How much does it cost to operate a big tour bus?
Couple of weeks ago I was exploring Sakaleshpur and we traveled in a large tour bus operated by SafeWay travels.
As I discussed with the bus operator, a few serious cost factors came up. I am sharing my findings with you so that you have an understanding of what it takes to operate a fleet of tour buses- what are the various costs involved and what percentage of your payment goes to the government in various kinds of taxes and fees.
Some of the tax component are very significant and knowing this will help you understand why coach tours are expensive and where your money goes.
Expenses of a tour bus operator, per bus
1. Insurance Premium: This 50 seater Bharath Benz bus costs about 1-1.2 lakh rupees per year in just insurance premium. That is 10,000 Rs per month.
2. Commercial Vehicle tax: Bus operators have to pay a fixed fee every quarter to government for the permission to operate this bus as a contract carriage. This fee for a 50 seater bus is whopping 1.25 lakhs per quarter, or 5 lakhs per year. (Back in 2018 this fee was hiked to 60k from 40k, now 2021 I am told it is 1.25 lakhs) Irrespective of whether there are bookings or not, bus owner needs to keep paying this fee to Govt to operate their bus as hired vehicles. During lockdown and covid many bus owners surrendered their bus documents to RTO saying they won't be operating the bus for the entire quarter and hence there are not going to pay this massive tax.
1.25 lakhs for 3 months. That is about 42k per month or more than 1400 per day goes just in this tax alone
3. Driver salaries: A large bus needs a highly skilled driver and also an assistant. While exact salaries may vary, let us assume a combined salary expense of 60000 per month for driver and assistant.
4. Interstate permit: I had written about this mafia earlier.
Tamil Nadu govt charges a massive 900 Rs per seat to let a commercial vehicle enter TN. For a 50 seater bus, the fee will be 45000 Rs. Different states have different rules for commercial vehicles registered in another state to enter their state. I have already written about it in an earlier post. Tour operators transfer this expense as is to paying tourists, but usually not told upfront. You'll realize this at the border or after paying advance- else many tourists will not book the bus and take a train or flight.
This amount needs to be paid in full even if only half the bus is occupied. If a tour operator gets a booking for 25 people but doesn't have a smaller bus, he will be forced to cough up twice the fee for no apparent reason.
Instead of paying 900 Rs per seat to enter another state, it is cheaper proposition to take a train to the destination and hire a vehicle locally.
5. Diesel
Fuel is a big expense for bus operators. A massive Volvo B9R goes only 2-3 km per liter of diesel. Other big 45-50 seater buses hardly give 4-5 kmpl fuel economy per liter of diesel. Fuel economy varies by bus type (B9R needs more fuel than B7R), load, road conditions etc. Official fuel economy could be higher, but passengers need full AC most of the time, there will be lots of baggage, uphill drive etc so effective mileage is a lot less than what specs may say. 80 Rs per liter of diesel and just 5 kms = 16 Rs per km just in fuel expense. At 3 kmpl, per km diesel cost goes to 26 INR.
6. Toll & parking fees: While cars pay 2-3 Rs per km as toll, buses pay 5-6x more.
7. Maintenance: tyres wear out, oils need to be changed, spares have to be replaced, interior components like charger, lights, curtains, seat etc get damaged and have to be fixed. All these cost money.
8. Office expenses: Bus operator also have to pay office rent, support staff salary, website maintenance and other such expenses. Hard to quantify this but it is an expense.
9. GST: Bus operators need to pay 5% GST on fare they collect from passengers.
10. Commissions: People who get the business for bus company- such as Redbus.in, travel agents demand a cut, usually ranges from 10 to 20% of the amount charged to customers.
With above information in hand, let us do a rough math on cost of operating a bus for a month, assume they get 2 bookings for 20 days of the month.
Monthly expense for bus operator
Fixed costs
- Commercial Tax prorated: 42000
- Insurance prorated: 10000
- Driver & assistant Salaries: 60000
- Maintenance expenses (prorated): 10000
- Office management expenses, prorated: 20000
Total: 1,42,000 INR per month per bus
Variable costs:
- Interstate travel (assume 2 trips to TN from KA): 90000
- Diesel (assume 6000 kms at 300kms per day @ 5 kmpl): 102000
- Toll, parking and entry fees: 30000 Rs (approx)
- GST paid (6000 kms * 50 Rs per km @ 5%) = 15000
- Commission at 10%: 30000
Total variable: 1,67,000 INR
Fixed + Variable = 1.42 + 1.67 = 3.09 lakhs
That is an expense of more than 3 lakhs per bus. EMI on bus loan extra. A Volvo B7R costs more than a crore now and this investment and interest paid on it should be recovered in about 10-12 years (max lifespan of the vehicle). Depreciation cost is 3000-4000 Rs per day.
How bus operators mitigate this?
There are multiple ways bus operators mitigate above expenses or try to manage as best as they can.
0. Minimum 300 kms per day: All bus operators charge for min 300 kms per day even if your usage is much lower. With per day fixed expense of 5000 Rs, depreciation cost of 3000-4000 and variable costs running equally high, charging minimum 15k per day bus operators aim to cover their expenses and make a small profit.
1. All additional expenses are transferred to customers at actuals- toll, parking, entry permit to other states these are to be paid by customers in additional to bus rental fare. You've booked a bus to go to Mahabalipuram from Bengaluru and bus operator asks 50-60k extra later don't be surprised. A 3 day trip will be quoted at 3 Days * 300 kms per day * 50 Rs per km = 45000 INR + 3k driver batta. So you factor 48-50k in expense and you will be told about 45k TN entry fee and some 5000 Rs toll and other expenses later, doubling your planned expenses.
1 lakh for 3 days for 50 people = 2000 Rs per head, which is still lower than what it costs to hire an Innova for 6 people (3000-3500 per head)
2. Surrender documents of buses not in use- When they have multiple buses but not enough bookings, they surrender few buses to RTO to avoid paying 1.25 lakh quarterly tax. This will save them some money though at the risk of not having a bus to use if some bookings come in
3. Register in state where tax is lower: Some states like Nagaland have lower taxes, so many vehicle owners get their buses registered there but use them somewhere in South India. This way they get to save some taxes.
4. Use two buses one for each state:
Several decades ago when we toured South India with Vikram travels they took us to Kerala border from Karnataka, made us get down, cross the border on foot and board another bus. While this was inconvenient as a passenger, it saved several thousand rupees for the company in taxes and effectively a few thousand rupees less per customer in ticket fare.
5. Use two buses of same registration number: Some travel companies cheat by using same registration number on two different buses. This way they pay tax once but make twice the revenue. Of course at times they get caught and entire bus will be seized.
6. Extra rules
Extra batta for night driving, No AC on hill stations and many such rules to minimize loss and increase income.
How much does it cost to hire a luxury coach?
An innova costs about 12-15 Rs per km with minimum billing of 200-250 kms per day + 300 Rs driver batta for carrying Max 6 people. The 3 day BLR-Mahabalipuram trip in an Innova would cost about 20,000 INR all inclusive
A large 50 seater luxury bus costs about 45-60 Rs per km (super expensive and luxurious Volvo may cost 60 Rs while slightly cheaper buses cost 45-50 Rs per km) with minimum billing of 300 kms per day + 1000 Rs per day driver batta. So 3 day BLR-Mahabalilpuram trip will cost about 45000 in rental + 3k driver batta+ 45 k entry tax, about 5k in toll = almost 1 lakh rupees. For 5x the price, you can carry almost 8x-9x more passengers, so buses still make economical sense for large groups. Buses are more spacious, feature loaded (charging points, music, lightings, TV, wide window, overhead storage etc) and comfortable than smaller taxis like Innova.
What can Govts do to help bus operators?
- Instead of fixed quarterly tax, introduce a revenue based tax to de-risk operators
- Instead of charging on a per seat basis irrespective of number of passengers, charge on per passenger basis depending on number of passengers
What can tourists do to optimize their expense and experience with coach rentals?
- Be aware of applicable interstate permit fees- this will allow you to budget your trip properly and avoid last minute surprises
- Bus rental doesn't make sense for short distances like 100kms. Explore alternate modes
- Taking train to a destination and hiring a vehicle locally might save lots of money instead of paying half a lakh in state entry permits
- Understand pros and cons of a bus rental. While buses allow large number of passengers in one place, buses are tricky to negotiate narrow roads or sharp turns. One or two person delaying their return can delay entire group of 50 people. Plan well.
- Where possible build good relationship with bus operator/your travel agent for good deals.
Let us know what you think.
Well narrated Srinidhi, covering each & every aspects of operating a big bus. I am going to save this link & will share with my clients
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