In general, for all modes of transport, better assets (buses in this case) and less variety contribute to profitable operations. For example, airlines restrict the number of airplane designs it operates - SpiceJet uses only Boeing-Bombardier whereas Indigo uses Airbus-ATR. Operators using diverse fleet tend to buy capacity rather than assets themselves. Thus, you buy seat capacity and let maintenance be taken care of by asset owners. Thus, the BrihanMumbai Electric Supply & Transport (BEST) can buy capacity from all Tata, Ashok Leyland, and Eicher Motors and let the manufacturers maintain the buses. Or if BEST is going to maintain the buses it can buy all the buses from only one manufacturer. It allows better negotiation and efficiency in maintenance.
Maintenance costs of the BEST are 60% of its total costs and one way to reduce it is by streamlining the fleet. Improving operational efficiency of transportation can be done through better fleet composition. With huge maintenance costs at 60% of total costs, this area assumes importance for BEST.
Fleet standardisation has many benefits. It improves maintenance efficiency, fewer types of machines and tools are required, inventory of parts is reduced, better discounts as purchases are high volume. In addition, the drivers, and maintenance staff get a feel for the vehicle. Further, fleet addition, specifications and contracts becomes easier and faster. However, there are risks too. It is possible the vendor can exploit by charging higher amount for parts unless adequate safeguards are built into the contract itself. Yet, with prudent non-corrupt management from BEST side, it is not impossible to achieve this. Further, BEST can explore fleet purchases internationally as well.
The nature of fleet required by BEST emerges from our earlier discussion.
BEST will need a smaller capacity bus for feeder role. These buses need to be comfortable but simple with easy get-on get-off access. Smaller buses will also find it easier to enter station areas or crowded inner-city lanes making BEST as convenient as taxi or auto-rickshaws.
The Trunk-transportation role needs higher capacity buses. Since it operates at two price points, it will have standard and luxury interior option. The underlying bus remains the same.
Shuttle services to airports, long-distance railway stations, out-station buses need bus configuration that helps passengers carry larger bags. While these are large capacity buses of same make as Trunk route buses, it is only their configuration that is different.
BEST fleet will be of two capacities of buses - on smaller capacity, 20 seats and larger capacity 50 seats. The feeder buses need to have metro-style seating so that people can stand comfortably. It will also need larger doors and twin doors (separate for entry and exit). It needs to be fitted with ticketing system that allows easy ingress and egress.
The standard trunk-route buses can be a large capacity buses with normal seating and one passenger exit. The luxury bus needs to have productivity options such as a table, access to charging points etc. The shuttle needs more space to carry luggage and probably facility for additional services such as check-in. These buses need to be of the same make and outer construction. Their interior construction just needs to be different to suit the requirements. The colour may be different to indicate the luxurious variant. Similarly, the shuttle too is the same shell just interior fitment is different. The principle is minimum variation as possible.
Thus, we have two capacities and the larger one comes with three variants.
Fleet size & other vehicles
In terms of numbers, BEST needs more feeder buses than trunk-route buses. Within trunk-routes the mix between standard and luxury buses is a function of demand. Further, the choice of bus determines availability and thus how large fleet is required by BEST. Thus, we need fewer of reliable buses than unreliable ones. BEST had terrible experience with King Long buses. (Which are not the real Chinese King Long buses). Apart from the main bus fleet, any transport operator needs support vehicles, breakdown vehicles, towing vehicles, which may be selected based on reliability and other factors.
Fleet ownership v Fleet rental
Currently, BEST owns its fleet of buses and vehicles. However, there is a logic in buying capacity rather than bus. Bus being a depreciating asset, bus operators have two options. Shipping companies maintain the ships so well that fetches more than the book value. Airline companies prefer to lease the planes on a medium term basis. Volvo used to offer transporters an option to buy capacity rather than buses itself. Thus, Volvo would commit to make N buses available at all times. These options need to be tested for financial viability.
As per BEST financial statements, running expense and Repairs & Maintenance constitutes 60% of the total expenditure. This does not include fuel, operating materials, lubes and tyres. The shabby accounting does not allow for more detailed understanding of the expenses. Nevertheless, from my interactions with personnel, maintenance is a critical issue. Standardisation of fleet will reduce some of the inefficiencies in the maintenance program. In years to come, BEST has to make a strategic choice whether to own the fleet or rent influences this decision. Yet, the logic for fleet standardisation remain strong and BEST will benefit from it.
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(Rahul Prakash Deodhar is a lawyer, investor and author with experience spanning manufacturing, consulting, investment banking firms. He has advised a wide range of clients including Fortune 500 companies, public and private sector banks, hedge funds and private equity funds among others. He has developed econometric models for demand forecasting in real estate, metals, airlines, and shipping. He designed MIS and planning and budgeting systems, sales networks, and operations for large corporates. He has worked with Aditya Birla Group, CRISIL and Morgan Stanley. He is author of two books – Subverting Capitalism and Democracy and Understanding Firms. He can be reached at [email protected] or at his website www.rahuldeodhar.com.