One Scared Puppy
A mere three years ago, optimism reigned at the Dallas headquarters of Greyhound Lines, Inc. The venerable bus company, thread of the American fabric for nearly eight decades, had cheated death--surviving a fractious drivers' strike and ensuing plunge into bankruptcy.
With the government's blessing, Greyhound had swallowed its only direct competitor several years earlier, leaving the company with an unchallenged monopoly for cross-country bus service in the United States.
Free of expensive labor contracts and bankruptcy shackles, new bosses took over the executive chambers--dowdy downtown offices that would soon be abandoned for swankier quarters--and promised to field a sleek new Greyhound.
The ascendant bus company planned to hack away at costs, buy some zippy computers, poach a few sales tricks from the airlines, and make a pile of money.
There would be toll-free numbers, computerized reservations, assigned seats, even a frequent rider program just like the airlines had. Wall Street analysts quickly bought into the company's ambitious dreams, issuing glowing prognostications that drove the company's stock onward and upward for almost two years.
Greyhound itself began strutting like a well-fed corporation, lavishing tens of thousands of dollars on furniture and decorations for new offices on the Dallas North Tollway near the Galleria, and paying former president Frank Schmieder more than half a million dollars a year to run the company.
"The 'Hound," one enamored transportation writer from the Dallas Morning News reported, was "about ready to run."
How, after all, could one of the best-known and most-trusted corporations in the country possibly take a national transportation monopoly--a bus system that sold tickets to more than 15 million passengers a year--and lose money?
Against all odds, Greyhound managed.
When the books are closed on 1994, the company is expected to have lost about $100 million. Last October, Greyhound once more was pushed to the brink of bankruptcy, this time against its will by creditors infuriated at the company's pitiful showing.
At last count, seven class-action lawsuits had been filed against the company and its top management, according to company spokesman Bill Kula. The suits charge that corporate leaders like Schmieder sold their own stock for profit while misleading investors about the company's precarious position.
Late last year, new bosses were brought in again. Craig Lentzsch, the latest president and chief executive officer, spent the holiday season traveling the country, cap in hand, scraping for money to keep the company solvent.
Lentzsch was able to raise $135 million--mostly from holders of Greyhound bonds who hope they aren't throwing good money after bad--and fend off the effort to force the company back into bankruptcy.
Temporarily mollified, investors say they were willing to grant Lentzsch--one of three men who purchased Greyhound and moved it to Dallas in 1987--a chance to salvage the operation.
"It's pretty easy to fix this," says one investor. "Just stop doing the stupidity."
As Greyhound tries again to bounce back from near financial ruin, a familiar litany of woes is recited by past and present company management, echoed in daily newspaper coverage of the company's slide: fewer people are riding buses, low-cost airlines are stealing Greyhound customers, the company was simply carrying too much debt.
All true enough. But Greyhound's fall from grace is only partially explained by fickle riders or unfortunate economics.
Mostly, Greyhound's management got burned by a corrosive blend of its own naivete and arrogance.
For the past three years, according to interviews and a review of documents filed with the Interstate Commerce Commission, Greyhound has systematically--and foolishly--violated the most basic practices and traditions of the bus industry, destroying decades-old business relationships and antagonizing the regional bus lines Greyhound needed for its own survival.
Emboldened by its monopoly status, Greyhound endeavored to go it alone, brushing off the smaller bus lines and mom-and-pop carriers that feed Greyhound's long-haul routes and fill out the national bus system in towns Greyhound does not serve.
Under former president Schmieder, Greyhound began forcing other bus companies out of its terminals. It gutted the long-standing industry practice that called for companies to honor each other's tickets when that made travel more convenient for passengers.
Greyhound stopped sharing its schedules with other bus lines, presumably to prevent competitors from skimming off potential Greyhound riders.
The company bet its future on an expensive reservations computer that failed miserably when it went on line, thwarting passengers who did try to ride the bus.
Smaller bus companies--which felt trampled by Greyhound's roughshod tactics--howled, filing complaints with the ICC charging that Greyhound was engaging in anticompetitive practices.
The ICC, ever gentle on its largest bus industry constituent, did little to block Greyhound's bold aggression. However, the U.S. Department of Justice, which is responsible for enforcing the Sherman Anti-Trust Act, is investigating the same complaints to see if Greyhound engaged in unfair trade practices.
The bungled business strategy, industry insiders say, explains how Greyhound was able to squander its monopoly position and lose so much money.
"It's a viable and potentially quite profitable business," says Gerald Connor, head of a Toronto-based investment company that is Greyhound's largest shareholder. "They have a stable base of riders. It's a necessary service. It's an icon as far as its identity with the consuming public. There's no reason why this company can't be quite profitable."
Virtually all of the other large bus companies in the country, although they serve regions instead of the entire nation, are making money. Several, in fact, are eating the top dog's lunch in areas where they compete directly with Greyhound.
Greyhound's tactics have backfired with a vengeance. Instead of growing stronger, Greyhound has isolated itself to the point of near self-destruction. Ironically, many of the smaller bus companies, forced to scramble for survival, have emerged even stronger and are challenging Greyhound's dominance of the industry.
"[Schmieder] had a philosophy that 'If I can put these other guys out of business and we're the only ones left, then our business can only get better.' It was not a very constructive way to go," says one lifelong bus company official. "There's really no justification for any of the stupid moves they made."
Despite repeated efforts, Schmieder, who was forced out of the company last fall by irate investors, could not be located for comment. The former company president has declined other interview requests, citing the lawsuits pending against himself and the company.
New president Lentzsch was also unavailable for comment. Company spokesman Kula explained that Lentzsch, enmeshed in efforts to salvage the company's finances, did not have time for an interview.
Lentzsch better be busy, say those with money invested in the company. If Greyhound is to survive, he has many fences to mend.
The bus industry is simple. Basic. Nickel and dime. Nuts and bolts. It ain't rocket science. Those are the characterizations repeated by long-time practitioners of the trade.
Success requires clean buses that arrive on time with polite, safe drivers. Bus riders--from college students to the least economically endowed--do not ask much from a bus company.
"People who ride the bus have more time than money. People who ride planes have more money than time. It's that simple," says Chriss Street, president of Chriss Street and Company, a California firm that owns Greyhound stock and led the effort to force Greyhound into bankruptcy last year.
Unquestionably, bus ridership has fallen with the advent of cheap air fares. In the 1960s, during Greyhound's salad days, almost one-third of those traveling from state to state boarded a bus.
The number of riders has dropped dramatically since then, especially as airlines made inroads into the travel industry. But even now, more than 100 million people ride buses at some point each year--not counting city-run commuter systems like DART--and about 35 million use bus carriers like Greyhound to travel from city to city or state to state.
Many of those passengers are headed for towns and burgs that do not, and probably never will, have commercial air service.
The bus business, experts say, has settled down to its bedrock core of riders, people who most likely will not have the money or inclination to switch to air travel. From that base, there is ample money to be made, and the nation's monopoly should be benefiting from it.
"People ride the bus because it goes to all those funky places where their grandmother lives, and takes grandmothers from those funky little places to where their kids live," Street says.
During the bus industry's heyday three decades ago, Greyhound was the largest of two national bus companies and made plenty of money, enough for the corporation to expand well beyond bus service and into other businesses like soap and computers.
The conglomerate moved to Phoenix in the early 1970s and eventually renamed itself the Dial Corporation. Bus service was just one of its numerous enterprises, albeit one of the most profitable.
In 1987, three private investors from Dallas--including newly hired president Craig Lentzsch--bought the bus operations from Dial and moved them to Dallas, setting up the freestanding Greyhound Lines, Inc. (Lentzsch, 46, is a former executive for bus leasing and manufacturing firms. He helped manage Greyhound for two years after the buyout, but left the company in 1989 following "philosophical differences" with his partners.)
Many at the time feared the power of a single national carrier, and voiced their concerns to the Interstate Commerce Commission, which had to approve Greyhound's takeover of Trailways.
Unlike Greyhound, Trailways was a consortium of dozens of independently owned bus companies. Some served just a few towns, others large regions of the country. They shared the Trailways name and coordinated marketing.
Only one company in the Trailways family--Trailways Lines, Inc.-- provided national service, linking the rest of the family members. It was Trailways Lines that Greyhound purchased, leaving independent and regional carriers across the country totally dependent on the running dog for connections with the rest of the country.
In order to win ICC approval of its Trailways takeover, Greyhound had to promise it would not unfairly savage the remaining independent and regional carriers.
"For the ICC to approve it, there was a verbal agreement that Greyhound would treat the Trailways carriers with open arms," says J.D. Johnston, president of the remaining Washington D.C.-based consortium of Trailways companies. "We'd be a big happy family. Well, that lasted for about two years, until the strike sent Greyhound into Chapter 11. Under Frank Schmieder, that's when it changed. That's when they started breaking away from the bus industry."
Labor strife did send Greyhound into bankruptcy protection in 1990, and signaled a tidal change in the company's philosophy.
Up until then, Greyhound boasted about having the highest-paid drivers in the country. "With the highest wages, the best working conditions, and everything else, they were [still] extremely profitable," says one former Greyhound executive. "It was a proud company. When I went to work for Greyhound one of the things they told me was, 'When the next Depression comes, you'll be glad you're here, because in the last Depression everybody would cash a Greyhound check.'"
But in the late 1980s, labor was on the run. Corporate managers across the country were weighing low profits against expensive labor contracts, and deciding that labor had to give.
Three times during the decade, Greyhound tried to suppress its unions and cut labor costs. In 1990, it finally succeeded, but at a dear price. The bitter strike by drivers and other workers threw the carrier into bankruptcy court and temporarily crippled the company.
When it emerged from protection in late 1991, the company promised to be lean and mean. It certainly fulfilled the latter.
For 75 years, the bible of the bus industry has been Russell's Official National Motor Coach Guide. It is a humble book, 300-plus newsprint pages of timetables bound in different colored pasteboard each month. Published by a company in Cedar Rapids, Iowa, the guide lists the schedules of every major--and most of the smaller--bus companies in the United States. It was used by 5,000 bus companies, ticket sellers, and travel agents to help passengers figure out their travel plans.
But in late 1991, Greyhound decided it would no longer provide its schedules to the Russell Guide. "It was a shock," says Jeff Thompson, president of the publishing company. "We got a phone call from their senior vice president of marketing, and we were informed that effective with the next issue they were pulling out."
Within the industry, Greyhound's move was heresy. Bus companies had always shared their schedules, and for reasons that benefited everyone.
A small bus company in Iowa, for instance, could use the book to feed its passengers into the Greyhound system smoothly. The small company made money. Greyhound made money. In business jargon, that's called a win-win situation.
Greyhound's withdrawal from the Russell Guide was a telling indicator of the company's new approach to its colleagues.
No more would it follow the longstanding traditions of cooperation that had been the hallmark of the business. Instead, Greyhound was going to build its own, free-standing computer reservation system. Customers who wanted to ride Greyhound would call Greyhound, not one of its potential competitors. The other companies were on their own.
Not only did Greyhound pull out of the monthly guide, Thompson says, but the company canceled contracts for printing up the bus schedules it had passed out to customers at terminals.
"There was no hard copy for customers to get their hands on," Thompson says. "They had the view that 'Hey, we're Greyhound, and we're going to do what's in our interests.' They certainly have the right to do that, but the mindset they were coming from was that they were going to go it alone."
After Greyhound's withdrawal, the Russell Guide's usefulness waned, and its circulation fell below 3,000, Thompson says. The bus industry, and its customers, were left without a central source for bus schedules.
Several regional carriers filed complaints with the ICC, asking the federal regulators to require some sort of common schedule format. After studying the issue, the ICC deferred to Greyhound's wishes. The commissioners opined that requiring a common scheduling system might hurt little carriers that couldn't afford to participate.
Scheduling secrecy was not Greyhound's only assault on industry traditions.
Until 1991, Greyhound, owner of the most bus terminals in the country, had leased space in many of its locations to other carriers. That way, bus lines could feed passengers back and forth with ease at common locations. It was another win-win, and Greyhound turned it into a lose-lose.
In Texas, Greyhound tried to force competing Valley Transit Company out of its bus terminals in Houston, San Antonio, and Corpus Christi, according to company vice president Bobby Ferris. Valley sued, and a judge granted an injunction allowing Valley to stay put while the two bus lines continue to fight over terminal access.
Greyhound's treatment of Peter Pan Bus Lines in Massachusetts was illustrative of the monopoly's new--and often foolish--approach to other bus companies.
Peter Pan, a regional company that is part of the Trailways system, had rented space from Greyhound for years at the Worcester terminal, says company chairman Peter Picknelly, Sr.
Under the leasing arrangement, common in the industry, Peter Pan paid Greyhound 14 percent of the money it made selling tickets at the terminal, or about $140,000 a year.
"In 1991, we get a letter from Greyhound saying effective two months from now the charge to use the terminal will be 19 percent," Picknelly says. "I sent back a letter telling them that unless they were kidding, we'd move out."
Greyhound wasn't kidding, and Picknelly did move his company out. Peter Pan slapped up a prefab building on the lot next door and started operating from there.
Picknelly's company continues to do fine. In fact, it is one of the fastest-growing regional bus companies in the country. Peter Pan's operating revenue for the first nine months of 1994 was reported at $30 million, a $6 million jump from the same period a year before.
Meanwhile, Greyhound, Peter Pan's next-door neighbor, lost $140,000 a year in rent from the Worcester terminal and gained nothing from Peter Pan's departure.
"We're still doing a million dollars a year in sales in Worcester," Picknelly says. "Greyhound is left with their $600,000 a year in sales, but they're paying for the full cost of the terminal. Frankly, [former Greyhound president] Schmieder was the best thing that ever happened to Peter Pan. He made it easy to compete with him."
Similar scenes played out across the country, as Greyhound attempted to raise rents or force smaller carriers out of their terminals. Again, many complained to the ICC, and Greyhound was forced to back off from some of its demands.
Still, the terminal flap further shredded the once-seamless network of small and large bus lines that allowed passengers to traverse the country with minimal hassle.
As it was changing the rules for terminal leasing, Greyhound also turned another industry given into an unknown.
For decades, bus companies had always honored each other's tickets. If a passenger was holding a Greyhound ticket, but a Trailways bus was leaving sooner for the same location, the ticket was good.
Every so often, the companies would settle up any fares owed to each other, and typically would pay a small commission to companies that honored one of their tickets.
Under Schmieder, Greyhound stopped that practice. The company, in filings with the ICC, argued that it was unfair for the company to offer things like special low fares for college students or elderly people and have other bus companies steal away their riders.
More and more Greyhound tickets were good only for Greyhound buses, regardless of convenience for passengers.
"If we had a bus leaving in an hour, and Greyhound's next one wasn't until the next day, the passenger was supposed to wait until the next day," says Peter Pan's Picknelly. "Tell me what kind of customer service that is."
Time and again, the smaller carriers complained to the ICC, but the commission saw no need to step in.
"These business practices were dramatically different than what the industry had accepted over their past history," says Milan Yager, head of the ICC's office of economics. "Whether they were right or wrong, I don't know, but they were instituted very quickly and a lot of people had trouble adjusting to those business practices."
With numerous complaints flowing in, the ICC in 1993 ordered its staff to study whether Greyhound's behavior was anticompetitive--and whether the commission needed to adopt new rules for the bus industry.
"Many of Greyhound's policies are regarded as unreasonable and unfair by much of the rest of the industry," the study concluded. "It is alleged that Greyhound's actions, due to its dominance of the intercity bus passenger market, adversely affect other intercity carriers."
The commission decided that no government intervention was warranted. Rather, it left it to the bus industry to hash out its own problems.
"The bus industry should be encouraged to continue its negotiations and to resolve as many issues as possible from within," the ICC report recommended. "It is in the industry's best interest to work together to revitalize this industry."
Left alone to pursue its aggressive strategy, Greyhound almost destroyed itself.
The industry practices that Greyhound upended were not quaint traditions. They were in place because they worked.
Shared terminals, interchangeable tickets, and widely published schedules allowed all bus operators to work together, enticing passengers with cheap, convenient travel.
When Greyhound began tearing the system apart, it not only hurt profits, but put off potential customers who began to see bus travel as inordinately troublesome.
"When Greyhound used to make a lot of money, they used to have a seamless system between the regional carriers and themselves. They don't have that any longer," says Gerald Connor, the Toronto investor. "The fact that Greyhound went head to head with the regionals was to the disadvantage of the entire industry."
The warfare with regional carriers, Chriss Street says, reflected a broader, fundamental misunderstanding of the bus industry.
"Somehow, Schmieder thought Greyhound should be the airline of the road, just as every airline decided they wanted to be the bus of the sky," says Street. "He had lots of vision. He just had no common sense."
Even as management under Schmieder was burning bridges with the rest of the industry, Street and other investors say, the company's service was suffering. Buses were overloaded, passengers got bumped, terminals began to look ratty.
And as part of its vision, Greyhound decided to cut costs, reducing its fleet of buses, cutting down the numbers of runs between cities, and abandoning some cities all together.
The new, lean Greyhound would be efficient.
In the old days, for instance, buses were dispatched according to fairly simple principles. If 44 passengers showed up for the noon bus from New York to Philadelphia, one bus would do the trick. If 80 people showed up, a manager could survey the crowd and order up another bus to carry them.
"It's not a perfect system, but it works 99 percent of the time," says Picknelly, who inherited the Peter Pan bus company from his father and is passing it on to his son. "By experience, we know what business we did last Friday or the Friday before or a year ago on a holiday. We know when one bus will be enough."
But at Greyhound, nothing was to remain that simple. Experts were hired. Phrases like "yield management" were bandied about. Greyhound was going to be state of the art, using computers to map every eddy and current in its ridership and dispatching buses based on instantly available tracking data.
The heart of the system was to be computerized reservations. Greyhound would no longer need to be in the Russell Guide or depend on local carriers for unpredictable passenger traffic. Like airlines, it would use central reservations to track and control its fleet and squeeze the most from its system.
When that vision confronted reality, however, vision crashed and burned.
Whether advance reservations even have a place in the bus industry is a matter of some disagreement in industry circles.
Old-timers, like Peter Picknelly, Sr., scoff at the idea. "People who ride inter-city buses pick up the phone, ask what time the next bus leaves, and then come down and hop on the bus," he says. "People generally don't make reservations days or weeks in advance. It's not like they're going to Hawaii."
Still, younger observers venture, the bus industry must make peace with the new ways of the world. If buses are going to make money, they say, bus lines must hook up smoothly with airlines and trains, and computerized reservations can speed that process.
"Down the road, computerized reservations could be a big asset," Connor says. "It could turn Greyhound into a reservation system for many different modes of transportation, if it were properly used."
Clearly, Greyhound's fancy new reservation system was not properly used. In fact, when it was introduced last summer, it was such a failure that the fallout almost threw the company right back into bankruptcy.
Company officials publicly acknowledge that Greyhound horribly bungled the rollout of its computerized system. There were not enough telephone operators to take calls for reservations. Many of the terminal workers were not adequately trained on the new system.
The time it took to issue tickets at the counter actually went up in many instances, and frustrated customers found that--with a computer involved--it was getting harder to get on a Greyhound bus.
Peter Picknelly, Sr. watched last summer as the opening days of the new computer age dawned at the New York Port Authority bus terminal, the busiest in the country.
"It takes an hour and a half to go from New York to Philadelphia, if traffic's not bad," he says. "They had people standing in line that long trying to get tickets. It was an absolute disaster."
To Picknelly's delight, many of those customers walked over and bought Peter Pan tickets instead. Absent a computer, buying Peter Pan tickets was easy. "We picked up a lot of traffic off of that," Picknelly says.
Similar scenes played out across the Greyhound system. It was a disaster, and it ripped the lid off Greyhound's promises to investors and Wall Street that the company would ride computer technology to record profits.
After watching the computer fiasco, Chriss Street had had enough. Street's company is a sort of bankruptcy bargain hunter from California. He shops around for pieces of distressed companies that appear to have a strong future and buys in cheap. Street is one of Greyhound's most vocal bondholders. When the computer meltdown occurred, he was not pleased.
"The phone lines were absolutely jammed," he says. "They didn't hire enough operators to answer the phones. On a good day, if you called back five or six times, only 70 percent of those calls got answered. On a busy day, only 40 percent. This is how incompetent they were."
The computer debacle caused Greyhound's stock prices to collapse. In September 1994, when the company announced that its ridership had fallen 12 percent despite the fancy new computer systems, share prices fell by almost one-fourth in a day.
Stock that had sold for over $22 a share in the summer of 1993--when the computer system was still a glowing promise--fell to less than $3 a share by the winter of 1994. Street and other bondholders petitioned the bankruptcy court, seeking to force the company back into Chapter 11.
Ultimately, the bondholders accepted newly issued company stock in exchange for their bonds, and agreed to let new managers take another shot at salvaging the company.
Lentzsch was brought in to replace Schmieder, and his first task was a mad scramble for cash to keep the company operating. So far, Lentzsch has been successful in keeping the company afloat and raising new capital.
Now, insiders and investors say, the question is whether he can repair the damage Greyhound inflicted on itself when it attempted a divorce from the rest of the industry.
J.D. Johnston is himself feeling quite optimistic these days. A year and a half ago, as Greyhound was battering away at the regional bus carriers, Johnston was hired to take over the National Trailways Bus Association. It was the remaining coalition of Trailways companies left after Greyhound purchased Trailways Lines, Inc., and had been relatively stagnant but profitable ever since.
But when Greyhound began thumbing its nose at the regional carriers while letting its own service slip into shoddiness and become inconvenient for passengers, the independents began casting about for their own base of power.
The result, ironically, is that the regional carriers Greyhound was undercutting are now banding together again, hoping to challenge the national monopoly.
"This year, we have 10 new companies that have joined," Johnston crows. "And we have two more applications in process."
Forty-one companies now belong to the Trailways group, he says, including a subsidiary of Greyhound of Canada, a former corporate sibling of the U.S. Greyhound Lines. The Dial Corporation kept the Canadian Greyhound company when it sold U.S. Greyhound in 1987.
Johnston predicts that 10 more companies will join the Trailways system next year, making it quite possible that Trailways itself will attempt to revive long-haul cross-country bus runs and lessen its dependence on Greyhound.
"Our objective is not to take Greyhound down," Johnston benevolently allows. "We think it's healthy to have competition in the bus industry."
The competitors, for now, are winning.
While Greyhound posts mammoth losses, most of the larger regional bus companies in the country are posting solid profits. Greyhound's ridership is down. Ridership of the independents is up.
According to the ICC's statistics for the third quarter of 1993--the most recent available--Greyhound revenues were down 6 percent while those of the nine largest regional carriers were up more than 4 percent.
Greyhound's losses for 1994 are expected to hit $100 million, compared with an almost $11 million profit in 1992, its first year out of bankruptcy.
If it wants to win back its dominance, critics say, Greyhound has to cease its arrogance and stop screwing up.
"In every business like this that is distressed or mismanaged, there is opportunity," says investor Connor "It's good, in the sense that there's a lot to fix. If you walked into a company like this and everything was working properly and you were losing money, then you're doomed.
"But here's a company that's losing money because it has been fouled up for quite some period of time. There's a lot of things that can be corrected."
Investors are betting on Lentzsch, and say there are already some positive signs that the new president will try to rebuild the system his predecessors gutted.
A few weeks ago, Jeff Thompson, publisher of the Russell Guide, says he heard from Greyhound management for the first time in over three years. "There has been some interest expressed in coming back into the guide," Thompson says. "I'm waiting to hear more."
As long as there are steps in the right directions, investor Street is buoyed by even smaller signs of progress.
"This is a really good business, the bus business," Street says. "And at least they're answering the phones now.
Get the This Week's Top Stories Newsletter
Every week we collect the latest news, music and arts stories — along with film and food reviews and the best things to do this week — so that you’ll never miss Observer's biggest stories.