RIDING IN STYLE: Private bus companies are giving municipal bus lines a run for the money.
KLAIPEDA - Gas prices are swelling up, buses are running semi-empty, and commuters are becoming fussier while road carriers are seeking new business opportunities to make their ends meet – that is how the market of national road carriers could be tersely described. Facing this plight, Lithuania’s passenger transporters vigorously look out for efficient ways to cut down their expenses and maximize their resources.
Julius Majauskas, an acknowledged transport expert, has long been researching the national transportation system. His insightful expertise in the field has reached the desks of high-ranking officials at the Ministry of Transport and Communications and, locally, mayors.
“If we look at the market trends of the last couple of years, it is obvious that they have been mostly affected by the increased VAT two years ago, from 5 to 19 percent, and the higher excise tariff. Both have considerably increased road carriers’ expenditures, and made them desperately seek ways to mitigate the impact,” Majauskas says. He maintains that passenger carriers, facing the increased taxation, opted for hiking up their ticket prices, refusing loss-making routes and shortening existing routes.
“With the crisis behind us, their plight has not changed a lot, as most passenger carriers teeter on the brink of insolvency and bankruptcy,” Majauskas asserts.
While intercity bus services, without some exceptions, have been largely insignificantly affected by the modernization of the state over twenty years, urban transportation has seen substantial changes throughout the years. With the collapse of the state transportation system, private companies, mostly serving commuters in cities and towns, started springing up twenty years ago. The private urban transportation turned quickly into a very lucrative business for all business start-ups. Providing their transportation services in shuttle buses, ranging from clunker-type rattling four-wheel boxes to modern air-conditioned vehicles, the number of carriers throughout the years kept skyrocketing, while municipal passenger carriers were seeing semi-empty municipal buses.
In the face of severe competition, some municipalities, fearing collapse of municipal public transportation companies, have taken drastic measures against the private entrepreneurs, constraining their undertaking with multiple hurdles - tightening orders on issuing licenses necessary to run the shuttle services, urging shuttle drivers to pick up and drop off commuters only at regular bus-stops, not just anywhere upon request of a passenger, which has given the fast-maneuvering shuttle buses a significant edge over clumsy municipal buses.
The attempts to restrain the private entrepreneurship, however, in most cases, ended in the municipalities’ losses in court, as it saw the constraints being a violation of the Law of Competition. Nevertheless, other local governments, like Klaipeda Municipality, learning from the prohibition-prone municipalities, have embarked on another road – renewing their local public transportation fleets, bringing more services and, most importantly for money-savvy regular riders, setting a significant discount system. While a number of municipalities are still entangled in costly and lengthy litigation procedures with private carriers, the mentioned counter-competitive measures have worked well in Klaipeda Municipality, which sees larger numbers of commuters on its tidy municipal buses. Moreover, it, along with Kaunas and Vilnius municipalities, benefiting from EU financing, have introduced e-bus tickets, renewed their bus fleets and built “real-time” information boards at most bus-stops, informing public transportation users of the itineraries, buses’ expected arrival times and more.
“Obviously, the three municipalities have coped best with the problems of public transportation,” says Majauskas.
However, these improvements in the public transportation systems are dwarfed by the market-crippling adverse impacts, decreasing numbers of commuters, and overall, old bus fleets and heavy debts of public transportation companies. In those terms, the three aforementioned municipalities hardly make an exception, as they, especially burdened by a heavy load of debts, especially arising from carrying socially-sensitive groups like school pupils, pensioners and students, which make up the bulk of public transport riders, plunge deeper into uncertainty.
In the market where most players scramble to stay afloat, there are some nice examples of an innovative approach to tackling the problems. “Generally speaking, the passenger carriage market is gloomy, as it continues to shrink. However, facing the burdensome reality, you either keep whimpering, giving up to the current until you drown, or you try to give a fight for your life,” Linas Skardziukas, director general of Kautra, one of the largest road passenger carriers that has taken an innovative approach to the passenger transport business, said to The Baltic Times.
While other bus fleets in the country keep downsizing, Kautra has chosen the opposite – expand its passenger-carrying capacities and take on new, transport-related businesses, such as cargo haulage and bus rentals.
Thus, over the last one-and-a-half years, Kautra took over debt-ridden public transport companies of six municipalities in the south of the country, optimizing administration of the extended fleet, reviewing route itineraries and overhauling the fleets. “I do not expect the changes to turn into a high money turnover and large profits any time soon. Nevertheless, with the shake-ups, we were able to see what works well for us and what does not. Obviously, with the optimization of itineraries and the renewal of bus fleets, passengers feel the change and they keep coming back to our buses. Sure, one wants the numbers to be larger,” Skardziukas related.
He acknowledges that the company, which is quite short of current assets, has taken bank loans for nearly 17 million litas (4.9 million euros). “I know no transportation company that could go without a bank loan,” he says.
Having recently taken over Druskininkai Transport Company, Kautra invested 4.5 million litas into its expansion and renewal, allowing Druskininkai to become the first Lithuanian town to carry passengers on inside-town and suburb routes only in brand new or nearly-new buses.
“Druskininkai is a very attractive town for implementing innovations and novelties. We have equipped our Druskininkai-bound buses with the newest technical gadgets, such as general positioning systems, parking sensors and cam recorders. All this eases up driving and brings more comfort and safety to passengers,” the Kautra director general said. “We invest a lot, and we expect the investments to pay off. Not now, but later,” he added confidently.
Kautra has signed an agreement with Druskininkai municipality for rendering transportation services for five years, foreseeing its extension. Kautra has already acquired four five-year-old low-floor MAN buses for operations in Druskininkai, while six brand new Volkswagen Crafter buses are to reach the resort town soon.
“It is great to have this solid company in our town, as we strive to provide our residents with the highest-quality services,” Ricardas Malinauskas, Druskininkai mayor, said as he welcomed the newcomer.
In light of the innovations in the sector, Kaunas and Druskininkai mayors have recently signed an agreement introducing electronic ticket cards (ETC) in both towns. It is expected that ETCs will be used soon not only for commuting between the towns and in them, but also for parking and other transport-related purposes. Kaunas Mayor Andrius Kupcinskas, rejoicing over the novelty, went further, pondering possibilities of using the e-ticket in school libraries while issuing books or in school canteens for settling bills.
In Vilkaviskis and Prienai, Bus Fleets, two other Kautra takeovers, the company has invested one-million litas into each, fully renewing the bus fleet in the first one and 70 percent in the latter. The Kaunas-based innovative transport company has bought 24 vehicles for the two takeovers in total. Most of them are brand new.
However, the Kautra director admits, despite the innovations, passenger transportation remains unprofitable. “The market has shrunk considerably lately. It is no wonder, as Lithuania itself has shrunk substantially over the last five or ten years. Those who stay here tend to buy their own cars instead of using public transport,” Skardziukas says. He acknowledged to The Baltic Times that last year, suburban passenger transportation experienced an “extremely high” loss, while international bus routes were “making a bearable loss.”
“Only intercity domestic bus lines edged up, with an insignificant profit,” the director revealed.
Speaking of the international routes, Kautra runs its ten buses along them, and keeps an eye on enlargement of its foreign directions, possibly to Poland and Belarus soon. “It makes no sense to penetrate the foreign markets on your own; as the international passenger transport market narrows, its players, as a rule, consolidate their resources and re-adjust to servicing shorter international routes, or pull out from the business. Only those carriers that closely cooperate with reliable counterparts abroad stand the best chances of staying in the market,” the Kautra director maintained.
Despite the overall so-and-so performance in the passenger transportation sector, Kautra made up its losses from its other business activities, bus rentals, first. “It has helped us to ease up the crisis aftermath, and, overall, set off the balance sheets,” Skardziukas acknowledged.
In addition to the bus rentals and passenger carriage businesses, Kautra is about to penetrate into the cargo haulage market. For that purpose, the company has acquired 20 brand new trucks for over 7 million litas. The vehicles are to set off for their maiden business voyages next week.
“We have set up an affiliate of the company, Kautra Cargo, on purpose to fully use the potential of our available facilities, such as auto repair-shops, garages and parking lots. We plan on carrying cargo not only in Lithuania, but also in Europe and, especially, in Russia. If the business activity stands up to our expectations, we plan on increasing our truck fleet,” the Kautra director revealed.
Last year, Kautra’s turnover was 43 million litas as earnings reached 2 million litas before taxes. The director expects to gain an even larger profit this year.
Kautra’s key rival in the domestic and foreign markets, JSC Toks, also acknowledges the adverse trends in the passenger carriage market. “Only international routes bring some profit, as we see large numbers of travelers, mostly emigrants going to Great Britain and, especially now, with the opening of labor market, to Germany. Overall, all Lithuanian carriers have gained better results on foreign routes after optimization of expenses and worsening in air-connections,” Arunas Indrasius, Toks’ director general, says.
He notes that, throughout April and June of this year, a 40 percent increase in foreign trips was reported in comparison with the same period last year. “Definitely, the situation has improved when Germany and Austria opened up their labor markets. Lately, reviewing the soaring bookings, in pursuit of accommodating all passengers on the routes we tend to switch from regular buses to double-decker buses,” Indrasius admitted.
His counterpart from Kautra, marketing director Gintautas Pakusas, agrees on the emigration impact on the international carriage business. “First, it is sad for Lithuania that more and more of its people leave the country for Western Europe. Indeed, the number of German-bound passengers has increased considerably lately. It is still hard to say whether it will shape up into a definite trend, or whether it is a temporary phenomenon. A similar situation was when Lithuania joined the European Union; we could hardly satisfy the emigrant exodus to Great Britain,” Pakusas suggested.
Despite the increased flows to Germany, the carriers are not in a hurry to add more buses to their fleets in that direction. “We intend to monitor the development of the situation. It is a bit too early to strike any conclusions as to the shaping demand and the passenger numbers. Judging from the flows, it seems that 60 percent of German-bound passengers do come back to Lithuania within several weeks, suggesting that their trips are sort of a reconnaissance before making the ultimate decision about emigration,” the Toks director said.
Both Kautra and Toks, the two largest passenger road-carriers in Lithuania, unanimously agree on the most adverse impacts on the business. “Definitely, they come from cheap airlines and illegal road carriers,” Indrasius points out. According to him, cheap airlines indulge many privileges, particularly when it comes to tax alleviation. “The majority of passengers opt for cheap flights on budget airliners, albeit not heeding possible inconveniences in flight connections, etc. Nevertheless, the most bothersome problem is illegal and uninsured road carriers.
If you flick through a larger newspaper or browse Internet sites, you will come up with hundreds of adverts offering to take you anywhere in Europe. Alas, most money-strapped riders do not pay attention to the fact that these kinds of carriers do not give a thought to their passengers’ safety, comfort and insurance. In our buses, for an insignificantly higher price, our passengers get much more of that,” Indrasius, the Toks director, emphasized.
Kautra carried 60,703 people along its foreign routes last year, while Toks transported 103,196 passengers at the same time, 8 percent down from 2009.