The biggest news in the pupil transportation industry these days is the “British Invasion.” Two giant transportation companies in the United Kingdom — National Express Group PLC and FirstGroup PLC — have crossed The Pond to grab a hunk of the privatized school transportation segment. Most recently, National Express boosted its U.S. presence by acquiring Durham Transportation, which operates more than 3,500 school busess. Including its earlier acquisitions of Crabtree-Harmon, Robinson Bus Service and Bauman Bus Service, National Express now operates approximately 5,600 buses, making it the third-largest contractor in North America. One slot ahead of National Express is FirstGroup, which made a big splash in the U.S. transportation industry by ponying up $940 million for Ryder’s school transportation, public transit and fleet maintenance operations.
Business as usual?
What does all of this mean? Actually, it’s “business as usual” for the contractor industry, which has seen heavy consolidation for many years. The names (and nationalities) may have changed, but the trend is the same — large companies getting larger and small companies trying to hold their own within a $12 billion market that is highly fragmented and ripe for further privatization. At the National School Transportation Association’s annual convention in Charleston, S.C., a panel of industry experts discussed the future of privatization. NTSA President Terry Thomas, who is president of Community Bus Services in Youngstown, Ohio, says that many of the regulatory and legislative barriers to privatization have been overcome, but that there is still an “attitudinal” barrier. Thomas says contractors should be prepared to commit significant time and resources to convert a public fleet. He said it took him seven years to convert one fleet, but believes the contract was worth the effort. From an investment standpoint, school bus contracting has several strengths, said David Mayer of Thoma Cressy Equity Partners in Chicago. Along with healthy growth potential, he said, there is also a high contract retention rate. It’s also a steady, mature market, with few peaks and valleys, Mayer added.
Emphasis on conversion
Larry Durham, who was named CEO of National Express’s U.S. operation after its acquisition of Durham Transportation, said consolidation will eventually run its course, leaving “a few very large players and lots of small operators.” At that point, growth of the private market will be the key to avoiding “predatory behavior,” he said. “That means that every one of your contracts will be at risk.” Dean Eldrid of National Express said one of the reasons that his company is tapping the U.S. school bus market is the lack of growth in the British transportation market. After trying to stretch its reach to continental Europe, Asia and Australia, the company identified the school transportation segment as having the potential for significant growth, with two-thirds of the market run by the public sector. “We’re here to stay, but it’s all predicated on growth,” he said. Bob Hach, president of Laidlaw Transit’s education services unit, also expressed optimism. Like Eldrid, he sees great conversion opportunities in the nation’s large public fleet. “There’s two-thirds that we can still go after,” he said. It’s clear that school transportation contracting is here to stay. If Durham is on the mark about consequences of stunted growth, contractors need to spend more time and resources on conversion. The alternative is cut-throat competition for marketshare, reduced margins and, potentially, compromises in service quality. That would be an unacceptable alternative.