Enter the United States by Bus If you are a college student studying in the Midwest or Northeast parts of the United States, you may have heard of (or taken a ride on) Megabus. Its website announces that it is “the first, low-cost, express bus service to offer city-to-city travel for as low as $1 via the Internet.” Currently serving 50 US cities from five hubs (Chicago, New York, Philadel- phia, Pittsburgh, and Washington, DC), Megabus, according to Bloomberg Businessweek, “has fundamentally changed the way Americans—especially the young—travel.” A generation ago, Greyhound was a national icon for intercity travel. Unfortunately, as Americans fell more in love with cars and the cost of airfares dropped further, intercity bus ridership steadily decreased. Further, as inner cities, where the bus depots (terminals) were situated, decayed, bus travel became the travel mode of last resort. In 1990, Greyhound filed for Chapter 11 bankruptcy. Yet, the demand for medium-distance trips ideal for intercity bus travel did not go away. For some of the most traveled routes (such as between Chicago and Detroit and between New York and DC), the distance is too far for a leisurely drive but too close to justify the expense (and increasingly the hassle) of air travel. While Greyhound has been in decline, small, entrepreneurial bus operators, known as the “Chinatown buses,” emerged. They started by shuttling passengers (primarily recent Chinese immigrants) between Chinatowns in New York and Boston. Such niche operators quickly grabbed the attention of many college students. Despite four decades of decline, overall US intercity bus ridership spiked in 2006, the year when Megabus entered. Although Megabus is a brand-new, no-frills entrant into the US market, it is backed by the full strength of the second-largest transport firm in the UK, Stagecoach Group, which employs 18,000 people there. Founded in 1980 and headquartered in Perth, Scotland, Stagecoach not only operates buses, but also trains, trams, and ferries throughout the UK, moving 2.5 million people every day. It is listed on the London Stock Exchange, where it is a member of the FTSE 250. Megabus is a brand of Stagecoach’s wholly owned US subsidiary, Coach USA. Stagecoach is not a stranger to international forays, having previously operated in Hong Kong, Kenya, Malawi, New Zealand, Portugal, and Sweden. However, these opera- tions turned out to be lackluster and were all sold. For now, the sole international market it focuses on is North America (Megabus entered Canada in 2008). Although Megabus is clearly a late mover in North America, its future looks bright. So what allows Megabus to turn a declining national trend of bus ridership around? At least four features stand out. First, tickets are super cheap, starting at $1 (!). Megabus uses a yield management system, typically used by airlines, which offers early pas- sengers dirt-cheap deals and late passengers progressively higher prices. Although only one or two passengers per trip can get the $1 deal, even the “higher” prices are very competitive. In routes where it competes with Amtrak (the railway), Megabus costs about a tenth of Amtrak. All tickets have to be booked online. This not only elim- inates the expenses of maintaining ticket booths, but also attracts a more educated demographic group. Second, instead of using depots, Megabus follows the Chinatown buses by using curbside stops (like regular city bus stops) to board and disembark passengers. Interest- ingly, dumping the depot model not only saves a lot of money, but also makes Megabus more attractive, because passengers do not have to spend time in the typically poorly maintained (and sometimes filthy and unsafe) bus depots. Third, all Megabus coaches are equipped with Wi-Fi and power outlets, allowing the time on board to be more productive (or more fun). These features, which are sometimes not available even when flying first class, have made travel by bus totally cool to the online-savvy younger crowd. Among surveyed passengers, 37% said that Wi-Fi and power outlets were central to their decision to travel by Megabus. Finally, as gas prices and environmental consciousness rise, bus travel offers an unbeatable “green” advantage. At eight cents per mile, a bus is four times more fuel- efficient than a car. US curbside carriers, led by Megabus, have already reduced fuel con- sumption by 11 million gallons a year, equivalent to taking 24,000 cars off the road. While politicians like to talk about the “bright future” of high-speed rail and $10 billion has been budgeted to jump-start the new rail projects, not a single mile of high-speed rail tracks has been laid as of this writing. At the same time, Megabus has been charging ahead and carrying more than 13 million passengers since its entry, while requiring zero additional investment in infrastructure. Texas, Florida, and California are some of the markets it may enter soon. Given the cost and political headache to build new high-speed rail, Bloomberg Businessweek speculated: “The Megabus approach works so well, it may scuttle plans for high-speed rail.”
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