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Stagecoach is launching its Megabus brand into continental Europe, highlighting the opportunities available to intercity coach operators as mass-transport markets in countries such as France and Germany begin to deregulate.
New Megabus routes between London, Paris, Brussels, Amsterdam and Boulogne represent Stagecoach’s return to Europe more than a decade after pulling out. But where its former businesses, including bus operations in Portugal and Sweden, won contracts from local governments, Megabus will stick to unregulated routes.
“We like planning the network ourself,” said Sir Brian Souter, Stagecoach’s founder and chief executive.
He hopes rising fuel prices and a difficult consumer environment will help low-cost, yield-managed Megabus achieve the same impressive growth in Europe that it has in the US, where it drove revenues 70 per cent higher last year from 2010.
The operations will be based out of London, with three of the four new routes connecting to the UK capital. The fourth runs between Paris, Brussels and Amsterdam, with tickets selling for as little as £1.50 or €1.50.
The group is focusing on inter-country journeys because those escape regulation. But further growth could come from the likes of France, which has already opened up, and Germany, which is slowly moving toward deregulated models. Sir Brian said he hoped to be looking at further expansion in six months’ time.
Established Megabus routes in the US generate margins of more than 20 per cent, but analysts predicted they might prove more modest in Europe.
Alexia Dogani at Liberum Capital said the biggest difference between Europe and the US was the presence of an extensive rail network. “In the US, you’re competing with airlines and cars, but in Europe there’s also a much more interlinked high-speed network to contend with.”
But Sir Brian said Megabus’s experience in the UK suggests that should not damp growth, citing strong traffic figures both on Virgin Train’s West Coast rail franchise – a joint venture between Stagecoach and Virgin – and Megabus’s London-to-Manchester service, where lower prices tend to draw in more leisure travellers, students and pensioners.
Another analyst said margins might be lower in Europe simply because, with cities closer together, the “sweet spot” of 400km-500km journey lengths would be more difficult to achieve.
Megabus’s only competitor for cross-Channel coach services is Eurolines, operated by National Express, which has achieved strong traffic figures. National Express is also the biggest UK-listed operator in Europe, with a significant coach and bus business in Spain that yields 16 per cent margins.
Megabus also plans to start talks with coachmakers Van Hool of Belgium about vehicles for the US market that could accommodate beds. Some Scottish routes operate sleeper coaches, but different specifications are required across the Atlantic.
The group appears to be focusing on Megabus in America, having sold off some of its US school bus operations last year.