Low-cost bus business models and the case of Brazil.
| Autor | Marx, Roberto |
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Introduction
Brazil is a country with continental dimensions, in which transport integration plays a major role. Transportation is essential to the dislocation of the population between cities, being a highly significant activity to the economic construction and the social development of the nation. It contributes to create jobs, to a better income distribution and to shorten distances, bringing gains for the country and granting the population access to goods and services.
In this context, buses play a major role in Brazil, transporting around 50m people each year in regular intercity routes (ANTT, 2017). The scenario of bus transportation in Brazil is characterized by increasing competition, with changes in the regulation beginning to lead to a free market. However, the absence of good road conditions generates high costs of operation for the transport companies, mainly because of the constant maintenance of vehicles, burst tires and higher fuel consumptions. Because of that, prices usually are high for customers and many people do not have conditions to afford traveling in Brazil.
In parallel, the idea of low-cost services stepped up. That kind of business operates based on cost cutting, increasing utilization and earning extra profits from every possible source (Berster & Wilken, 2005; Bitzan & Peoples, 2016; Maertens, Pabst, & Grimme, 2016; Lu, 2017).
Specifically for the bus sector, the low-cost services are showing amazing performance around the world. On the other hand of the traditional bus industry, the low-cost bus operators in Europe and North America are having huge growth rates in the number of passengers, routes, revenue and profit. Megabus, the first company to apply the low-cost concept to buses, saw passenger numbers in the UK grow 150 percent from 2009 to 2013, while customer journeys in mainland Europe grew 60 percent in only 12 months between 2014 and 2015 (Stagecoachbus.com, 2015).
However, the application of low-cost businesses around the world is strictly related to the bus deregulation processes. Even though Brazil is not deregulated--Brazilian agencies modified the regulation aiming to a market based on the free competition. The first step to the application of a low-cost bus system in Brazil was made.
In this way, the purpose of this work is to identify low-cost bus business models from different parts of the world and check their applicability in the Brazilian market. It also identifies crucial factors for the development of that kind of business and investigates the relationship between low-cost buses and other modes of transport.
This research analyzes every relevant aspect to the applicability of low-cost business models in Brazil, driving to discussions and conclusions. The gains on the development of low-cost bus systems in Brazil may have a wide reach, from personal to general public benefits.
For this, the paper is divided into five topics. After this introductory topic, the literature review is presented in order to better understand the concept of low-cost and its transition to the bus market. The bus markets in Europe and in the USA were analyzed and a research on regulation was made, given the importance of that factor in the development of bus systems. Finally, low-cost bus business models around the world were characterized and discussed.
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Literature review
2.1 The low-cost bus market
"Low-cost" is a term that refers to a strategic orientation in which a company tries to cut costs at all levels of the organization, generally including a market campaign focused on the discounted prices. To apply a low-cost strategy, a company continuously analyzes and controls its most important costs and does an efficient asset management. To do so, there must be a special attention to distribution and communication in addition to the pricing policy (Berster & Wilken, 2005; Gro[beta] & Schroder, 2007; Dobruszkes, 2009; Bubalo & Gaggero, 2015; Bitzan & Peoples, 2016; Maertens et al., 2016; Lu, 2017).
According to Berster and Wilken (2005), the main goals of the low-cost strategy to reduce costs, increase utilization and earn extra profits from every possible source can be achieved by doing the following:
(1) utilizing yield management as a tool to conduct price and capacity and to highlight low costs;
(2) optimizing costs in all business areas, such as staff costs, service costs and maintenance goals;
(3) standardizing production and services;
(4) selling directly to the final consumer in order to avoid commissions and transmission costs;
(5) charging for every service, no-frills; and
(6) utilizing assets to earn extra profit, such as selling space for advertising.
Based on the above points, it is possible to understand that low-cost companies started to take the market and offered significant competition against traditional players. Furthermore, these companies were also responsible to bring a completely new niche to the market, people who were first excluded from it due to low-income availability.
Today, low-cost companies are very related to travel and tourism, being present among hotels, such as Formule 1 and EasyHotel, and all kinds of transportation, from ships to huge airline companies, such as Southwest and Ryanair. In recent years, the bus industry in Europe is flat, alternating small growths and shrinks, as we can see in Figure 1.
The USA follow the same trend, where the passenger kilometers traveled also alternates positively and negatively. Some variations in the oil and gasoline prices are responsible for slightly changes, especially in the last years (Stagecoachbus.com, 2015).
However, following the deregulation of the bus market, Germany saw the number of passengers jump from 8.2m in 2013 to 16m in 2014. In France, the government estimates that the 110,000 passengers in 2014 will become 5m by the end of 2016 (Stagecoachbus.com, 2015). So, if the liberalization trend continues, there must be more space for the bus carriers in mainland Europe.
Despite the potential growth, there is a tough competition faced by the whole industry, what is driving both turnover and profit to a critical minimum. Line operation was very limited in most countries until the last years. Many countries, such as France and Germany, did not allow bus lines running in parallel with railway services (Alexandersson, 2009; van de Velde, 2009; Augustin, Gerike, Martinez Sanchez, & Ayala, 2014; Blayac & Bougette, 2017), until the deregulation of their bus markets, in 2013.
Cars represent more passenger kilometers traveled than twice the combination of all the other transport methods. Another huge competitor is the low-cost airlines, which are extending routes to new places every year. Tour operators are also important, because they can organize single trips without official permission or route license. And finally, the bus companies compete between themselves, always trying to succeed in a very limited market.
2.2 The low-cost buses and the regulation of the intercity bus market
For buses, the presence of low-cost carriers was only possible with the deregulation of the bus market. Intercity bus traveling was still strongly regulated in most western European countries in favor of the railway companies. The exception to it was the Great Britain bus market, which deregulation started in 1980 and allowed the creation of the first low-cost bus company in 2003, Megabus (White, 2010; White & Robbins, 2012).
On the other hand of the traditional bus industry, the low-cost bus operators in Europe and North America are having huge growth rates in the number of passengers, routes, revenue and profit (Buehler & Pucher, 2012).
In continental Europe, with the liberalization of the bus market in potential markets, such as France, Germany and Italy, the mileage is expected to four fold year-on-year (Stagecoachbus.com, 2015).
By the way, in Europe long-distance bus services were always secondary when compared to other transportation methods. Railways or airlines attract much more political and media attention, are more visible and require much more infrastructure investment, especially from public sources (van de Velde, 2009; Santos, Limbourg, & Carreira, 2015; Zuidberg, 2017).
However, in countries where the deregulation was appropriately implemented, allowing competition, coaches became responsible for the mobility of the less-wealthy and time-rich citizens (van de Velde, 2009; White & Robbins, 2012; Preston & Almutairi, 2014; Durr & Huschelrath, 2017).
This is consistent with the evidence of very low incomeelasticity for coach travel in comparison with other modes. The results of Dargay and Clark's studies show that longdistance travel is strongly related to income: air is most income-elastic, followed by rail, car and finally coach.
The concept of low-cost bus is strictly related to the regulation of markets, because the free competition opens possibilities for really narrow margins. In order to obtain market share, even traditional companies have to lower their prices and the full implementation of the low-cost strategy grants some competitive advantages to its players. More recently, the entrance of low-cost operators in some countries is taking place immediately after the deregulation of the markets (White & Robbins, 2012; Preston & Almutairi, 2014; Durr & Huschelrath, 2017).
2.3 Regulation in Brazil
The economic activity related to the Interstate Road Transport of Passengers (TRIP--Transporte Rodoviario Interestadual de Passageiros) has always been regulated by the Brazilian government in almost every aspect: entry of new companies, qualitative and quantitative aspects of the service execution, and mechanisms of prices and rates.
Since the promulgation of the 1988 Federal Constitution, the entry of new players in the TRIP markets has not been depending exclusively on the will or capabilities of a company. To operate a TRIP line, the firm needed a grant permission, which could only be earned...
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