With my latest relocation to Munich, Germany, I have discovered a new way to explore all the exciting destinations across Europe for no more than a few euros in the form of FlixBus, a long distance bus service.Typically, there is nothing sexy about buses, but FlixBus has reinvented this traditional business model and this is certainly making ripples in the travel industry.
FlixBus is the leading long distance bus service company in Germany and has acquired 90% market share in just about 5 years. The market for long distance bus services was liberated in Germany in 2013, and as co-founder Jochen Engert commented in an interview with CleverIsm: “How often is it that a market is liberated? This was just an opportunity too good to miss.”
FlixBus’ Business Model
Germany’s largest bus company only owns one bus and employs no bus drivers. That might seem a little odd, but that is what makes FlixBus’ business model so interesting. FlixBus is structured similar to a franchise, where FlixBus takes care of Marketing, Branding, Sales and Route-Planning, but relies on 3rd party contractors for operations.
FlixBus sees itself as a technology platform that offers services to transportation companies. The typical contractor is family-owned businesses that knows a lot about driving and operating vehicles, but very little about acquiring customers, via web, mobile and other platforms. FlixBus has a revenue split with its contractors and one will argue that it is a mutually beneficial partnership, as both parties brings unique competencies to the table.
The technology platform
FlixBus is creating a competitive advantage with branding, but the true competitive advantage is their technological platform. With Artificial Intelligence (AI), FlixBus can plan future routes and through large-scale data collection FlixBus can accurately forecast demand. The ambition of FlixBus’ CIO, Daniel Krauss is to offer on-demand bus services, similar to the Uber concept. This would allow FlixBus to instantly offer a new route to meet demand. However, with the current regulatory body, where every bus route must be approved, this innovation is yet to be realised.
Consolidating a fragmented market
One of the things that FlixBus has done really well is to consolidate a fragmented market and make the bus booking system convenient for the customer. With hundreds of smaller bus service companies it used to be both expensive and inconvenient to take the bus, but with FlixBus it has become just as easy as booking a flight.
Consolidating a market has different operational benefits. When you control 90% of the market you can optimize for efficiency and you are not forced to operate half empty buses. Contrary to the general theory that competition is beneficial for the customer, the customer is actually benefiting from FlixBus having something close to a monopoly. The theory is that Flixbus has an incentive in keeping prices low to keep its competitors out of the market. The breakeven point for a bus route is something like 70% to 80% passenger capacity. If a competitor starts operating a competitive bus route he is expected to have 40% to 50% passenger capacity making the route unfeasible. Eventually it will be a matter of who has the deepest pockets.
Rapid market expansion
FlixBus is already targeting markets outside of Germany and in 2015 they moved into France. In the first half of 2017 FlixBus has transported 3.3 million passengers in France, an increase of 70% compared to 2016. It is currently 30% cheaper to ride FlixBus than to go carpooling. Today the network spans all across Europe from London to Rome, From Paris to Prague.
The biggest threat
All over, the business model of FlixBus appears bulletproof to the naked eye. However, even FlixBus is not immune to accidents and when a bus crashed into a car on the Autobahn on Sunday 17th September 2017, it was FlixBus in the headline, despite the bus not being operated by FlixMobility GmbH and the responsible driver not employed by FlixBus. The lack of control of the fleet and the inability to enforce control of the drivers might be FlixBus´s biggest threat, just as we have seen with Uber hitting the headlines in the past for similar reasons.
Why is FlixBus so fascinating
Just like AirBnB and Uber, FlixBus is a great example of how data has become the most valuable asset in the modern internet driven economy. In record time, FlixBus has become the dominating mobility company in Europe without operating its own fleet. Because of FlixBus’ market position and its intelligent technology platform, the company has successfully created a competitive advantage that is hard for its competitors to copy. When you know where the customers want to travel, it is easy to effectively meet demand and design or adjust your network accordingly.
FlixBus is such an interesting case study because it exemplifies how no industry is immune to disruption. Nobody thought bus travel could be sexy but FlixBus has proved everyone wrong. If you are a leader of a traditional business it is just a matter of time, before someone will make your industry sexy and potentially take you out of business. The takeaway is to stay nimble and constantly keep adapting to the ever evolving market forces.