PROBLEMS OF THE HAULIER AND CARRIER. Cutting Rates for Motor Coach Trips. An Example and the Folly of it.
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"Whom the Gods would destroy They first make math" .
IN the case of motorcoach owners the madness takes the form of price-cutting. There can, I hope, be nothing libellous in making the foregoing quotation. Goodness knows, it is old enough and oft quoted enough to save it from that implication. My use of it, at any rate, is not intended in any way to be personal.
Nevertheless, I must admit that I do want to deal with a particular ease. I want to make it an object lesson in what ought not to be done and I propose to do so by showing the difference between the fares which are actually being charged and the economical rates for the same distance. Every London reader no doubt will be acquainted with the particulars of the ease I have in mind and it is more than probable that many others will make a good guess at it.
The case was quoted in one of the leading London evening papers a few days ago. For the benefit of those who have forgotten the details, as well as to bring the matter clearly to the minds of those who have not happened to hear of this particular matter, I will quote the gist of it from the paper in question.
Fare-cutting Extraordinary.
The parties to the affair are on the one side "A," who owns six mobarcoaches, and "B," who has four, and, on the other, "C," of the Service Motor Coaches, who possesses only one 20-seater.
A few weeks ago "C" advertised daily trips to Brighton (about 43 miles each way) at a return fare of 3s. 9d., a reduction of 1s. 3d. on the charge which had hitherto been the standard one.
This was regarded as a declaration of war by the other two firms, who promptly reduced their fare to as. " C " went one better and came down to 2s. Dd.,
whereupon Messrs. "A" and " B" made a further reduction to 2s. 6d.
Now "C " is running at 2s. and his coach left the south of London for Brighton to-day (as I wnite) with a full complement of gleeful passengers. Seven other coaches belonging to the enemy also left, nearly all full, at 2s. 6d. a head.
The original fare to Brighton and back from here was 7s. 6d. on Sunday and 5s. on week-days.
What are the Economic Fares ?
Now what is an economic fare for this trip, assuming for the moment the use of a 20-seater coach? The distance to Brighton, out and home, from the point where these coaches depart, is 86 miles. Seven journeys are run each week, so that the total weekly mileage, in round figures, is 600. The season during which this mileage will be run will not at the outside exceed six months, and during the remainder of the year, if the coaches be still run as such, a weekly average of 150 miles is probably the maximum. The averagebfor the year is therefore 375 miles a week.
Now the running costs of a 20-seater amount to 5.6d. per mile assuming the price of petrol at a shilling a gallon. The standing charges are £6 10s. a week. The total cost, therefore, per 375-mile week is £15 5s. If we take it that the establishment charges are 35s. a week and if we allow for a profit of £5 a week, the average returt.i throughout the year should be £22 a week. Dividing £22 by 375 we arrive at the minimum „return per coach-mile, which is 1s. 2.6d.
If the coaches were always full that would mean that the fare should be at the rate of .73d. per passenger per mile, which for 86 miles would be 5s. 21d. We cannot, however, assume such extremely favourable conditions, and it is not likely that the average would exceed 14 passengers • per trip. Assuming that as a basis, then the minimum economic fare should be a penny per passenger-mile. That is to say, 86 pence, or 7s. W., is the minimum fare for the return journey.
Under Favourable Conditions.
Now suppose we take the season on its own without reference to what is done with the coach during the remainder of the year, or we may assume the allowance for establishment expenses is sufficient to permit of the coach being laid by for the winter. In that case we have to reckon the total costs on the basis of 600 miles per week. In that way, and assuming establishment expenses and profit to be as before, the minimum return amounts to £29 a week. and the revenue per vehicle-mile to 11.6d. Again, assuming an average of 14 passengers per trip, it is easy to calculate that the minimum fare for the journey should be 6.
AU these calculations are based on the assumption that all the parties to this miniature warfare are running 20-seater coaches. We have no actual evidence, however, to that effect. All that we know is that the one who first reduced the fare was running a vehicle with that seating capacity. It may actually be the case that the others are using 32-seaters. In that event their operating costs will be as follow:—
Running costs at 7.83d. a mile, £18 16s. a week ; standing charges, £8 a week ; total opr•?rating costs, £20 16s. This, with establishment charges at £2 and profit at, say, £5 4s. a week, means that £34 a week is the revenue which should be obtained. In that case the revenue per vehicle-mile must be is. 1.6d., and assuming that the coaches carry on the average twothirds their capacity the fare should be 6.2d. per passenger-mile, which is, approximately,' 4s. 6d, With 32-seater coaches, therefore, the old fare of 5s. was a profitable one, and there was a little bonus made on Sundays with the 7s. 6d. fare.
Why Cut?
It is difficult to enter into the mind of the man who cuts fares below An economic level. In this case apparently good business was being done at the recognized rates. There may, of course, be circumstances of which we know nothing, and the price-cutter may have found that business was not coming his way to the extent he considered desirable. This is an experience, however, which comes to every man in business,
no matter where that business may be, and it seems to me, if I may fairly criticise without knowledge of all the facts, that what happened was that the weapon of price-cutting was chosen to fight the competition, because it was the most obvious, because it was the nearest, whereas with a little search and fuller consideration, something just as effective (and possibly more so) could have been found which would not in use have proved so destructive to its wielder as might conceivably happen in this case.
Why does one owner of motor coaches get business whilst another in the same district fails? It is not necessarily a question of price. 013viously not, for it was while prices were all the same, presumably, that this one coach proprietor felt most keenly the effects of competition. The reason may have been that the vehicles belonging to the successful coach-owners were better upholstered, were better driven, kept better times, or went through more interesting country : it may have been that the man who was successful had discovered some particularly effective means and ways of attracting people to his particular vehicles. Possibly, his starting point was better known to the public or more easily accessible. He may have left Brighton at more convenient times. These or other reasons, of which there are many, should all be investigated before the drastic step of price-cutting be taken.
It is a mistake to attempt to draw a parallel between businesses Which are not alike in any particular, and in this ease it may be that the error was made of assuming that because in the sale of many articles of commerce reduced prices increase the demand and enable costs to be reduced as production is enhanced, the same procedure would react to the benefit of the motorcoach business. It might, but in this particular case, at any rate, increased production was impossible. Indeed, if what I have assumed about coach sizes is correct, then the reverse of increased production was operating and lower fares were being charged in connection with a vehicle which was more expensive to operate per passenger carried.
I think the moral to this particular story is that to cut fares shOuld be the last resource when fighting competition, that every other avenue for increasing custom should be explored and every other method of attracting custom tried before resort be had to that of reducing fares, save and except when it is obvious that, for some reason, the fares being charged are consider ably in excess of those economically sound. S.T.R.