Business Today

Rush for 'coach' class

New highways and consumer preference for comfort are powering demand for these new buses. But will prohibitive pricing and a stronger railway network crimp growth?

Rahul Sachitanand | Print Edition: March 21, 2010

Thrice a month, Sujith William of Elcoteq Electricals in Bangalore makes his way to the Madiwala bus terminus in the city and catches a Volvo coach to Kochi or Kollam in Kerala to connect with family and friends. Elsewhere, Mohammed Mujaheedin at Reliance Capital rushes once a month to catch the bus to Hyderabad and his family.

With train reservations hard to come by and flights again expensive, hundreds of people like William and Mujaheedin have come to depend on Volvo coach services to visit their families or other cities on work. "The luxury buses have made it much more convenient to get home, since we don't have to rely only on trains," says Mujaheedin.

For years, Indian Railways' vast network has been the preferred mode of long-distance travel for most Indians, but fundamental economic and social changes are powering the rapid growth of the luxury bus market. The expansion of the highway network— including the 5,900-km Golden Quadrilateral—has made inter-city travel by road easier and faster. More powerful buses from Volvo and others are filling this gap. Demand is also coming from an increasingly mobile workforce at places such as Pune, Jaipur, Nagpur and Mysore, who can connect to nearby metros much faster. With Volvo alone expecting to sell 450-500 luxury buses in India in 2010, these expensive hulks seem to have found a place on Indian roads.

Phanindra Sama, Founder-CEO of redBus, which claims to be India's largest bus seats aggregator, says 70 per cent of his inventory is for luxury buses, including Volvos. "There is a massive untapped luxury bus market in India," he says. "There are much fewer buses per capita in India, compared to countries like China, US and South Korea, which has perhaps the world's most developed market for buses." Already, there are signs that luxury buses are making a strong dent in a market until recently dominated by lower cost offerings from the likes of Ashok Leyland and Tata Motors.

Akash Passey, Managing Director, Volvo Buses India, says the Swedish bus maker dominates lucrative routes— Delhi-Jaipur, Mumbai-Pune and Bangalore-Hyderabad. "There is practically a train of Volvo buses from Mumbai to Pune, with one vehicle leaving every 10-15 minutes," he says. On the Delhi-Jaipur route, dominated so far by budget buses, Volvo claims to have wrested a 60 per cent share. If Volvo can claim to have created and grown the Indian luxury bus market, rivals are queuing up for this lucrative opportunity. Existing lowcost makers such as Ashok Leyland and Tata Motors are scaling up their ambitions, while foreign majors like Daimler Chrysler, Irizar-TVS and Hino, a joint venture between Toyota and Marubeni, are ready to jostle for space.

Wilfried Aulbur, Managing Director of Mercedes-Benz India, which started selling luxury buses here in 2008, believes that the main driver for luxury buses is not just operators but consumers. "People want a safe journey above everything else," he says. And demand, Aulbur says, has been good, "We are sold out for 2010," he claims. Mercedes does not distinguish between bus and truck chassis sales in the numbers it files with the Society of Indian Automobile Manufacturers (SIAM), and total sales of Mercedes commercial vehicles in 2009-10 to date are down compared to the figure for the same period last year.

Sticker Shock for Buyer...
Standard Tata bus*Rs 40 lakh
Tata GlobusRs 50 lakh
Tata luxury bus **Rs 75 lakh
Volvo 2-axleRs 72 lakh
Volvo 3-axleRs 85 lakh
Mercedes 3-axle luxury busRs 85 lakh
*Body built by third party. ** on trial now

Aulbur is so bullish that he says Mercedes could also enter the city bus market soon. "That is a possibility," he says. Bus demand, he feels, is going to take off in India with more players entering the market. "But I feel the market will grow enough for everyone to be happy."

For Tata Motors, the luxury bus segment is part of its overall strategy to be in all segments. In October 2009, it completed the purchase of Hispano Carrocera, making the Spanish builder of luxury bus bodies a wholly-owned subsidiary. Ravi Pisharody, President, Commercial Vehicles Business Unit, Tata Motors, points out that luxury buses account for a fraction of the 40,000-odd buses sold in India every year.

"We feel this segment of the market is going to expand and we will launch a whole new range later this year," he says. He concedes that there was a gap in Tata Motors portfolio until it introduced this 235hp bus. However, Tata Motors' big play in buses over the past year has been in the city bus segment. Pisharody says these buses retail for the same amount as luxury long distance buses and Tata Motors dominates the market.

A company spokesperson told BT that, much like Tata Marcopolo Motors, which makes bodies for city buses now being deployed in several Indian cities, luxury buses built by Hispano Carrocera will be made available here at competitive prices. Much of the growth in luxury buses has been driven on two fronts. One, bus passengers, especially young executives, students and holiday travellers, prefer luxury coaches—dominated at the moment by Volvo—as the high-quality highway network has proliferated.

Or Payback for Operator?
  • More powerful engines ensure 20 per cent faster trips.
  • Can charge higher ticket price.
  • So payback is 18-24 months.
  • Faster turnaround allows operators extra day trip.

Second, operators themselves find it more economical to operate Volvos because their more powerful engines (290-340 hp compared to the usual 120-150 hp) allow them to complete trips faster and create space for an additional day trip or even charter these buses to corporates. Transporters say these new models, backed by modern technology and company-led maintenance, need to be overhauled once only 80,000 km, against 40,000 km for the competition.

Transporters can earn more from the Volvos by charging a 30-50 per cent premium on fares and get more trips out of them—for example, by doing the overnight run from Bangalore to Hyderabad and following up with a day trip to Vijaywada instead of giving the vehicles a break, as required by regular buses. By using a Volvo for 18 hours a day rather than 10-12 run by competing buses, payback time can halve from three years to 18 months.

"We can make the trip from Bangalore-Mumbai in under 18 hours —14 hours, if you exclude the pain of entering and exiting both metros— while the train takes up to 24 hours and air fare is now unaffordable," says Ashok Dubey of Sharma Travels. Other routes, too, are faster by Volvo; Delhi-Hyderabad takes only 11 hours in a Volvo, Passey claims, compared to nearly 16 hours in conventional buses.

Passey knows what a slog it has been. A decade ago, when Volvo entered the market, a consulting outfit commissioned by Volvo actually suggested that it desist from bringing its costly buses into what was then a small market. "This study suggested that if we sold our bus at Rs 40 lakh each, we would sell no more than two buses a year," he recalls.

Passey set aside the report, imported a few 10-gear Volvo buses from its plant in China and gave them out on trial to select operators, including Sharma Travels. Priced at Rs 1.1 crore each, these buses were vastly more expensive than their nearest rival and Passey had many doors shut on his face before he made his first sale. In the first year, Volvo sold just 20 buses built in India, as state-owned and private operators baulked at the thought of spending double (Rs 40 lakh upwards compared to Rs 18-20 lakh for conventional vehicles) on a bus untested on Indian roads. Passey, however, was adamant there was a viable market in India.

"The buses here at the time were built on truck chassis… we offered the latest technology, far greater passenger and driver comfort and faster journeys," he says. Passenger comfort— a noise-free cabin, larger storage space, better suspension—was an important incentive for operators to buy a Volvo bus. These incentives certainly worked for transporters. From selling just 50 buses in 2001, Volvo sold 250 in 2005 and this nearly doubled to 450 last year. Along the way, Passey has bagged 22 of the 25 state transportation corporations as customers and even has buses going from Kolkata to Dhaka in Bangladesh.

Comfort for the customer
By AirRs 3,000
By Train 2ACRs 1,000-plus
By VolvoRs 750 upwards

Passey says India—which is the world's second-largest bus market after China—is among the top five geographies for Volvo buses globally. "Despite the slowdown we expect to sell around 500 buses in 2010." Despite these impressive growth claims, some analysts such as Vikas Sehgal of Booz & Co, a management consultancy, argue that the opportunity in India may be too limited for more than a couple of serious players. "The Indian market is around 50,000 units and is very cyclical," he says.

While a large chunk is dominated by budget buses, a growing sliver could be occupied by luxury variants, he admits. But, while a widening highway network could create demand for more luxury buses, it could equally prompt people to use their own cars. He also points to the high prices of the new range of luxury buses as another factor that could slow growth.

Operators could also hurt themselves with flexi-pricing. Mujahedeen, the frequent traveller, says: "During holidays and long weekends, Volvo operators double the fares, so if you are lucky, trains may be your best bet." Then, the other big hurdle could come from managers at state road transport corporations, who compare one-time costs of spares rather than look at the lifetime cost as propagated by Volvo. (Fleet operators say spares for foreign breeds cost two-to-three times that for Ashok Leyland and Tata Motors.)

With Union Minister for Road Transport and Highways Kamal Nath promising to build 20 km of new highways a day, and India leading the world out of the slowdown, luxury buses could be set for a ride in the fast lane.

Fundamental Comfort
City buses also get a luxury makeover.

Across a dozen cities in India, commuters used to crowded, uncomfortable buses built on truck chassis are getting something of a comfort break. Thanks to the decision of local transport utilities such as the Bangalore Metropolitan Transport Corporation (BMTC) to opt for low-floor buses and purchases under programmes like the Jawaharlal Nehru National Urban Renewal Mission (JNNURM), commuters now have the option of a more comfortable ride.

In the past few months, several other cities including Delhi, Faridabad, Navi Mumbai and even Kolkata have launched low-floor buses. In Bangalore, these services are targeted mostly at the top-end—software engineers at upscale residential or office locations—while modified low-floor buses to the distant airport transport almost two-third of travellers to and from the city.

In Navi Mumbai and Faridabad, these buses are used to connect to the larger metro cities—Mumbai and Delhi respectively—a largely underserved market. In Kolkata, these low-floor JNNURM buses are entering all routes, not necessarily the posh ones. Volvo Buses expects to bag orders for at least 600 city buses under this scheme, with some 15,000 aged city buses expected to be replaced under this programme. Several other players including Ashok Leyland and Tata-Marco Polo already have a large share of this market.

Additional reporting by Kushan Mitra

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