America is its next target
MANY Europeans see long-distance coach travel across America as glamorous. That may be a legacy of a Clark Gable film from 1934 called “It Happened One Night”, about a romance between two passengers on a bus travelling from Florida to New York. Modern Americans see it as anything but alluring. It is looked down on as something used only by time-rich, money-poor people who cannot afford to travel by car, train or plane.
Flixbus, a German coach startup which is launching in America on May 15th, wants to change that. On the firm’s flagship route from Nuremberg to its hometown of Munich, winding between snow-capped peaks and picture-book villages in Bavaria, its bus passengers look distinctly affluent. Many on board play on tablets to pass the time; shirts and ties are common. One discerning traveller reads The Economist. Since Flixbus was founded in 2013, its efforts to encourage more people to try coach travel have helped it to seize 90% of the market in Germany. But it could find the going tougher in America.
Flixbus was originally founded to take advantage of Germany opening up its coach market to competition in 2013, says Jochen Engert, co-founder and co-chief executive of the firm. Before then Germany and many other European countries blocked operators from scheduled intercity routes in order to protect state-run, subsidised railways. A bus leaving Munich would have not been allowed to go to Berlin, for example, as it would have clashed with the national rail firm, Deutsche Bahn.
When the German government swept away such regulations, Flixbus was one of 13 firms to enter the bus market. Increased competition meant more routes and cheaper fares, which enabled the industry to grow from 26m seat-kilometres in 2012, the year before liberalisation, to over 220m by 2015. Bus firms increased their share of the long-distance travel market from 2.2% to 15%. But it was Flixbus that destroyed the competition. After a merger in 2015 with Meinfernbus, a rival startup from Berlin, it has conquered nearly the entire German market. By the end of last year it was carrying 100,000 people a day to 1,700 destinations in 27 countries across Europe.
Mr Engert attributes Flixbus’s rapid ascent to its asset-light strategy, which he compares to Uber, a ride-hailing app. Staying out of the messy and capital-intensive business of running buses, it contracts them out to local coach firms under its brand. Flixbus then markets and sells the tickets for them via the internet. “It is less a bus company”, says Christoph Gipp of IGES Institute in Berlin, “than an IT firm.” Flixbus likes to present itself as a quirky tech startup. Mr Engert’s office is filled with surfboards and yoga balls; outside his door a children’s slide gives employees a shortcut to their desks on the floor below.
Yet for all this tiresome razzmatazz, the model is not new. Bosses at National Express, a veteran coach firm that won the battle for market share in Britain after deregulation in the 1980s, say that Flixbus has copied its blueprint. Like its German rival, it contracts out 80% of its coaches and makes two-thirds of its revenue online.
Flixbus’s success could be due more to its venture-capital owners, says Gerald Khoo of Liberum, a bank. Flixbus’s rivals, from National Express to Deutsche Post of Germany, were publicly listed. Their investors, unlike Flixbus’s, were unwilling to sustain losses in the short term to grab a bigger share of new markets in Europe. For Flixbus’s backers, patience has been a virtue. It has been profitable in Germany since 2016, the point at which it had grabbed 80% of the market.
Flixbus has avoided trying to disrupt the idea of the conventional schedule. Other startups are trying on-demand “Uber for buses”-style services. But they are likely to work only on high-demand routes where enough people are willing to travel at a certain time, says Shwetha Surender of Frost & Sullivan, a consultancy. Finding such routes is hard. Authorities in Helsinki shut down a trial of such a service in 2015 as it lost so much money. Firms such as Rallybus of America and Sn-ap of Britain, which launched its third intercity route last month, have yet to scale up.
Boom and bus
Flixbus hopes it has the winning formula to revive the industry in America. Since a peak during the second world war, the American intercity bus market has lost over 40% of its passengers, mainly to airlines and private cars. But unlike in Europe, the competition is likely to put up a big fight. Since 2008 much of America’s bus industry has been owned by two viciously competitive Scottish firms: Stagecoach, which owns Megabus, and First Group, which owns Greyhound, the biggest operator. Over that period both firms have helped to raise passenger numbers by bringing the sort of digitisation that National Express pioneered to America. Greyhound says it is unfazed by the arrival of Flixbus: when Megabus launched in America, its flashy advertising did as much to boost demand for its rival’s services.
Flixbus thinks there is room for growth. There are many intercity routes in the west of the country below its “sweet spot” distance of between 200km and 500km that are still underserved by buses. Falling car ownership among the young is raising demand for bus travel. But analysts warn that all that will be for nowt if the bus industry cannot shed its grimy reputation and recreate some of the glamour of a Clark Gable movie.“We’ll see what we can do about that,” says Mr Engert.