+

Cookies on the Business Insider India website

Business Insider India has updated its Privacy and Cookie policy. We use cookies to ensure that we give you the better experience on our website. If you continue without changing your settings, we\'ll assume that you are happy to receive all cookies on the Business Insider India website. However, you can change your cookie setting at any time by clicking on our Cookie Policy at any time. You can also see our Privacy Policy.

Close
HomeQuizzoneWhatsappShare Flash Reads
 

Millennials loved Megabus. So why did it go mega-bust?

Sep 11, 2024, 17:30 IST
Insider
Private equity and a pandemic were a recipe for disaster for Megabus.Smith Collection/Gado/Getty Images; Rebecca Zisser/BI
If you were in college over the past 20 years or so, you might have some fond — and not so fond — memories of Megabus. The blue double-decker buses with power outlets that worked most of the time and WiFi that worked rarely have for years been an important, if imperfect, way for budget-conscious travelers to get from point A to point B. The trip wasn't always pretty — you often got plopped in front of an obnoxious phone talker or wound up traumatized by the bathroom — but in general, you got where you needed to go for a good price.

But now, Megabus is in trouble. Its parent company, Coach USA, filed for bankruptcy in June. Megabus is handing over its routes between cities in the Northeast to other operators and discontinuing some routes in the South altogether. If you take a look at Megabus' recent Twitter activity, you'll notice the social-media manager's main job lately seems to be explaining to people that, yes, their trip may have been canceled, but no, the company has not gone out of business.

Some of what's happened with Megabus has to do with macro factors outside its control. The pandemic was devastating for the already struggling intercity bus industry. The federal government didn't step in to try to shore up the sector like it did with, say, the airlines. But even before the global catastrophe, there was another particular factor that helped put Megabus on its current downward trajectory: private-equity ownership. Variant Equity Advisors, a Los Angeles-based PE fund, acquired Coach USA in 2019 for $271.4 million and, as private equity is wont to do, loaded the bus operator up with debt the company couldn't service once travel came to a halt.

"A private-equity firm buying bus carriers right before a global pandemic was not the best timing for them," Andrew Savikas, the CEO of Wanderu, a travel-search platform, said.

It sounds kind of strange to describe a dirt-cheap bus operation this way, but the original idea behind Megabus was to make the service sort of hip. Stagecoach Group, a UK-based travel company, first launched Megabus in the UK in 2003 and then brought it to the US in 2006. It was an upgrade from the Chinatown buses, which also eschewed terminals and instead did curbside pickup as they shuttled from city to city but often offered a lower-quality experience. Megabus had what at the time were considered fancy amenities like outlets and online ticketing, and above all, it maintained a low price point. Both Megabus and its rival BoltBus, which Greyhound and Peter Pan launched in 2008, would lure people in by advertising $1 tickets. That number was largely a gimmick — only a handful of tickets on each bus were a buck — but in general, prices were pretty low.

"Megabus was the disruptor in the industry," John Stepovy, the director of partnerships for North America at Busbud, a bus-ticketing platform, said. "They were the first to really get away from bus terminals and really go curbside and really focus on students and online and just kind of being that cool brand."

Millennials ate it up. High gas prices pushing up the price of air and car travel made bus travel a convenient, affordable alternative, especially in the wake of the financial market that left many young people on their heels. Megabus' strategy of offering a slightly upgraded experience let it escape the dingy, sketchy reputation buses had. (Seriously, ask your friendly local millennial for a bus story, they probably have a good one.) Along with Greyhound, Megabus became one of the two mega-carriers in the United States.

The bus market started to weaken in the mid-2010s. Gas prices fell significantly in late 2015 and 2016, making alternative and perhaps more preferable modes of transportation, like flying and driving, cheaper. The German operator FlixBus also launched in the US in 2018, adding another competitor to the field.

"The magic faded," Joseph Schwieterman, a professor of public service at DePaul University, said. "Suddenly, there's three national carriers. It might've been one too many. So Megabus gradually cut back."

Stagecoach announced in late 2018 that it would sell its struggling US division to Variant in a deal that closed in spring 2019. We all know what happened the next year: The pandemic ground travel, including on buses, to a stop. In its bankruptcy filings, Coach USA said bus ridership in 2020 fell by 90%, and by 2023, had only recovered to 45% of its pre-pandemic level. That made it hard for the company to pay on its private-equity-induced debt, most of which it still owes. According to court filings, Coach USA had $197.8 million in debt when it filed for bankruptcy, including $146.6 million on the loan that funded the Variant deal and $37.7 million on a pandemic-era relief loan.

Advertisement

The Megabus brand isn't going away entirely. Coach USA is selling off some of its lines, IP, and retail operations to a holding company. Megabus is handing some of its routes to companies such as Peter Pan and Fullington Trailways while also shuttering some routes altogether. You can still book bus travel on Megabus.com, but if you look closely, you'll see many of the buses that show up are operated by a different company.

While Megabus was ahead of the curve with the power outlets and the online booking and the WiFi, everybody else has caught up. And one of the company's more distinctive features — those double-decker buses — hasn't really worked in the US. Passengers don't seem to love them because the storage space they offer is limited, and some people are uncomfortable not being able to see the driver. They can be extra expensive to operate and so big that, operationally, they don't always make sense.

"The Megabus double-deckers are mostly a thing of the past," Schwieterman said.

Coach USA declined to comment for this story. Megabus and Variant did not respond to requests for comment.

The intercity bus industry is not in complete disarray, but things are not going great there. It's still digging out of a pandemic-sized hole, and ridership is only about 80% to 85% of where it was before. It has benefited from some of the pent-up demand for travel that built up in 2020 and 2021, but not to the extent other industries have as many Americans have opted to travel further afield.

"You saw revenge travel, and maybe people were flying to places when they hadn't had a chance to go anywhere during the pandemic," Scott Michael, the CEO of the United Motorcoach Association, an industry trade group, said. "It's hard to take a bus to Asia unless you're already there."

Outside leisure travelers, remote work also means people who might have taken intercity buses or coaches to commute aren't doing so as frequently.

Megabus may be the highest-profile COVID casualty, but it's not the only one. Michael said there were about 3,000 licensed bus and motorcoach companies before the pandemic. Now, that number is around 1,500.

"Half of the industry is gone, and it's a lot of the smaller companies that were impacted. The larger ones tend to have made it through, with some exceptions obviously," Michael said.

BoltBus is gone now, too. Its parent company, Greyhound, shut down its operations in 2021. Greyhound itself was bought for $76 million that same year by FlixMobility (of FlixBus fame). Kai Boysan, the CEO of Flix North America, said BoltBus was shut down because of the pandemic and as part of a broader strategic shift.

Advertisement

"Bolt Bus was initially launched to target a specific market segment with a low-cost, no-frills service. However, as we assessed the long-term strategy for Greyhound, it became clear that our resources would be better used by focusing on the Greyhound brand," he said.

Beyond changing consumer preferences, the industry is also dealing with problems on the operational side, such as rising costs for parts and a shortage of both drivers and mechanics. Bus industry insiders also note that they're often treated as an afterthought by policymakers even though they carry tens of millions of people each year. During the pandemic, intercity buses didn't get a lot of support from the federal government, unlike airlines and trains.

"You had a lot of companies, a lot of relatively small, independent, family-owned businesses who were waiting in line with everybody else for the kind of assistance that they could get to get through COVID," Savikas, from Wanderu, said.

Fred Ferguson, the president and CEO of the American Bus Association, told me that funding the intercity bus industry does get from the federal government — namely, to help them service less populous areas — isn't keeping up with rising costs. He added that some localities are also pushing back against bus terminals because "there's this perception that if you have a bus terminal, you're somehow going to attract people who you don't want in your towns." It's NIMBYism, but for the bus stop.

"What happens is it's the end consumer, and more times than not the end consumer who can't afford a plane ticket, who's getting left behind," Ferguson said. "Megabus and all that, it's just a microcosm for all these bigger problems that we're seeing."

Advertisement

It's not just the public sector that's exacerbating the terminals issue; it's the private sector, too. In 2022, Greyhound's former parent company, FirstGroup, sold 33 of its bus stations to Twenty Lake Holdings, a commercial real-estate investor. It's a subsidiary of Alden Global Capital, a hedge fund notorious for buying up and gutting local newspapers. Twenty Lake can make more money using the real estate for something else, so many of those terminals have already closed, moved, or are expected to do so soon, including in Philadelphia, Dallas, and Chicago. Wanderu estimates that the closures will affect 65% of bus travelers in and out of Philadelphia, 50% in Dallas and Chicago, and virtually everyone in and out of Cleveland.

"They've been willing to talk to the bus lines," Schwieterman said. "They're not just saying, 'You're out of here, new chapter.' They're reportedly just saying, 'We paid lots of money for these terminals and we have to be financially rewarded for our investments.'"

Twenty Lake didn't respond to a request for comment.

In short, the intercity bus business is facing some headwinds — and the involvement of private equity and hedge funds is not helping.

If you're jonesing to hop on a bus to Boston or New York for the weekend, you have options. There's still Peter Pan, Greyhound, and Flix, plus a fair number of smaller regional and local carriers that will get you where you're going. But your options will most likely be more limited than before. They might also be more expensive, just like everything. I recently bought bus tickets to Atlantic City for the weekend, and I was initially convinced I'd made some sort of mistake, given the cost.

According to data from Wanderu, the average price of one-way bus trips across the US for the summer travel period from Memorial Day through Labor Day increased from $45 in 2020 to $68.73 in 2023, though prices dipped slightly in 2024 to $64.01. Wanderu noted that train prices remain higher, going from $68.16 in 2020 to $99.95 this year.

People in the bus industry I spoke to were relatively hopeful about its future. They noted that business for charter operations, like bringing a high-school football team to a game or getting workers to a corporate retreat, was starting to pick up. Most expected ridership to bounce back over the next couple of years. Boysan, from FlixBus, said its ridership had increased by 36% from 2022 to 2023, and they're seeing consumers gravitate toward "budget options" given inflation.

"Travelers are more price-sensitive and looking for ways to save money without sacrificing convenience or comfort," he said. "This trend is especially pronounced among solo travelers, middle-class travelers, and those from lower-income brackets."

But even getting back to pre-pandemic levels isn't a total fix, given the steady ridership decline that predated the shutdowns. No one seemed to have a great answer on how to reverse the industry's long-term problems, but many companies are experimenting with some options. Savikas, from Wanderu, said some carriers are implementing airline-like dynamic pricing, where ticket prices change around supply-and-demand dynamics.

"The goal is to make it more economically sustainable all around," he said. He emphasized that bus travel can be environmentally sustainable, too, compared to everyone driving their own cars or flying. "Buses actually are a pretty green way to get around."

Advertisement

Still, bug travel may never be what it once was. "There are questions, probably, if there will be full recovery in certain sectors, in certain regions," Stepovy said.

The heyday of hungover 20-somethings dragging themselves onto a Megabus after a slightly too fun weekend is in the rearview mirror. But there's some sort of iteration of it ahead, too, just not on a blue double-decker.

Emily Stewart is a senior correspondent at Business Insider, writing about business and the economy.

You are subscribed to notifications!
Looks like you've blocked notifications!
Next Article