Discount Bus Lines Like Megabus And Even Greyhound Are ‘Building Empires’ Across America As Intercity Travel Booms

As massive train-building schemes take shape across the globe, a different mode of transportation that’s neither flashy nor particularly fast is booming in the United States: intercity buses.

The bus -- arguably the most banal form of public transportation available in the developed world -- is the fastest-growing mode of U.S. passenger transportation by a long shot. The industry grew by 7.5 percent in 2012, with discount operators like BoltBus and Megabus recording a whopping 31 percent increase in departures, according to a recent study from DePaul University’s Chaddick Institute for Metropolitan Development, which excluded public-transit oriented services, shuttles and so-called Chinatown buses.

Joseph Schwieterman, director of the Chaddick Institute and lead author of the study, said what’s happening to intercity buses, particularly the budget operators, “reminds me of being in the airline industry in the late '80s.”

“All of these hubs were emerging and there was this empire-building. Now, that’s happening with the bus industry.”

Though they did so with much less panache than their global counterparts, American trains, too, had a record year in 2012, with ridership up by about 3 percent. By comparison, airlines saw a growth of about 0.4 percent and auto travel 0.6 percent.

What the DuPaul study and others conclude is that nobody’s eating into anyone else’s piece of the travel pie; the pie for ground-based public transportation in the U.S. is simply bigger than it’s ever been.

Grounded (And Happy About It)

The restructuring of airline safety in 2001 -- with its stringent security procedures and onerous tasks -- dealt a blow to the travel and tourism industry, and the weak economy only made things worse. But in the years immediately following the 9/11 attacks, ground-based public transportation emerged as a rare bright spot. Indeed, the industry had somewhat of a second coming.

Intercity buses had been in decline for nearly a half-century ever since the dawn of the Jet Age, but by 2006, the industry recorded a growth rate of nearly 7 percent. By 2008, the industry was growing at nearly 10 percent.

“Air travel has a hassle factor. You have to turn off devices for takeoff and landing and there is often no Wi-Fi,” Schwieterman said. “On the other hand, you can get on a bus with your laptop and you’re set for the day.”

According to his research, almost half of all bus passengers are engaged in some form of technology at any given time, something that’s increasingly important to Americans who’ve become reliant on the use of portable electronic devices.

Moreover, Schwieterman believes the younger population simply doesn’t feel any allegiance to the automobile the way the baby boomer generation did -- nor can they afford the luxury.

“You look at the economics of single-occupant driving, and young people see it as almost ridiculous to drive long distances alone,” he said. “Gas itself is far more than the bus fare if you look at the typical price from, say, Chicago to Detroit [roughly $35 round-trip].”

Schwieterman noted that Americans have more options than ever with the big players like Greyhound, Peter Pan, Megabus and BoltBus branching out into all four corners of the contiguous U.S.

Expanding rail service, meanwhile, has been a difficult proposition in recessionary times because it requires years of planning and regulation.

Republicans stepped up their efforts last year to end federal subsidies to Amtrak, the nation’s national rail operator. Rep. John Mica (R-Fla.), chairman of the House Transportation and Infrastructure Committee, held multiple hearings criticizing the railroad and accusing it of “Soviet-style” inefficiency.

“Taxpayers have been footing the bill for Amtrak’s gravy train for over 40 years, and all they’ve gotten in return for their $40 billion investment is an inefficient, costly, Soviet-style passenger rail system,” he said at a hearing in September. Former presidential nominee Mitt Romney, too, said that, if elected, he would end all U.S. taxpayer support for the railroad, which totaled roughly $1.4 billion for fiscal year 2012.

Amtrak -- whose popular one-way services from New York to Washington and Boston average between $50 and $80 -- counters that it covers 85 percent of its operating costs through ticket revenues, with taxpayers covering its capital and debt costs, but Republicans would like the federal government to simply “get out of the way” and allow private ventures to provide passenger services, particularly along the Northeast corridor.

And then there’s the bus, which requires much less overhead, uses existing infrastructure and entails no taxpayer support. Now that the Chinatown buses are under control, just about everyone’s happy.

The Legacy Of The Chinatown Bus

Chinatown buses emerged in the late 1990s and shuttled passengers between the Chinatowns of Washington, D.C., New York and Boston. These precursors to today’s budget operators laid the groundwork for what would become a very successful intercity bus industry, but it’s their legacy of fatal accidents (roughly 1.4 per 100 vehicles, according to the National Transportation Safety Board), safety violations, criminal ties and unlabeled “ghost buses” that dogged the industry until a massive crackdown this past May.

The U.S. Department of Transportation shut down 26 companies that it said posed an imminent safety hazard. The move was heaven sent for America’s more reputable carriers, as they could finally distance themselves from their dubious counterparts.

The American Bus Association hailed the Department’s effort, telling Bloomberg last year that “anytime one of these bad guys has a bad accident it puts pressure on the entire industry and it takes a hit.”

Schwieterman said he stopped using the term “curbside” in his annual report because it’s been co-opted by the federal government to describe “a few bad apples that have created misconceptions about safety and added ambiguity in the public’s mind.” He noted that the intercity bus industry as a whole has “a remarkable safety record.”

Companies like Megabus claim to put their drivers through 200 hours of training and order mandatory psychological evaluations, so they welcomed the crackdown of Chinatown buses as a shift away from the underground and into the mainstream. A shift that helped them score gobs of new riders.

Megabus, Mega Takeover

Tracking the change that propelled the intercity bus industry out of decline in 2006 is rather simple: Megabus leapt across the Atlantic from Scotland and arrived on U.S. soil.

The budget subsidiary of Coach USA (which is itself owned by British transport company Stagecoach Group) launched in nine Midwestern cities and galvanized the industry with fares as low as $1 each way, perks like reclining seats, Wi-Fi and electrical outlets, and green-certified buses.

The global bus line is now in more than 120 cities in North America alone after expanding across the American South all the way to Texas and leaping across the continent to California and Nevada by November 2012. Megabus also acquired 12 regional bus companies last year, further expanding its portfolio by offering feeder buses from major hubs. In other words, people with enough time can now hop from El Paso, Tex., to Burlington, Vt., transferring from bus to bus along the way using the company’s “hubs and spokes.”

“I’ve been in the transportation industry for a long time, and I’ve never seen the American consumer take to the bus like this,” said Mike Alvich, vp of marketing for Coach USA.

Coach USA claims to be the largest bus company in America, and Megabus forms the lion’s share of its business. Alvich credits the brand’s success to pent-up demand. Megabus, he believes, took buses into the 21st century.

“Americans love to travel, but they’re reluctant with the current economy. When they see that they actually can do it and pay less -- while getting more services and in some instances spending less overall time -- I think we’ve affected the way people think about travel.”

The discount sector now accounts for more than 1,000 daily scheduled departures, putting it on par with the more traditional lines.

Megabus claims it reaches a million new customers every six weeks and carried more than 23 million customers on more than 200,000 trips aboard its double-decker buses last year. Between May 1 and Oct. 31, 2012, alone, its passenger revenue was nearly equal to the total revenue of fiscal year 2011, at $73.9 million.

BoltBus, co-owned by FirstGroup’s Greyhound Lines and Peter Pan Bus Lines, also expanded from its base along the Northeast Corridor in 2012. It set up a new hub in the Pacific Northwest, offering services up and down the coast from Portland to Seattle and across the border into Vancouver, British Columbia.

According to research from Liberum Capital, it takes about three years for a new service to break even, and the discounters, the DePaul study warns, are taking a big risk. After all, some of those empire-building airlines from the 1980s expanded so fast they grew themselves out of business.

But not everyone is racing around America claiming their stake. Industry stalwart Greyhound has focused more on reinventing itself in order to compete, adding new “express” services with dedicated waiting areas, guaranteed seating, outlets, Wi-Fi and leather seats (a welcome change from the Magic Eye-like upholstery).

The express service tends to pop up once Megabus arrives in town, but Alvich goes by the motto “the rising tide lifts all boats” and believes more competition is actually better for everyone because it raises consumer awareness. The main competition, he said, is the car.

Who’s Riding The Bus?

Alvich wants it to be perfectly clear that, despite any images you may have in your head, you “won’t be riding next to someone with a chicken in their lap.”

He believes college kids -- the ubiquitous trendsetters that they are -- helped make buses cool again and changed their image in a way that’s broadened the demographic and created a larger pool of passengers. And with the recent boom comes product differentiation, the likes of which the bus industry has never seen.

There are now luxury operators like the LimoLiner between New York and Boston, or the Lux Bus from Los Angeles to Las Vegas, with galleys for food or spacious work environments.

As if to fill a void, Greyhound even launched a more reputable Chinatown look-alike last year called Yo! Bus and another called Crucero Direct, targeting California’s rising Latino population.

Indeed, there’s now a bus to fit all levels of the socioeconomic spectrum. They don’t float, can’t cross bone-numbing terrain and won’t reach anything close to breakneck speed. They’re just glorified versions of the big yellow you rode to elementary school. But after decades on the sidelines, intercity buses are back, and they’re busier than ever.