Bus Transport Industry

1. Introduction

The road transport mode in India has come to occupy a pivotal position in the overall

transport system in India. Over the past four decades, the share of road transport in overall

traffic flows has been continually increasing with a substantial shift from rail to road being

observed. This mode is currently estimated to have a share of about 80% in passenger

transport and 60% in freight transport. Despite such an impressive growth, it is increasingly

being recognized that there is a wide gap between the demand for, and the supply of, road

transport services, both from a qualitative as well as quantitative perspective. While the

problem has been partly one of inefficient public sector management of its transport assets, it

has also stemmed, according to some, from restrictive policy and implementation measures as

they have evolved over a period of time.

In the initial phases of the development of any economy, transport requirements tend to

increase at a rate considerably higher than the rate of growth of the economy. This has been

the case in India too. During the period 1950–51 to 1964–65, rail freight traffic increased

nearly two and a half times and traffic by road is estimated to have increased almost five

times. In the case of passenger traffic, road traffic increased almost three times. These

increases can be compared with the growth in national income that was less than 50% during

the same period. However, when one observes the shares of the two principal modes,

railways and road transport, there were considerable shifts. While road transport primarily

served as a mode complementary to the railways in the early fifties, it appears to have begun

to effectively compete with the railways since the early sixties.

The Committee on Transport Policy and Co-ordination that was assigned the task of

formulating a comprehensive transport policy framework for the country during the early

sixties pointed out this trend. A decade later, the National Transport Policy Committee

(NTPC) also noted a substantial share of passenger traffic for road transport while in the case

of goods transport; the railways were still the dominant mode with a share of nearly 70% of

the total traffic. Since the Committee’s research studies showed the railways to be the most

energy efficient transport mode, it was but logical for the Committee to recommend a modal

split in favour of the railways. The eventual impact of this recommended policy was to be

such that by the turn of the century nearly 72% of freight traffic would be moved by the

railways and 28% by road as against the base year (1977–78) survey which revealed a split of

67% for rail and 33% for road.

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However, this survey was criticized for focusing mainly upon inter-regional movements,

thereby neglecting short-distance or intra-regional movements. If these movements are taken

into account, as some recent studies have shown, the present share of road transport goes up

to as high a figure as 55% in goods traffic and 80% in passenger traffic. Given that these

estimates represent a true picture of India’s current traffic scenario, then clearly the modal

split has gone heavily in favour of road transport, in sharp contrast to what was expected by

the National Transport Policy Committee.

According to the Planning Group on Road Transport, estimates of freight traffic handled

by road transport in 1985 were NTPC’s estimates for the turn of the century. Further, the

Group’s estimate for passenger traffic for the year 2000 was nearly four times the level in

1985. Recent estimates of the Ministry of Surface Transport reveal that road traffic would

account for 87% and 65% of passenger and freight traffic respectively by the year 2000. The

change in modal shares has clear important policy implications not only in regard to road

transport but also in regard to the road network which a principal component is influencing

the effective functioning of the road transport system.

Public sector participation in passenger road transport services in India commenced with

the passing of the Road Transport Corporations Act, 1950. At present, there are 71 State

Transport Undertakings in the country comprising 21 Corporations registered under the Road

Transport Corporations Act (1950), 31 Companies registered under the Companies Act, 1956,

8 Departmental Undertakings and 11 Municipal Undertakings. As on 31 March 1995, there

were around 1, 11,200 buses in the public sector with a total investment of over Rs 6,000

crores and formed 27% of the country’s bus population. These Corporations earned total

revenue of Rs 8,385 crores in 1995–96, showing an operating loss of about Rs 610 crores.

The financial return on capital invested (net profit or loss/capital invested) was (–) 9.25%.

According to a study by the Planning Commission, there has been a perceptible improvement

in the rate of return during the last five years though the return is still negative.

As regards physical performance, there have been significant improvements during the

1980s and thereafter. The Corporations’ performance could be measured in terms of two sets

of indicators namely,

(a) Efficiency indicators such as utilization per bus per day in km, fleet utilization,

staff–bus ratio, etc. and

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(b) Quality of service indicators such as the number of breakdowns or accidents per

10,000 effective km.

If we look at the daily utilization of buses, it is observed that the figure has gone up

from 250 km in the early eighties to more than 300 km in 1995–96. Fleet utilization also went

up from 84% to 89% during this period, the staff–bus ratio came down from 9.78 to 7.96 and

mileage per litre of diesel consumed went up from 4.02 km to 4.43 km during the same

period. As regards the quality of service indicators, the number of breakdowns went down

from 1.03 to 0.54 and the rate of accidents from 82 to 31 per 10,000 km. However, it must be

noted that there are considerable variations in the performance of different State Transport

Undertakings.

The main point to be noted is the big difference between the performance of State

Undertakings and private operators. While their fleet utilization is normally higher, their bus–

staff ratio is much lower. Moreover, they are estimated to earn an average rate of return of

20% on their investment. It must, however, be noted that State Transport Corporations

besides paying a stipulated dividend, are also subject to heavy taxation while, at the same

time, they are called upon to bear certain social burdens such as operating uneconomic routes,

offering concessional fares to certain classes of users, etc. The Planning Commission study

noted that taxation has eroded the profitability of these units. This is specially true of the

passenger tax which is based on traffic earnings and diminishes the impact of every fare rise

since a sizable chunk of the additional revenue goes to the State Exchequer and gives only

part relief to the Undertakings. Moreover, fare revisions are generally inadequate and do not,

invariably, compensate for increases in input costs since they come into effect after a lapse of

a considerable period of time. On the other hand, evasion of taxes by the private sector is

rampant and this help protects their margins.

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Considering the emerging demand for road passenger traffic, there is obviously a need to

expand capacity. With the State Transport Undertakings facing an acute shortage of resources

to keep their fleet intact, let alone provide for expansion, an emerging idea is that the private

sector should be given a more significant role especially when the economy is being

liberalized. From an economic theory viewpoint, we observe that the road transport market is

a perfectly contestable market where there is hardly scope for economies of scale and where

exit and entry barriers are few, if not entirely absent. In such a situation, the presence of a

monopoly supplier can only serve to restrict user choice and thereby increase cost – which

has possibly been the case in states which opted for total nationalization of the passenger road

transport sector such as Maharashtra, Gujarat, etc. Deregulation would perhaps be desirable

in the case of these states. Studies relating to deregulation and privatization of urban bus

transit services in the countries have shown that most parties have gained from such policies.

2. Structure of Indian Passenger Transport

Indian Passenger Transport industry can be divided into 3 basic modes of transport:

1. Air Transport:

Air travel is most preferred by high income class people, business executives and

majorly by people who want to save time.

2. Rail Transport:

Railway is most popular, cheep mode of transport. The coverage of railways is all of

India. Railway is preferred by people who travel for long distances.

3. Road Transport:

Roads cover each and every part of country and road transport has widest coverage in

India. This is mostly used by people who travel to short distances or where rail

transport is not available. Majority of country’s population use buses for travel.

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3. Bus transport Industry

Buses take up over 90% of public transport in India. Bus transport serves as a cheap and

convenient mode of transport for all classes of society. It is mostly preferred by people who

travel to less distance. Buses are efficient mode of transport in India as railways does not

provide reach to every village. Bus service is available all over the day and night with good

frequency. Bus services are mostly run by government owned state transport corporations.

Most passenger buses use the standard truck like engine and chassis and they are not

economical.

The state transport corporations run all class of buses like economic, deluxe and luxury.

This industry also has private players. These private players are small and they provide

service between few cities. This industry has great scope for private players as demand for

buses are increasing with growing population. One more factor that arises opportunity for

private player as condition of government run buses is bad. These buses are poorly

maintained and technology used is very old. Most buses run by Government Corporation are

to fulfill need of economic class for middle class income group who are major users of bus

service.

3.1Porter’s five in Bus transport Industry

a. The threat of the entry of new competitors

Capital: Capital requirement is high as own a bus takes lots of capital. The cost

incurred for buying chassis is around 10 lakh, bus body without AC 6 lakh, and

body with AC is 15 lakh. All these costs are directly added to capital with a new

bus.

Operating Cost: Operating cost is high as bus engines are not economical. The

mileage of these engines is low. Other expenses are cost of coolant, and tyres.

Taxes: Each private player has to pay tax around 25,000 on each bus. Taxes

imposed are road tax, Toll tax, and permit etc.

Switching: Switching from this industry is easy. A player who wants to leave

industry is to sell its buses to others players and demands for buses are high.

Work force: Work force is easily available. Bus drivers and conductors are easily

available and they are not much expensive.

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b. The intensity of competitive rivalry

Rivalry is this industry is high as:

Rival tries to copy same route with same kind of bus and on same schedule.

This stops to customer to being loyal to any one bus company as customer is

more often not concern with company’s name.

Rival also keeps ticket price lower. As Indian buyer is most cost concern and

compromises with facility.

c. The bargaining power of customers (buyers)

Passengers are the real customer of this industry.

They tend to pay less from government buses.

They ask for low fare when they come to know that other player’s price is

same or equal.

They are not loyal for any company as switching cost is low.

They also look for the bus which departs early.

d. The bargaining power of suppliers

The major suppliers for chassis are Tata and Ashoka Leyland.

The suppliers for chassis are limited. So when are united they may increase

price of chassis but switching cost is low between them.

There are many body manufacturers and switching cost is also low.

e. The threat of substitute products or services

The major substitutes are Railways, Airways and private taxi players.

Railways have high coverage and also charge low ticket fare. People prefer to travel

by trains as they are more comfortable, fast and economic.

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Using taxis and owned cars is increasing trend among people. When five or more

persons of any group or family are to travel they tend to book taxi or prefer to travel

by own cars.

Airways is considered when time factor is seen over money.

Rating of each force in bus transport

Porter's Force Rating Reason

New Entry 3 High operating cost but low switching cost

Threat of Substitution 3 Limited Number of trains and more

passengers

Supplier Power 5 Low switching cost

Buyer Power 2 Low switching cost and low loyalty

Rivalry among Competitors 2 Copies everything hence no differentiation

remains.

The above table gives understand upon Porter’s five forces. From table we see:

Entering into this industry is good as operating cost, capital is high but switching cost

is low.

Substitutes may often worry us with fares.

Suppliers are not big reasons to worry as switching cost is low.

Buyers (Passengers) not loyal but growing population covers this risk.

Competitor worries us a lot. They put limit on price and copy everything from us.

After studying these forces we can say this industry has good scope for new player and good

opportunities to grow. Hence it is good industry to enter.

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1 = Weakest, 2 = Weak, 3 = Good, 4 = Strong,

5 = Strongest

3.2 Positioning into bus transport

After studying Porter’s five forces we understood about industry structure and scope for a

new player. Now over next study is about positioning into industry. Positioning mean the

process by which company try to create an image or identity in the minds of their target

market for its product, brand, or organization. Let’s start it.

3.2.1 Shubh Yatra Travels Pvt. Ltd.

Shubh Yatra Travels Pvt. Ltd. is working to offer regularly scheduled bus service for long

distances with having objective of providing efficient, adequate, safe, comfortable and well

organized passenger transport service. The company has its head quarter at Jaipur.

3.2.2 Types of Buses Company will operate

The company will run following type of buses:

Sleeper Coach Buses (2X1, AC and Non AC): Company will operate AC and Non

AC sleeper coaches for making journey comfortable. There are following types are

sleeper:

o Up sleeper: It has seating capacity at floor level and sleeper cabins at upside.

o Down and Up sleeper: This sleeper has seating capacity of 2 one side and

sleeper cabin at single side on floor. It also has sleeper cabins at upside.

2x2 Seating Buses (AC and Non AC): Company will also run buses with AC and

Non AC for people who does like to travel in sleeper.

Non AC buses will have low fare and will be economical for passengers.

3.2.3 Strategy to opt

Here we are using differentiation strategy as:

We are targeting long distance travel of more than 500 kms.

We are providing more customer oriented services to make travel easy, comfortable

and safe.

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3.2.4 Using differentiation strategy

We will consider following to make differentiation:

Luxury buses on such route where state roadways does not have services: State

roadways runs luxury buses to fewer big cities so we will provide luxury buses on

those route where government does not provide service or frequency is low.

More number of sleeper cabins in buses: Design of bus will be such that more

number of sleeper cabins will be in bus.

Easy ticket booking service: Online ticketing facility will be provided to customers.

Easy tracking of bus by GPS: GPS technology can tell where the bus is this time.

This feature will also be given to passengers so they exactly know the time taken at

particular stand.

Timely scheduled regular bus service: This is feature which makes customer

satisfied.

3.2.5 Steps in positioning

Passengers only from initial departure city: We will take passengers from initial

departure city. No passenger will be taken from way. For this we will only pick

passenger who has already taken bus ticket and no any ticket will be made during

journey.

Self owned booking offices: Booking offices in different location will be owned by

company only. We will not contract with other people to run booking office.

Well behavior of bus staff: Bus driver, conductor and staff at booking office will be

trained to behave well to passenger. Strict action will be taken if they misbehave to

passengers. Bus staff will be provided dress code.

Clean and comfortable waiting area: Good facilities will be provided to passengers

like clean waiting area with drinking water and wash room facility.

Properly maintained good quality buses: All buses will be maintained and serviced

regularly. Cleaning of buses will be done at initial departure stations.

Standardization of buses: All buses will have same seating facility, color, design

and comfort level. All buses will be identical and will reflect the brand image.

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3.2.6 Facilities given to customer

Drinking water and toilet: Drinking water will be provided free in bus. Half liter

water bottle will be given at starting of journey to each passenger. Bus will have

hygienic toilets. Some food items, tea and coffee will also be there in bus and will be

served on demand.

Separate night lamb in cabins: Each cabin will have its separate night lamb so

passenger who wants to do some work does not affect the whole bus.

Charging points for Mobile phone and Laptop: Mobile and laptop charging facility

will also be given into cabins. This facility is needed by executives who travel for

business purpose.

E – Ticketing and GPS: E – ticketing will make customer free from time limits and

going to ticket window. Whereas GPS will help to find out bus’s location.

LCD screen for each seat and cabin: LED screens will be jointed to each passenger

cabin and seat so that all passengers will not suffer if some want to see.

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3.3 Competitor Analysis

Competitor analysis is an assessment of the strengths and weaknesses of current and potential

competitors. This analysis provides both an offensive and defensive strategic context through

which to identify opportunities and threats. Competitor profiling coalesces all of the relevant

sources of competitor analysis into one framework in the support of efficient and effective

strategy formulation, implementation, monitoring and adjustment.

Competitor analysis includes:

Goals

Assumptions about

Itself

Others

Strengths and Weakness

Competitor for Shubh Yatra Travels

We are considering one major player as our competitor. We have taken Rajasthan State Road

Transport Corporation as our biggest competitor.

3.3.1 Rajasthan State Road Transport

Corporation (RSRTC)

Rajasthan State Road Transport Corporation is the

largest provider of intercity bus transportation in

Rajasthan.

It was established by Government of Rajasthan on

1st October 1964. Its headquarter is in Jaipur.

It has about 54 depots across the state and 3 depots

outside the state i.e. Indore, Ahmedabad and

Delhi. About 1 million passengers travel by its

buses daily. RSRTC's services are to all important

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places in Rajasthan and adjoining states of Gujarat, Haryana, Punjab, Delhi, Uttar Pradesh,

Himachal Pradesh, Madhya Pradesh and Maharashtra.

3.3.2 Goals of RSRTC

The corporation's goals are:

To provide efficient, adequate, economical, safe and well coordinated passenger

transport service.

Through the development of transport facility, development of this virgin Desert Land

for our national economy.

3.3.3 Assumption of RSRTC, About Itself

RSRTC is uniquely positioned to serve this broad and growing market because:

It offers low fares for passengers every day.

It offers the only means of regularly scheduled intercity transportation to most cities,

towns and small villages across the State and neighboring States.

It offers reservation facilities for all deluxe and express buses.

It provides additional buses during peak travel periods to accommodate passengers.

As a socially conscious body offer concessions in fares and facilities to physically

challenged.

It offers concessional fare to the sick, freedom fighters, widows and families of

soldiers who died in war.

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3.3.4 RSRTC’s Assumptions about others

Small players: No such organization as compared to RSRTC present currently in

Rajasthan who can directly in competition. All other private players are small as they

run their buses to fewer cities. These private players even have low frequency because

they have limited number of buses and capital in invest.

Not major threat: These players are not major threat as they have very small

passengers with them. RSRTC’s buses run with over loaded condition so if some

passengers go to other private player RSRTC does not consider.

3.3.5 Strengths of RSRTC

Wide coverage: RSRTC has wide coverage to every part of Rajasthan as well as

other states like Delhi, Punjab, Haryana, Gujrat, Madha Pradesh Etc.

Good frequency: RSRTC has good frequency of buses on almost every route. On

some route it has bus even in 10 minutes like Jaipur – Delhi.

High valve among customers: RSRTC has good value among customers as it is

government owned economical and wide coverage.

Low risk involved: RSRTC has low risk as it’s now well known image among state.

There are must more opportunities to run more buses.

Funds from state govt: RSRTC gets its fund from state govt. So much more funds

can be given to RSRTC.

3.3.6 Weakness of RSRTC

Poor maintenance: All RSRTC buses are poorly maintained. Buses get attention at

time of break down only. Only tyres, oil and diesel is checked on routine.

Miss management: There is miss management in RSRTC. Every work is done on

govt style. Corruption in drivers and conductors is high.

Less comfort: All economical class buses do not have comfortable seats. Buses are

over crowed so that passengers have to stand during journey. In luxury class AC does

not work property.

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3.4 Competitive Advantage

Competitive advantage using differentiated strategy can be created by distinct activities

which make your product different. These activities create value chain.

3.4.1 Our Value chain

Regularly scheduled good condition, comfortable buses for long distances.

Passenger services like clean cabins, drinking water, soft drinks, coffee, clean

washrooms in bus.

Consideration for valued customer.

3.4.2 Creating value chain by activity focus in Bus transport

a. Primary Activities:

Inbound Logistics: All food items and water bottles will be taken from

centrally and taken by our buses only in every week. It helps in bulk

purchasing and minimizing cost.

Operations: Planning for new routes with good passenger traffic.

Outbound Logistics: Bus running with good customer oriented facilities

regularly.

Marketing & Sales: We will market to cooperates and executives and offer

them low fares. We will pay consideration for valued Passengers and give

them concession occasionally.

Service: We will provide proper cleaning and maintenance of buses. Buses

will be cleaned at parking place before leaving to initial departure stand.

Online ticketing will help customer to book ticket any time and from

anywhere.

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b. Support Activities:

Procurement: All food items will be taken from distributors and in bulk. This

will help to provide such service on low cost.

Technology Development: New technology will be adopted with new buses

like better shock absorber and bus body design.

Human Resource Management: Drivers will be recruited who have minimum

driving experience of 3 years. All staff will be trained to communicate well

with passengers. Proper dress code will be given to drivers and conductors

with logo.

Firm Infrastructure: All buses and waiting area are firm’s infrastructure. All

buses will have identical color. Waiting area will be cleaned with good facility

of sitting, drinking water.

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4. Conclusion

The growing population increasing needs of more transport facilities. We are trying to fulfill

these needs of passengers. As it is seen state transport provides economic services over wide

coverage of network. But still state transport corporation in not fulfilling all needs of

passengers. The condition of buses of these state transport corporations is bad and they do not

provide bus service for long distance like 500kms or more. So private players have many

opportunities to come in this industry.

This industry is good to enter as more passengers are there. This industry needs high capital

but switching cost is low. It’s a perfect industry with high entry barriers and low exit barriers.

Positioning in this industry in difficult as product may not be highly differentiated. Indian

passengers are also very price considered. They tend to pay less and ready to compromise

with services. So for creating uniqueness services must be having good and differentiated

activities.

The unique valve chain in service will provide way for competitive advantage. These

activities are only way to differentiate from competitor.

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