The MegaBus Business Model

The brand name that reinvented intercity bus travel, the home of the $1 fare and double decker buses, MegaBus, is fine tuning it's business model and adjusting its' routes and scheduling to pump up revenues in tough economic times.

Low gas prices are eating into the bus carriers preferred market demographic of the young and affluent who are more likely to own a car.

The Akron Railroad Club quotes Joseph Schwieterman, a professor at DePaul University in Chicago who studies intercity bus transportation, (and) told The Plain Dealer that the intercity bus industry is contracting after several years of rapid growth.

“Gas prices are raining on the parade of bus companies in a big way,” Schwieterman said. “It’s surprising how quickly people change their habits when fuel is cheap.” It was also surprising that Megabus passengers tend generally to be more affluent, younger and more likely to own cars.

So when gas prices drop, they are inclined to drive rather than take public transportation.

In the 1960's intercity bus travel became less and less popular with increased automobile ownership, and the post war boom in highway construction. Ridership and service to rural areas declined even further in the 1980's after deregulation of the intercity bus industry.

A 2014 paper published by the AARP cited U.S. Department of Transportation Bureau of Transportation figures showing that 8.4 million rural residents lost access to intercity bus service between 2005 and 2010.

MegaBus has a business model that is not based on providing service to small towns. Here is how they do it instead according to the Akron Railroad Club article cited above.

Since starting service in April 2006, Megabus has operated much like an airline. You won’t find Megabus stopping in small towns or even small cities unless they happen to have a large state university.

MegaBus started out in 1996 as a subunit of CoachUSA/Coach Canada offering low fares and curbside pickup instead of traditional brick and mortar bus stations. In another Akron Railroad Club piece they describe how MegaBus began.

The initial route network fanned out from Chicago and included service to Cleveland. Four years later, the Megabus business model began making a transition from a hub and spoke orientation to a point-to-point model. Also like airlines, Megabus uses yield management to set fares. Although it has attracted much attention with its $1 tickets, Megabus imposes a $1.50 per transaction fee for tickets purchased online. Tickets can also be purchased by phone, but cannot be bought from bus drivers.

A review of the MegaBus website and schedules shows how its business model favors large cities with large colleges in close vicinity.

According to Schwieterman Megabus has done best in heavily urbanized areas, between cities that are between three and six hours apart, and in places where parking is scarce and expensive.