Two years after deregulation led to a fleet of low-cost buses pulling onto Germany’s motorways, the country’s long-distance bus market is moving into the fast lane.
The two leading companies, Flixbus and Meinfernbus, are merging to create a transport powerhouse with billions of euros at its disposal due to backing from the U.S.-based private equity firm General Atlantic.
“The future ruling group has been formed,” said Alexander Eisenkopf, professor of transport economics at Zeppelin University in Friedrichshafen.
Together with the transport and logistics groups operated by Germany’s post office and railway, Deutsche Post and Deutsche Bahn, the new company will be part of a triumvirate dominating the long-distance bus market in the future. With the start-up mentality gone, professional investors and major companies will be calling the shots from now on.
The joint venture of Flixbus and Meinfernbus will claim 70 percent of the long-distance market in Germany. Next come Deutsche Bahn’s brands, Berlin Linien Bus and IC Bus, followed by Deutsche Post’s ADAC Postbus. Together the three have a 20 percent market share.
“The long-distance bus services have plenty of room for growth.”
The market for long-distance bus services has been booming since deregulation. Some 40 companies took to the autobahns and in 2014 alone the number of bus routes offered rose to about 250 from 130. The buses attracted almost 20 million passengers last year.
But the price war between the bus services has been merciless. City2city has already reached its final destination while Deinbus skidded into insolvency, though it was able to find a new investor shortly before Christmas. ADAC, the German automobile club, has announced it will exit its joint venture with Deutsche Post, which has signaled it will continue to run its buses alone.
Transport expert Mr. Eisenkopf said the “economic situation of long-distance bus companies remains poor.” Yet, he noted, there are signs that the intense competition is easing off, even though plummeting gasoline prices make it more economical for people to travel by car, which will slow growth at the bus companies. He also believes that the prices of long-distance trips will likely rise in the mid-term.
General Atlantic, however, sees things slightly differently.
Jörn Nikolay, the Munich-based head of General Atlantic in Germany, believes the long-distance bus services have plenty of room for growth and points to experiences in other countries as evidence. Additionally, the investment firm sees “enormous growth potential in Europe” as the merged Flixbus and Meinfernbus eye the creation of a continent-spanning “long-distance bus network.”
The merger is being viewed with concern at Deutsche Bahn headquarters in Berlin.
No details about the extent of future investments have been revealed. In addition to the five founding members of Flixbus and Meinfernbus, as well as General Atlantic, other investors in the new joint partnership include existing stakeholders Holtzbrinck Ventures, UnternehmerTUM and Daimler Mobility Services.
The merger is being viewed with concern at Deutsche Bahn headquarters in Berlin. Initially, the rail operator completely underestimated the rapid growth of the long-distance bus market, an oversight that cost it dearly.
Now, Deutsche Bahn is trying to make up for lost time. It is expanding the network of routes offered by IC Bus and Berlin Linien Bus, although it has forfeited any hopes of becoming the market leader, Mr. Eisenkopf said. Despite the intense competition, the rail service has vowed not to get involved in any price wars and its buses continue to generate poor returns. Observers believe they are “barely able to stay in the black.”
In addition to the new merger, the industry has just been shaken up by another announcement. Megabus, a subsidiary of the Scottish bus operator Stagecoach, revealed last month that it is expanding its operations in Germany.
Stagecoach is an experienced operator with $4.12 billion in sales in 2013-14, and Megabus vehicles already travel daily between Brussels and Munich at loss-leader ticket prices starting at €20.
It looks like the stage is set for a full-on road war.
Dieter Fockenbrock is chief reporter on Handelsblatt’s companies and markets desk. To contact the author: firstname.lastname@example.org