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What is happening in the Western Cape in the Bus Hire Industry - are bus and coach companies really in the worst financial position ever during the last 10 years?

In general this statement seems to be true; it is a fact that at least four reputable coach operators have had to either sell their businesses, or sell shares to large holding companies, or sell a substantial part of their fleet in order to survive financially - or at least to buy some time for some or other miracle to happen. Where did things go wrong then? At the turn of the century it was like arriving in heaven if you were in the bus and coach business. One could buy a luxury tour bus for R1.8m and get a R600 000 "cash-back" subsidy from the government - to help entrepreneurs get on their feet and use the funds as operating capital until the business was sustainable.
It seemed there was enough work for everyone that purchased these subsidized buses with the nice fat cash back, plus tourism was on an upward curve and credit easily available - whether in the form of overdrafts from banks to aid entrepreneurs even further with their cash flow, or suppliers of fuel giving extra lenient terms.
On the surface everything looked fantastic - in the Western Cape alone a R100 million was floating around in cash backs / subsidies - a successful new South Africa was at long last a reality in this industry! Well, at least for the better part of the decade things were looking rosy and after tourism started its downward spiral in 2008, there was at least the expectation of the 2010 Soccer World Cup to keep the boat floating,or rather the bus on the road, with strange looking contracts being dished out around every corner - and bankers not wanting to spoil the party; the World Cup was the life line in the midst of a hard hitting global recession for most bus and coach operators nationally - even the ones with the reputable names.

To cut a long story short, it was just a matter of time for all of the above to take a turn for the worst.

  • Very few subsidized bus operators had the experience, knowledge or ability to manage their businesses in such a way that it had any chance to become sustainable when the substantial cash subsidies were depleted and the credit crunch came into play.
  • Bus hire rates in the Western Cape have not made sense for years - simply because the average (and even above average) bus operator are not aware of their break even point on running a coach - in other words buses have been dumped in the bus hiring market for years where the operators do not cover their total cost to operate the vehicle.
  • Not only did this mean a slow death for many, it has also created a market in which clients, from international tour operators to the local school or church, have been able to hire a bus at 30% less than the going rate in Gauteng. With the Gauteng bus operators being exposed to a much larger market with less seasonal trends than the Western Cape, and still finding it hard to survive, where does it leave the operators with less vehicle utilization and rates at 30% less than the what it should be?
  • To make matters worse, 420 luxury coaches were bought by the government for the Soccer World Cup, thereby vastly increasing the capacity of an already over supplied industry.
If these inherent problems are going to be resolved through the usual dynamics of market forces in a free market economy, remains to be seen. Closing of companies and retrenchment of staff leaves a bitter taste though when one looks at the millions of rands of tax payers' money that have been wasted.
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