Bus and Motor Coach Library

The Fleet Utilization Trap...

Author – Brian Niddery (2002)

I'd like to meet the guy who offers that sage piece of advice to seemingly every new bus operator who first starts in business.  Invariably this advice starts out with "You gotta keep the wheels turning", and "Buses can't make money if they are sitting in the yard"! 

If any reader out there knows of this person, do the industry a favor and let me know where I can find him.  Of course I know very little about this person, given that I've never met him.  But one thing is for sure, at one time this guy probably used to own a bus business.            

This guy thinks that as long as every unit is out on the road every day of the week generating some sort of revenue, then everything is rosy!  That's nice!

This kind of thinking is probably why this guy no longer owns a bus company.  Basically he's got the whole thing ass-backwards!  How often you are able to put your buses out on the street is the last thing you should be thinking about!            

There are only three principal factors that you need worry about in order to ensure a healthy bottom line, and keep your operation viable and generating a reasonable income for yourself and your family.  The first is the understanding and the control of your costs, the second is setting a proper pricing schedule with a reasonable margin, and thirdly, fleet utilization. 

That, in a nutshell, is all that you have to work with!  Unfortunately the prevailing attitude for many bus fleet operators is a tendency to ignore the first two factors and put all effort into the third factor.  Price then becomes the one and only selling point, or as one reader recently described it to me, "a preoccupation with buying business".            

The ability to control cost is definitely a major priority.  So the first step to a healthy bottom line is a thorough analysis and detailing of your costs.  This can be accomplished effectively through the use of software and/or management consulting advice or an accounting person familiar with a bus operation.  The keyword phrase here is someone familiar with a bus operation!  Oftentimes bookkeepers and accountants, unfamiliar with the bus business, may not be able to set up books in a way that will report certain key information.  And in the case of a mixed bus fleet - which is becoming so common today, it is important to know the exact operating cost of each type or individual unit in the fleet. For example an accountant may have a ledger for fuel cost. But it is not good enough to know your total fuel costs; you must know the fuel cost for each vehicle in your fleet.

Armed with a thorough understanding of costs, you can then set about making your operation as cost-efficient as possible.  Analyze every aspect of the operation with a keen eye for ways and means to reduce costs without reducing effectiveness - it is important to maintain a safe and reliable fleet, and provide a high level of customer service standards.  When you are sure that your operation is running most efficiently you can move on to the next step.             

Step two is developing a viable rate structure that provides a reasonable margin to allow you a profitable bottom line.  A single, across-the-board rate sheet just doesn’t cut it! You need a rate sheet that reflects seasonal sales patterns, types of clients and equipment usage. Once the rate structure has been set it is important to ensure that each and every client contributes to your bottom line.  Large or small, there should be no exceptions.  This is the key to a successful operation.  It requires a great deal of discipline to stick by your rate structure, and a great deal of fortitude to turn away customers who are not prepared to accept your rate structure.  The leading cause of a company failure and bankruptcy is compromised rates.  One can never trade off lower rates for additional business and hope to maintain any semblance of a profit margin.  It almost always results in a financial loss.  And be extremely wary of the so-called high-volume customers who demand special rates - these guys can kill your business!

Once you have a firm control over your costs, and you have a disciplined and no-compromise rate structure, then you can begin looking at ways to generate more revenue days - and thus increase fleet utilization. Obviously it is important to maximize fleet utilization; however do not compromise this at the expense of the above two factors.               

To summarize, it is really a simple business formula - cost, rate, utilization - in that order!  It may not be an easy plan to follow.  It may take a great deal of diligence, courage, and persistence.