BlaBlaCar’s Acquisition of Ouibus: A Major Shift in Mobility Services
Since the long-distance bus market was opened up to competition in August 2015, operators have been striving to achieve a critical mass in order to become profitable.
Thierry Blayac, University of Montpellier and Patrice Bougette, Université Côte d’Azur (UCA)
From the very start of this new market, the strategy adopted by new entrants was to offer attractive fares in order to stimulate demand for this new mode of transportation, which lacked recognition in France. In 2017, 7.1 million passengers used long-distance bus services, representing a 14.5% increase over the previous year.
As soon as this new market opened, it attracted a customer base consisting mainly of younger people, families, and retirees—all of whom are price-sensitive. Changing consumer habits have also played a role, as exemplified by “Millennials,” who favor the sharing economy. More recently, during the SNCF strikes in the spring of 2018, this new mode of transportation was able to attract a more business-oriented clientele.
On the operator side, a “club of five” quickly formed following the opening of the long-distance bus market, with the main players being Ouibus (formerly IDBus), a subsidiary of SNCF; Flixbus, a German operator and leader in its domestic market; Isilines-Eurolines, owned by the French group Transdev; Megabus, part of the British group Stagecoach; and, finally, Starshipper, which brings together independent coach operators based mainly in southwestern France. A few months later, in July 2016, Flixbus and Ouibus had already announced the acquisition of Megabus and Starshipper, respectively. These acquisitions enabled both groups to consolidate their market positions and expand their service areas geographically.
Acquisition as a strategy for entering a new market
In a market that is still maturing (only three years old), operators’ pricing policies have not yet fully stabilized (even though rates are hovering around 5 cents per kilometer per passenger) and have recently been trending upward, even setting aside any acquisitions that may have taken place. In terms of pricing, bus services are close to the rates charged by carpooling services, led by BlaBlaCar, the recent acquirer of Ouibus.
A quick look at recent trends in transportation modes and mobility services shows that consumers are increasingly inclined to compare different modes or use them in a complementary way to ensure “door-to-door” travel. The advent of digital technologies, programming, and smartphone app development now makes these types of combinations possible. In its ultimate form, this system converges toward the concept of Mobility as a Service (MaaS). It refers to the integration, within a single app, of most mobility services by combining public transit and on-demand mobility, with a single billing system. Successful pilot projects in urban settings have already been conducted in Northern Europe (notably in Finland and Sweden).
This is where BlaBlaCar comes in. On November 12, the ride-sharing specialist announced its intention to acquire 100% of Ouibus. The amount of the transaction has not been disclosed, but the ride-sharing leader needs to raise €101 million to finance the deal. The goal of the acquisition is to enter a new market with an established operator and to leverage its international expansion and data management capabilities.
An acquisition to leverage synergies
Synergies will be developed within the merged group. First, the full transition to a platform-based business model—similar to Flixbus, which does not own any buses—will undoubtedly reduce the operating costs of bus routes. The goal is to become an intermediary between passengers and independent bus operators, relying on subcontracting and external partners.
This will enable even more flexible network management. Even now, bus routes can be easily adjusted at little cost to accommodate seasonal changes and special events (e.g., ski season, Euro 2016). Going forward, service could be adjusted even more seasonally than it is today, with, for example, underutilized bus routes replaced by carpooling overnight.
Finally, the group will be able to offer consumers a “train + carpooling” package thanks to a partnership with SNCF, which is taking a minority stake in BlaBlaCar. Starting in the summer of 2019, oui.sncf, SNCF’s travel platform, will combine train and bus travel, and eventually carpooling as well. SNCF’s strategy aims to make its platform “a true personal mobility assistant,” even integrating transportation solutions from other competing mobility providers. Following this same logic of intermodality, a partnership between Ouibus and Hop was recently established to transport passengers by bus to flights operated by Hop! A “bus + plane” package will then be offered.
The trend toward consolidation extends to the rail sector
On the one hand, a platform’s business model—which does not involve owning buses—makes it easier to enter this new market. There is no need to invest in network infrastructure or in buses. Sunk costs, as defined by contestable market theory, are not high. On the other hand, one must not underestimate the intangible assets required for market performance, particularly big data management. Investments must be made in algorithms to optimize the platform’s matching process and in real-time management of supply and demand (for example, Flixbus employs 150 developers solely to analyze the German market). The sector’s specific assets are becoming the data processing power that serves the platform and the customer experience.
There is, however, one fly in the ointment: the management and location of bus stations within cities. ARAFER has published a study on this topic that highlights the wide variety of situations, often leaving consumers to cover the “last mile” to their homes.
By selling its loss-making bus subsidiary, SNCF is refocusing its operations on rail transport, notably through its low-cost strategy, which has been very well received by consumers. The group is thus preparingfor the opening of the passenger rail marketto competition in France, scheduled for 2021 for high-speed lines and 2023 for conventional services.
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Interestingly, Flixbus has entered the German rail market by launching its FlixTrain brand, which follows the same platform-based business model. Intermodality therefore appears to be the strategic key to carving out a niche in a rapidly consolidating market.
Thierry Blayac, Professor of Economics, Montpellier Center for Environmental Economics (CEE-M), University of Montpellier and Patrice Bougette, Associate Professor of Economics, CNRS, GREDEG, Université Côte d’Azur (UCA)
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