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JUTC upgrades business model to drive revenue

Published:Friday | June 5, 2015 | 6:00 AMNeville Graham
Newly acquired JUTC busus are seen at an open lot in New Kingston in April 2015.
Colin Campbell, managing director of the Jamaica Urban Transit Company
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When the operator of the private luxury bus service Corporate Express launches into business next week, it is expected to do so using buses owned by Jamaica Urban Transit Company (JUTC).

But the state-owned JUTC says that type of arrangement, in the form of a wet lease, has long been part of the company's business model. Under a wet lease, the owner of the asset typically supplies the lessee with maintenance services and crew.

Managing Director Colin Campbell told the Financial Gleaner that state-owned JUTC has similar dealings with another luxury bus business, the nine-year-old Knutsford Express Services Limited. JUTC is a perpetual loss-maker and drain on the public purse. Campbell, who was hired as managing director of the bus service in August 2013, says he is acting on a mandate from the board - led by Chairman Rev Garnett Roper - to turn the company around. That requires a change of the company's business model which will see it doubling down on revenue streams such as bus leases, as well as new lines of business.

In the latter half of June, for example, the company will roll out its new division - JUTC Kingston Tours - which will offer "tours of Kingston" to tourists visiting Jamaica.

"There are some companies that sell Jamaican vacations who are interested in our tour concept," said Campbell. "They will be able to sell that as a product; so that will allow us to have some movement out of places like Ocho Rios for people who want to come and see the scenes of Kingston."

JUTC owns a fleet of 570 buses, but its daily peak-time roll-out is 450 buses. About 55 buses or over a tenth of the rolling fleet is taken out daily for routine maintenance. And by 10 a.m. each day, the 450 roll-out is chopped in half.

"So, what you have is a situation where about 200 hundred or so of our good, well-maintained buses [are] idle at times," said Roper. "We asked the JUTC management to look at how they can get additional revenue from these buses that are essentially idle," he said.

School tours and excursions are said to bring in $3 million to $4 million per week.

 

'double day' fare special

 

Another initiative is the 'double day' fare special, which forward sells seats to riders of JUTC buses. The fourth instalment of the effort last month, on May 16, raked in $81 million of revenue from 63,000 passengers who paid nearly $1,300 each for the special. With a load factor of 52 per cent, JUTC sees the 'sale' as a way of filling empty seats.

"Basically, we are forward-selling seats, so when we do that we use a price model that allows us to discount some of the seats and give us a good cash flow," said Campbell.

"Basically, we are discounting the seats at 50 per cent," he said. "We presently have a load factor of about 52 per cent, so those seats are empty anyway. So when we take the fare up front, it gives us good cash flow and allows us to manage our resources better."

Monthly revenue at JUTC is now averaging more than $450 million. That's up from the $250 million that obtained 18 months ago, according to Campbell.

"This means that we are recovering from the fare box 78 per cent of our costs. This is the highest it has been and is way past the industry standard," the managing director said, even while shying away from queries on the cost Government undertakes in the provision of buses for the fleet and infrastructure.

This year, however, the Jamaican Government is expected to provide subsidies to JUTC totalling $507 million according to the national Budget, but $2.25 billion according to the Public Bodies Report. The latter outcome may be more realistic given that in fiscal 2014-15, the finance ministry had similarly budgeted $763 million as grant support, but ended up spending $3.6 billion to shore up the operations of the bus company. On the capital side, bus acquisitions being funded by the Treasury will cost another $3 billion.

Even with the added help from the state purse, JUTC is expected to make a net loss of $1.93 billion this year, or around five and a half times the loss it was estimated to have made in 2014-15.

Initiatives such as the wet leases are meant to curtail the bleed.

The luxury fleet at the JUTC is presently up to about 32 with the addition of 10 euroliner luxury buses, as well as another two Chinese buses from Yutong that are being put through their paces on Jamaica's roads to test their durability, with a view to future rationalisation of the fleet.

JUTC Marketing and Communi-cations Manager Clinton Clarke said the company has long been offering 'wet leases' to companies such as Knutsford Express Services and tour operators under which JUTC provides fully maintained buses with a crew for big events for a fee.

Knutsford Express confirmed Wednesday that it does lease JUTC buses from time to time, especially for large events, to serve its tour market.

The owner of Corporate Express, Ernest Constantine Hinds, indicated in an interview last month that he would be leasing buses in the first instance to ply the Kingston to Port Antonio route. Hinds would not go on record as to who the lessor was, but Campbell confirmed the association with JUTC.

"They have come to us to work with them on it and all of that depends on our capacity and how we can do it without jeopardising our core mandate of providing service to the KMTR," said the JUTC boss. However, he refused to discuss details regarding the dealings with Corporate Express.

JUTC currently moves around 59.7 million passengers annually, according to the Jamaica Public Bodies Report, and is projecting to grow that to 64.3 million this year. Revenues last year were estimated at $4.8 billion and this year they are projected to top $5.7 billion.

neville.graham@gleanerjm.com