1970s Large Buses Service Specific Locations on Fixed routes 1 operator per market – restricted entry Negotiated Fee Structure Long Term Contracts Limited Operating Structure for growing market place
Mid 1980’s to Late 1990’s Vans serving door to door. Come one- come all to the curb. Aggressive bidding of fees. Short term contracts. Chaos at curb, higher cost to manage operation default of fees.
2000’s Vans serving door to door. 1 to 3 operators per market – limited entry. Changing channels of distribution of travel services. National branding of service. Greater stability in airport and operator relations Higher service standards.
THE BEST SERVICE IS ACHIEVED WHEN BOTH THE AIRPORT AND THE OPERATOR ARE SUCCESSFUL IN ACHIEVING THEIR GOALS
Common Goals Offer Quality Service to the customer. – Achieve Satisfied Customers and Repeat Business. Provide Quality Employment for Local Residents
Airport Goals Achieve efficient use of the airport resources i.e curb and terminal space. Maximize Airport Revenue
What are we looking for in quality service? Professional Driver Attractive, Clean, Late Model Vehicles Frequent Service Easy Access to Service Economical Pricing
Professional Driver Screening of Applicants – Choose the best. Training and Retraining – Invest in the driver and maximize driver retention. – Offer an attractive compensation package.
Attractive, Clean, Late Model Vehicles Invest in new vehicles to meet demand Invest in a preventative maintenance program Invest in in-vehicle technology – Drivecam – Mobile Data Terminals – Credit Card Swipes – GPS
Transportation Industry Large Capital Investment Low Profit Margin Steady Cash Flow
Airport Ground Transportation Business models vary based on specific market conditions. Profit margins of a healthy company range from 5% to 8%. When services were regulated, Utility Commissions looked for margins of 5% to 10%.
MICRO ANALYSIS OF INDUSTRY The economics of operating one van.
Revenue $120,000 per year; $2,400 per week; $400 per scheduled day. Vehicle works 25 days per month (six days per week) Carries 3.5 passengers per trip – 7 passengers on a round trip – 21 passengers per day The average fare charged is $19.00 per person (Assume competitive cab fare is $30 to $38)
Driver’s Wages (35%) $42,000 per year – Including: Taxes Benefits – Excluding Gratuities Equates to a straight time hourly rate of $9.25.
Vehicle and Equipment (6%) Depreciated over 5 years. $33,000 Cost of Van $1,500 Radio $1,400 Mobile Data Terminal – GPS – Credit Card Swipe $600 Drive Cam
Fuel (11.5%) 10 Miles Per Gallon $3.07 cost per gallon
Maintenance (6%) 45,000 miles traveled per year 16 cents per mile including maintenance, body repair, cleaning and tires.
Additional Expenses Insurance (4%) – Annual premium including $10,000,000 umbrella Transaction Expense (4%) – Cost of taking a reservation or selling a ticket is approximately $0.75.
Administration (12.5%) Includes: – Hiring – Training – Dispatching – Accounting – Technology – Facilities – Etc.
Airport Fees (6%) Equates to 10% on all business departing the airport.
Annual Per Van Numbers Based upon $120,000 Revenue
Sharing the Revenue If one area needs a larger slice of the revenue, then other aspects of the operation get a smaller slice. Mandates often require a larger cut of the revenue. – Vehicles being required to use alternative fuel. – Drivers having to be paid a prevailing union labor rate. – Increasing Airport Fees.
Growing the Revenue Increasing the size of the revenue pie allows for bigger slices. Ways to increase revenue: – Increase the Fare – Increase the Passenger Volume – Increase the Passengers per Trip
Roles Airports Can Play in Increasing Revenue Promote the Shared Ride Service – Press Releases about Holiday Travel – Airport Website with link to operators website. – Announcements in terminals promoting shared ride service – Directional Signage to Shared Ride Service – Provide Airport Ticket Counters for the Sale of Shared Ride Services – Loading Zones and Counters in convenient locations
Making the Investment Short and Long Term Investments – How much does one want to invest in a business that will last only three to five years? – How much does one want to invest in a house if they are only going to live there three to five years? – How many will take a job with a career horizon of only three to five years?
Making the Investment The longer the agreement with the airport- the greater commitment of the operator. – Long term agreements generate larger capital investments. – Today’s environment calls for greater investment in vehicles, technology and personnel.
Making the investment Long term airport and operator partnerships have been successful!
Return on Investment (5 Year Contract) Capital Investment Vehicle $ 33,000.00 Related Equipment $ 3,500.00 Working Capital $ 6,000.00 Other Technology $ 1,500.00 Total $ 44,000.00 Average Annual Investment Over 5 year Period $ 25,000.00 Annual After Tax Earnings 38% Tax Bracket $ 3,700.00 Average Return on Investment Over 1 Year8.5% Over 5 Years14.8%
Return on Investment (3 Year Contract) Annual After Tax Profit (38% Tax Bracket)$682 Average Return on Investment Over 1 Year1.6% Over 3 Years2.7%
Conclusion Airports and operators need to be partners in making a shuttle service successful. The quality of a service is dependent on the economics of the operation. Long term commitments generate greater capital investment.
Conclusion Revenue must be sufficient to cover: – The cost of providing quality service. – Airport Fees – Return on Investment