Is German FlixBus the fix for Canada's bus woes?
With Greyhound's service cuts, a new European carrier looks to jump into Canada’s bus market
For many, the signature silver dog of Greyhound is the symbol of bus travel.
But that iconic image might be replaced by a more colourful logo if the European bus line FlixBus gets access to Canada's intercity bus markets.
FlixBus runs lime green buses that have a pair of orange arrows emblazoned on their sides. It launched U.S. operations in California, Nevada and Arizona earlier this year, to go along with its service in 28 other countries.
Mexico and Canada are next "on the rough agenda," said CEO and co-founder André Schwammlein, "for 2019, 2020 latest."
"I have to be able to make it in North America," he said. "I mean, otherwise I will never be able to call myself a global brand."
Just where and when the company could secure routes in Canada would depend largely on provincial regulations. Greyhound's withdrawal from all routes west of Sudbury, Ont., except for in parts of B.C., has created an opportunity for other players to put buses on routes they believe can be profitable.
Tech and marketing
Founded by three Munich-based entrepreneurs, FlixBus has become Europe's largest bus carrier in just five years.
While most carriers own their own buses, FlixBus is not a bus business in the conventional sense.
Practically speaking, it's part tech company, part marketing machine, with a model built on partnerships. It contracts out bus operations to local bus companies, which must provide coaches with Wi-Fi, USB and power outlets, free audio books, video games and movies, and extra legroom.
In return, FlixBus generates all the routes and connection planning, provides real-time GPS bus tracking for passengers, does extensive marketing, and operates an online sales platform centred on its mobile app. Operators keep 70 per cent of the revenue from ticket sales.
At the core of the company is technology and data.
Of its 1,200-plus employees "about 25 per cent work in engineering" explained Schwammlein, "and, like, another 30 to 40 per cent of people are working on data." That means more than half the staff is working on software or crunching numbers to help plan routes and schedules, and set fares using dynamic pricing.
One of FlixBus's first American partners was Dan Palmer of American Explorer Motorcoach, whose family has been in the bus business as a tour and charter operator since the 1970s.
Palmer is based in Arizona and runs a FlixBus route between Tucson, Phoenix and Los Angeles. He says he's convinced FlixBus will outrun Greyhound.
"Flix will be it," he said, "it will be everything in North American intercity transport. I firmly believe that."
The 52-year-old admits he made the biggest bet of his career on this partnership. He says he's a "very, very conservative bus operator," but nonetheless decided to buy three buses to make the deal with FlixBus.
That cost him roughly $1.5 million US. — a big spend for a man who previously only ever bought buses one at a time.
Sometimes his 55 passenger coaches are only 40 per cent full, but Palmer says his customers love the new service.
He says he is sold on the founders' vision. "They are a bunch of very, very bright, as my dad calls them, young lions."
Fast and furious growth
The young lions, Schwammlein and his partners Jochen Engert and Daniel Krauss, are friends, all in their mid-30s.
They founded the company in 2013, when Germany opened its intercity bus market to private operators.
After launching, FlixBus acquired two rival German bus companies, and now owns 90 per cent of its home market. By 2015, it had launched in Italy, France and the Netherlands, and in 2016 took over the massive operations of MegaBus Europe.
Schwammlein says FlixBus broke even last year on all its territories. It's been funded by venture capital firms from Europe and the U.S. — firms that have backed disruptive companies like Airbnb and Groupon.
That private money has been essential to the company's "pedal to the metal" expansion, experts say.
"I think the ownership structure certainly allowed this type of growth," said Jean-Baptiste Litrico, an associate professor of strategy at Queen's University's Smith School of Business.
He says the key is that those investors are willing to wait for profits to come gradually as the company takes over markets.
Litrico points out the partnership model has been used by other bus companies, but he sees the FlixBus approach winning over investors now because of a wider trend of "vertical disintegration." This is when companies focus on niche parts of their business and outsource others — such as Uber not owning cars, or Airbnb not owning properties.
He says the rise of FlixBus "would never have been possible 10 years ago, before smartphones."
Can it work in Canada?
But bus operators say FlixBus faces a different world in Canada.
"I think the biggest factor is trying to get people out of their cars," said Dean Wright of Pacific Western Transportation, which owns the Alberta-based Red Arrow and Ebus lines. In North America, he says, "there's still a love affair and attachment with the personal vehicle."
Wright is in an interesting position. His company could partner with FlixBus, or be in competition with them. While Wright would be open to starting a new route with FlixBus, they'd be rivals if FlixBus were to go after Red Arrow and Ebus routes in Alberta, or the brand new B.C. routes Ebus just opened with Greyhound's exit.
With bus lines falling under provincial regulation, where and when FlixBus enters Canada will unfold slowly.
"It's a little tricky" Schwammlein said. "I don't say we will be able to cover all Canada and everything will be perfect."
Still, the company claims it is very interested in the Prairie provinces and connecting small centres to big cities.
"If Canada would have a regulatory environment with free competition, where we can compete for big routes, for small routes, whatever, I think we can bring down prices," Schwammlein said.
Greyhound had called on provincial and federal governments to create a fund to subsidize intercity routes in rural and remote communities that would be available to any carrier that provided the service.
Some provincial governments have either operated bus routes or supported private carriers on low traffic routes.
FlixBus, however, says it would not seek or accept government subsidies.
"Most of our competitors really don't understand … what kind of company we are," Schwammlein said. "We are a very unique animal."
- A previous version of this story said Greyhound Canada received government subsidies. In fact, the company called on provincial and federal governments to create a fund to subsidize intercity routes in rural and remote communities but did not receive subsidies itself.Nov 01, 2018 3:08 PM ET