12. Bus

Changes in ownership of key bus firms took place in 1997. Charter operations remained the growing segment of the industry.

Scheduled intercity carriers, charter bus operators, school bus operators and urban transit operators make up the bus industry in Canada. Each segment of the industry shares the load for bus travel: carriers primarily providing scheduled services also provide charter services, while carriers primarily providing charter services also provide some scheduled and school bus services.

Scheduled intercity and charter bus operators provide the bulk of long-distance bus transport, both using similar equipment - highway coaches. School bus and urban transit operators carry out short-distance bus transport. However, school bus operations are second in importance in the industry, with more revenue and carriers than those of scheduled intercity and charter buses combined.

Figure 12-1 shows the structure and revenues of the bus industry in Canada in 1996. Table 12-1 summarizes revenues by source of revenue for the same year.

Major Events in 1997

Motor Vehicle Transport Act, 1987 Review

Motor carriers (truck and bus) that operate regularly across provincial boundaries (extra-provincial) fall under federal jurisdiction. Otherwise, bus operations came under provincial jurisdiction. However, the federal government does not actually regulate the operation of extra-provincial bus companies, having allowed each province to do so under the authority of the Motor Vehicle Transport Act, 1987 (MVTA).

While the MVTA regime varies from province to province, in most cases the province maintains some form of control over rates, schedules, routes, and entry to and exit from the market. Carrier licences are usually quite specific about the type of service the carrier is allowed to provide, typically specifying routes for scheduled service or the territory in which the carrier is permitted to offer charter service. Essentially, the MVTA obliges a carrier to obtain an operating authority in each province in which it wants to operate.

The economic regulation of the intercity bus industry has been raised in the context of the federal-provincial internal trade negotiations, and no consensus was reached as to whether it constituted an interprovincial trade barrier. The discussions nevertheless provided the impetus for possible changes to the bus section of the MVTA.

Transport Canada's 1996 review of the MVTA included consultations with the provinces and national industry associations. In April 1997, the MVTA Review Discussion Paper was released, which analysed the results of the consultations and suggested areas in the Federal Act requiring change.

The discussion paper proposed deregulating charter bus services and streamlining the regulatory requirements for scheduled bus service through amendments to the Act, followed by full deregulation after a two-year interval.

Transport Canada invited reaction to the paper from all interested parties. Responses revealed, among other things, that there was still no consensus among the provinces or the carriers on whether to ultimately deregulate scheduled service.

In October 1997, the Deputy Minister of Transport announced that Transport Canada would issue a position paper which would respond to the comments received on the discussion paper and set out specific proposed changes to the Act as the basis for a last round of consultations.

Industry Events

There were several major developments in the industry in 1997, including the sale of charter services operators and of Greyhound Canada bus lines, Canada's leading intercity passenger bus service.

Coach USA Inc., a Texas-based charter operator, purchased two large Canadian charter carriers in 1997 - Autocar Connaisseur of Montreal, Quebec, and Trentway-Wagar Inc. of Peterborough, Ontario. Both acquisitions were approved under the Investment Canada Act.

In September 1997, Laidlaw Inc. purchased all outstanding shares of Greyhound Canada bus lines, a transaction with an aggregate value of approximately $100 million. This move complements Laidlaw's local bus operations in Vancouver and Winnipeg, and its charter and tour operations in Victoria, British Columbia, and Banff, Alberta.

Carrier Services

Scheduled Intercity Operators

Services

Most of the operating authorities that make up individual bus routes are exclusive to a single carrier. There are exceptions, but the majority of scheduled intercity passenger traffic occurs on bus routes operated under exclusive permits. In addition to passenger service, intercity operators also provide bus parcel-express services from which they generate a significant portion of their revenues.

The number of buses operated by scheduled intercity carriers steadily declined between 1981 and 1989, then increased in 1990 and 1991. But since then, with the exception of 1994, the number of buses has declined every year (Figure 12-2).

Vehicle utilization, as measured by kilometres per unit of equipment operated, improved recently from a low of 107,000 bus-kilometres in 1992, to 129,100 bus-kilometres in 1995, then decreased to 124,000 bus-kilometres in 1996. Figure 12-3 shows how well the intercity fleet has been utilized from 1981 to 1996.

Traffic

Long-term trends in the services provided by intercity carriers indicate an almost uninterrupted decline in passenger trips from a peak of 30 million passenger-trips in 1982 to 10.3 million in 1996. The year 1994 was the only exception. Figure 12-4 shows the changes in scheduled intercity passenger levels and the bus-kilometres they travelled from 1981 to 1996.

The relative trends in number of passengers and bus-kilometres travelled illustrates the difficulties faced by the industry in matching its services to the declining number of passengers. The industry is constrained by the minimum capacity offered by a single bus, the use of standard highway buses, preferred by operators for service quality and short-term cost considerations, and the spread of passenger demands over hours and days.

Figure 12-5 plots the number of passengers per bus-kilometre traveled from 1981 to 1996. The trend in passengers per 100 bus-kilometres indicates the average bus loads and shows an almost uninterrupted decline from close to 16 passengers per 100 bus-kilometres in 1981 to fewer than seven in 1994. Since the low of 6.9 passengers per 100 bus-kilometres in 1994, this measure has improved slightly to 7.9 in 1996.

Charter Operators

Services

Charter services are generally characterized by a group trip where all passengers embark and disembark at the same point. Generally, charter operators are granted the right to operate trips out of a given location or city and allowed open-ended access to destinations. Operators have the flexibility to offer a broad spectrum of services ranging from a half-day school trip to a three-week excursion to Florida. They can also offer return or one-way trips. Local sightseeing tours are also considered a form of charter service.

Figure 12-6 indicates a steady decline in fleet size from 1981 to 1988, a more stable period from 1988 to 1990, and a steady increase from 1990 to 1993, followed with some variations. The number of buses in charter operations was at its highest level ever in 1996.

Charter bus use, as measured by the number of kilometres traveled per bus (km/bus), improved steadily between 1981 and 1989, reflecting a decrease in the total number of buses operated. As the fleet size increased in the early 1990s, vehicle use decreased accordingly. In 1994 and 1995, the adjustment downward to the fleet translated into an improvement of the fleet utilization. However, the significant increase in the number of buses reported in 1996 in charter operations translated into a relative drop in the average number of kilometres traveled per bus for that year. Figure 12-7 charts these fluctuations in charter bus fleet size.

Traffic

Figure 12-8 illustrates the development of the charter carriers' services since 1981. Charter business expansion is indicated by the increase in bus-kilometres. Since 1986, bus-kilometres increased by 76 per cent for charter services and by 36 per cent for other services provided by charter operators.

Urban Transit

Services

Urban transit is, in terms of revenues, the largest component of Canada's bus industry. All major Canadian cities have some form of local bus service. Typically, this service is subsidized by both municipal and provincial governments. Some transit companies offer school and charter services, as well as elderly and disabled services. Many cities, including Vancouver, Calgary, Thunder Bay, Kitchener and Montreal, are adding low-floor buses to their fleets to improve service for the elderly and disabled. Figure 12-9 shows urban transit fleet size from 1981 to 1996.

The number of urban transit vehicles and their utilization rate remained fairly stable during the 1990s, with the total number of vehicles ranging from 13,000 to 13,500 and the average annual utilization rate from 55,000 to 58,000 kilometres per vehicle. Since 1993, the number of vehicles in urban transit services has been declining, 1996 being no exception. Over 1,200 minibuses, small buses and vans are included in this urban transit fleet. The composition of the fleet has varied little over the past five years. Figure 12-10 shows urban transit vehicle utilization from 1981 to 1996.

Traffic

Figure 12-11 shows the long-term trends in urban transit. The number of passengers carried has declined continuously since the peak of 1.53 billion in 1990 to 1.35 billion in 1996. The average yearly distance traveled by all vehicles in urban transit operations, while almost unchanged between 1989 and 1994, declined in 1995 and 1996.

The number of passengers per 100 vehicle-kilometres gives an indication of the average bus load. Figure 12-12 reveals generally a declining pattern since 1983, with a few years with marginal increases over the preceding year (1987, 1990, 1992, 1995, 1996). The peak was observed in 1983 with 244 passengers per 100 vehicle-kilometres, while in 1996 this average load was at 188 passengers per 100 vehicle-kilometres.

Financial Performance

Since 1993, the intercity bus industry has shown significant improvements in operating margins, attributable to cost reductions and price increases. The financial outlook of the industry is stable.

The revenue growth of the industry is coming primarily from tour bus services offered through charter bus operations. The charter segment of the bus industry has shown a relatively higher profitability than other segments since 1994.

Revenues and Expenditures

The combined operating revenues for the for-hire bus industry (i.e. the scheduled intercity, school bus and charter segment) and the urban transit bus transport industry totaled $3.3 billion in 1996, excluding subsidies provided to the urban bus transit services. Including government subsidies, total revenues of the sector were in the order of $5.3 billion.

Although urban transit passengers across Canada paid a total of $1.6 billion to use bus services in 1996, this was not sufficient to cover the costs of urban transit operations. The average cost-recovery ratio was about 50 per cent. Therefore, this transport activity received government subsidies. In addition to operating subsidies, governments also contributed to capital expenditures on urban transit systems. Total operating and capital subsidies to this sector amounted to $2.1 billion in 1996.

Total revenues of school bus operators amounted to $1 billion in 1996. While school busing is a large segment of the bus industry in terms of revenues, its business scope is limited to special local services. Consequently, school bus operations are excluded from the financial performance analysis.

The intercity bus industry (i.e. scheduled and charter services) provides passenger services which have to be competitive with other modes of transportation. Total annual revenues from scheduled and charter bus services reached $611 million in 1996, of which scheduled bus operators had a 56 per cent share of the market, while charter bus operations accounted for the remaining 44 per cent. It is important to note, however, that the split of revenues between these two types of services is based on each carrier's main operations. Thus, a carrier classified as a scheduled bus operator may also have generated a smaller percentage of revenues from charter services and vice versa.

Output and Price Changes

The activities of the scheduled and charter intercity bus industry can also be divided as follows: 85 per cent passenger services, 12 per cent parcel services and three per cent other services. Scheduled passenger services used to generate up to 60 per cent of passenger revenues. In 1996, these were contributing less than 45 per cent of passenger revenues. When output measures are used, the differences are more striking.

Between 1992 and 1996, the output of charter services grew by 18 per cent while it declined by 19 per cent for scheduled services. The major factor has been a nine per cent decline in the price of charter services whereas the prices of intercity services rose by four per cent. Overall, the aggregate prices of bus services have nominally declined by four per cent since 1992, a drop of 13 per cent in real terms. In spite of lower prices, output increased by only 1.1 per cent over the 1992 - 1996 period (Table 12-2).

Industry Costs

Total labour costs accounted for 42.5 per cent of revenuesNote 1 in 1993. Over the past three years, however, there has been a steady decline in the labour cost ratio. In 1996, total labour costs dropped to 39.8 per cent of total operating revenues, with drivers' wages and salaries alone accounting for 22 per cent of that total. The average cost of labour has remained well below that of other transportation industries, lower than even the average labour costs within the whole economy.

Within the bus industry, labour productivity was falling in the late 1980s and early 1990s. However, between 1992 and 1996, it increased by 13 per cent. During that same period, unit labour costs fell by almost ten per cent.

In 1996, fuel costs represented only 8.3 per cent of the bus industry operating revenues. Fuel costs have been stable over the past few years at eight per cent of total operating revenues. Since 1992, fuel efficiency has increased in the industry by 24 per cent, the best performance of any transport industry. Other operating costs, which include marketing, materials other than fuel, insurance and miscellaneous expenses, amounted to 46 per cent of operating revenues. The largest expenses are repair and maintenance (ten per cent of operating revenues). In 1996, the operating margin was 9.4 per cent (Figure 12-13).

Productivity

Total factor productivity of the intercity bus industry, after a strong growth in 1993 and 1994, slowed down to 0.7 per cent in 1996. In spite of a small blip in 1996, industry unit costs have declined by nine per cent overall since 1992. Since the unit costs of the bus industry have fallen more rapidly than its prices, the financial viability of the industry has improved over the last several years (Table 12-4).

Profitability

Table 12-3 presents the financial highlights of the Canadian intercity bus industry for the period from 1993 to 1996.

Following a year of growth in 1995, the bus industry's revenues leveled off in 1996. Although total revenues of charter bus services increased by 11 per cent, this increase was offset by weaknesses in scheduled bus activities. Nevertheless, in 1996 scheduled intercity bus operations showed an improved profitability, while charter bus services faced a decline in its profit margin. Overall, the industry's operating profit margin came down to 9.4 per cent in 1996, still a significant improvement over the 5.5 per cent of 1993.

The scheduled bus industry was able to improve its profitability by increasing its prices and reducing its costs. On the other hand, the charter bus segment of the industry faced a deterioration in its profitability in 1996, despite higher sale volumes and revenues stimulated by lower average prices.

Investments

Total net fixed assets, including equipment and other property, were valued at $362 million in 1996. Provision for depreciation was about $45 million in 1996, but equipment leasing by carriers increased slightly.

On average, the capital structure of the bus industry consisted of 48 per cent debt and 52 per cent equity.

NOTE