Bus Business

Steering into a Bright Future

FlixBus_FlixBus
Smaller operators working for FlixBus are doing well.
  • Why it matters

    Why it matters

    For companies that can make it work, the deregulation of the bus industry has actually been a boon, providing a better utilization of the existing fleet.

  • Facts

    Facts

    • New carriers like FlixBus don’t drive their own buses: They leave that to independent bus companies.
    • A modern double-decker coach with 78 seats can cost up to €500,000.
    • Mr. Urban’s Ruhr Valley-based company, Urban-Reisen, owns 25 coaches — 18 of them double-deckers.
  • Audio

    Audio

  • Pdf

Philipp Urban can’t complain too much about ruinous price competition in the long-distance German bus market.

The junior manager of a small family-owned coach empire, Urban-Reisen, from the northern Ruhr Valley in North Rhine-Westphalia is happy for now to be driving long-distance routes, in addition to operating holiday tours, school and local transport services.

“The business is simply a lot of fun,” said the 33-year-old Mr. Urban, whose father Frank is the senior boss and owner of the company.

Not only that, but Urban-Reisen is making money, as are most of its fellow mid-size bus operators.

With 300 employees, including some 200 permanently employed drivers, Urban-Reisen is among the big players in northwestern Germany. The company has just under 150 vehicles on the road.

For two years now, Mr. Urban has been driving the route back and forth between Munich and the Ruhr Valley, first for MeinFernbus and then, after its takeover, for FlixBus. Seven of Mr. Urban’s buses bear the conspicuous bright green FlixBus color.

Twenty coaches, commissioned by a tour operator, only just set off for Spain and back. Tourist travel, however, isn’t what it used to be. Many travelers would rather fly and families prefer their own cars.

Although there still is the classic bus trip to Spain, and also one to Prague, regular long-distance routes within Germany have opened up an alternative for nearly 3,000 mid-size bus companies.

Mr. Urban, from the city of Bottrop in the northern Ruhr region, remains cautious. He has expanded his father’s business with tours for FlixBus, but is not allowing it to dominant their business yet because he sees too much risk.

“Intense price competition that major operators engaged in was not being carried out disproportionately on the backs of smaller subcontractors.”

Report on Bus Service Deregulation

In less than four years since regulations on long-distance bus service were relaxed in Germany, a merciless price war has reduced the industry to a near monopoly, dominated by FlixBus.

The ambitious Munich startup now accounts for 81 percent of the German market, after taking over MeinFernbus, the public Postbus service and Megabus routes in Central Europe.

Even Deutsche Bahn, the state-owned railway, is considering giving up after suffering losses with its subsidiaries IC Bus and Berlin Linienbus BLB.

But mid-sized firms that drive for FlixBus and other carriers are doing just fine, according to a study by the German Savings Bank Association, or DSGV. Its report, which Handelsblatt exclusively obtained, found most of the companies actually profited from deregulation of long-distance bus travel.

That’s because new long-distance carriers like FlixBus don’t drive their own buses: They leave that to independent bus companies like Mr. Urban’s.

FlixBus, for example, has 200 such partner companies, 150 of them in Germany alone.

Before deregulation in 2012, most bus companies were operating at a loss, according to the DSGV study.

In the first year after deregulation, they managed to just about break even. A year later, most companies in the bus industry were showing profits. Within three years, the revenues of 300 companies examined rose by more than 18 percent.

Meantime, the companies’ tangible assets — essentially their buses — remained the same.

In other words, regular route service provided for a clearly better utilization of the existing fleet.

“Intense price competition that major operators engaged in was not being carried out disproportionately on the backs of smaller subcontractors,” the DSGV report concluded.

Bus operators receive a basic payment per route from FlixBus or other providers. Plus they collect a percentage of ticket sales, up to 75 percent or more.

Instead of buses being parked unused on company grounds, they can bring in a marginal income even with a minimum of passengers. That doesn’t yet result in a profit but it reduces the losses or at least offsets costs.

29 p21 Increased Profitability-01

But that calculation has its limits. Mr. Urban, for example, gave up on a Berlin route he had also initially operated. It simply didn’t pay off.

And a competitor in Hamburg, Elite Traffic, completely cancelled its partnership with FlixBus this spring after three years. The company said it was losing money and was unable to renegotiate a better contract.

Wolfgang Steinbrück, president of the German Bus Operators Association, pointed out the risks that companies like Elite Traffic face.

“Whoever wants to survive in the tough bus business must be open for partnerships, while always negotiating well,” he said. “They must exactly calculate the company’s total costs and always have an eye for innovations like digital business models.”

Mr. Urban, the Ruhr Valley bus operator, is convinced of having the right structure to profit in long-distance travel.

The company owns all of its vehicles, for example, and they are serviced and repaired in the company’s own garage. That is an enormous financial feat for a mid-sized company, considering a modern double-decker with 78 seats can cost up to €500,000, or about $560,000.

Mr. Urban has 25 tour buses alone, 18 of them double-deckers.

What ultimately matters, he said, is flexibility in the use of the vehicles as well as personnel. Moreover, the firm is not dependent on outside garages.  “You must remain your own businessman.”

 

Dieter Fockenbrock is Handelsblatt’s chief companies and markets reporter. To contact him: fockenbrock@handelsblatt.com

 

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