Wednesday, April 27, 2011

Megabus undermines high-speed rail

Business Week recently had a feature article on "The Megabus Effect" and how these new cheap luxury intercity bus services are not only extremely popular and growing like crazy, but also deeply undermine the case for spending tens of billions of dollars developing high-speed rail for this country:
He immediately begins detailing the company's merits: how 90 percent of customers book online, many simply showing tickets texted to their phones to board; how the buses all offer free Wi-Fi and power outlets at every seat; how every trip includes at least one $1 fare, with prices going up as the departure date nears and as the bus fills; how there are no terminals or storefronts, just a bare-bones back-office staff; how the bus fleet is in constant use. "You cut all that overhead out of your business, you find you can pass that savings on to customers, thus driving volume. 
.... 
There's a battle going on to control the in-between routes, the 200- to 300-milers. Air travel, despite its enormous carbon footprint (and meager profitability), is unlikely to be displaced anytime soon as the transportation of choice for long-haul travel. For short distances, the car is still king. But of the most traveled American routes, many fall into this middle category: New York to D.C. (or Boston), Los Angeles to Las Vegas, Chicago to Detroit (or St. Louis), Dallas to Houston (or Austin or San Antonio), Miami to Orlando, Nashville to Atlanta (or Memphis). These routes are too far for a leisurely drive and too near for most Americans to justify the expense, or increasing hassle, of a plane. In 1990 a third of Americans flying domestic traveled these medium-haul distances. By 2009, though, that portion had shrunk to a quarter of all fliers. 
In Europe, these are the routes owned by rail, and transit policy experts in the U.S. hope that in coming decades high-speed rail will serve that market. But it's the intercity bus, the tortoise of the transport world, that is taking over much of the medium-haul market. On most city-to-city trips under 300 miles, the curbside bus offers tickets that cost a tenth of those of Amtrak and far less even than the price of the gas to get there by car. The bus is also at least four times more fuel-efficient than a car. Researchers at DePaul University's Chaddick Institute for Metropolitan Development estimate that curbside carriers, at their current capacity, already reduce fuel consumption by 11 million gallons annually, the equivalent of taking 24,000 cars off the road. 
Much of the recent success of the curbside business derives from its nimbleness. In February the Obama Administration unveiled some specifics of its long-term plan for high-speed rail, requesting $53 billion over the next six years to build and upgrade intercity service—a proposal that has already met opposition. By contrast, the bus simply uses existing roads, requiring no policy debates, government funding, or land management studies. It needs only a curb and a sign. Bus companies are also able to gauge demand quickly, gather rider input online, then alter pickup locations or routes just by posting changes to their websites. While we're having coffee, Moser explains that since he's seen numerous requests on transit blogs for new service from Chicago to Memphis, he figures he might as well give the route a try. A couple of weeks later he has the buses up and running. 
The curbside bus can also easily add and subtract departures. During Thanksgiving and Christmas in 2010, Megabus continued to sell as many tickets as were requested on its website, adding buses as needed. In Chicago, the buses were lined up all the way around the corner at the pickup location. "It's astounding how few constraints there are to its development and expansion," says Joseph Schwieterman, the director of DePaul's Chaddick Institute. "That's why it's an exciting product to watch. Adding two big hubs in six months—we just don't see that anymore in transportation." 
The comparison with rail is revealing. Consider that even after the Obama Administration budgeted $10.4 billion in federal stimulus money to jump-start high-speed rail projects around the country, the states had to submit proposals, federal transportation officials had to select the most viable ones, and state and federal governments had to negotiate these plans with the freight companies that own most of the nation's track. After all that, politicians, citing budget shortfalls, ended up scuttling many of the plans.
American Thinker adds their own commentary, and New Geography adds additional depth in their analysis, including this insight:
The growing prevalence of portable electronic technology, such as laptops and cellphones, gives intercity bus a new competitive advantage over air service and driving.  At randomly selected points, we estimate in our analysis of traveler use of technology that more than 40% of passengers on curbside buses are equipped with portable devices, a percentage higher than on Amtrak (perhaps due to the free Wi Fi) and much higher than on commercial airplanes.  Customers who place a premium on their ability to access electronic devices apparently find curbside bus service a particularly attractive option.
Both BW and NG predict Texas service in the near future, although I have not heard of any specific plans.  The Houston-DFW-Austin-SA triangle is an obviously huge candidate right in the optimal range for this sort of service.  Still a chance for a new operator to slip in and grab the market before the big guys get here.  How would they compete?  My suggestion:  Give it strong Texas branding (like HEB does) and partner up with Buc-ee's for rest stops.  In fact, put that beaver logo on the bus!  How's that for a powerhouse brand?  They'd lock the market up.  You heard it here first.  If somebody does it, I want a commission, dammit! ;-)

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15 Comments:

At 5:51 PM, April 27, 2011, Anonymous Martin said...

Megabus is a good service. I have used it in the UK. It is no-frills, cheap transport. It is also fairly slow and subject to considerable delays because of traffic.

Just as an experiment, I searched the Megabus website for a bus from Washington DC to Philadelphia for this Friday, April 29th, departing in the late afternoon/early evening (prime rush hour) and returning on Sunday, May 1st in the late afternoon/early evening. I ran a similar search on Amtrak for the same route, at similar times.

Megabus costs roughly $20 each way. The journey takes roughly 3 hours, 10 minutes according to their website. Having driven between the cities before, I can tell you that this does not take into account Friday afternoon DC traffic.

Amtrak costs roughly $85 dollars each way. The journey takes 1 hour, 52 minutes.

Obviously you are paying significantly more for Amtrak as compared to Megabus. But, with Megabus you sacrifice speed, reliability and comfort for the price. With Amtrak, you pay more but you get there faster, arrival and departure is extremely reliable (more than air travel) and you have more comfort (bigger seats, more legroom, cafe car with a bar car - VERY IMPORTANT).

My point is that they are not necessarily meant to replace each other. They serve different customers, who have different priorities. Business travels would use rail on these distances. They probably wouldn't use Megabus. Megabus is nice but it IS NOT a replacement for high speed rail.

That all being said, I would like to see them offer service down here. I would probably take it to Austin often.

 
At 6:27 PM, April 27, 2011, Blogger Peter said...

If it were a REALLY nice bus, I'd use it to go to Dallas. Definitely Austin. The problem with buses, you know, is the shared right-of-way with all those PESKY CARS!!!

 
At 9:59 PM, April 27, 2011, Anonymous Kevin said...

I wouldn't take Megabus for a route that a train already served at now-prevailing prices, but the prospect of a Megabus-like service lowers the marginal value of adding new rail. If travel on new trains is priced to make the train actually recover its costs (as opposed to heaping them on taxpayers), I would expect the price spread to be wide enough that lots of people would choose Megabus. That said, I believe the more likely outcome will be that the new trains sell tickets below costs, taxpayers take the resultant losses, and politicians sneer at the ridiculous, failed, retrograde barbarism of Megabus.

 
At 1:11 AM, April 28, 2011, Blogger Alon Levy said...

Amtrak makes money above the rails on several routes, including the Northeast Corridor. So does Megabus. Neither pays for maintenance of the right of way it uses, but Megabus gets a much larger bonanza, fourth-power rule and all. Outside press release-land, it's not about the free market beating big government, but about two subsidy hogs occupying two different niches of the market. (And in related news, Lufthansa is profitable, despite Ryanair.)

 
At 7:25 AM, April 28, 2011, Blogger KZ said...

If Amtrak were carrying the rails where the new build would cost, it would not be profitable or close to profitable. New rail lines would have to either charge materially more than Amtrak or have much larger capacity factors in order to not incur losses.

Not sure what you mean by free-market versus subsidy, unless you think the variable cost of Megabus to taxpayers is material. The capital investment in the roads was already taken from the taxpayers, and they're not getting it back (nor are they getting back the investment in existing rails). Is someone suggesting the government build massive new roads to enable Megabus?

 
At 12:07 PM, April 28, 2011, Blogger Alon Levy said...

Road wear is proportional to the fourth power of axle load. Cut buses and trucks from the highways and the maintenance costs will be much lower.

Another piece of scarce infrastructure Megabus uses for free is city streets. There, the city did actually propose to build special infrastructure for intercity buses - namely, the 34th Street Transitway. The city buses that use 34th Street don't have very high ridership; to justify BRTifying 34th and not any of the many busier bus corridors in the city, the city first appealed to Queens commuter buses (which get stuck in the Queens Midtown Tunnel and not on 34th) and then to intercity buses. Megabus would be a beneficiary in the same way Amtrak would have been a beneficiary of the ARC disaster.

 
At 5:06 PM, April 28, 2011, Blogger Jardinero1 said...

I concur with Alon on wear and tear. Fully loaded tractor trailers create 850 times the wear and tear of autos. Buses, depending on load, nearly 500 times the wear and tear of autos. Neither mode pays that order of magnitude more in taxes or use fees. Roadways are over engineered to handle buses and tractor trailers. Without them roads could be built to a much lower standard. If vehicles were tolled by their relative wear and tear on the road. Buses and tractor trailers would never be able to stay in business without charging significantly higher rates.

 
At 9:45 AM, April 29, 2011, Anonymous RedScare said...

A fancy bus that takes 3 times as long to get to Dallas as a high speed train is going to undermine the train? As they say, "I want some of what he's smoking".

Will this bus service grab market share from Greyhound? Absolutely. Will it entice a few auto drivers? Sure. Would it grab market share from a train that makes the trip in 100 minutes, while the bus take between 250 and 300 minutes, depending on traffic? Only from the most price conscious traveler.

 
At 2:04 PM, April 29, 2011, Blogger Tory Gattis said...

> Would it grab market share from a train that makes the trip in 100 minutes, while the bus take between 250 and 300 minutes, depending on traffic?

Damn straight it will if the bus ticket is under $30 and the train ticket is over $100...

 
At 2:06 PM, April 30, 2011, Blogger Michael said...

>>Damn straight it will if the bus ticket is under $30 and the train ticket is over $100...

Sure - it will grab some market share. But the Texas Triangle is growing to such a size that it is going to have all of these options. Maybe it will be 50 years, but we will have high speed rail, and bus. Just like the East Coast or Cali.

At the best, things like Megabus may slightly lessen the immediate need for high speed rail - IF we even had something like it - which we don't. But the presence of a decent bus service hardly alters the medium to long term necessity of high speed rail, at least not to me. The Texas triangle will cross a population / economic threshold at which point it simply makes sense to have HSR. Whether that is when we reach 30 million people in the triangle, or 50 million, it's not for me to say. But I don't think it is too far off - at most maybe 50 years.

 
At 4:54 PM, April 30, 2011, Blogger David said...

I find it very interesting that you slobbered all over the time savings that HOT lanes provide, and that people would rush to pay for those savings. Yet, when it comes to paying premium prices on a transportation option that you oppose (rail), you dismiss the price premium for time savings calculation as inconsequential. This, even though the time saved is measured in HOURS, not minutes.

I find your analysis when it comes to rail oddly inconsistent. No doubt, Megabus is an attractive option over Greyhound, and even attractive to those of limited means. But, suggesting that those of means would choose any bus over high speed rail is laughable, even if the price point is $30 to $100.

 
At 9:19 PM, April 30, 2011, Blogger Tory Gattis said...

I'm not saying no one would choose HSR. Many would. But it either won't be enough if it's priced to cover its costs (or even a significant fraction of its costs), or, more likely, they'll subsidize the ticket price to attract enough people. Either way, many billions are lost. HSR just gets squeezed between airlines on the high/fast end and driving+luxury buses on the low/slow end, leaving nowhere near enough remaining demand to justify the costs.

See

http://houstonstrategies.blogspot.com/search/label/high-speed%20rail

and

http://houstonstrategies.blogspot.com/2011/03/arguments-building-against-high-speed.html

for more reasons HSR just doesn't work.

 
At 1:33 AM, May 01, 2011, Anonymous Neal Meyer said...

High speed rail is high speed bullshit.

 
At 10:28 PM, May 08, 2011, Blogger George said...

One thing that the airlines have figured out that neither trains nor busses have recognized is that only in very centralized cities is the terminal anywhere near your final destination. If I need to get to Round Rock, I'm certainly not going to take a taxi from downtown Austin. Houston is famous for having five distinct downtowns, and they'll soon be sort of connected via MetroRail, but if you need to get to the Energy Corridor, forget any mass transit. Somebody needs to start planning for rental car centers.

 
At 10:18 PM, May 20, 2011, Anonymous Houston forum boy said...

My least favorite thing about Houston and Texas in general is the lack of rail.

 

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