How Megabus.com offers $1 fares
Monday, May 10, 2010 7:00 AM
Weekend roundtrip to Chicago, June 18-20
Megabus.com: $18.50, 12 hr. 30 min.
Greyhound: $96, 16 hr.
Flight: $323, 5 hr. 30 min.
Amtrak: $121, 15 hr. 20 min.
Car: $80, 11 hr. 30 min.
Costs are round trip, include tax and were cheapest but most reasonable options.
15 min. added before all bus trips
1 hr. 30 min. added to each flight for check-in, security and boarding.
Amtrak leaves from Osceola, which added an additional 1 hr. each way for Des Moines travelers.
Car cost includes only the cost of gas figured at $3 per gallon in a 25 mpg car.
Megabus.com, a bus service offering 56 seats on its twice-per-day express service between Des Moines, Iowa City and Chicago, has stormed into the area promoting one-way fares as low as $1, with average fares near $20. The United Kingdom-based Stage Coach Group, Megabus.com's parent company, launched its express city-to-city routes in the United States in 2006. It now serves nearly 40 cities and says it has sold more than 5 million tickets. The first bus to Chicago on May 4 had 55 tickets purchased, and the company claims to have sold more than 2,700 tickets from Des Moines, and more than 6,000 to and from Iowa. We got Dale Moser, president of Megabus.com, on the phone to talk about his company's unique business model for bus travel.
Dale, how can a bus company offer a trip to Chicago for $1?
This is called a yield-managed pricing concept. Not every seat is $1; the prices incrementally move their way up. It is the net average that works for us. We already have a lot of overhead, since we are one of the largest public transportation companies in North America, so we don't have to add a lot of infrastructure and overhead. We are doing everything over the Internet for purchasing, and I don't have to have physical locations, all of which add costs to the business and then that gets passed on to the customer. This really becomes so much similar to what discount airlines have been doing for years. I mean they don't offer every seat at $29, and it's a good way to fill capacity so you are running your bus with the maximum amount of capacity at a net average price that works for you to make money.
Can you explain how the yield managed pricing concept works?
It works on supply-demand; it works on timing what we price the service at based on the time when you are looking to book and how the bus is filling. When the bus has nobody on it and you are trying to book it, there is a better chance you are going to get a $1 seat, and as the $1 seats go away, your pricing tier changes gradually. As you get closer to date of departure, that changes it too. So it is a somewhat sophisticated internal program that monitors the pricing model. Your system moves buses around on a 365-day-a-year basis. Travel is not even; it is not level. You have peaks and valleys, so you are adjusting your pricing accordingly.
Do you ever have a situation where only one person buys a ticket at $1?
No, that hasn't happened. Ever since day one, we have had at least a dozen to 18 people taking a bus.
Are there times when you have to run trips at a loss?
We don't look at it on a day-by-day, bus-by-bus basis. Incrementally, we know there are going to be some buses that are maybe break-even or we may lose a few dollars. You look at it on a route-by-route basis and again adjust your pricing so that you are trying to influence more people to take their trip on that off time or off day.
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