Business Lessons From Chinatown Buses

Low-cost Chinatown bus lines created an alternative mass transit infrastructure between New York, Boston, and Philadelphia. Now they've been shut down by a mass federal raid--here's what they did right (and wrong).

If you're under 50 and live in a northeastern city, odds are you're familiar with Chinatown buses. The low-cost coaches created an alternative mass transit infrastructure for the Northeast Corridor, albeit one with sometimes dodgy safety and legal issues. However, the era of the Chinatown buses came to an end on Thursday, May 29, when federal authorities shuttered 26 of the bus firms. Bus companies with names like Apex, New Century, and I-95 Coach were forcibly closed; their passing is an example of an ingenious business model failing to adapt to a changing market.

Walking through the side streets around the Manhattan Bridge and New York's Chinatown on Monday, a few stray buses and minivans accepted passengers here and there. Most of the old bus traffic and snaking sidewalk lines, however, were gone. The first Chinatown buses popped up around the turn of the millennium, and offered cut-rate transportation between New York, Philadelphia, and Boston primarily aimed at the Chinese immigrant community. In those early years, fares of $5 one-way between New York and Philadelphia were not unheard of; even in 2012, one-way fares between Boston and New York averaged $15. By 2012, buses served most major cities along the Northeast Corridor and a host of other destinations such as Cleveland, Pittsburgh, Charleston (WV), Burlington (VT), Buffalo, and even Orlando.

As with most things in this world, however, customers got what they paid for. Mechanical breakdowns, outdated equipment, and issues with lack of permits and unlicensed drivers repeatedly popped up. Chinatown buses were involved in several high-profile crashes, such as a NYC-PHI crash that killed two people and a casino shuttle crash with 15 fatalities. The driver in the casino crash had two serious license violations; the bus line behind the Philadelphia crash, Super Luxury Tours, employed 16 drivers who were involved in four accidents in two years--with drivers unable to understand basic English commands in some cases. MegaBus, a non-Chinatown line serving similar routes, had a doubledecker bus crash into an overpass, killing four, due to a driver using a personal GPS for cars instead of a GPS designed for doubledecker buses.

Hairy rides were part of the Chinatown bus experience. Although originally intended for the Chinese immigrant community (the bus lines' origins were tangled up with shuttles for Chinese restaurant workers migrating between jobs in different cities), the buses were quickly discovered by non-Chinese backpackers, college students, hipsters, and bargain hunters. Instead of being picked up at bus station, buses conducted impromptu, rushed curbside pickup. Rides were low-cost, made for good stories afterwards--this reporter personally witnessed a live chicken get loose in the cabin of a New Century Bus after his cage swung open--and generally got one where they were attempting to go. The fact that many Chinatown bus operators were tied up in violent organized crime and drug traffickers used the routes to transport heroin fell by the wayside or added to the mystique.

Ticketing for Chinatown buses was largely first-come first-serve, with tickets sold on the internet as a side business. Information about where to pick up buses or which lines to take spread mostly by word of mouth. Due to low ticket prices, most buses at peak hours routinely filled up to capacity. Bus drivers and ticket sellers often spoke extremely limited English and there was a strong novelty factor for the mass media; the author of this article was interviewed by the Associated Press about Chinatown buses while in college 10 years ago.

The popularity of Chinatown bus lines and the unwillingness of operators to modify their business model ultimately did them in. By 2008, several well-funded bus lines funded by old industry figures began offering similarly-priced routes. BoltBus (operated jointly by Greyhound and Peter Pan) and MegaBus (owned by British giant Stagecoach Group) both began offering budget Northeast Corridor bus travel. Both companies deliberately cannibalized the market base of Chinatown buses; ticketing was conducted almost exclusively via internet, walk-up customers were relegated to stand-by status, and amenities such as WiFi and frequent traveler clubs were offered. Strongly targeted at college students, both lines took pains to portray a separate identity from Greyhound, Peter Pan, and Stagecoach Group's Coach USA.

BoltBus and MegaBus also went on the lobbying offensive against Chinatown buses. Greyhound, Peter Pan, and Stagecoach Group are all members of the American Bus Association (ABA) industry group. The ABA extensively lobbied in Washington for increased scrutiny of Chinatown bus lines, and issued a press release celebrating the May 29 shutdowns. None of the 26 companies raided by federal authorities in May belonged to the ABA. Most of the Chinatown bus lines had contentious relations with their Anglo counterparts and were unaware of the very American joys of DC lobbying.

The 26 carriers raided had safety violations ranging from drivers without valid commercial licenses to failure to conduct drug and alcohol testing to vehicles which had not been regularly inspected. Mass inspections into the bus lines began after the fatal NYC-PHL and Mohegan Sun crashes last year. The Transportation Department enacted a regulatory change--coincidentally (or not) scheduled for May 29--that made the mass bust possible. A bill currently making its way through the Senate sponsored by New York's Charles Schumer would also target any new Chinatown bus companies that attempt fly-by-night mass transit.

In the end, Chinatown buses were victims of an inability to adapt to a shifting business environment. Although several lines--most notably the NYC-BOS carrier Fung Wah still appear to be running, most carriers were knocked out by the mass raid. Perpetual price-cutting, an unwillingness to submit to expensive (and necessary) inspection and safety standards, and unfamiliarity with American lobbying did them in. Although the Chinatown bus lines created a cheap informal network of intercity transit that worked far effectively than Amtrak or Greyhound could dream of, they failed to survive. BoltBus and MegaBus both utilized key aspects of the Chinatown business model and succeeded. In fact, BoltBus just copied their business model in the Pacific Northwest with a low-cost Portland-to-Seattle route. While MegaBus and BoltBus both deal with many of the same challenges as the Chinatown buses, such as curbside pickup hassles and resistance from alternate mass transit providers, they're the ones who survived. In this business environment, that is what matters.

For more stories like this, follow @fastcompany on Twitter. Email Neal Ungerleider, the author of this article, here or find him on Twitter and Google+.

[Top Image: Flickr user Elvert Barnes, Bottom Image: Flickr user Holy Calamity]

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5 Comments

  • smo

    great article!  though honestly i fail to see how not lobbying is a poor business model.  it really has felt like they've had it out for chinatown buses for a while, especially when bolt popped up.  now they're the only option.  their new "yo bus" pseudo chinatown bus has higher fares and more limited schedules.  if anything greyhound is on their way to a transit monopoly.

  • pat nyce

    Dante, Enlighten us:  Where does the author write that people over the age of fifty had never heard of the Chinatown buses, much less never taken them?  How does, "If you're under fifty and live in a northeastern city, odds are you're familiar with Chinatown buses", imply middle age ignorance of this service?  Get over yourself.

    But to your point (I mean, exaggeration), "dozens" of people over fifty on a Chinatown bus?  LOL!  I used to live in Three Bridges and walked past countless Chinatown bus queues on Allen, East Broadway, et cetera.  I've also taken the ride a couple of times myself.  The vast majority of those passengers were younger than middle age.

  • Dante Angelucci

    I am always amused when some youngster writes a story like this and leads off with an age reference. "If you're under 50....."
     
    Hey, dude, I am way past 50, have been riding the Chinatown buses for at least 10 years, and do not need some recent J-school grad or kid fresh out of Princeton suggesting that us oldsters are ignorant. In fact, had this reporter actually ridden on one of these buses, he would have seen dozens of passengers over 50. Of course, those people would not know they were on a Chinatown bus because, you know, because they're over 50, and no one over 50 has ever even heard of these buses. Right, kid???
    By the way, I've taken the Lucky Star to Boston probably 50 times. Never a safety problem, never a language problem. But hey, I'm over 50... so what do I know?

     

  • Richard Layman

    I think you miss a key point about the business lessons.  Once people had other options (Bolt Bus, Megabus), the "chaos" of the Chinatown buses was no longer a selling point, i.e., difficulty of communicating with the ticket sellers and bus drivers, the scrum of boarding and not knowing if you would actually be able to ride--a real problem in cities like Philadelphia which by comparison to DC or NYC had more limited service.

    Obviously, the safety issue was paramount.  If the companies followed the rules, all the lobbying in the world wouldn't have impacted them (probably).  Instead, they continued to flout the rules in terms of how the companies organized other banners to continue service.

    There are many types of ethnic businesses that start up focused on serving their compatriots, and then jump into and cross over to the mainstream.  But the companies typically continue to adapt, to be able to respond to and serve the new segments.  For the most part the Chinatown buses never did make those adaptations.  And with the safety violations too, likely they were doomed.  (Me, I Iiked that you could take a Chinatown bus from DC at 3:30am and get to NYC at the start of the day and have a full day there.  My wife hates the chaos and refuses to ride them.)

    Probably too there is another and different lesson in the problem of "perpetual price cutting."  The owners thought price was the most important differentiation they could offer.  They didn't realize that generally price was an issue, by comparison to train, plane, and higher priced bus services, but that predictability and the management of risk were equally important, and for the health of their business, predictability and management of risk were more important than the lowest price.

  • phillip

    "Chinatown buses were involved in several high-profile crashes, such as a NYC-PHI crash that killed two people and a casino shuttle crash with 15 fatalities."  the bus returning from the casino that fell over killing 15 people, WAS NOT A CHINATOWN BUS. it was operated by world wide tours, the driver was black, the owner of the company and the management are russian, and they are in Brooklyn. do some research before you print an article.