that will appeal to changing demographics and the new marketplace.

It is important to understand that a significant portion of air travel occurs within a 200-mile and 300-mile radius.  Much of this travel takes place along the major urban corridors, those such as New York, Baltimore, Washington, to Philadelphia; the Detroit, Chicago, Cleveland, Pittsburgh corridors; the Windsor, Hamilton, Toronto, Montreal corridors, and a hundred or so other corridors that one might easily identify in North America. 

In many cases it would be more efficient, faster, more economical, safer, more convenient, and less fearful for people to travel by motorcoach than by air.  Given the longer waiting times and the security issues at airports, air travelers can no longer enjoy the advantages of convenient shuttle-like short-haul air travel as they once did. 

The traveling public as yet does not perceive a motorcoach to be a viable alternative, and unfortunately the bus industry has failed to put any real effort forth to market this service.  However this represents a tremendous market potential for scheduled intercity line service.

Did you know that 10% of North Americans have a mortal fear of flying, and that their lifestyle is designed around the avoidance of flight?  Another 10% have a genuine fear of flying, and will utilize almost any alternative that might be available to them. This represents 20% of the North American population, or 60-million people, many of whom live within or near our urban cities and corridors.  By any measure, a potential customer base of this magnitude cannot be ignored! 

The intercity passenger travel industry consists of a group travel component, and an individual travel component.  Unfortunately the motorcoach industry has relied almost exclusively on group travel - in the form of charters.  The individual travel market is a massive, extremely lucrative market; however, it has virtually been left untouched by the bus industry, more specifically by the motorcoach industry.

Environmental issues will continue to become more dominant in the political landscape, particularly as it relates to major urban centers.  Pollution, congestion, fuel prices, lifestyle expectations, and the lack of monies required to support the huge infrastructure costs needed to maintain our roads and highways all point to the need for more viable solutions. 

Politicians, scientists, urban planners, and indeed the consumer are beginning to recognize that the bus industry represents the best, most palatable and least expensive solution.  Dedicated bus ways and similar bus rapid transit systems are gaining in interest.  Given the dramatic technological advances in bus equipment, an unparalleled safety record, and the superior fuel-efficiency of bus equipment in general, there is ample future opportunity for all bus industry constituents, both public and private. 

The Internet has the ability to universally bring consumers and providers in direct contact with each other.  To some degree the Internet is making the "middle man" obsolete.  It will radically change how business will be conducted in the future, and in fact this is already being felt in the travel industry. 

Unfortunately most businesses think that a simple website and email address is sufficient.  Not so!  The real power of the Internet is yet to be recognized.  It lies in creating industry-wide consumer accessibility - a central consumer access point where any consumer, from anywhere, at any time of the day or night, can access any kind of product or service, anywhere in North America.  Business success will largely be measured by an industry's ability to "being up close and intimate" with consumers. 

There are a host of factors now coming into play that will ultimately change the face of the bus and motorcoach services.  To understand these changes and to adapt to the new market realities will require a thorough understanding of the true expectations of the traveling public - what it is that they really want and need!  We must know exactly what level of comfort, convenience, and the range of passenger services desired.  We must redefine how we can deliver a truly meaningful level of transportation products. 

What we do know is that people want the convenience of seamless passenger services, including multi-modal systems.  Travelers take little pleasure in the aggravations of having to find their own way to the airport, bus terminal, or rail station, and the stress of putting up with "hit or miss" connections that they are so often faced with. 

Consumers would much prefer seamless door-to-door passenger service; on-demand services that are reliable, convenient, comfortable, whether one is an urban commuter or traveling across the continent.  To realize new opportunities will require a transformation, a re-defining of what our product really is, and how we can better meet consumer needs.  We need to understand that consumers want passenger service, not just bus service.  By understanding this difference, we can begin to capitalize on the opportunities that most certainly lie ahead.

Perhaps the ABA State of the Industry report says it best in its summary entitled, “New Opportunities”.  It reads as follows:

“The motorcoach industry has the potential to significantly increase ridership with favorable demographics, as this decade will mark the biggest influx of 21-year olds into the population, as baby boomers’ children turn 21.  In addition the US Census indicates that the Hispanic population is growing dramatically and these residents, many of them new to America, will rely heavily on public transportation as they seek the mobility so essential to pursue the ‘American Dream’.  Finally, the nation’s aging population means more seniors with the time on their hands for discretionary travel and an opportunity for our industry to do the driving.”

This ABA report goes on to state, “New innovations and flexibility will be the key to success, and for our operators, it can be as simple as including things like newspapers and coffee for daily commuters, computer hook-ups, live television connections, and beverage/snackbar service along with other customized enhancements that will help the industry compete with the amenities offered by other modes of passenger service.”

Or it can be more complex.  Many of the industry’s cruise partners offer a variety of activities for their passengers, both on and off the ship, so their experience is not a “one-size-fits-all” approach.  The industry would be greatly served to follow this example and offer customized ‘mini-packages’ within larger group tours and charters.

The report continues, “As all segments of the travel industry are vying for the traveler’s dollar, it’s becoming essential for our industry to provide a wide range of products to entice new entrants to the industry.  Thinking outside the box - or in our industry’s case, outside the bus - and garnering new interest from non-traditional riders will be the key to our industry’s future success.

In summary the industry must be capable of the following:
- . To provide new standards of quality in passenger service, and not simply improved bus service
-     To become less reliant on international travel and put a greater emphasis on domestic products
-     To expand intercity services beyond group travel, by providing more extensive passenger services that caters to the individual traveler
-     To network and create the infrastructures necessary to attract individual passenger travel.  This requires development of complementary relationships with the travel industry retailers and wholesalers
-     To pool services with industry peers - to provide more frequent scheduled line services, to more destinations; and in packaged/group travel to offer more diverse destinations, itineraries, and more frequency
-     To participate in an industry-wide Internet-based consumer networking initiative
-     To develop a more sophisticated network of seam ess and multi-modal transportation services - offering "door-to-door" service
-     To better understand the marketplace, its demographics, the consumers, and the complexity of the marketplace, so that one can develop the right kind of products that appeal to consumers.