Greyhound revenue dips but profits rise 2.7 percent

ABERDEEN, Scotland – Revenue again declined at Greyhound Lines in fiscal 2017, but North America’s largest intercity bus operator eked out a 2.7 percent profit gain for the year.

Greyhound’s parent company, FirstGroup, attributed the modest profit increase during the 12 months ended March 31 to the ongoing retooling of Greyhound’s business model and the introduction of technology-based systems. (FirstGroup earnings are reported on Page 12.)

For fiscal 2017, Greyhound sales totaled $894 million, down 2 percent from fiscal 2016 revenue of $914 million. Annual revenue has fallen by $128 million since fiscal 2013, when sales totaled $1.022 billion.

The company blames the revenue fall-off on lower fuel prices that have sent many potential passengers scurrying to airlines for longer journeys and automobiles for shorter trips.

It also hasn’t helped that automakers and insurance companies seem hell-bent on putting every American, whether they have bad credit or even no credit, behind the wheel of a car. The estimated 20 to 25 percent of individuals driving America’s highways with no auto insurance also has reduced the pool of possible bus riders.

Despite the challenges, Greyhound increased its adjusted operating profit for the year to $55.2 million, from $54.4 million in fiscal 2016, a 2.7 percent increase.

That translated to an adjusted operating margin for Greyhound of 6.2 percent in fiscal 2017 versus a margin of 6 percent for fiscal 2016.

An uptick in Greyhound revenue occurred during the second half of the fiscal year. First-half revenue was down 3.9 percent, while second-half revenue increased 0.8 percent.

Although the second-half increase was narrow, FirstGroup said it was confident it marked a revenue turnaround for Greyhound.

“With our pricing and yield management algorithms continuing to increase in effectiveness we are confident Greyhound can return to growth in the year ahead,” FirstGroup said in releasing companywide financial results for fiscal 2017.

“We will continue to focus on matching our timetables to demand to maximize the considerable operating leverage in the business,” the company added.

FirstGroup does not expect fuel prices to be as much of a factor in fiscal 2018, which began April 1 – provided they do not turn volatile or sharply lower.

Revenue at Greyhound Express, which primarily serves popular city pairs, increased by 1.3 percent in fiscal 2017, with both Express and traditional Greyhound “experiencing greater resilience” over shorter haul (up to 450 miles) trips than long haul, FirstGroup said.

“We have continued to flex mileage operated in response to demand trends, resulting in modest improvements to revenue per mile, supplemented by our transition to one-way ticket pricing in July 2016, and our other business model developments,” the company said.

The overhaul of Greyhound’s customer-facing systems in the past half-dozen years now allows the company to deploy airline-style yield management and real-time pricing algorithms throughout its network.

Additionally, Greyhound is developing what it calls “customer relationship management systems and loyalty programs” designed to bolster its relationship with customers.

The majority of Greyhound customers now buy tickets online or via smartphone applications, a dramatic change from just a few years ago, and its fleet offers buses with free Wi-Fi, guaranteed seating and more legroom – a marked departure from many airlines.

In addition, the company promotes its point-to-point Greyhound Express and BoltBus brands, which offer higher density timetables between popular destinations.

Greyhound has implemented what it calls “more robust punctuality processes and systems,” which have “significantly improved on-time departure performance.”

Terminals also are being upgraded in terms of cleanliness and security, baggage processes are being simplified, and it is “regularly reviewing” sites for opportunities “to move to intermodal transport hubs or new facilities tailored to our needs.”

Web offerings are being upgraded, meaning “one-click purchasing capabilities on our website and improvements to our mobile apps,” resulting in Greyhound “becoming one of the top-rated apps in the travel industry,” according to FirstGroup.

“We are now in a better position than ever before to offer potential customers a competitively priced, comfortable journey to their destination without the hassle of long airport (lines) or driving themselves.”

During fiscal 2017, Greyhound mileage decreased by 4.8 percent, with most of the decline occurring in the first half of the year.

Greyhound’s operating and financial performance is highly dependent on matching its timetables to demand and maintaining tight control of operating costs. The company’s transition of its business model to more sophisticated, digitally enabled systems is designed to improve its ability to do both.

Greyhound’s Canadian operations, which account for 15 percent of revenue, continue to be a particular drag on the company, with lower oil and gasoline prices directly impacting company competitiveness with other modes of travel and also slowing the overall Canadian economy, particularly in western Canada.

“Despite considerable regulatory and structural constraints (in Canada), we continue to take action, including further reducing mileage,” FirstGroup said. Still, Greyhound Canada is a loss leader.

Greyhound also continues to dispose of property, selling sites in Reno, Nev.; Barrie, Ontario; and El Paso, Texas, during the year.

Early in fiscal 2017, the company sold its terminal in San Jose, Calif., for a reported $39 million to a Chinese-backed investor, which is planning a 708-unit condo project consisting of two 24-story towers. FirstGroup said the sale resulted in a gain of $28 million, which substantially boosted cash flow.

FirstGroup said Greyhound continues to invest in business systems to improve the customer experience, with spending directed toward “dynamic pricing systems, website, and customer relationship management systems.”

During fiscal 2017, Greyhound retired more buses from its fleet than it replaced, modestly reducing the average age of its 1,600-bus fleet to 9.9 years.

It also continued investing in growing its services in Mexico.

Overall, capital investment by Greyhound totaled $38.83 million in fiscal 2017, up more than 40 percent from fiscal 2016 capital spending of $27.22 million.

“We are confident Greyhound is now in a strong position to take full advantage of its unique brand and scale,” FirstGroup said.

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