All aboard

German Greyhound rival prepares launch in California

Vorstand FLIXBUS
These executives will happily take you for a ride: André Schwämmlein, left, and Jochen Engert. Source: Thomas Dashuber for Handelsblatt

After sewing up its home German market within five years of its launch, Flixbus now aims to expand in the US, challenging Greyhound Lines, the national bus service launched in 1914 that services more than 18 million customers each year in North America.

Flixbus’ founders and executives told Handelsblatt the company would initially offer bus service between Los Angeles as its main hub and Las Vegas, San Francisco and the Bay Area. “We aim to start in the first half of the year,” said Jochen Engert, in a joint interview with co-founder André Schwämmlein. Asked if Flixbus would try to emulate its rapid European growth strategy in the US with a dense network of routes across the West Coast, he added: “We’ll test our service with a network in California and will take a look at the figures at the end of the year. We’re not going to stand here now and claim to be bigger than Greyhound in four years.”

Mr. Engert said the US market was attractive because it was similar to Europe’s and offered good growth prospects — and because Greyhound was not unassailable. “Of course, Greyhound is the iconic brand,” he said. “But we ask ourselves whether the image really still is that iconic; there’s a lot of unused potential.”  That, he argues, explains why companies such as Uber and Lyft have entered the market.

“As long as people don’t have long-distance buses on their radar yet, there’s still enough potential for us.”

André Schwämmlein, co-founder and executive, Flixbus

“If you look closely, the US market is very fragmented,” said Mr. Engert, who is responsible for human resources and corporate development. “Greyhound has a market share of less than 50 percent and there are very many small players. Britain’s Megabus launched in the US 10 years ago and is successful. That has always been a kind of blueprint for us to show that it’s really possible in the US.”

Flixbus, founded in 2013 when Germany dropped the rail network’s monopoly on long-distance domestic travel, has been so successful that it has secured a virtual monopoly of its own. It now dominates the German intercity bus market with a 94 percent share. Its passenger numbers grew by 10 million to 40 million in 2017 in Europe. Germany accounts for more than half of the company’s business.

The entire European operations of the Munich-based bus firm was profitable in 2017, after becoming profitable in German-speaking countries the year before, said Mr. Schwämmlein, who is responsible for international operations and expansion. “We’re not focused on maximizing margins. We put every euro we earn back in to the business.” He said the company did not require any fresh capital in 2018, although its capital needs could change if it decides to make an acquisition.

13 p16 Flixbus investors-01

Mr. Schwämmlein declined to reveal how much the company’s investors, which include the big US equity firms Silverlake and General Atlantic as well as Mercedes-maker Daimler, have put into Flixbus so far, but said it was less than the rumored sum of up to €400 million. Flixbus is regarded as a so-called unicorn, a start-up company valued at over $1 billion.

FlixBus is different from Greyhound and other bus firms, because it does not own its own buses. Rather, the firm works with private bus companies that adorn their coaches with the FlixBus logo. The German startup runs the booking and logistics software that links the passengers to the bus companies and is responsible for marketing and customer service.

Mr. Schwämmlein said there was even potential for more growth in Germany, provided that more people start considering buses as a real alternative to car, rail and air travel. “As long as people don’t have long-distance buses on their radar yet, there’s still enough potential for us,” he said. “At the moment, we’re still not in enough people’s minds yet as the alternative to the car, railway and plane.”

Grischa Brower-Rabinowitsch leads Handelsblatt’s coverage of companies and markets. Dieter Fockenbrock is Handelsblatt’s chief correspondent for the companies and markets desk, focusing on corporate governance, opinion and rail transport. To contact the authors: brower@handelsblatt.com and fockenbrock@handelsblatt.com

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