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COLLAPSE OF RURAL SERVICE Although the ADA is clearly discriminatory, and should be amended, it was passed by an overwhelming majority in the Senate and has the unqualified support of the Administration. As prudent business operators, therefore, managers of Greyhound Lines have no choice but to begin planning for operation under the legislation.
There can be no doubt about what is ahead for us. We face an enormous new cost burden, and a price-sensitive customer base that will not allow us to raise prices. The only alternative is to curtail or eliminate unprofitable service.
Before getting to the specifics, let me take a moment to set aside several myths that sometimes get in the way of a rational business discussion.
. First, we hear the comment, "You are a big company and you can afford it," as if those two characteristics were inseparable. We are about the size of the nation's eighth largest airline, Southwest Airlines, which earned a profit of 10 cents on the dollar last year, and is having another great year in 1989. After two losing years in a row, we have high hopes of making 2 cents on the dollar this year.
• Second, we have been lectured repeatedly that costs don't count, and can't be considered in matters of this type. That is easy to say for someone who is spending other people's money. Those of us who must contend with employees who want job security and more pay, customers who resist higher prices, and bankers and stockholders who want a fair return on their investments can never say that costs don't count. And that does not apply to the private sector alone. It seems to me that the focus of our government for the last decade has been on dealing with problems created by the "costs don't count" attitude.
Third, I'm giving you cost estimates of complying with ADA, knowing full well that many people automatically dismiss any cost estimate from a company faced with new legislation or regulation. Even The Wall Street Journal, in its editorial denouncing ADA, could not resist the temptation to discredit our numbers. I believe you can decide this matter for yourselves. Our financial reports are a matter of public record. I have copies with me today of our reports to the Securities and Exchange Commission for 1988 and the for first six months of 1989, available to anyone who is interested.
Fourth, when all else fails, people tell me we have six years to get ready, so why worry about it today. Let me tell you why. My associates and I acquired an operation in March, 1987, that had been allowed to deteriorate for a decade or more. We launched a massive investment program to rebuild the company, including new buses, new computers, new terminals, training programs for employees, and much more. We are building for the long term, and from that point of view six years is not far away. A new bus at $200,000 should last 10 or 12 years. In June, we opened a new terminal in Kansas City, for $6 million. Another new terminal, at a cost of $15 million, is under construction in Chicago. We expect these and other new facilities to serve our needs for several decades, and we have arranged financing accordingly. Now, our entire rebuilding program is called into question. These financial issues are much on my mind, because when this hearing is completed I will be going to New York for a meeting with our bondholders. They do not believe six years is such a long time, and they want to know about our plans.
Fifth, and finally, we are up against the myth of the Freedom Riders. The civil rights movement of a quartercentury ago ended racial discrimination in transportation. The beneficiaries were the poor, minorities, and people in isolated rural communities. Those same people will be victims this time, through increased fares and loss of intercity bus service to most rural areas. While the earlier civil rights movement expanded mobility, this bill will curtail mobility, not for airline travelers but for our core customer base of rural people and those who can't afford to fly. the freedom ride, now we may see the last ride for much of our system.
With that said, let me turn to our business plans. The starting point is the concept of cross-subsidization, which was common in the airline industry during regulation. Airlines were given lucrative, high-density, high-profit routes in combination with low-traffic, unprofitable routes. They had to take the bad to get the good. Profits from some routes covered losses on others. As soon as deregulation came, of course, airlines pulled out of the losers. curning them over to commuter airlines. For routes chat are not economically viable, Congress provides a subsidy through the Essential Air Service Act.
We have seen
At Greyhound Lines, after deregulation, we are still operating under the cross-subsidation system, as a way of maintaining service on unprofitable rurai routes.
The following table shows the number of miles operated for the month of July, 1989, and for the 12 months ended July 31, 1989, and the shift that would take place under ADA.
The key numbers are on the second line. We are operating 32 percent of our bus miles today at a loss. Under ADA, if we were to keep the same route structure, we would be operating 51 percent of our bus miles at a loss. I know of no enterprise that could survive with more than half its operations losing money.
Most of the 32 percent of the bus miles we are operating at a loss today are in rural areas. Under ADA, those loses will increase. Here is a list of the people who are now subsidizing our rural routes:
· Our urban passengers, who are the least able to do so. They include people on tight fixed incomes, such as students, enlisted military personnel, and senior citizens. They also include lower income groups, the disabled, and people who can not afford rising airline fares.
Individuals and small businesses who ship packages.
Our employees, whose wages and benefits are set by competitive market rates and by our financial performance.
our investors and shareholders, who will receive depressed returns if we continue to operate at a loss.
In short, our policy of cross-subsidation will fail under ADA. There will not be enough profitable routes left to support the unprofitable ones. Furthermore, monumental losses of this kind can not be fixed through tinkering with schedules. It will require a new business strategy that reduces fixed costs for terminals, garages, and payroll.
I have some maps that show the work we have done to date on our restructuring.
The first map shows routes where all schedules, even under ADA, will be profitable. These are the high-density routes connecting major urban areas, and are only a small part of today's national network.
on each route we usually operate several schedules a day. The second map shows routes where at least one schedule a day, usually more than one, will be operating at a loss under ADA.
The third-map shows the routes that will be operating at a loss. That is, the total of all the schedules is in the red.
The fourth map shows the outline of the new Greyhound Lines system that will emerge from our restructuring. It has three zones:
The blue zone shows our strength. In this area we will be able to maintain a network of routes to serve major locations. However, as I will show in a moment, there will be: substantial cutbacks within most of these states.
• The yellow shows the area of major restructuring. This is where most routes now lose money, even before ADA. We will discontinue service to most locations off the main roads, and the buses on the main roads will make fewer stops.
In the pink area, we will maintain only the one bridge route on the interstate highway connecting east and west.
Now let's turn to some individual states.
Here is our home state of Texas, where we have unprofitable service to dozens of small towns. In addition, here is what we see ahead in Ohio, North Carolina, and Missouri.
In summary, we now serve about 10,000 locations. Since all the airlines, including commuters, serve less than 500, and Amtrak serves basically the same places, we provide the only public transportation to 9,500 towns and rural communities. Under ADA, Greyhound will cut in half the number of locations it serves. The new structure will provide service to about 5,000 locations, putting an end to intercity bus service to the other 5,000 locations now on our map.
The radical restructuring will have a devastating effect on our people. Greyhound now employs 12,500 people, with another 8,000 people working for contractors who operate our terminals. In the transition to the new route network, we will eliminate 10,000 jobs.
Fortunately, there is an alternative.
The reason for today's hearing, and the controversy about provisions of ADA dealing with the intercity bus industry, is, to use a cliche from another form of transportation, we have the cart in front of the horse.
ADA proposes a comprehensive study of technology, costs, market demand, and alternate solutions. Normally, that information would be available before, not after, enactment of a legislative mandate. In business school slang, the Senate bill is a case of "Ready! Fire! Aim!" Again, it is not enough to say that adjustments will be made as indicated by the study, which will be available in three years. Adjustments will not be automatic, but can be made later only through new legislation.
Three years from now happens to be 1992, which happens to be an election year. Who wants to predict what the Senate, the House and the Administration will do with a hot potato like this in a campaign year. It is not a comforting prospect.
Let me propose a five-point program to increase mobility for the disabled.
Our new Transportation Assistance Program. For the last 14 years, under our Helping Hand program, we have provided free transportation to companions traveling with disabled passengers. At the request of the disabled community, we have revised the program to permit the disabled to travel alone, with advance notice of 24 to 48 hours. We will provide boarding assistance, and will carry most types of battery-operated wheelchairs.
2. A nationwide 800 number for the disabled. This number will go into effect with the new Transportation Assistance Program. Operated 24 hours a day, it will provide information and make reservations for wheelchair passengers.
3. A new boarding chair for the disabled. We are designing a chair to permit loading of disabled passengers through the front door. It has a sliding seat mechanism which, in combination with the movable armrest of the Greyhound seat, will enable a pasenger to be moved into the bus seat without any lifting. It is better than procedures used by airlines. In two years, we will have these chairs in our 200 largest terminals, which handle more than 80 percent of our passengers. For other locations, we can transport a chair from one of the larger terminals on 24 hours notice.