Why Megabus went mega-bust

11.09.2024 - 14:39 / insider.com / Peter Pan

If you were in college over the past 20 years or so, you might have some fond — and not so fond — memories of Megabus. The blue double-decker buses with power outlets that worked most of the time and WiFi that worked rarely have for years been an important, if imperfect, way for budget-conscious travelers to get from point A to point B. The trip wasn't always pretty — you often got plopped in front of an obnoxious phone talker or wound up traumatized by the bathroom — but in general, you got where you needed to go for a good price.

But now, Megabus is in trouble. Its parent company, Coach USA, filed for bankruptcy in June. Megabus is handing over its routes between cities in the Northeast to other operators and discontinuing some routes in the South altogether. If you take a look at Megabus' recent Twitter activity, you'll notice the social-media manager's main job lately seems to be explaining to people that, yes, their trip may have been canceled, but no, the company has not gone out of business.

Some of what's happened with Megabus has to do with macro factors outside its control. The pandemic was devastating for the already struggling intercity bus industry. The federal government didn't step in to try to shore up the sector like it did with, say, the airlines. But even before the global catastrophe, there was another particular factor that helped put Megabus on its current downward trajectory: private-equity ownership. Variant Equity Advisors, a Los Angeles-based PE fund, acquired Coach USA in 2019 for $271.4 million and, as private equity is wont to do, loaded the bus operator up with debt the company couldn't service once travel came to a halt.

"A private-equity firm buying bus carriers right before a global pandemic was not the best timing for them," Andrew Savikas, the CEO of Wanderu, a travel-search platform, said.

It sounds kind of strange to describe a dirt-cheap bus operation this way, but the original idea behind Megabus was to make the service sort of hip. Stagecoach Group, a UK-based travel company, first launched Megabus in the UK in 2003 and then brought it to the US in 2006. It was an upgrade from the Chinatown buses, which also eschewed terminals and instead did curbside pickup as they shuttled from city to city but often offered a lower-quality experience. Megabus had what at the time were considered fancy amenities like outlets and online ticketing, and above all, it maintained a low price point. Both Megabus and its rival BoltBus, which Greyhound and Peter Pan launched in 2008, would lure people in by advertising $1 tickets. That number was largely a gimmick — only a handful of tickets on each bus were a buck — but in general, prices were pretty low.

"Megabus was the disruptor