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Chinatown Bus Economics
09.07.03 Patrick Nichols

[Note: written on the road, on my snazzy new M5310. Battery life on the road is an impressive 3.5 hours, with 802.11g turned off.]

I took the Chinatown bus to New York to visit Amanda for the weekend, and was struck by how popular the service has become. I bought my ticket for the 11 AM bus at 8 AM this morning on the Internet, and by the time I arrived at the bus stop at 10:55 AM there was a mob of over fifty people waiting for unclaimed seats on the bus. Not surprising, given the $10 ticket price Fung Wah charges is about half that of Greyhound, and an eighth that of the train.

While on the bus, I did some thinking about the Chinatown bus business model. Consider that Fung Wah runs 15 busses from New York to Boston (and vice versa) a day. Given that it takes about four hours to travel between the two cities, Fung Wah could probably run all services with ten busses. The marginal cost per trip is pretty cheap, in that tolls and gas cost at most $100 for the entire run. Each bus holds up to 80 people.

The most Fung Wah could gross per day is $10/ticket * 80 people / bus * 30 bus runs / day = $24,000. This isnít bad for a shady company with a handful of busses. More realistically, Fung Wah probably transports 1000 people a day instead of a more loft 2400, but even still this brings their gross revenue to a respectable $10,000 a day. After costs of $3000 to run the busses for the day, $1200 in salary, (120 hours of driving time @ $10 / hr), and various other operational costs (website, fliers, etc), Fung Wah is pulling in a net of $5000 a day. Of course, taxes and the cost of the busses must take a considerable chunk out the profits (assuming Fung Wah pays taxes), but it seems like a pretty successful business model. A net of $2000 / day still gives the owners of Fung Wah (probably a Massachusetts S-Corp) $650,000 a year to spend on summer vacations to China.

Given these numbers, you really have to wonder why Greyhound (which presumably benefits from all kinds of economies of scale) canít really compete on price or quality of service. (The Chinatown bus takes between 3.5 and 4.5 hours to get to NYC, depending on traffic. Greyhound takes between 5.25 and 6 hours to cover the same round, at double the cost! I wonít begin to wonder about the economics of the Acela express, a train which is slower than flying and generally more expensive.

[Update: I am stuck in New York for the night, as all spaces on the bus are sold out this evening! Perhaps business really is booming. I've prepared for tomorrow and purchased my ticket for the 7 AM bus online already.]