Stagecoach in America: How one British company helped persuade Americans to ride buses again

Stagecoach in America: How one British company helped persuade Americans to ride buses again

Sep 7th 2013 | PERTH |From the print edition


FEW people like long bus journeys. For many, they involve cramped seats, tiresome fellow passengers and hanging around empty stations in the early hours of the morning. Unsurprisingly, then, in America the number of bus services has been falling for many years. But this is starting to change. And a British company is helping to lead the way. Stagecoach Group is currently the largest bus operator in Britain. Based in Perth, a city in Scotland, its revenue was £2.8 billion ($4.4 billion) up to April this year. Each year 980m passengers are carried around on its British bus network. The company also owns 49% of Virgin Rail, one of the largest train operators, and runs the South West Trains service, a busy commuter franchise in south-west England.It began with two buses in 1980. The firm was started by Ann Gloag and her brother Sir Brian Souter, an accountant and part-time bus conductor. The head offices still feature frugal tartan sofas and pot plants rather than corporate opulence. After the privatisation of the bus market in the 1980s, their company boomed. They were the first to run long-distance bus services in Britain against the monopoly operators and the first to win a rail franchise.

Stagecoach is now expanding on the other side of the Atlantic too. In 2006 the company launched Megabus, an online-only bus service in Chicago. Since then it has opened hubs in New York, Pennsylvania, Texas, Georgia and California. After two years Megabus had 1m passengers. Now it carries 1m passengers every 38 days, says Dale Moser, the head of Coach USA, Stagecoach’s American company. This reflects a wider trend. Between 2002 and 2006 the use of intercity bus services fell by 8% in America. Since 2006 it has increased by around 7% each year.

Several reasons explain the boom. Fewer young Americans drive. Almost all men are driving less while fewer women aged between 16 and 34 years old are doing so. Young people are turning to public transport, says Joseph Schwieterman of DePaul University in Chicago. But neither American rail services nor short-haul flights offer a cheap alternative.

People are travelling in differing ways. Shorter intercity trips are more popular, as are bus services between university campuses. And because the federal government has cracked down on cheap “Chinatown” buses, semi-legal local bus services, others like Megabus have stepped in.

But their success was never guaranteed. Stagecoach first entered the American market in the late 1990s when it bought Coach USA. That acquisition nearly ruined it, as public travel dropped after the terrorist attacks of September 2001. At one point its share price lost three quarters of its value in a year. By getting rid of extra parts of the business—school buses, airport connections and the like—the company stayed afloat. And it was more careful with Megabus. It ran the service for three years in Britain before it was exported to America.

To Americans, Megabus looked novel in several ways. Passengers bought their tickets online. Fares were cheap: they could be as low as $1 if bought far enough in advance. Unlike older bus services, Megabus routes picked people up from “kerbside” spots rather than dingy stations. Its vehicles were relatively new, with Wi-Fi and seat-belts. The garish yellow-and-blue livery of its buses made them hard to ignore.

So far it has been successful. Profits at the Chicago hub were up 23% between 2010 and 2011, while revenues for the whole Megabus business in America were up 22% in the three months up to July this year. Although margins are currently low, analysts are hopeful. They point to the success of Stagecoach in Britain. The Scottish company has a reputation for being both entrepreneurial and slightly ruthless.

Bumps may lie ahead. Greyhound, the largest American company, has introduced similar online-booking services and snazzier buses. And although high-speed rail is as politically divisive in America as in Britain, the possibility that the railways may improve might take away customers. “The bus industry is not the most sexy,” concedes Martin Griffiths, the chief executive of Stagecoach. While bus travel remains cheap and there are few alternatives, it does not need to be.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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