Intercity and Rural Bus Transportation

SIC 4131

Companies in this industry

Industry report:

This category includes establishments primarily engaged in furnishing bus transportation, over regular routes and on regular schedules. The transportation is principally outside a single municipality, outside one group of contiguous municipalities, and outside a single municipality and its suburban areas. Charter bus transportation services are classified in SIC 4141: Local Bus Charter Service and SIC 4142: Bus Charter Service, Except Local.

Industry Snapshot

According to the U.S. Census Bureau, there were 487 interurban and rural bus lines in the U.S. in 2008 with industry-wide employment of 15,016 workers who earned nearly $422 million in annual wages. According to the American Bus Association, bus ridership reached 762 million in 2008, compared to 631 million in 2005. During 2008 bus ridership grew 9.8 percent before plunging to 5.1 percent in 2009.

According to the Bureau of Transportation Statistics, the number of companies providing regular route intercity bus service had dropped to 50 in 2005, compared to 143 intercity bus companies in existence in 1960. Greyhound was the only carrier to maintain a national network in 2005, although it made significant cuts in its service to the Northwest, Southwest, and south central United States.

The decrease in intercity bus service was largely due to competition from private automobiles and the airlines, which offered a variety of discount fares and added convenience that lured would-be bus riders to take to the skies instead. In the early 2000s intercity buses accounted for less than 2 percent of all long-distance travel in the United States.

The intercity bus industry generated $1.35 billion in revenues in 2003. However, operating expenses were $1.31 billion, leaving a thin margin of profit that was spread unevenly across the shrinking industry, which employed approximately 21,700. The number of locations served by intercity bus lines also declined, totaling about 4,000 in 2003--fewer than half the number served in the early 1980s. The number of stops continued to decline through the 2000s, dropping below 3,200 in 2005.

Organization and Structure

For years, Greyhound has dominated the intercity and rural bus transportation industry. The carrier's position was secured in 1987 when Greyhound acquired Trailways, the nation's second-largest bus line. That purchase left Greyhound the only bus line in the United States with routes covering the entire country. In the early 2000s, about a dozen other Class I bus companies (companies with average revenues of $5.3 million over a three-year period) competed with Greyhound to provide regular route intercity bus service regionally.

Trade Associations.
A number of trade associations served a variety of functions in the bus industry. The American Bus Association, in Washington, D.C., was founded in 1926. Of its 500 bus operator members, 75 provided intercity service on regularly scheduled routes. Another Washington, D.C., group, the National Bus Traffic Association, founded in 1933, served as a publisher of bus tariffs. The National Trailways Bus System was what remained of the Trailways system after the Greyhound merger. The system was an association of 32 independent, intercity bus companies, which coordinated schedules and promoted a unified approach to marketing and operating procedures.

Background and Development

Intercity bus services sprang up independently in different regions across the United States in the early part of the twentieth century. Some of the earliest intercity bus lines began as extensions of urban jitney operations. Minnesota is often named as the birthplace of intercity bus transportation. The Mesaba Transportation Company, of Hibbing, Minnesota, transported miners between mining villages over regularly scheduled routes as early as 1913. Around the same time, the Pickwick Transportation Lines initiated intercity bus service in Southern California. By 1918, this company had expanded its service area to include Northern California and Oregon.

As road conditions improved, bus companies began to appear by the hundreds across the country. More than 4,000 intercity bus companies were in operation by 1926. Soon, the number of companies began to decrease as the industry consolidated. Mergers, acquisitions, and bankruptcies became commonplace, a trend that continued until the 1970s.

In December 1926, the Motor Transit Corporation, a $10 million holding company, was organized by Eric Wickman, the founder of the early Hibbing bus operation. A few years later, the Motor Transit Corporation was restructured as the Greyhound Corporation. Greyhound acquired smaller bus companies and had routes covering most of the United States by the mid-1930s. In 1936, the National Trailways System was formed by an association of railroad-owned bus lines, including Missouri Pacific Trailways, Burlington Trailways, and Santa Fe Trailways. As the system grew through acquisitions, it evolved into the Continental Trailways System, a nationwide bus service. In 1943, the Continental Coach Company was launched. Continental, after changing its name to Transcontinental Bus System, was a nationwide line by 1953.

World War II brought about a dramatic increase in intercity bus ridership. Between 1940 and 1945, traffic grew from 10 billion to 27 billion passenger miles. After the war, the share of the intercity travel done by bus began to decline, although the number of bus travelers remained fairly steady. By 1960, only about 2.5 percent of intercity trips were made by bus, compared to a wartime peak of 10 percent.

As competition from air travel and improvements in automobiles increased, the industry's share of passengers eroded further. In the 1970s, the bus lines came under pressure from low fares offered by Amtrak. The deregulation of airlines also brought about the emergence of low-cost air operations. These events cut into the profitability of the bus lines significantly. Between 1975 and 1982, intercity bus service (measured by number of weekly bus departures) declined by nearly 5 percent a year. Greyhound lost about 30 million passengers, roughly half of its ridership, between the mid-1960s and the mid-1980s.

Greyhound spent the late 1980s and early 1990s in the throes of a drivers' strike and its consequences. The strike resulted in a number of violent confrontations and negative publicity for the company. Four months after the strike began, Greyhound declared bankruptcy. The company emerged from bankruptcy in 1992 under new ownership and management.

Role of Government.
Federal agencies had no jurisdiction over bus companies that operated within one state. Bus lines whose routes crossed state borders fell under the regulatory jurisdiction of the Surface Transportation Board (STB), formerly the Interstate Commerce Commission (ICC). Regulation was cut sharply, however, by the Bus Regulatory Reform Act of 1982. Following the 1982 Bus Act, entry into the industry was open, and applications for authority to operate rarely were challenged. Minimum insurance coverage and knowledge of safety regulations were the only requirements to prove a carrier's fitness to operate. Passenger carriers were required to file rate information with the STB, but these filings seldom were rejected since 1982. Only Class I companies were required to report financial statistics to the STB. Federal regulations pertaining to intercity bus drivers were somewhat stricter. Drivers had to be at least 21 years old and were required to pass a physical examination. Drivers operating vehicles designed to carry 16 or more passengers were also required to obtain a commercial driver's license from the state in which they lived. Additionally, most intercity bus companies required drivers to complete two to eight hours of classroom and behind-the-wheel training that included instruction in federal and state driving regulations and safe-driving practices.

Government Regulation.
Regulation of intercity bus transportation began during the industry's infancy. Pennsylvania became the first state to regulate the operation of passenger buses in 1914. By 1925, a majority of states had followed suit. That year, the industry's first national organization, the National Motor Bus Association, was formed. The U.S. Supreme Court determined, however, that state regulatory agencies had no jurisdiction over interstate bus lines. It was not until ten years later, with the passage of the Motor Carrier Act of 1935, that the ICC was authorized to regulate fares, safety, routes, entry, exit, mergers, transfers of operating rights, and other service and financial matters of the interstate bus lines.

In the 1970s, Greyhound began to push for deregulation of the intercity bus industry in hopes of competing more effectively with the heavily subsidized Amtrak rail service. The ICC made entry regulations more liberal in 1977 and 1978. In 1980, the Motor Carrier Act was amended by Congress. The new version of the act made the process of applying for operating authority easier and required quicker decisions on the applications.

The Bus Regulatory Reform Act of 1982 brought about major changes in the industry. Entry was liberalized to the point where any prospective carrier that was "fit, willing, and able" was granted authority, barring evidence that this authority was contrary to the public interest. The act also empowered the ICC for the first time to overrule state regulatory authorities on matters of intrastate rates if their rulings were harmful to interstate commerce. A 1992 report by the General Accounting Office (GAO) suggested that the deregulation that took place in 1982 did not address the causes of the industry's decline, and a major result of the deregulation was the elimination of service to areas where there were fewer transportation alternatives, particularly rural areas and small towns.

Since deregulation in 1982, hundreds of routes in rural areas have been discontinued. Many of the areas that were no longer served were not accessible by air or rail systems, leaving residents without automobiles completely isolated. A 1992 study by the GAO recommended that the best way to address this problem was through more widespread use of a set-aside provision in the Intermodal Surface Transportation Efficiency Act of 1991. Section 18(i) of the act requires each state to set aside money to support intercity bus transportation. By 1992, 20 states had instituted such programs, which included subsidies to firms for continuing service on endangered routes, price breaks on vehicles, and financing for building and repairing terminals. In 1995 Greyhound accommodated about 58 percent of the industry's passengers, as compared to the next three largest carriers, which together carried only about 28 percent of intercity bus passengers.

By the beginning of the 2000s, there were between 5,000 and 8,000 intercity buses on the road. There were just 14 Class I carriers in the nation in 1999; they carried 42 million passengers in that year. Gross passenger revenues for regular-route intercity buses totaled over $1 billion. Intercity bus service was provided to more than 4,000 points, but that compared with more than 16,000 points of service prior to deregulation.

After being acquired by Laidlaw International, Inc., the country's largest school bus operator, in 1999 for $460 million, Greyhound managed to generate a small profit during 2000 and 2001, but then followed with three consecutive years of net losses. The company lost $111.6 million in 2002, $28.9 million in 2003, and $23.3 million in 2004. The decrease in loss was due wholly to cost-cutting measures, as revenues declined annually from $1.02 billion in 2001 to $956.7 million in 2004.

Laidlaw, which emerged from bankruptcy in 2003, was under instructions from its creditors to stop pouring money into Greyhound. Under the company's Chapter 11 reorganization plan, Laidlaw was required to limit its investment in Greyhound to $15 million through 2006. In this very mature industry, Greyhound would likely be unable to increase passenger numbers substantially, so in an attempt to make its way back to profitability, executives announced a restructuring plan that would eliminate unprofitable stops, reduce routes, and increase rates. "We know Greyhound is a unit in crisis and we see this as an opportunity to rewrite its business model," a spokesperson for Laidlaw told Crain's Chicago Business in 2004. "The way Greyhound has been operating the last few years will not allow it to survive."

In 2004 Greyhound cut 13 routes and reduced the frequency of buses on 75 others. Ticket prices also increased to an average of $42, up from $39 in the previous year.

Greyhound was in drastic cut mode by 2005. After servicing about 2,200 stops in the early 2000s, the company dropped well below the 2,000 plateau by the time it instituted the second phase of its cutbacks. The first phase had discontinued 267 stops in the Northwest. In the second phase, Greyhound dropped a total of 150 stops in California, Texas, Arkansas and Missouri. By 2006, the company was servicing about 19 million passengers at about 1,700 locations. Average ticket prices rose that year to $45. Greyhound employed approximately 8,400 in 2006.

Whether intercity busing will survive or in what form was a matter of debate. Most Class I intercity bus companies, including Greyhound, had significant investments in other busing sectors, particularly charter bus services. While Greyhound works to get back on its feet, others have predicted the impending end to the final nationwide intercity bus company. Transportation consultant Satish Jindel told Crain's Chicago Business, "The best option for Laidlaw is to recognize that the service that Greyhound has provided has outlived its usefulness."

Current Conditions

Following a plunge in intercity bus ridership of 8 percent between 2002 and 2006, ridership soared 6.9 percent between 2006 and 2007. As Americans struggled through one of the worst economic downturns in U.S. history, the once dormant industry During the third-quarter of 2008 overall public transportation grew 6.5 percent compared to the third-quarter in 2007, the largest gain in 25 years. During the same time period bus ridership increased 7.2 percent. Cities with the largest gains were Orange County, California (23.9 percent); Phoenix, Arizona (15.2 percent); San Diego, California (14.4 percent); St. Louis, Missouri (15 percent); Atlanta, Georgia (13.8 percent); Portland, Oregon (11.8 percent); Seattle, Washington (11.5 percent); Denver, Colorado (11.5 percent); Baltimore, Maryland (11 percent); and Chicago, Illinois (10.1 percent).

In 2007, Greyhound's parent company Laidlaw was acquired by the largest bus operator in Scotland, FirstGroup, which allowed Greyhound to compare notes to see where they needed to make improvements. Greyhound teamed up with Peter Pan Bus Lines, Inc. with BoltBus. Then, in April 2009, Greyhound Lines Inc. placed 102 new "Motorcoaches" on its routes in the Northeast equipped with leather seats, extended legroom, including Wireless Internet access and convenient power outlets, similar to the Boltbus with all its amenities Greyhound and Peter Pan Bus Lines, Inc., introduced in 2008 on the West Coast.

Elsewhere, with two additional bus lines added in New York City in 2010, competition was heating up as both small and larger intercity bus companies began offering perks like "buy-four-tickets-get-one-free" to seat belts to frequent rider programs similar to the airlines, in hopes of luring riders onto their bus. "The new competition is springing up in a market that, much to everyone's surprise, has started growing again," Bruce W. Fraser wrote in Crain's New York Business in October 2010, adding that "The upsurge in bus travel is due in part to recession-squeezed budgets but more broadly to the safe, comfortable and frequent service the companies provide."

Industry Leaders

Even after its cuts, Greyhound boasted about 60 percent of the intercity bus traffic in the United States. Its ridership fell to about 19 million in 2006, however, after it had been about 22 million in 2004. Its 2006 revenues were $1.2 billion. Greyhound's parent company Laidlaw was acquired by the largest bus operator in Scotland, FirstGroup in 2007. Greyhound, now a division of FirstGroup America reported about 20 million passengers annually with an estimated 2,200 vehicles that carry passengers to more than 3,800 locations. While no sales figures were available, Greyhound employed 11,150 people in 2009.

Although Greyhound was the only bus line with a nationwide scope in the mid-2000s, several other companies had achieved solid positions in specific regions. With revenues of approximately $59 million in 2006--down from $100 million in 2004--from its intercity, charter, and other bus services, the 750-employee Peter Pan Bus Lines, Inc., of Springfield, Massachusetts, is the second-largest player in the intercity bus travel market. A privately-owned company, Peter Pan serves four million passengers annually. In 2003 Peter Pan expanded its New England operations with the purchase of four CoachUSA affiliates: Arrow Lines, Bonanza Lines, Pawtuxet Valley Lines, and CoachUSA Boston. Peter Pan Bus Lines, Inc. provides scheduled service to more than 100 cities in about 10 states. Its subsidiaries Arrow Line and Bonanza Bus Lines operate a fleet of an estimated 300 buses. Peter Pan Bus Lines added services between New York and Washington in 2009. The company reported revenues of $58.2 million in 2009 with 750 employees.

Workforce

According to the U.S. Census Bureau, in 2005 the intercity and rural bus industry employed 16,830 workers, down from more than 20,000 in 2003. The industry employed 15,016 workers in 2008.

Research and Technology

Advances in technology historically played a part in the rise and fall of the intercity bus industry. It was improvements in road conditions and the development of the interstate highway system that made a nationwide network of bus routes possible. Later, the increased availability of private automobiles and affordable air travel contributed to the bus lines' loss in ridership share.

Since fuel was a major cost in running a bus company, companies were always on the lookout for equipment that would improve fuel efficiency. Diesel engines were in regular use in buses since the 1950s, and steady advances were made in their engineering, leading to developments such as the turbocharged diesel engines introduced around 1980. In 1992, a new bus called the Neoplan Cityliner was unveiled in Colorado. Used mostly for organized tours in the early 1990s, the Cityliner featured a smoke-free diesel engine that polluted significantly less than traditional models. Bus manufacturers were also experimenting with fueling buses by way of pollution-free battery cells.

In the mid-1990s, technological innovations in inter-city buses focused largely on reducing trouble-shooting and repair time. The newest motor coaches featured sophisticated systems monitoring and recording devices that allowed drivers and maintenance personnel to diagnose malfunctions in a fraction of the time previously required. Buses also were likely to sport electronic brake and steer-by-wire systems, similar to the fly-by-wire systems used in airplanes, which would offer drivers better feedback and control of the vehicle, as well as increased ease of maintenance.

Although the largest portion of its fleet consists of the older MC-12, produced between 1992 and 1998, Greyhound's introduced the MCI G4500 in 2001. In 2006 Greyhound had 290 G4500 in service. The model provided roomier seating for 55 passengers and better fuel efficiency. It also provided more baggage capacity and a quieter ride. As with all new models on the road, the buses were equipped with wheel-chair lifts. In 2002 the company added the Van Hool C2045 to its fleet, with 13 in limited service as of 2006, accommodating 57 passengers and featuring wheel-chair lifts.

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