Monday, April 11, 2011

The Megabus Effect: A Great Success Story of Low-Cost, Convenient, Market-Based Bus Travel Without Government Subsidies or Tax Breaks

From Bloomberg/BusinessWeek, a great story about the success of a new industry that has brought low-cost, dependable, convenient, market-based, Wi-Fi-enabled bus service to millions of Americans, despite rising gas and oil prices, and without any government subsidies, tax breaks or taxpayer funding:

"After decades of decline, the bus is the U.S.'s fastest-growing way to travel, led by curbside service from Megabus, BoltBus, and others.

For bus travel as a whole, the number of daily departures increased by 6 percent in 2010, twice the growth experienced by air travel and 12 times that of Amtrak. The number of curbside passengers rose by at least 33 percent, with Megabus ridership expanding 48 percent. (Amtrak ridership grew by just 6 percent, and the airlines by 5 percent.) The company says growth, including the 20 routes it added last year, is an astounding 65 percent. Curbside buses now account for more than a fifth of all daily bus departures in the country. The American Bus Assn. maintains that traditional intercity bus service on Greyhound, Trailways, and others has even experienced a positive spillover—the group calls it "the Megabus effect."

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, Megabus CEO Dale 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."

MP: Perhaps this is another deflationary factor that is helping to offset rising oil and gas prices, and serves to moderate inflationary pressures. And it's a great example of a competitive, flexible, low-cost, consumer-driven, market-based solution to transportation, in contrast to government transportation options like Amtrak that are the opposite: non-competitive, inflexible, high-cost, politician-driven, and not market-based.  

HT: Paul Cerni

19 Comments:

At 4/11/2011 10:01 PM, Blogger Johnster said...

Megabus and other low cost buses use roads that were built under government contracts by private firms and paid for by taxes and tolls. This shows that some government is necessary for the free market to work efficiently.

 
At 4/11/2011 11:14 PM, Blogger Ron H. said...

Johnster

Why could these roads not have been built under private contracts and paid for by investment and tolls?

Point not made. Try again.

 
At 4/12/2011 12:33 AM, Blogger Hydra said...

Ron, we tried that once and the roads went bankrupt.

The buses use existing roads, requiring no government funding.

I don't think so. This is a goose Grazer, exploiting the Commons.

 
At 4/12/2011 12:43 AM, Blogger Hydra said...

Do t get me wrong, I think the buses are fine, just not an example of free markets at work.

Postulating " what if the roads were something they are not" does not make the example any better.

In fact, if the roads were tolled, the bus fares would be higher, proving johnsters point: the buses probably are not paying their full costs. Part of their low cost is a result of contributing to external costs. The total cost may come close to being unchanged.

The difference is who pays, more than how much is paid.

 
At 4/12/2011 2:58 AM, Blogger Ron H. said...

"Ron, we tried that once and the roads went bankrupt."

References please. And, who is "we"?

"The buses use existing roads, requiring no government funding.

I don't think so. This is a goose Grazer, exploiting the Commons.
"

What IS this? Are you talking to yourself here? This is meaningless.


"In fact, if the roads were tolled, the bus fares would be higher..."

References please.

"...proving johnsters point:"

Which is what? Do you even know what it is? You haven't addressed Johnster's point. Maybe you should reread the comments more carefully before you jump in.


"...the buses probably are not paying their full costs."

Then who is? People who don't use the bus?

""Part of their low cost is a result of contributing to external costs."

Such as?

You need to read more carefully and think before you type. As always.

 
At 4/12/2011 6:37 AM, Blogger Colin said...

In fact, if the roads were tolled, the bus fares would be higher

Except, the DC-NY bus route, as anyone who has taken it knows, in fact is heavily tolled. Between the tolls for the Baltimore harbor, Jersey turnpike and the tunnel entering Manhattan you're probably paying at least $17.

 
At 4/12/2011 7:34 AM, Blogger juandos said...

Apparently hydra and johnster think the megabuses aren't paying excise tax (which is suppose to go towards roads) on the fuel they use...

Am I wrong?

 
At 4/12/2011 9:17 AM, Blogger Rich B said...

If the government restricted itself to roads, courts and police and national defense and refrained from providing services that I can get myself, I could live with such a violation of free market anarchy.

 
At 4/12/2011 10:29 AM, Blogger Buddy R Pacifico said...

It's interesting that not having a terminal is a competitve advantage for Megabus over traditional carriers such as Greyhound. Bus terminals seem to be a negative for travellers, especially women. So, look for cities to collect tax revenues for their curbs, based on curb appeal.

 
At 4/12/2011 11:04 AM, Blogger Benjamin said...

Bring on urban jitneys and sidewalk vendors!

 
At 4/12/2011 12:16 PM, Blogger Ron H. said...

"Apparently hydra and johnster think the megabuses aren't paying excise tax (which is suppose to go towards roads) on the fuel they use...

Am I wrong?
"

No you aren't. It's also helpful to ignore the weight fees buses pay as part of their registration and licensing fees, when it's convenient to do so.

 
At 4/12/2011 3:37 PM, Blogger Hydra said...

Clearly buses pay excise tax on fuel.

It is widely recognized that heavy vehicles do far more damage to the roads, and the extra damage heavy vehicles cause is not covered by the amount of additional fuel heavy vehicles burn.

 
At 4/12/2011 3:38 PM, Blogger Hydra said...

Collin makes a good point. I don't go that way to avoid the tolls, among other reasons.

 
At 4/12/2011 3:40 PM, Blogger Hydra said...

"In fact, if the roads were tolled, the bus fares would be higher..."

References please.

=======================

I need a reference for that? If rodas are tolled the buses will pay the toll and pass it on to consumers, right?

 
At 4/12/2011 3:41 PM, Blogger Hydra said...

"...the buses probably are not paying their full costs."

Then who is? People who don't use the bus?

========================

Yes.

 
At 4/13/2011 4:46 AM, OpenID Sprewell said...

Interesting how the internet and mobile devices seem to be driving this shift, particularly with a younger crowd starting to use buses again. Just goes to show how the internet can revitalize even a hoary old tech like buses.

 
At 4/13/2011 12:54 PM, Blogger Ron H. said...

"I need a reference for that? If rodas are tolled the buses will pay the toll and pass it on to consumers, right?"

The bus companies will pay all costs of doing business, as relates to road use, whether they are tolls, taxes, weight fees, or something else. Your claim that tolls collected for using a private road would be higher than current taxes, fees, and tolls charged by government is baseless. I asked you to substantiate it, and you haven't done so.

Any other interpretation of your claim about tolls has no relevent meaning. The idea that buses would pay more to use roads if charges for such use were increased, isn't being argued here.

Johnster's claim that government is necessary to a bus company's operation, as the buses use taxpayer funded roads, is false. As I pointed out, private roads would serve the same purpose. Saying that buses use existing taxpayer funded roads is not the same thing as saying government is necessary.

You havent supported your claim that "We tried that once and the roads went bankrupt."

"...the buses probably are not paying their full costs."

This is a seperate issue, and applies to all heavy vehicles, including existing traditional bus lines.

""Then who is? People who don't use the bus?

========================

Yes.
"

Then you agree that this problem, typical of collectives, should be addressed. People who get no direct use of the roads shouldn't be forced to pay for them anyway.

 
At 4/13/2011 1:25 PM, Blogger VangelV said...

Ron, we tried that once and the roads went bankrupt.

Actually, they did not. Government simply muscled in and took over most of them. We also pay for the roads through gasoline taxes. You let private companies bid to run all roads by giving them the right to collect the taxes and you will see those taxes decline and won't have to pay any extras for the roads at all.

 
At 4/14/2011 7:25 PM, Blogger ChrisRet said...

Good luck trying to do something like that in Ontario, Canada. It's illegal to move people around for money, without getting approval from a government/industry commission.

 

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