transport export

Lean, mean bus provider Flixmobility paints the US green

flixtrain
Get on board. Source: Imago/STPP

A boxing glove lies on the table in the Flixmobility office in Munich, right next to a model green bus. Onlookers get the message: World, here we come. And if you want to win, you have to fight hard. Flixmobility means business, and its shiny green buses are zipping along motorways throughout Germany and Europe.

That’s the achievement of three German guys, best friends, lovers of data, algorithm obsessives, even. They left high-paying jobs to create the low-cost mobility platform for a bus firm seven years ago. They are young men who bike to work and fly economy to LA from Munich, where their company is based, out of dedication to the firm.

It worked, too: Flixmobility is that rarest of things: a unicorn from Germany. Worth more than €1 billion, the company was launched as Flixbus seven years ago, just as Germany’s long-distance bus market was liberalized. Buddies Jochen Engert, Daniel Krauss and André Schwämmlein had a list of 50 business ideas to work from.

Ticket to ride

The Flixbus concept was clearly a good choice, even if the start was rocky. Margins are lean in the intercity bus travel business, but theirs is more of an IT firm than a transportation company. Flixmobility offers inexpensive travel, aimed at millennials aged 18 to 35 who care most about the price, then the app, then the onboard Wi-Fi. And less perhaps about the service and punctuality.

The company’s journey to market domination required nudging out, buying out or merging with rivals, including Postbus, Meinfernbus and Megabus’ continental operations. Then, by the time it had 94 percent of the market, Flixbus was able to raise its prices. Now it’s a bus company on steroids that connects 500 cities in Europe.

But it’s a tight balance, with low-cost airlines such as Easyjet or Ryanair offering connections at a steal and punctuality being a struggle. And while Flixmobility runs a platform — one of the few German companies to understand that model — selling train and bus tickets, the bus companies it works with have desperately thin margins.

number of flixbus destinations per country

Flixbus guarantees the contractors are paid whether passengers ride their buses or not. But one operator remarked that the sum doesn’t cover driver changes, overnights or parking. Jürgen Weinzierl has been driving for Meinfernbus — later bought by Flixbus — since 2012. He had 80 drivers, but in the end, he just couldn’t run a company on those margins, he said.

Financially, Flixbus is in good shape. Its biggest investor is General Atlantic, which owns 33 percent of shares; Silver Lake owns a further 10 percent, and the founders own a third. Having hoovered up the competition in Germany, Flixbus is trying to break into the US market and take on the industry leader Greyhound. If they succeed, they say, it will prove they can succeed outside Europe. But isn’t that like importing ice to Alaska?

The company’s scalable, capital-efficient model could work in the US even though the business is very cyclical and margins are thin, says Joseph Schwieterman of DePaul University in Chicago. He said bus companies have made good money consistently in the past and that high gas prices can only help.

So Flixbus is sweeping from west to east, starting in California, Nevada and Arizona, where the indicators are good: The population is concentrated in cities, and the distances between them are under the magic number of 600 kilometers (373 miles). Analysis shows buses can compete with airlines on those shorter routes. The firm’s recipe for success is its focus on data, and algorithms helped the trio identify the routes that make most sense. That turned out to be linking LA with Las Vegas for as little as 99 cents. Now, just weeks after launching in the US, the company is watching its progress closely. For example, upon discovering that only one passenger got on a bus from San Diego, a city of 1 million, the team determined the bus stop wasn’t in a good spot.

german bus vs. train travel statistics

The focus on routes means it’s easy to expand. But the bus companies they work with struggle; scheduling staff is the biggest headache for them. On some routes, if a driver gets sick, there’s no one on standby. Such companies are either happy working with Flixbus or they’re gone, unable to keep pace.

But the internet economy is all about playing quality against price. The managers are relaxed about customer complaints, as they focus on their goal of becoming the Uber of the long-distance bus market. If the US works out, they say, the next stops would be Russia, Turkey, Brazil and Southeast Asia.

But beyond expanding geographically, the company also plans to move into more profitable areas of business, such as school bus trips and tourism, where higher margins beckon. They’ll also expand their rail offerings, a tougher nut to crack as they depend on access to the rails from Deutsche Bahn, which towers over Germany’s train business.

And, as dedicated followers of technology, the founders want to keep the firm surprising. Ideas include kitting out the screens at the seats with updates in the language of the person sitting there. Or beacon technology that could show app users where their bus is, within centimeters. They’ve just launched an “interflix” ticket that lets bus passengers travel to five European cities in three months, whenever they like, for €99.

This article originally appeared in WirtschaftsWoche, and was written by Karin Finkenzeller, Matthias Hohensee and Christian Schlesiger. Allison Williams adapted the story into English for Handelsblatt. To contact the author: A.Williams@handelsblattgroup.com

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