Transportation Deployment Casebook/2014/Intercity Bus Service in the United States

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Intercity buses, in the United States context, are private buses that transport passengers from one city to another. Many intercity bus companies, such as Greyhound and Megabus, are common carriers that operate regular scheduled routes between specific cities. Tickets aboard buses on these fixed routes are available to purchase by any would-be passenger who presents the proper payment at the proper time. Greyhound and other traditional bus companies operate bus terminals in each of the cities that they serve. Unlike historic railroad companies and airlines, which jointly operated union depots with other transportation providers, most traditional intercity bus companies have typically operated their own terminals. The costliness of traditional intercity bus infrastructure has recently led to industry innovation and a new sub-genre of fixed schedule intercity bus, the curbside bus. Curbside bus companies like Megabus and Boltbus eschew the traditional trappings of bus travel and keep costs low by having customers purchase tickets online and board buses right on city streets. Intercity bus statistics often also include charter buses, buses that are specifically hired by a group of passengers to ferry them to a different city or cities. Charter buses are technically intercity buses but their fortunes are tied to a different set of variables as they face very different challenges than scheduled service buses. They will not be discussed in depth in this overview (1).

The main advantage of intercity buses is that they can run on existing infrastructure (public roads) and the only capital costs are bus procurement and the construction of any terminals that are deemed necessary. Another sizeable advantage to intercity buses is their extreme flexibility in scheduling. A bus can easily be added to a route if demand dictates the need for additional capacity; all that is needed is a bus and a driver. Likewise, it is easy to shift a bus away from an underperforming route and move it onto one where it is needed. Other modes, trains for instance, are far less flexible and require a great deal of advance planning and investment to get infrastructure in place to support additional capacity. Bus companies, on the other hand, can experiment with untested routes with very little financial risk involved (2).

The main markets for intercity buses have varied over the years. The goal has always been to efficiently link different cities. Traditional intercity bus companies long made a habit of linking together several large and small cities along their routes, the thinking being that this would allow them to pick up as many potential riders as possible. Many of the new services, especially the curbside services, focus almost exclusively on large city centers and provide non-stop or almost nonstop service between different large cities. This creates time savings that have proven effective at luring in additional customers who may have been disinterested in long distance bus travel under the old order.

What Were Things Like Before the Buses?
Intercity buses began to emerge on the American transportation scene in roughly 1910 (3). Prior to this, the options for intercity travel were extremely limited. Most long-distance intercity travel would have been accomplished by passenger train. Some Americans owned private cars, but they would have been very much in the minority at this time. It was much more common for people to use horse-based transportation systems with all the speed and comfort disadvantages that were inherent in animal modes. If the cities were relatively close together, walking might even have been the selected travel mode by some travelers. Comfort on non-railroad modes was not as high as today due to the unpaved nature of most of the existing roads.

Markets for transportation were evolving at this time, however. Car owners were beginning to realize that their vehicles could be put to work to generate additional household income. In in the early 1910's, jitneys rose up in several cities to compete against the streetcar transit systems. Jitneys are simply cars that drivers sell space in as common carriers. Jitneys were more flexible and faster than the streetcars and offered customized services to passengers. Their popularity grew until they were largely regulated out of existence a few years later. The earliest intercity bus operators were entrepreneurial individuals who owned cars and saw a potential to take the jitney model to the next logical step by offering longer trips. Greyhound bus lines got its start in 1913 when Eric Wickman began shuttling miners and lumberjacks between Hibbing and Alice, Minnesota in his seven passenger elongated sedan (4).

The Invention of the Mode
As previously mentioned, intercity bus transportation grew out of the jitney. The mode was invented, more or less, by people with large cars who drove paying passengers between different cities. In less populous areas, these jitney drivers were often competing for a small fixed number of available passengers and therefore were strongly incentivized to lower prices to stay competitive against rivals. The Hibbing to Alice route, for instance, was originally priced at 75 cents in 1915 but a competitor’s attempts to sell a 50 cent ride forced the original jitney operator to slash his prices to 40 cents. It quickly became clear that this escalating price war would result in both firms completely forfeiting profitability and possibly even would lead to their ruin and withdrawal from the market. In Hibbing, Wickman and his partner offered the competing driver a partnership in their company. The drivers merged operations and instituted stable pricing for the route. This same occurrence would play out countless additional times within the industry as providers merged again and again in an attempt to gain an advantage in the transportation marketplace (4).

Mergers have occurred frequently throughout the history of intercity bussing, often with the encouragement of government regulators appointed to oversee the services. The mergers allayed governmental concerns that having too many companies would result in a costly duplication of services that would ultimately ruin the providers and degrade the travel experience for customers. The mergers allowed bus companies to construct far-reaching route networks that customers could then utilize with a single ticket purchase. By the end of the 1920’s, Greyhound had by far the most extensive and competitive route network. Another network, the Trailways Bus System, developed as a network of small carriers that agreed to coordinate and implement through ticketing. With these networks in place, bus companies were able to compete much more effectively against the railroads which also had extremely extensive intercity networks with through ticketing (4).

On the technological side, sedans did eventually give way to vehicles that would meet the modern definition of the word “bus.” In 1921, Safety Coach Lines (an impending Greyhound acquisition) secured its first true “buses” from the Fageol Company (5) The first buses were relatively small by today’s standards but subsequent technological advances led to a steady upsizing of vehicles and enhancement of comfort-giving amenities. Most of the terminals were built in the 1940’s and 1950’s. Additional advances in bus management technology have led to the emergence of curbside bus service. Curbside companies use the internet to handle their ticketing and customer service which has dramatically lowered their costs and allowed them to be extremely successful in many urban environments. The curbside buses also make use of modern amenities such as wifi and power outlets.

Early Market Development
The initial market niches were primarily city pairs that were in relatively close proximity to each other, such as Hibbing and Alice in northern Minnesota. There was a relatively large pool of customers since car ownership was low and bus pricing was highly competitive with train fares. Functional enhancement certainly played a role in the development of these early markets; Eric Wickman partnered with several other drivers to more effectively service the Hibbing-Alice route. Functional discovery also played a role, however, and routes were added and networks expanded in order to better serve community needs when this could be done to make a profit. In 1919, Wickman and associates added a Hibbing to Duluth line to their fledgling bus network. As time went on, additional expansions of the Greyhound system and other systems occurred as did many mergers that allowed companies to enlarge their networks and achieve greater profitability (4).

The Role of Policy in the Birthing Phase
Policy played a huge role in the early development of intercity bus operations. The earliest intercity operations, being essentially informal jitneys, were largely unregulated and allowed to grow at whatever pace the market dictated. It did not take long, however, before the powers that be determined that there ought to be some significant policy changes in the way the government dealt with these bus upstarts. A major player in these considerations was the railroads which, sensing a competitor that had what they felt was an unfair advantage, petitioned the states to encumber buses with regulations. These regulations were usually designed to address safety, prevent damage to roads, and/or set up standards for fares and routes in order to ensure that intercity bus companies were acting in the “public good.” At the time, intercity buses were seen as being a natural monopoly in need of careful regulation to prevent the negative effects of monopoly from occurring. (3).

State regulations were imposed throughout the 1920’s and by 1930 all states except for Delaware had imposed some sort of regulation upon their intercity bus companies (6). These regulations seem to have had the effect of making the entry of new companies into the marketplace more difficult which protected the industry from any price competition that might have come about from new entry. In 1925, the US Supreme Court determined that states had exceeded their authority in regulating intercity buses that operated on interstate routes. While states could continue to regulate routes that existed wholly within their borders, they lost the ability to regulate anything that crossed state lines. This decision resulted, rather quickly, in many bus companies crafting routes that technically were situated in more than one state in order to take advantage of this loophole. Federal regulation of the buses began in 1935 with the passage of the Motor Carrier Act of 1935. The Motor Carrier Act gave the Interstate Commerce Commission (ICC) the authority to oversee and regulate intercity bus operations. One can certainly see how the regulations were inspired by regulatory approaches taken with the railroads. The treatment of buses as a natural monopoly and the careful regulation of just about every aspect of operation was an instinctive governmental response to treat bus operations like railroads. It is debatable, however, whether this attitude was ever really appropriate and whether buses are as ripe for monopolistic behavior as trains are. Following the passage of the Motor Carrier Act, bus operators now had to petition the ICC prior to the creation of any new routes and prior to the completion of any mergers. Operators also had to seek ICC approval in order to adjust fares, either up or down. The ICC declined to take over the power of preventing operators from discontinuing service on a route. This power, which was sometimes exercised to force operators to continue running unprofitable routes in order to do business, was left to the states. This status quo was left intact for the next several decades of intercity bus operation (6).



Growth of the Mode
The mode would ultimately grow from its humble beginnings into somewhat of a transportation powerhouse. The private sector drove almost all of the early growth since the industry was almost completely unregulated. At that time, operators simply expanded operations whenever they had the resources and saw a niche and merged at will whenever doing so seemed to be beneficial and profitable. As mentioned previously, it did not take long before states began compelling bus operators to behave in a certain manner. The pattern of growth was then shaped by government regulations which often required operators to behave ways contrary to what the market was dictating. While operators may have been inclined to discontinue services to small towns with low demand, state regulators often prevented such service cessations from taking place. Federal regulations, which came on the scene in the 1930’s, even further regulated the industry and shaped its growth. The new regulations severely restricted new entry into the market and the restrictions on competition led to monopolistic or near monopolistic setups in most markets. Intercity busing grew continuously for several decades, suffering a brief interruption in ridership gains during World War II due to fuel rationing (passenger trains recaptured market share during the war years). Following the war, however, bus travel resumed its popularity (7).

While the intercity bus industry grew at a steady pace throughout most of the first half of the twentieth century, the regulatory environment and a shift in the way that buses were perceived eventually started to chip away at market share. By the 1970’s, intercity buses had developed a reputation for being the transportation provider “of last resort” in the United States market. Commercial air travel had been steadily gaining market share for intercity travel and by 1965 was serving over 50% of intercity trips made by common carriers. The biggest competitor for buses was not the airlines, however, but the private automobile. As automobile ownership became more and more common for U.S. residents, many would-be passengers began eschewing bus usage and drove their cars instead. The deregulation of air travel in the United States, which took place in 1978, brought down airfare prices and incentivized even greater defection from intercity bus services. Intercity bus travel became, for many, synonomous with poverty and something to be avoided if at all possible (3).

With air travel deregulated in 1978 and trains and trucks deregulated in 1980, there were increasing calls for a deregulation of the intercity bus industry to allow competition to occur and hopefully revitalize the industry. Deregulation of the intercity bus industry took place in 1982 with the passage of the Bus Regulatory Reform Act. Deregulation eased the conditions for entry by new operators, greatly reduced rate regulation, and subjected the bus industry to antitrust regulations that prevented them from colluding about pricing. The act was designed to preempt state regulations and gives operators the option of appealing to the ICC if a state stubbornly refused to allow them to discontinue an unprofitable route. Deregulation paved the way for a rejuvenation of the intercity bus industry which was, at that point, struggling from decades of underinvestment and mismanagement (3). It had some small immediate effects on the industry. Elizabeth Pinkston, writing in 1984, reported that applicants requested permission to begin serving nearly 55,000 miles of new routes in the aftermath of deregulation. The industry remained moribund, however, and continued to lose market share to air travel over the next 20 years.

The fortunes of the intercity bus industry subtly began to turn in 1998 when a group of Chinese immigrants in New York City chartered a local jitney van to take them from the Chinatown of New York City to the Chinatown of Boston, Massachusetts. Other immigrants saw this and began doing the same and several small services sprung up to provide bus transportation to these travel-seekers. Several of these “Chinatown bus” companies actually became fairly large, the most notable probably being the Fung Wah Transportation Company of Pei Lin Liang. The Fung Wah company, which had a license from the U.S. Department of Transportation to operate daily trips between New York and Boston, grew so rapidly that within a month of starting operations they had expanded to offering seven trips per day. Chinatown bus services spent a few years as a niche business catering almost exclusively to Chinese immigrants before exploding in popularity following the September 11th Terrorist attacks on New York and resultant apprehension about air travel. The decrease in tourism caused by the attacks had resulted in many charter bus companies having extra buses lying dormant and many of these buses began plying the increasinly lucrative curbside bus market (1).

In 2006, the first large-scale commercial operations based on the Chinatown model began in Chicago, Illinois. Megabus, a subsidiary of a large Scottish bus company, set up a large spoke and hub curbside bus operation emanating from Chicago outwards towards many of the other large cities of the Midwest. Curbside bus service is operated as “express routes” which deliver nonstop or almost nonstop service between major cities. They do not service small urban centers along their routes as has long been the custom with intercity bus. Megabus does not operate bus terminals and handles all ticketing and customer service with its website. Tickets are offered at a variable rate that was determined by the website based on demand for a particular route; the first ticket on most routes is offered for only $1. The model proved successful and subsequent hubs have been opened in New York City, Los Angeles, and several other large cities. Other large companies have also embraced the curbside bus service model in an attempt to replicate the success of Megabus and the Chinatown buses. Even the powerhouse of traditional intercity bus service, Greyhound Bus Lines, was suitably convinced of the viability of this new service incarnation. Greyhound founded Boltbus to be its curbside bus subsidiary to allow it to directly compete with Megabus and other curbside operators (1).

Analyzing Intercity Bus Operations Over The Years and the Limitations of Available Data


Intercity bus operations are managed by private companies that are not compelled to report ridership statistics. There is currently no government agency tracking intercity bus transportation and the trade group that does track it, the American Bus Association, does not delineate between scheduled intercity trips, charter bus trips, airport shuttle trips, and tour bus trips in their statistics. The s-curve analysis of the growth and maturation of the mode uses the American Bus Association’s data since nothing else at all close to comprehensive is available. The numbers that they provide show a continuous increase in intercity bus ridership, which is accurate if one considers charter buses, airport shuttles, private commuters, and tour buses to be intercity bus ridership. It is important to note that this data does not reflect the decline in scheduled intercity bus ridership following the 1950’s. Charter buses, airport shuttles, and other niche services have seen continuous rises in popularity throughout the years even while the scheduled intercity services were in decline (8).

The predicted trips curve was generated by estimating that intercity buses will reach market saturation and maturity at about 1,000,000,000 trips per year, roughly 250 million more trips than are being made today. Due to the shoddiness of the data (during some years the ABA only kept track of certain segments of the industry), the R-Squared variable was very low and no clear growth pattern could be established. This graph is being included largely because it is mandated by the parameters of a school assignment and should most likely be discounted. In the next section, scheduled intercity bus figures will be discussed using information gathered by the Chaddick institute regarding increases and decreases in the number of intercity bus trips being offered between 1960 and 2010. This should likely be seen as a better reflection of the changing fortunes of scheduled intercity service than what is being offered by the s-curve.

Development during the Mature Phase
The developmental arc of the intercity bus is long and erratic. By most accounts, the system had initially reached maturity if not by 1950, certainly by 1960. According to the Chaddick Institute, a research group out of Depaul University that studies intercity bus operations, intercity bus service declined by roughly 1.4% every year between 1960 and 1980. They measure decline in terms of how many scheduled trips were being made. Between 1980 and 2002, every year saw a 1.8% decline in the number of scheduled trips being offered. This industry decline intensified further between 2002 and 2006 when each year saw an incredible 8% decline in scheduled trips being offered. It seemed abundantly evident that the mode was well past its prime and becoming increasingly irrelevant in the American transportation landscape (9).

Beginning in 2006, however, with the growth of curbside bus services the industry reversed this trend towards route reductions and decreased service. In 2006 and 2007, total scheduled trips offered grew 6.9% each year. In 2008, intercity bus saw a 9.8% increase in trips offered. In 2009, there was a 5.1% increase in trips offered. In 2010, there was a 6% increase in trips offered and in 2011 the industry saw a 7.1% increase. These figures suggest that scheduled intercity bus is in the middle of a Rennaissance and will see another period of growth and deployment. Unfortunately, the private bus companies do not share ridership data so analysis is limited to Chaddick’s assessment of how many scheduled trips are currently being offered (9).

Lock-in had constrained the intercity bus mode for many years and almost all of the major traditional bus companies had fallen into the habit of operating in the exact same manner. Deregulation allowed for a shake-up of the industry and a reinvention that seems poised to carry the mode on to decades of greatness. There has been some lock-in already in terms of the policies and practices of the curbside buses. Many of Megabus’s competitors closely mimic its model and even go so far as to offer the first ticket on their routes for $1 each. There is still plenty of room for innovation in the industry, however, and many parts of the United States that have not yet seen the benefits of rejuvenated intercity bus service. Curbside intercity bus service seems to do best in cities that have healthy transit systems where travelers would not necessarily need to have a car to get around once they have arrived. Megabus has actually retreated from some markets after determining that their business model and practices were not in tune with the needs of the market and could not be profitable. Intercity bus companies would be wise to develop partnerships with transit agencies and with cities to ensure the best possible conditions for their passengers that can be achieved in a cost effective manner (1).

By continuing to innovate, modern intercity bus companies can ensure that the industry does not once again slip into complacency and irrelevance. Most intercity services now offer power outlets and many even offer free wireless internet. These features have allowed them to capture a large percentage of the youth audience and to be competitive against private cars where these features would not be available. In some special niche markets, it might even be possible to expand these amenities further to continue attracting customers from other modes. In some of the routes in England, for example, Megabus operates sleeper coaches with fully reclining seats that transform into beds. These buses also feature attendants and replicate much of the old sleeper train experience but in a much less costly manner. American providers would be wise to continue experimenting with amenities to help buses solidify their burgeoning reputation as a cheap and comfortable way to travel and not simply a travel method “of last resort” (10).