In an economy this bleak with requisite budget slashing unfortunately becoming the new order of the day, agencies and companies seem to be operating on the premise that they are just doing what a business has to do.

Many of the country’s major transit agencies are reluctantly weighing cuts in service, fare hikes and layoffs. Such is life for many — but certainly not all — transit agencies and transportation companies across the country. The Utah Transit Authority, (UTA), Salt Lake City, UT, points the residual damage from record high fuel prices and more recent dips in sales tax revenue for its recent cutbacks.

The fear is paratransit riders could be taking an unintentional but inordinate hit. For example, UTA has figured how to immediately trim off $1.6 million from its paratransit operations, while remaining compliant with ADA rules to provide paratransit service within a minimum three-quarters of a mile of bus and rail stations, and on the same time schedule as fixed route service. UTA says it will increase one-way paratransit fares and put a halt to ADA paratransit fare discounts. Cities across the country such as Albany, NY, Phoenix, AZ, and Reno, NV, are similarly facing fare hikes and service cuts in paratransit service to make up for funding shortages. Paratransit regulars are not taking the increases lightly.

APTA president William Millar almost understates the dilemma by saying paratransit is vital for people with disabilities but remains a very expensive service for transit systems. Last year national paratransit ridership climbed 5.8 percent. Millar says paratransit ridership made up only 2 percent of public transit ridership nationwide, but fares on average cover only one-third of the operating costs but expended 13 percent of the operating costs.

Meanwhile, the Obama Administration is urging public transit to seek out more inventive funding solutions, insisting the paradigm must change. The FTA is hinting that soon it will no longer be acceptable to simply cut service and raise fares at the same time.

Unfortunately, many of the alternative solutions it suggests are lofty and a long way off.

UTA does say the provisions it is making at this time are most likely temporary, and that people eligible for paratransit service will always be able to ride Trax and fixed-route bus service at no charge. Its ultimate objective is to still take the high road and strive to find or reallocate resources to provide service not only to the people who will suddenly be without service, along with the people not receiving the paratransit services they have needed for a long time.

While this may be SOP for the moment, some transportation companies around the country are managing to sidestep a downward spiral altogether.

On the OEM side, DesignLine USA, a manufacturer of hybrid transit buses, says it has been and will be hiring more workers — assemblers, body workers, electricians, mechanics and welders — for its new, 100,000-square-ft plant at its headquarters in Charlotte, NC.

TransCare Corporation, Brooklyn, NY, is aggressive in its hiring paramedics and emergency medical technicians. Its ambulance operations and paratransit division serve the five boroughs of New York City; and the outlying communities outside the city including Philadelphia and Baltimore.

MTA NYC contracts with TransCare to operate its Access-A-Ride Paratransit and smaller operations in the other regions. The company says in the last fiscal quarter it added more than 240 new employees.

TransCare says it always has an ongoing need for paratransit operators, and plans to continue its weekly hiring open houses in addition to special hiring events to help fill those spots.

Believing successful staffing does not begin and end with new hires, TransCare says it has worked as hard to improve its employee retention rate, relying on its People First approach to enable engaged and happy employees to stay and deliver the quality service that drives the bottom line.

TransCare says it promotes from within and offers career options to paratransit drivers capable of moving into dispatch, field training and supervisory positions, and help oversee the deployment of hundreds of paratransit operators and a fleet of more than 200 MTA NYC Access-A-Ride vehicles.

Because the tremendous need for all paratransit services is not going away, we want the essential medical transport, emergency and non-emergency medical services to hold strong despite the economy, or at least the compromises to disadvantaged and disabled home bound passengers kept to a minimum.

By Michael P. Melaniphy

Public and private coach operators across the country are vying for and receiving federal funding under the recently passed American Recovery and Reinvestment Act (ARRA), more commonly known as stimulus funding.

There is a lot of talk these days about shovel-ready projects. While it would be difficult to actually find a shovel on the production line of the Motor Coach Industries (MCI) factory in Pembina, ND, it is fair to say the nearly 250 workers at that facility are wrench-ready.

ARRA funding is finding its way to places like Pembina, a town of about 600, through federal grants to state DOTs across the country. At this ISO-certified facility MCI incorporates a lean production system and a process of continuous improvement to keep the plant competitive. For its effort in these areas, MCI is able to attract talented workers throughout the region.

Funds appropriated to states such as New York, Tennessee, Iowa, Texas and Utah also are helping to retain jobs in North Dakota. These are high quality, full-time positions that require skill sets to apply evolving technologies to modern motorcoaches. Though most people know American-owned and operated MCI as the maker of intercity tour and charter coaches, the company has actually been a fixture in the U.S. public sector for the last 40 years. MCI opened its Pembina plant in 1963 to better serve the U.S. market. Today, the plant completes all variants of the MCI D-Series coaches including those that require Buy-America compliance.

MCI currently builds the only hybrid-powered over-the-road coaches in North America. Like most of its other transit-appropriate models MCI also fashions its hybrid commuter coach after the best selling D-model.

More than 4,000 D-Series coaches operate daily at public transportation agencies across the county, and also serve private rural access grant recipients, the U.S. Army, Navy and Air Force, as well as the Bureau of Prisons and other U.S. Federal agencies. By the end of this year MCI will deliver federally funded coaches to 43 states.

The multiplier effect
Investing transportation stimulus dollars into communities both large and small enjoys a multiplier effect that stretches far beyond transit agency service. An order for new coaches must include the procurement of the many components necessary for production from sources throughout North America. MCI new-coach production uses more than 4,000 suppliers that include numerous small, DBE and WBE businesses. Considering supplier support for the aftermarket needs of a coach over its lifespan, the number of MCI-related vendors totals over 10,000 individual companies in all 50 states.

The American Public Transportation Association (APTA) estimates that every job created or retained at a bus OEM creates eight to 10 more jobs throughout the supply chain. Federal stimulus spending directly supports and even expands these job opportunities. Many employees on the supply side are starting work months before the coaches go into production to meet component lead-time requirements.

Beyond ARRA funding, MCI is also a major exporter, having delivered nearly $50 million worth of coaches outside of the U.S. in 2008 alone. These vehicles went to both private and public operators and further contributed to the U.S. economy.

Independent operators must act now
While traditional public transit operators already know their ARRA funding allocations, there may still be funds available at the state DOT level for private-sector operators interested in running regular routes to underserved rural communities.

The federal government has committed more than $77 million in grant money for the Intercity Bus Program to serve towns with populations under 50,000, but the deadline is fast approaching. The program formally known as the Federal Transit Administration 5311(f) program provides private operators capital funding for intercity coaches to ensure connectivity to underserved rural areas, especially those not served by rail or airlines. In the past, these funds paid up to 80 percent of the capital cost of new equipment. This year, the ARRA funding is 100 percent.  Operators must act now to meet the July 1 deadline for state agencies to submit ARRA grants to the federal government. Equipment must be Buy-America compliant, Altoona-tested and have the capacity to carry luggage.  “The new administration recognizes the need and the important role over-the-road coaches play in connecting people to places to improve access to health care, commerce and job opportunities. It is up to us to make it happen,” says Pete Cotter, MCI senior vice president and general manager, new coach business. “The new funds present a phenomenal opportunity for line haul operators to make a difference in underserved communities.”  Fifty states have already received their funds and it is now up to the governors and DOT officials to determine how to spend the money. Operators are encouraged to go straight to their state DOT officials and begin a dialogue.

The nearly 250 workers at the MCI plant in Pembina, ND, say they are wrench-ready.

He says to meet the 5311 requirements, operators must be in compliance with Federal Motor Carrier Safety Administration (FMCSA) regulations and be ready to purchase and pay for the coach, as the federal programs work on a reimbursement basis through the state DOT after the purchase.

As to be expected, these federal funds do come with stringent standards. The government requires regular, detailed reporting, and has hired extra inspectors to ensure that FTA-funded equipment is being properly acquired and used only on routes and in the capacity as outlined in the grant.  In addition, the ARRA has also allotted funds to promote the implementation of green technologies. Public sector and nonprofit agencies  may be able to apply for federal funds from the FTA or EPA for programs to reduce emissions or energy utilization.  Eligible projects range from DPF exhaust filters to hybrid buses.

More opportunities for intercity coach operators
An ultimate goal of this administration is an intermodal transportation network to connect all parts of the U.S. It will require the best use of every transit mode from high-speed rail to commuter buses to bring people from feeder routes into the most-populated areas. Suburban commuters represent the largest percentage growth area in terms of new customers. For forward-thinking transit managers, commuter coach routes can even serve to establish more travel corridors for future commuter rail lines.

Bus and coach routes need to change as transportation patterns and business districts change. In natural and man-made disaster situations where large groups require immediate transport, over-the-road coach services also have proven vital in overall emergency response planning.  Federal funding including the newly enacted ARRA stimulus funding is making a real, positive difference in communities across this country. Investing in public transportation infrastructure is good policy for our country and the economy, and a great investment for our industry.

Michael Melaniphy serves as vice president, public sector for Motor Coach Industries (MCI), Shaumburg, IL, and is currently second vice-chair of the American Public Transportation Association (APTA), a business member of its board of governors, and chairs the APTA procurement committee.

A down economy presents challenges of every sort. One of the subtler is to nail down the one maxim that keeps everything in perspective. Over the last couple of months I have talked and listened to motorcoach operators and industry leaders who only reconfirmed my belief that when the going gets tough, the tough go shopping.

I recently met several business owners who, while not throwing caution to the wind, are not holding back critical acquisitions and investments; countering the recessionary fallout with a well-executed proactive response.

Scott Riccio, owner of Northeast Trailways, Lewiston, ME, just closed his deal for a nearby motorcoach company that elected to shut down after five years. “We are as worried about the economy as anyone, and we deal with it everyday,” says Riccio. “But Northeast Trailways is a growing company and we could clearly see how far this step would take us forward.”

Weighing the progress in 2008 against his prospects for 2009, Riccio was not discouraged.

Even with new customers in another region, Riccio says the downward shift in the economy has required the company to implement programs to operate more efficiently, bring pricing closer in line with declining ridership, for tours particularly, and continue to promote motorcoach travel to the public as a cost-effective solution to travel.

“We have taken the appropriate cost-cutting measures in light of the economy,” says Riccio. “Even at that, it is smart to analyze what we do effectively and determine what and where we can improve.”

In Portland, OR, entrepreneurs Joe and Roxanne Gillis suddenly find themselves in the bus business. In a shift from their respective family jewelry businesses, taking the lead of Joe’s sister, Gladys Gillis, chief executive officer, Starline Luxury Coaches, Seattle, WA, the couple looked into buying the southern operation of N.A. Charters, a significant carrier in the Northwest that was shutting down.

This was last August. By October the rumblings of a collapsing economy had not deterred them, but the mission did change. Rather than buy into the older operation, Joe and Roxanne determined it made more sense to start fresh with a new company of their own.

They took delivery of their first motorcoach in January, a 2002 Gladys Gillis in good condition and are about to acquire their second, as Northeast Navigation embarks on its first charter this month.

“Any hesitation comes from fear,” says Roxanne. “Fear comes from a lack of knowledge.”

She says once they made the decision to establish Northeast Navigation they set out to explore their new world, talking at length with other operators, attending UMA Expo, reading all the industry publications and listening intently to advice of every sort.

“Once we felt we had our arms around this industry, we started mapping out a pretty intense business plan,” says Roxanne. “As we developed the plan and our safety and maintenance program came together, our fears lessened.”

The two say they are proceeding on their belief that this recession is not going to last forever; believing the mentality of crawling under a rock and waiting it out never works.

“My thought is if we stop pushing now, where will we be when the sun does come out?” says Roxanne. “Crawl under a rock and the business would be crushed.”

Meanwhile in Abbington, PA, the Zamboni Transit Authority has been up and running since December. As the owner of several ice rinks in the area, Mike Madera created this licensed charter company to fill what he saw as a unique transportation niche to help his customers get to hockey clinics and tournaments in the Northeast. His Zambonis are actually three older-model MCIs that smooth the rigors of travel for youth hockey groups, teams and elementary through college leagues.

“Our motorcoach services are simply for hockey — young players, coaches and parents,” says Madera. “We are looking to acquire more buses, but we have no plan to compete with other companies, we only want to pay attention to our own narrow niche.”

Homeowners wanted more house than they could afford. Bankers wanted higher returns than they could get from conventional securities. Wall Street executives slipped out the back with a boatload of bonuses.

As the ramifications of their actions further metastasize, the plan has definitely gone awry for no less than 31 transit agencies now staring down demands from bankers for well over $2 billion in immediate termination payments.

Before even thinking of the predicament transit agencies face, trying to make sense of the opportunistic misdealing that led to the collapse of the nation’s financial conglomerates and subsequent federal bailouts strains my liberal arts background.

Financing breakdown

The problem the transit systems presently face stems from the recent breakdown in longstanding financing agreements with their banks. As part of the once common practices known as LILOs (lease-in/lease-out) and SILOs (sale-in/lease-out), many transit authorities sold buses, rail cars and other equipment capital property to banks, then leased the capital property back at a discounted rate. The agencies received a large sum of money up front, which went toward upgrades in the facilities and equipment. Meanwhile the banks were able to rely on frequent lease payments and write off taxes on the depreciating property.

One important stipulation was major insurance companies guarantee all LILO and SILO arrangements in the event either side could not uphold its end of the agreement. Enter American Insurance Group (AIG). Another stipulation held the insurer to an excellent credit rating. Exit AIG. The giant corporation nearly went bankrupt in September, tarnishing its credit and leaving the best-laid schemes teetering on technical default.

Whether the transit agencies should have entered into these tax shelters in the first place is moot at this point. In fact, transit officials say from 1988 to 2003 the federal government promoted such bank deals in its innovative financing handbook for further infrastructure investments. Dozens of transit authorities entered into nearly 90 of these arrangements worth more than $16 billion.

The IRS put a stop to such leasing arrangements in 2004, and pressured banks to stop the practice of tax shelters, giving them until the end of 2008 to square their accounts. Before that happened, some banks have threatened to take action to collect as much money as possible from the cash-strapped transit agencies.

Head to the Hill

In November the top executives of 11 transit agencies across the U.S. went to the Hill to stand in line and plead with Congress for help with the backlash of deals gone bad. Transit agencies that include New York, Houston, Los Angeles, St. Louis, Atlanta and Chicago want the government to step in as guarantor to prevent the predatory actions of the lending banks. Transit officials maintain such an intervention would not cost the government because they will continue business as usual to make the established lease payments on time.

Washington, D.C. Metro says it has reached a settlement with the KBC Bank of Belgium, which demanded $43 million in termination payments after its leveraged transaction unraveled under the AIG collapse. Metro says it could owe $400 million in payments from 14 other tax-shelter arrangements.

The agency meanwhile has continued to pay AIG even though KBC no longer recognizes the company as a legitimate guarantor. An AIG spokesman explained that the company has an obligation to provide security and still stands on that promise.

If this gloomy scenario plays out in full, such gargantuan and unbudgeted payouts could cripple these transit authorities just at the time public transportation is basking in increased ridership and environmental stewardship.

If the government does not intervene, agencies are considering cutting transit services and repairs. The agencies in question could be looking at hefty fare increases, deferred maintenance and a halt to new construction projects.

Though Metro has not disclosed the details, the fact the two sides have been able to negotiate a settlement suggests the potential for less adverse solutions. As yet, the federal government has not made its decision to intervene on behalf of the transit industry. BUSRide will continue to monitor the progress.

By Carmen Daecher

For years too many bus and motorcoach operators have practiced under-pricing as a means to remain competitive. Such single-minded competitive pricing as a standard operating procedure has plagued the motorcoach industry. The fact is this is happening because a great number of coach operators do not fully understand how to price their services. The fair and profitable approach to pricing comes down to some very basic business principles.

The successful business owner knows the fixed costs — the costs to stay in business even if the company does not produce one dollar in revenue. Fixed costs include employee salaries, principle and interest on loans, rent and leases, property and vehicle payments.

The successful business owner operates within an established budget. Whether or not it draws on historical record of all past fixed and variable expenditures, a well-defined budget reveals the most realistic picture of the level of service the company can expect to deliver based on its current size and resources.

The budget holds the company to only the most reasonable expectations as it lays out goals and objectives, such as whether to stabilize the current operation or make plans to expand and grow the business.

Variable costs are the expenses, which ultimately bring in revenue — the money expended to put a motorcoach on the road and deliver the service.

Asset utilization monitors the number of days in the year each vehicle is in service. Asset efficiency monitors the number of sold seats or the mileage the vehicle travels in the delivery of service. These principles are the key factors in the profitable management of costs and pricing.

The assessment begins with the break even level of service; the point at which business revenue is equal to the total costs to deliver the service — zero net income.

Profit does not just happen. An operator must calculate the reasonable profit the business will yield based on the use of the available assets, the fixed and variable costs compared to level of sales and service required to return a plausible net gain. Profits should be reasonable and fair, and allow the business to remain competitive.

To meet the desired profit goal depends on the strategy in place to manage costs and cash flow.

Pricing concerns specific to bus and motorcoach operations include the issue of recording full-time driver salaries as a fixed or variable cost, or whether fuel purchased in bulk is fixed or variable.

The basic unit for variable costs determines realistic and profitable pricing. Operators deal with these costs everyday, but too often fail to assess costs strategically as they relate to breakeven expenses and profits.

Do the math

The variable cost unit directly influences the established price for service whether it is the price per passenger, per trip or by mile. The unit measure of variable costs and delivered service determine its price.

For example, the cost per unit of service delivery must reflect the cost of fuel per mile of service.

The pricing plan is a matter of utilization and efficiency, and is the same for all other variable costs. To arrive at an equitable service cost, spread the fixed costs over the number of units delivered during the budget cycle.
(Fixed costs per unit + variable costs per unit) + desired profit per unit  = service price per unit. $1000 in fixed costs for 1000 variable cost units (i.e. passengers, trips or miles) equals a fixed cost per unit of $1.00.

The break even point is critical

The break even point is a critical step in a successful pricing strategy. A business cannot cover its fixed costs until earned revenue equals the volume of its delivered service. The higher the fixed costs, the higher the variable costs and the longer it will take to reach a break even point before the company can enjoy a profit. Even though the profit model forecasts a certain amount of income based on delivery of service per unit of an operator cannot expect one dollar of profit until this happens.

Many operators have difficulty understanding that even with lower variable costs, higher fixed costs mean the company has to bring more revenue, perhaps over a longer period of time before the company turns its first dollar of profit.

Cash flow and profit are not the same, and altogether separate from fixed and variable costs.

For example, fuel purchased in bulk is an asset until it is used. But in establishing the price for service and calculating potential revenue, it is better to consider fuel costs associated with operating the vehicle as a variable expense.

Depreciation of equipment is a fixed cost that has more to do with the purchase of an asset than its use. From a pricing point of view, an operator can build both equipment depreciation and future vehicle replacement into the cost structure. However, doing this can drive up the cost and possibly make the operation less competitive.

The more prudent approach is to determine if the current depreciation level will increase with future vehicle purchases.

The advantage goes to the operator who clearly understands all associated costs and prices the delivery of service accordingly. He knows how to structure his costs and uses the most accurate data available to establish a pricing strategy that is both fair to his customers and to the company. This leaves him in a position to be able to respond and adapt to changing market conditions throughout the year.

The financially astute operator also knows to figure in costs associated with running the safest possible organization, which includes all costs involved in risk management, staff training, vehicle maintenance, as well as safety-related equipment and technology. A proper and profitable pricing strategy for a bus and motorcoach operation must never compromise any safety aspect.

The benefit of a well-thought-out and detailed pricing model that fully supports a fiscally sound business plan far outweighs any inconveniences. It also helps the prudent operator deliver the safest and most reliable service possible at a profit regardless of what the next guy is charging.

Carmen Daecher, chairman emeritus of the Daecher Consulting Group, Camp Hill, PA, is dean of the UMA/College of Southern Maryland Bus and Motorcoach Academy, La Plata, MD. He holds a Masters of Science degree in Transportation Engineering from Villanova University, Villanova, PA.