Industry

KBS eyes Western route with exit of matatus

kenyabus

Kenya Bus Service management (KBS) is set to re-enter the long-distance passenger transport business to western Kenya in a move that will up competition and potentially drive fares downwards.

Kenya Bus Service management (KBS) is set to re-enter the long-distance passenger transport business to western Kenya in a move that will up competition and potentially drive fares downwards.

The operator, which halted its extensive upcountry routes in 2005 due to its poor financial health, said it will start the long-distance business in fourth quarter of this year mainly due to the new regulations that have opened a business opportunity for the formal operators.

The regulations have banned the new licensing of 14-seater public transport vehicles and requires investors to form transport companies or join Saccos or franchises creating new demand for KBS services, which in recent years has gone heavy in the franchising business.

Its entry into the western Kenya lucrative route is set to trigger fresh realignment in that business segment that has remained in the hands of Akamba Bus Services and Easy Coach in recent years. “It now makes sense to go upcountry because the rules of the game have changed and are positive for formal operators,” said Mr Edwin Mukabana, the managing director of KBS.

“We also expect that the ban on new licensing of 14-seater vans will erode their significant market share in upcountry routes. This provides a good opportunity for bus operators,” he added.

The company is banking on pricing to lure passengers from the upmarket rivals — Akamba Bus and Easy Coach — and the low-end players such as Eldoret Express, Molo Line and Matunda Bus.

“We shall offer quality services at competitive prices to grow our share in the market,” Mr Mukabana said, adding that the firm is looking at serving in the mid-section of the market — allowing it to tap both high and low-end travellers. Akamba and Easy Coach charge between Sh1,000 and Sh1, 300 a seat from Nairobi to the various towns in western part of the country with the low-end operators charging about 60 per cent of these fares.

The formal bus operators target middle class travellers with scheduled operations and enhanced customer service, a strategy that has helped them charge up to double the fares asked by low-end bus operators like Eldoret Express.

The re-entry of KBS into the market will offer travellers more options, with the market bracing for the entry of more bus operators as the 14-seater operators are phased out.

The expansion of formal bus operators plying the long distance routes is set to ignite price wars in the market and enhance the range of comfort offered as the rivals fight to defend and grow their market share.

KBS was a dominant player in public transport sector for seven decades before it collapsed in 2004 due to stiff competition and cashflow problems that saw its debts stand at Sh1.2 billion owed to General Motors, BP/Shell and a number of body builders.

At its peak, it had 424 buses, 3,400 employees, and an annual turnover of Sh3.3 billion before auctioneers seized most of its assets. The firm made a return in 2006 under Kenya Bus Service Management with a new business model in which it preferred to manage buses on behalf of other investors who lacked the time, experience and licences to operate.

Mr Dickson Mbugua, chairman of the Matatu Welfare Association, said the long distance routes provide better returns to investors who are buying the more expensive high capacity buses as business within major cities like Nairobi becomes saturated amid major challenges like traffic jams.

“The long-distance routes promises investors a shorter turnaround time between the purchase of the higher capacity buses and recouping that investment,” he said in a recent interview.

The expansion of long-distance bus operators is expected to bring vibrancy to the upcountry PSV market and change its structure that has in the past few years tilted in favour of luxury shuttle service operators using 14 seater vans.

Because they fill quickly and operate on fairly predictable schedules, van operators such as Narok Line Services and Molo Line have grown rapidly in the past five years, especially on routes connecting Nairobi to Rift Valley and parts of Nyanza provinces.

But their phase-out in favour of high occupancy buses is set to spark off direct competition with established bus operators, distinguishing prices and level of service as the key competitive factors.

“We are selling off our 14 seater vans and buying 40-seater buses to connect Busia, Kisii, Bomet, and Kericho to Nairobi,” a source at Narok Line told Business Daily.

The upgrades are also set to benefit bus franchises such as Eldoret Express and KBS that earn fixed commissions from investors.

“We are receiving more requests from investors seeking to play the long distance routes,” Mr Mukabana. Franchisers charge fees at an average rate of 10 per cent of daily revenue collections while handling fuelling, staff hiring, legal matters and servicing of the buses on behalf of investors.

Investors in the public transport sector are betting on population growth and increased urbanization to boost their earnings. The sector has seen rapid growth over the years, topping Sh155 billion in 2009. Kenya’s population stood at 38.6 million people in 2009, 32 per cent of whom live in urban areas, according to 2009 census results.