When considering a public transport for interurban demand, rail and air are top of mind while bus is usually the minority player. Although road travel is the most flexible mode due to infrastructure availability, choice of destinations and level of journey customization, affordability and convenience (especially for hauls of 200-300 km and above), its growth hasn’t kept up.

The increase of the competitive positioning of the intercity bus mode could be driven by two key levers:

• Sustainability: Affordable and clean energy is one of the world’s developments goals and while nowadays electric vehicles cannot fulfill the range requirements there are already experiences with LNG buses (i.e. Italy). It may happen than in the coming years, intercity bus mode becomes the most sustainable and cost-efficient transport mode.
• Value proposition: From the customer’s perspective, availability, timeliness and level of service (cleanliness, comfort, and hygiene) should flow simultaneously and technology plays an important role in how this can be delivered. Additionally, as it has happened in urban transport, technology can help providers gather and personalize their customers’ experiences based on past behavior, choices and preferences, understanding their needs and providing a value-added product building long-term relationships with them.

Deregulation of the intercity bus services has been a significant booster of demand. Thus, aiming to analyze the path to be followed by this mode of transport, this article includes the analysis of regulatory models that exist for the intercity bus along with a benchmark of international experience.

Regulatory schemes

Regarding operator’s responsibilities and risks, there are three main regulatory schemes for the operation of intercity bus services: state owned, concession-based contracts and deregulated markets. The concession-based contracts are usually granted by governments through tendering and, depending on the location and the demand, they can be gross or net cost concessions. On the other hand, in deregulated schemes, companies compete with other operators without routes and pricing regulations, requiring usually a license from the authority.

When the operator has the revenue risk, it usually has greater liberties in operating the service, whereas if it is the government that has the revenue risk, it is common that a list of KPIs should be defined in the concession contract so that the operator ensures minimum requirements when operating the service.

The larger the private party’s freedom to operate the bus service, the higher the risk assumed by the operator and the competition between bus operators. According to the typology of regulatory schemes, the responsibilities of the main parameters that characterize an intercity bus service have been allocated.

Figure 1. Responsibilities allocation of the regulatory schemes under study

International experience

Considering the three main types of regulatory frameworks, a benchmarking assessment of intercity bus markets has been conducted. Below there have been located the intercity bus systems evaluated.

Figure 2. Deregulation level of the intercity bus benchmark

Success case per regulatory scheme

Through the benchmarking assessment of intercity bus markets, an international experience has been further analyzed for each of the previously identified regulation models.

UAE: State owned

Bus service in the UAE is managed by the emirates. Five transport authorities in the emirates offer public transport services, and three of them offer bus connections between the emirates: Dubai, Sharjah and RAK. Public transport authorities are responsible for the intercity bus service, and when operating the service they must comply with a set of regulations and requirements defined by the government.

Since the intercity bus service is government-owned the offer is integrated with other modes of transport, and for routes operating in more than one emirate, the authorities involved usually enter into agreements to share responsibilities and avoid disputes.

There are two challenges facing the bus service, on the one hand there are future developments in the rail network and on the other hand there is an unregulated bus service with a large market share.

Spain: Route concession

The Spanish intercity bus network is a comprehensive nationwide network, which is based on concessions in each autonomous region under a net cost model. The concessions have a maximum duration of 10 years, with the possibility of extending the contract if the operator has to amortize the investment of the vehicles purchased.

As the bus service is regulated by a contract, it guarantees coverage throughout the country, and the concession contract also guarantees minimum safety and security standards. As in the case of UAE; Spain has a challenge facing the bus service, the rail, being competitive in terms of cost and travel time.

Figure 3. Annual intercity bus ridership and modal share of intercity passengers in 2019 considering air, bus and rail

Germany: Deregulated market

The deregulation of the German intercity bus network took place in 2013, leading to an increase in bus demand. At the beginning of the deregulation, there was a fairly diversified supply market, but one operator ended up dominating the market.

Figure 4. Annual intercity bus ridership and modal share of intercity passengers in 2016 considering air, bus and rail

Despite being a deregulated market, operators are required to be licensed to ensure a certain quality and safety standards in the bus service. Also, in order to protect the rail service, the government requires that operators can only operate on those routes where the distances between stops are larger than 50 km and the train travel time is higher than one hour.

As in the other cases analyzed, the main challenge is the competition with other modes of transport, mainly rail, but in the German case there is also the added threat of new companies starting to operate in the intercity bus market.

Key takeaways

Depending on the type of regulation model that drives the bus service, the operator’s risk may vary significantly. In any bus network where both public and private parties are involved, it is recommended that a balance be sought between the involvements of both parties, in order to increase the efficiency of the network so as to capture a greater number of passengers, while ensuring the viability of the operator.

Deregulation will incentivize intercity use increasing demand, since operators will aim to enhance the company viability. Furthermore, liberalization will lead to business innovation, as operators will include yield management, dynamic pricing and other innovative marketing tools in the network to attract more passengers and raise profits. However, it is recommended that the government establishes requirements in order to provide service to the largest number of passengers, while maintaining minimum quality and safety standards.

 

---

About the authors
Blanca Puche holds a MSc in Civil Engineering, and is an Analyst at ALG. bpuche@alg-global.com
Patricia Chica holds a MSc in Civil Engineering and an MBA, and is a Senior Manager at ALG. pchica@alg-global.com
For more insights, please check www.alg-global.com