MANY Europeans see long-distance coach travel across America as glamorous. That may be a legacy of a Clark Gable film from 1934 called “It Happened One Night”, about a romance between two passengers on a bus travelling from Florida to New York. Modern Americans see it as anything but alluring. It is looked down on as something used only by time-rich, money-poor people who cannot afford to travel by car, train or plane.
Flixbus, a German coach startup which is launching in America on May 15th, wants to change that. On the firm’s flagship route from Nuremberg to its hometown of Munich, winding between snow-capped peaks and picture-book villages in Bavaria, its bus passengers look distinctly affluent. Many on board play on tablets to pass the time; shirts and ties are common. One discerning traveller reads The Economist. Since Flixbus was founded in 2013, its efforts to encourage more people to try coach travel have helped it to seize 90% of the market in Germany. But it could find the going tougher in America.
Flixbus was originally founded to take advantage of Germany opening up its coach market to competition in 2013, says Jochen Engert, co-founder and co-chief executive of the firm. Before then Germany and many other European countries blocked operators from scheduled intercity routes in order to protect state-run, subsidised railways. A bus leaving Munich would have not been allowed to go to Berlin, for example, as it would have clashed with the national rail firm, Deutsche Bahn.
When the German government swept away such regulations, Flixbus was one of 13 firms to enter the bus market. Increased competition meant more routes and cheaper fares, which enabled the industry to grow from 26m seat-kilometres in 2012, the year before liberalisation, to over 220m by 2015. Bus firms increased their share of the long-distance travel market from 2.2% to 15%. But it was Flixbus that destroyed the competition. After a merger in 2015 with Meinfernbus, a rival startup from Berlin, it has conquered nearly the entire German market. By the end of last year it was carrying 100,000 people a day to 1,700 destinations in 27 countries across Europe.
Mr Engert attributes Flixbus’s rapid ascent to its asset-light strategy, which he compares to Uber, a ride-hailing app. Staying out of the messy and capital-intensive business of running buses, it contracts them out to local coach firms under its brand. Flixbus then markets and sells the tickets for them via the internet. “It is less a bus company”, says Christoph Gipp of IGES Institute in Berlin, “than an IT firm.” Flixbus likes to present itself as a quirky tech startup. Mr Engert’s office is filled with surfboards and yoga balls; outside his door a children’s slide gives employees a shortcut to their desks on the floor below.
Yet for all this tiresome razzmatazz, the model is not new. Bosses at National Express, a veteran coach firm that won the battle for market share in Britain after deregulation in the 1980s, say that Flixbus has copied its blueprint. Like its German rival, it contracts out 80% of its coaches and makes two-thirds of its revenue online.
Flixbus’s success could be due more to its venture-capital owners, says Gerald Khoo of Liberum, a bank. Flixbus’s rivals, from National Express to Deutsche Post of Germany, were publicly listed. Their investors, unlike Flixbus’s, were unwilling to sustain losses in the short term to grab a bigger share of new markets in Europe. For Flixbus’s backers, patience has been a virtue. It has been profitable in Germany since 2016, the point at which it had grabbed 80% of the market.
Flixbus has avoided trying to disrupt the idea of the conventional schedule. Other startups are trying on-demand “Uber for buses”-style services. But they are likely to work only on high-demand routes where enough people are willing to travel at a certain time, says Shwetha Surender of Frost & Sullivan, a consultancy. Finding such routes is hard. Authorities in Helsinki shut down a trial of such a service in 2015 as it lost so much money. Firms such as Rallybus of America and Sn-ap of Britain, which launched its third intercity route last month, have yet to scale up.
Boom and bus
Flixbus hopes it has the winning formula to revive the industry in America. Since a peak during the second world war, the American intercity bus market has lost over 40% of its passengers, mainly to airlines and private cars. But unlike in Europe, the competition is likely to put up a big fight. Since 2008 much of America’s bus industry has been owned by two viciously competitive Scottish firms: Stagecoach, which owns Megabus, and First Group, which owns Greyhound, the biggest operator. Over that period both firms have helped to raise passenger numbers by bringing the sort of digitisation that National Express pioneered to America. Greyhound says it is unfazed by the arrival of Flixbus: when Megabus launched in America, its flashy advertising did as much to boost demand for its rival’s services.
Flixbus thinks there is room for growth. There are many intercity routes in the west of the country below its “sweet spot” distance of between 200km and 500km that are still underserved by buses. Falling car ownership among the young is raising demand for bus travel. But analysts warn that all that will be for nowt if the bus industry cannot shed its grimy reputation and recreate some of the glamour of a Clark Gable movie.“We’ll see what we can do about that,” says Mr Engert.
Japan still has great influence on global financial markets
IT IS the summer of 1979 and Harry “Rabbit” Angstrom, the everyman-hero of John Updike’s series of novels, is running a car showroom in Brewer, Pennsylvania. There is a pervasive mood of decline. Local textile mills have closed. Gas prices are soaring. No one wants the traded-in, Detroit-made cars clogging the lot. Yet Rabbit is serene. His is a Toyota franchise. So his cars have the best mileage and lowest servicing costs. When you buy one, he tells his customers, you are turning your dollars into yen.
“Rabbit is Rich” evokes the time when America was first unnerved by the rise of a rival economic power. Japan had taken leadership from America in a succession of industries, including textiles, consumer electronics and steel. It was threatening to topple the car industry, too. Today Japan’s economic position is much reduced. It has lost its place as the world’s second-largest economy (and primary target of American trade hawks) to China. Yet in one regard, its sway still holds.
This week the board of the Bank of Japan (BoJ) voted to leave its monetary policy broadly unchanged. But leading up to its policy meeting, rumours that it might make a substantial change caused a few jitters in global bond markets. The anxiety was justified. A sudden change of tack by the BoJ would be felt far beyond Japan’s shores.
One reason is that Japan’s influence on global asset markets has kept growing as decades of the country’s surplus savings have piled up. Japan’s net foreign assets—what its residents own abroad minus what they owe to foreigners—have risen to around $3trn, or 60% of the country’s annual GDP (see top chart).
But it is also a consequence of very loose monetary policy. The BoJ has deployed an arsenal of special measures to battle Japan’s persistently low inflation. Its benchmark interest rate is negative (-0.1%). It is committed to purchasing ¥80trn ($715bn) of government bonds each year with the aim of keeping Japan’s ten-year bond yield around zero. And it is buying baskets of Japan’s leading stocks to the tune of ¥6trn a year.
Tokyo storm warning
These measures, once unorthodox but now familiar, have pushed Japan’s banks, insurance firms and ordinary savers into buying foreign stocks and bonds that offer better returns than they can get at home. Indeed, Japanese investors have loaded up on short-term foreign debt to enable them to buy even more. Holdings of foreign assets in Japan rose from 111% of GDP in 2010 to 185% in 2017 (see bottom chart). The impact of capital outflows is evident in currency markets. The yen is cheap. On The Economist’s Big Mac index, a gauge based on burger prices, it is the most undervalued of any major currency.
Investors from Japan have also kept a lid on bond yields in the rich world. They own almost a tenth of the sovereign bonds issued by France, for instance, and more than 15% of those issued by Australia and Sweden, according to analysts at J.P. Morgan. Japanese insurance companies own lots of corporate bonds in America, although this year the rising cost of hedging dollars has caused a switch into European corporate bonds. The value of Japan’s holdings of foreign equities has tripled since 2012. They now make up almost a fifth of its overseas assets.
What happens in Japan thus matters a great deal to an array of global asset prices. A meaningful shift in monetary policy would probably have a dramatic effect. It is not natural for Japan to be the cheapest place to buy a Big Mac, a latté or an iPad, says Kit Juckes of Société Générale. The yen would surge. A retreat from special measures by the BoJ would be a signal that the era of quantitative easing was truly ending. Broader market turbulence would be likely. Yet a corollary is that as long as the BoJ maintains its current policies—and it seems minded to do so for a while—it will continue to be a prop to global asset prices.
Rabbit’s sales patter seemed to have a similar foundation. Anyone sceptical of his mileage figures would be referred to the April issue of Consumer Reports. Yet one part of his spiel proved suspect. The dollar, which he thought was decaying in 1979, was actually about to revive. This recovery owed a lot to a big increase in interest rates by the Federal Reserve. It was also, in part, made in Japan. In 1980 Japan liberalised its capital account. Its investors began selling yen to buy dollars. The shopping spree for foreign assets that started then has yet to cease.
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