{"id":1804,"date":"2015-12-06T14:22:34","date_gmt":"2015-12-06T19:22:34","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/student-transportation-lost-on-the-way-to-school\/"},"modified":"2015-12-06T14:22:34","modified_gmt":"2015-12-06T19:22:34","slug":"student-transportation-lost-on-the-way-to-school","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/student-transportation-lost-on-the-way-to-school\/","title":{"rendered":"Student Transportation: Lost on the Way to School?"},"content":{"rendered":"

Business Model<\/u><\/strong><\/p>\n

Founded in 1997, ST is the third-largest provider of school bus transportation services in North America.[i]<\/a> ST delivers assets (buses) and services (performance of busing operations) that form an integral part of the daily operation of the school districts it serves.[ii]<\/a> The Company\u2019s fundamental business model is to provide home-to-school bus services during the K-12 academic year for its core public school customer base.<\/p>\n

Operating Model<\/u><\/strong><\/p>\n

ST grew from 3 employees with no buses in 1997 to over 14,000 employees and 13,000 vehicles today by aligning its operating model with this business model.[iii]<\/a> The Company\u2019s growth strategy was nicknamed the \u201cABC\u2019s:\u201d A<\/strong>cquiring other private operators, B<\/strong>idding on existing outsourced busing operations, and C<\/strong>onverting school-operated fleets to the private sector.[iv]<\/a> All three of these depended on an operating model with lower costs than its competitors and the school districts it serves. In particular, its bidding and converting strategies relied on ST’s\u00a0ability to offer low rates as price is the primary criteria for a contract award.[v]<\/a> ST achieved this lower cost operating model primarily through economies of scale:<\/p>\n

    \n
  1. Fleet<\/strong>. ST pursues a \u201cSouthwest Airlines\u201d fleet strategy: just as Southwest only operates Boeing 737s, ST\u2019s preferred bus manufacturer is Bluebird.[vi]<\/a> Although not always possible given specific contract needs, ST defaults to this type of bus to improve negotiating leverage with Bluebird in vehicle procurement as well as develop standardized preventative maintenance schedules across its fleet. Mechanics can focus on just a handful of bus types and need only stock replacement parts inventory for these models. This allows for materially lower bus acquisition and maintenance costs for ST\u2019s 14,000 buses over the long-run than an individual school district or small competitor could achieve with only a few dozen or even a few hundred buses. Moreover, this unique relationship with Bluebird has allowed ST to stay on the edge of new bus technology, including the introduction of propane vehicles (ibid).<\/li>\n
  2. Facilities<\/strong>. Like its competitors, ST achieved economies of scale by combining various school district contracts into one facility in urban markets.[vii]<\/a> Unlike its competitors, though, ST learned how to achieve operating synergies in suburban and rural locations by having regional \u201chubs.\u201d[viii]<\/a> Although small districts still required local management, bus routing and dispatching, employee training, safety procedures, customer service, and other critical operations could still be standardized and scaled at a regional level. Importantly, regional sales teams that focused on non-school charter services improved asset utilization by generating revenue on weekends and during the summer from these hubs.<\/li>\n
  3. Labor<\/strong>. Labor and related costs represent the single largest cost to school bus operators. ST\u2019s scale allowed it to invest in human resources best practices and automated labor systems (e.g., driver check-in) that gave it a further cost advantage. These practices also encouraged good relationships with the largest national driver unions. Employee programs proved so successful in improving employee retention (and as a result reducing labor costs), that they have been expanded: Driver Appreciation Day became Employee Appreciation Week in 2012.[ix]<\/a><\/li>\n<\/ol>\n

    Going Forward<\/u><\/strong><\/p>\n

    Press coverage turned sour in 2012 and 2013 as investors questioned the sustainability of ST\u2019s monthly dividend.[x]<\/a> In response, ST has tried to reduce capital expenditures by growing an asset-light operating model named SchoolWheels.[xi]<\/a> This strategy is intended to turn ST into a contract management business by having its customers retain ownership of the bus fleets and facilities.[xii]<\/a> It also includes SchoolWheelsDirect, which reflects a growth strategy added in 2012: the \u201cABCs\u201d became \u201cA-B-C-D,\u201d as ST started selling direct to parents.<\/p>\n

    While novel ideas, this new business model may not align with the existing operating model. If school districts retain fleet ownership, it will be harder for ST to standardize its procurement and maintenance strategies. Customer-owned facilities may also limit ST\u2019s ability to implement its regional best practices, including labor programs. Finally, will selling direct to parents distract the sales team from its core customers (the school districts) and managing asset utilization through non-school charter services?<\/p>\n

    [i]<\/a> http:\/\/www.schoolbusfleet.com\/research\/default.aspx#Top50ContractorFleets<\/p>\n

    [ii]<\/a> http:\/\/www.ridestbus.com\/<\/p>\n

    [iii]<\/a> May 12, 2015 Earnings Call.<\/p>\n

    [iv]<\/a> 2011 Annual report. http:\/\/www.ridesta.com\/reports.cfm?Year=2011<\/a>.<\/p>\n

    [v]<\/a> 2015 Annual Report http:\/\/www.ridesta.com\/reports.cfm?Year=2015<\/a>.<\/p>\n

    [vi]<\/a> http:\/\/www.youtube.com\/watch?v=8CfCUGvYBu4&t=1m40s<\/a><\/p>\n

    [vii]<\/a> BMO Capital Markets Initiating Coverage. May 17, 2013.<\/p>\n

    [viii]<\/a> September 15, 2015 Earnings call.<\/p>\n

    [ix]<\/a> [ix] 2012 Annual Report http:\/\/www.ridesta.com\/reports.cfm?Year=2015<\/a>.<\/p>\n

    [x]<\/a> http:\/\/seekingalpha.com\/article\/1702642-student-transportations-business-is-very-overvalued<\/a>, http:\/\/www.valuewalk.com\/2012\/07\/student-transportation-inc-stb-a-ponzi-scheme\/<\/a><\/p>\n

    [xi]<\/a> http:\/\/www.ridestbus.com\/releasedetail.cfm?ReleaseID=755052<\/p>\n

    [xii]<\/a> http:\/\/www.zitopartners.com\/jim-cramer-talks-with-denis-gallagher-of-stb<\/p>\n","protected":false},"excerpt":{"rendered":"

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