Opinion Pieces: Why are bus operators not taking advantage of alliances to share costs and grow business?

Opinion Pieces: since 2007, Prof. David Hensher has written an opinion column in the Australasian Bus and Coach magazine, where he monthly discusses a lot of different transport-related hot topics. In this section we are revisiting these columns.

February 2008

If one studies the airline industry, one is struck by the amount of alliance activity amongst two or more operators. These alliances come and go, and are restructured regularly and re-focussed as required. In aviation, such alliances range from very light alliances such as purchasing fuel together to get a bulk or super bulk discount, to maintenance cost sharing, and heavy alliances in code sharing of flights amongst
passengers booked onto different airlines.

For many years of lecturing in the NSW Certificate of Transport Management (CTM), I have suggested that there are many opportunities for bus and coach operators to work cooperatively together in getter better deals on cost inputs, even if the operators may compete for patronage business (this is known as cooperative competition). It is good for all, since it ensures greater efficiency in consumption of resources, as well as opening up opportunities under contract or otherwise for the scarce government dollar to go further, giving even more value for money. Yet bus and coach operators, with rare exception, do not do this, and as far as I can tell, my advice through the CTM is rarely acted on.

It has taken me some years to try and work out why this opportunity is not grabbed. Bus and coach operators in the main (there always are exceptions), regardless of size and ownership, are very conservative (certainly when compared to the airline sector), and are heavily focused on operating a business in a very day-to-day manner rather than thinking about strategic opportunities that can actually assist in operating a business more efficiently and effectively. Years of dependence on government and declining patronage (often for very easily explained reasons), have made the industry somewhat inward looking. It is true that bus and coach associations play an important role in facilitating a wide range of financial deals for members, but this is not the same as individual operators working with other operators to gain even better cost and service outcomes.

Maybe some more lateral thinking on this matter could be used to give an operator a strategic advantage as we move into benchmarking of operators. Those who form an alliance for specific cost input savings relative to what they pay out by going it alone must be advantaged. This is not a matter of ‘getting into bed with the direct or indirect competitor’ since contacted operators who will be increasingly subjected to benchmarking to earn the right to re-negotiate their contracts (in contrast to being subject to competitive tendering), should all be trying to assist government who pay most of their bills, to reduce the cost of providing bus transport. Future benchmarking programs would include recognition of this cooperative alliance process through higher rankings of such operators.

There are so many innovative way of creating input cost alliances, that the smarter strategically thinking operators(s) will always increase their chances of entering renegotiation and moving themselves further away from the risk of being subject to competitive tendering.

Food for thought

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