T.J Morgan didn’t know much about FlixBus when it came knocking last fall.
But the low-cost bus service out of Europe had done its homework on Gray Line Arizona, his family’s 102-year-old Tucson-based transportation business, and was ready to make a deal.
“They buttered me up thoroughly,” said Morgan. “They told me that they asked a whole lot of people in the bus industry who in this area they should work with, and everybody said it was us.”
But flattery wasn’t what convinced Morgan to invest upward of $2 million in a venture with FlixBus; it was the Munich-based company’s ability to get millennials on buses.
In five years, FlixMobility, parent company of FlixBus, has taken over Europe’s intercity transportation market. At the end of May, the company entered the U.S. market by partnering with dozens of charter bus operators to offer service across cities in California, Nevada and Arizona. By mid-July, FlixBus rolled out another 16 routes. In hopes of tapping into the next generation of riders, Motorcoach operators are risking millions in what could be either groundbreaking or a disaster.
So far, everything is happening as planned.
“They pretty much changed the industry in Europe and captured the millennials,” said Morgan. “That’s two things we found incredibly attractive. Everyone in the United States wants to capture the millennial market.”
FlixBus is comparable to ride-hailing company Uber. It doesn’t own buses but uses an app to connect riders with operators. For 25 percent of ticket receipts—according to news reports—FlixBus handles marketing, booking and the technology. The company decides the routes, stops, timetables, prices, and collects the money. Partners like Gray Line supply the motorcoach operation and drivers.
FlixBus doesn’t require partners to purchase new buses, but Pacific Coachways, Gray Line Arizona and American Explorer Motorcoach did. The investment added up to about $1.8 million. To wear the company’s bright green branding, buses must be ADA compliant with wheelchair lifts. Passengers get free access to the latest movies, Wi-Fi and power outlets.
The initial investment also includes the expectation of not making a profit for the first six to nine months. In recognition of that, FlixBus is signing multi-year contracts and promising first right of refusal on new routes to the first operators who sign up.
After years of studying the U.S. market, FlixBus began with the Southwest rather than the Northeast, where competitors like Coach USA-owned Megabus, Best Bus, Tripper Bus, and the Greyhound-owned Bolt Bus battle for market share.
“We chose California as our new home because, more than anywhere else in the U.S., people no longer want the hassle of driving,” Pierre Gourdain, Managing Director of FlixBus USA, said in a statement.
FlixBus’ vision is to make bus travel as connected as airplane travel. Getting people out of their cars will take a vast network, which FlixBus is prepared to create, says Michael Giddens, General Manager of his family’s Los Angeles area-based Pacific Coachways.
“You kind of have to have a bigger plan in motion to be able to get people to make that leap, so we wouldn’t be able to do it ourselves,” Giddens said.
Not all his Pacific Coachways drivers wanted to take FlixBus routes, so the company is paying a 15 to 20 percent premium for the routes.
Morgan found some drivers really liked the predictably of route work. And FlixBus is working on updating its app so passengers can tip drivers, the operators were told.
One early hiccup with the the company’s U.S. launch has been the stops. Drivers were reluctant to leave passengers at some of the initial locations for safety reasons and waited for their rides to arrive.
The three operators have been impressed with how FlixBus has listened to their suggestions and responded quickly. The downtown Phoenix stop was moved and another one added in Tempe, a suburb where Arizona State University is located.
Passengers taking FlixBus aren’t just the coveted 23-to-37-year-old millennial demographic. Business travelers have flocked to the service. And millennial ridership is expected to ramp up in the fall, when college students use the buses to shuttle between their homes and campus.
“When we started, some of the routes were running with four and five passengers. Today it seems like we’re hitting somewhere in the 20s. What we need is to be in the high 30s or 40s before we’re making a profit,” said Alan Billingsley, General Manager of American Explorer Motorcoach.
The Phoenix-based American Explorer is running two buses seven days a week, along with an Express bus from Phoenix to Los Angeles. Billingsley said he is one of three on the L.A.-Phoenix-Tucson route — and was among the first eight operators to work with FlixBus in the U.S.
Revenues also are dictated by ticket prices. The company launched the service with rides as low as $2.99, part of the company’s strategy for grabbing free publicity and market share.
Operators in the U.S. have the advantage of talking to their European counterparts. They heard firsthand from operators who said they started with two or three FlixBuses and now have more than 20 on the road.
“We have faith that they’re going to do at least something very good here in the United States. The bus business has been stagnant for a very long time,” Morgan said. “This is something new. I think it’s long time coming.”
