On March 10, the Boston Globe carried the news that Greyhound Lines Inc.s and Peter Pan Bus Lines low-cost BoltBus service would commence carrying travelers between Boston and New York City in April. According to the article, BoltBus targets "students, commuters and travelers seeking express service between [Boston and New York][with] extra legroom by having 51 seats per vehiclecompared to the industry average of 54 seats, and will have WiFi access, [AC power outlets], and bathrooms.
Of particular interest, however, are BoltBus fares - tickets are advertised as being available for as low as $1 one-way. BoltBus will initially launch service between New York City and Washington D.C; a visit to BoltBus website revealed that
tickets for a few of the first trips between those two cities in late March are indeed available for $1. BoltBus cautions that availability of the $1 fare is contingent on demand with high demand expected to push fares as high as $25, according to the article.
This is a new chapter in a classic story of disruptive innovation and incumbent response. For years, Peter Pan and Greyhound dominated the Boston to New York bus transportation market, charging fares as high as $42 each-way. Then, in the mid-1990s, "Chinatown buses operated by entrants Fung Wah and Lucky Star began to offer discounted bus service on the same route for between $15 and $25 each way.
It was a story of gives and gets. In order to get such low prices, travelers had to be willing to give up: drivers fluent in English, ticket counters, bus stations, customer service, assured televisions and restrooms, a guarantee of spotless maintenance records, and according to some news reports, safety one report noted that the Fung Wah drivers, for example, "have a tendency to treat the New Jersey Turnpike like Germanys high-speed Autobahn and Fung Wah had checkered maintenance and incident histories.
But for many travelers, the low price get far outweighed the gives. In recent years, one-way ticket fares decreased to $10 before rising and settling at $15. Business was booming. Able to be profitable, or at least remain in business at this fare level, Fung Wah and Lucky Star fit the mode of classic low-end disruptors. Offering good enough travel to customers valuing price above virtually all else, these entrants forced Greyhound and Peter Pan to eventually drop their fares to $20 each way to be more competitive.
Now Greyhound and Peter Pan are introducing BoltBus, attempting to co-opt the disruptive low-cost business model introduced by Fung Wah and Lucky Star. By selling tickets online, rather than at ticket counters, BoltBus is able to markedly reduce its costs and thus maintain such low fares. With gas prices rising, BoltBus expects to compete aggressively with Fung Wah and Lucky Star for rising tides of students, business travelers, and tourists looking for low prices. MegaBus.com, a bus service similar to BoltBus operated out of Chicago (which we wrote about here), has enjoyed substantial success in recent years by offering some $1 fares and an online-only ticket sales strategy. MegaBus.com now offers 30 routes compared with only 7 when it launched in 2006.
The principles of disruptive innovation teach that entrants leveraging low-cost business models can successfully disrupt incumbents when those incumbents are unwilling or unable to respond directly. Similarly, these principles also teach incumbents to respond to entrant attacks by replicating or co-opting the entrants business model if possible. In the case of the Boston to New York bus market, Greyhound and Peter Pan have finally become motivated to respond to the low-cost attacks by Fung Wah and Lucky Star and may even be able to outpace the entrants with even lower prices and more frills. Also, consider the subject of this previous post - might BoltBus have a market research revenue stream on their hands?