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Economic analysis of the Volvo service introduced by the BMTC at Bangalore

with 21 comments

BMTC Volvo (courtesy: BMTC website - http://www.bmtcinfo.com/english/volvo.htm)

Bangalore's premium Volvo bus service
Bangalore’s BMTC (Bangalore metropolitan transport corporation – http://en.wikipedia.org/wiki/Bangalore_Metropolitan_Transport_Corporation) has introduced its premium end Volvo bus service that plies from various parts of the city to the city center. I am told that this is the first of its kind to be launched in India for local city routes. This is also what BMTC claims – http://www.bmtcinfo.com/english/volvo.htm

I did a quick analysis as to how much value and revenue this service adds to the BMTC (all figures are rough calculations).

The BMTC has cleverly positioned its “Volvo service” using the brandname of Volvo. Volvo – http://www.volvo.com/bus/global/en-gb/ (based out of Sweden) wouldn’t mind that given the popularity this would give Volvo! This bus and the “Volvo experience” is already quite popular on the regional intercity routes.

This BMTC “Volvo” premium service has its task cut out.

Lets assume the fare per head to be Rs. 40 (on an average – it fluctuates and hits a max. of Rs. 55 on some long routes).

The bus drivers ensure the bus is completely filled (the bus possibly has 60 seats).

This ensures a minimum revenue to BMTC per Volvo bus trip of Rs. 2400.

Now, lets assume that each trip takes about 1 hour (average) for BMTC to commute. This means there can be a max of 10 trips this bus can make 1-way. So, the revenue for those 10 trips works out to be Rs. 24000.

Now, let us assume the running costs.

Diesel is the most important to factor in. Let us say it runs for 70 kms one-way and there are 10 trips so the distance is about 700 kms per bus per day (its best to bring everything to a measure of per unit for easy calculations). Now, let us say the bus gives a mileage of about 1.5 kms to a liter of diesel (remember these are air conditioned and automatic gear buses). Therefore, the quantity of diesel required to ply one bus per day would be about 470 liters. The diesel cost works out to be about 470 * Rs. 40 per diesel = Rs. 18667 per bus per day.

Now, let us assume that the amount accrued by BMTC as a result of running 1 bus per day is Rs. 20000 (factoring in maintenance costs).

Therefore for a fleet of 50 buses, this works out to be Rs. 10,00,000/- per day.

Assuming each bus runs for a total of 24 working days of a month, for a fleet of 50 buses, this works out to be Rs. 24 * Rs. 10,00,000 = Rs. 240 lacs or Rs. 2.4 crores per month or Rs. 28.8 crores per year (so we can assume BMTC makes a profit of almost Rs. 25 crores per year after the first year of operations of each Volvo bus since BMTC would’ve also incurred a sunk cost of Rs. 60 lacs (average) per bus on its purchase and packing it with the basic features.

We have taken the rough profits per year for BMTC on its volvo bus service as Rs. 25 crores assuming that they also need to pay for the parking charges at BMTC bus shelters, and other road taxes etc. that cumulate to about Rs. 3-odd crores per year.

The above is only the financial analysis. The economic analysis is that consumers tend to treat the Volvo as a compementary good to the Autorickshaw and I have seen more than one person compare price of this Volvo ticket to a regular Auto Rickshaw journey so the Volvo adds the following economic benefits: A feeling of traveling in luxury, an air conditioned coach adding to the luxury effect and the net effect this has (that cannot be monetized) is that it makes the individual more productive by easing out the harmful effect of traveling on the crowded Bangalore roads!

One more important economic benefit this adds is more of a social cost-benefit since it plies on peak hour routes and long distance routes such as International technology park, Whitefield, Electronics City, Hosur road etc. – these are hubs that house more than 1,00,000 employees and before the Volvo service, the affluent technology workers used to commute by either their company transport or worse still, their own cars – one person sitting in a car that can accomodate 4 people. Think about the consumption of fuel for the owner (this fuel cost is right now the cost incurred for the people who choose to not to use this premium Volvo service – this cost can easily run in the range of Rs. 10K per month for a 60 km two-way route from their home to their workplace and back), think about the reduction in traffic with traffic mayhem alleviated due to lesser number of those single owner driven cars on the roads, think about the reduction in pollution – its a great social benefit that has far reaching impact if done well in the long run!

I think this concept of BMTC will fly and by the way, it already has!

To think, it was not too long ago that the BMTC was running into huge losses and required a wake-up call!

I will write one more post on how this turnaround happened in the overall BMTC corporation’s history.

I will also write about the economic and the financial turnaround that happened in the Indian railways that leapfrogged into profitability since the last few years under the leadership of Laloo Prasad Yadav!

Those would be interesting posts!

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Written by Naveen Athresh

April 1, 2007 at 4:17 pm

21 Responses

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  1. if you tkink the volvo buses are giving an average of 10 kms per liter of diesel, you dont know what you are talking about. You will be lucky if you get an average of 2 kms per liter in city traffic.

    vijay mane

    June 29, 2007 at 7:43 pm

  2. Vijay,

    You are probably right. I think I would need to look into this. Thank you for the inputs. Its really appreciated.

    Regards,
    Naveen

    Naveen

    June 30, 2007 at 9:59 pm

  3. Naveen, you suddenly come to conclusion that each bus will save Rs. 20000 per day.

    I have not traveled in these buses but I doubt if it will accommodate 60 people and on an average fare (40/-) per passenger also looks higher.

    if bus runs at 50% capacity then average trip sale would be

    45(seats) x 60 (max fare) x load (.5) = 1350. x 8 trip a day = 10800.
    45(seats) x 60 (max fare) x load (.8) = 2160. x 8 trip a day = 17280.

    40 km per one way trip = 320 km a day. = 160 lt *32 = 5120/-
    I really do not know how much it take for one km.

    Expenses
    5000/- + employee expenses + maintenance + Insurance + capital cost.

    Earning
    ~ 10000 – 17000

    Bhupesh

    July 18, 2007 at 6:11 pm

  4. I travel by this Volvo service every day these days (to/fro) and its really convenient. I used to drive my Honda City to work daily last year which would work out very expensive (obviously) to the tune of almost 70 kms daily (assuming a mileage of 12 kms to a liter, my City would make me incur an expenditure of almost Rs. (70/12) * 55 = Rs. 330 per day. Compare this to the same luxury element of the Volvo plus add in the fact that the driving headache is not mine, well, I would opt for a Volvo to commute in Bangalore anyday.

    Naveen

    Naveen Athresh

    August 9, 2007 at 12:22 pm

  5. Vijay,

    I have spoken to the Volvo driver who said the bus does not give more than 1.5 kms to a liter of Diesel so I have made the necessary corrections on the blog post. Thank you for pointing out such an important point. Appreciate it.

    Naveen

    Naveen Athresh

    August 9, 2007 at 12:25 pm

  6. […] of all, auto economics are a different ballgame unlike bus economics (https://ecofin.wordpress.com/2007/04/01/economic-analysis-of-the-volvo-service-introduced-by-the-bmtc…) or taxi economics. Auto drivers live by their own rules – as a seasoned auto commuter almost […]

  7. While the BMTC services have definitely improved in recent times, especially with the induction of the Volvo buses, it is felt that it can do much more to help the commuters and generate more revenue for itself by paying attention to certain details which do not involve much investment.
    The destination boards are often not in place , haphazardly written and sometimes with confusingly different markings on the front and rear. It is surprising that the electronic sign on the Volvos shows the same destination in the onward and return directions. Can they not be programmed correctly?
    With a very few exceptions the destination markings are all exclusively in Kannada. BMTC is in effect dissuading a large section of the floating population of the metropolis from using their buses. This is in variance with the other metros where they are bilingual. Hyderabad adopts the trilingual pattern, Urdu included.

    C.S. Anand

    January 9, 2008 at 10:10 am

    • I think when the Karnataka Government is promoting itself in bringing Kannada into administration. I think it is wise idea that BMTC continue to use Kannada as the main language. Otherwise there would not be any value for Kannada. I think people should start learning kannada when they start working here as they do when they start working in France they learn French

      Sharanu

      July 22, 2009 at 8:43 pm

  8. I think BMTC should use other makes of busses, for instance Ashok Leyland’s new ibus. This should give better mileage and the operating cost will definitely be lesser. The need of the hour is for better quality bus services so that more people use buses instead of autos, bikes and cars. The ibus should be modified to the current volvo type seating instead of 2 separate classes etc.

    Sandeep D.

    January 29, 2008 at 3:53 pm

  9. Adding to my earlier post, like in most other countries, its more than enough for these buses to have one door for the passengers at the front and use the back door space for more seats. People will prefer to travel in air conditioned comfort, free from pollution, if only more of these buses can be introduced at better operating costs.

    Sandeep D.

    January 29, 2008 at 3:56 pm

  10. Missed out one key Revenue generator for BMTCwhich can absorb all its cost.
    “Busvertisement” ..oh boy they are really making smart money from the ads these Volvo buses carry

    Sunil

    March 11, 2008 at 4:29 pm

  11. What we see in the relationship between Volvo and BMTC is a Win-Win situation but ultimately the BIGGEST WINNER is the Bus passengers in India who were demonised by “Bus Babus of Licence Raj Era” who built “fake buses on truck chasis, thus depriving and deceiving Indians of True Bus.

    By joining hands , BMTC and Volvo have put “BUSES” on road.
    This has transformed the Travellers/Passengers perception of the Bus.
    From comparing some Indegenously bulit buses to Bullock carts,
    to Comparing a Bus with an Auto is indeed a Transformation,
    thanks to TWO WINNERS -Volvo and BMTC, TWO major SINNERS in Indias Bus/HCV Industry have at least started attempting to make “True BUSES”….

    Sunil

    March 11, 2008 at 4:38 pm

  12. Who has propogated this false jingo” true bus”, False bus,Truck chassis…etc…?Thing volvo has is good suspensions and a powerful engine at the price of 7 buses.If ever BMTC and in that case govt bus corporations were ready to spend this much amount earlier, They wudve been brought here long back by the “Bus Babus of Licence Raj Era”.remember Ashok leyland’s rear engine vehicles on NH-45 in 1988-1989? And for that matter Ashok leyland was also a british company then, which is one of the main reasons why Volvo is getting this much publicity and accolades!!!!

    zintyl

    March 30, 2008 at 11:27 am

  13. Volvo is not economical unless it runs for 300 KM per day. In present conditions of Bangalore city traffic it is not possible to run more than 150 KM per day. Unless there is some dedicated line for buses in peak hours BMTC will be running under loss.

    Suresh

    June 24, 2009 at 4:53 pm

  14. Keeping in mind the currently increased sense of civic pride of young people in many of these new independent states, one may expect even lower turnout in the future. ,

    Bob84

    October 23, 2009 at 5:58 am

  15. there are few things which I would like to point out….
    1 hr per trip is slightly ambitious and ur assuming 70km per trip@-)……..I wud say the average trip wud be 30kms and it would take close to 2 hrs…..atleast on the routes in which I commute. And the buses seats 38-41 ppl……and may be it can accomodate another 40 ppl (standing)……..and most of the times the occupancy rate is high in onli 1 direction…..(either to or from)…….and the way BMTC drivers handle these buses and over load them I dun see them running in condition fr more than 30 months….

    ranjan

    December 6, 2009 at 6:25 pm

  16. I would say on an avg the bus wud have 30 ppl at any time…….and we pay abt 1.5 -2 rs per km, so fr a round trip (of 30+30) km….they might earn 3000Rs.3000*5 (5 round trips)……… they will earn 15k per day and diesel cost wud be (assuming 200 litres for 300 kms) Rs8000(40/ltr)…..and generaly maintenance cost wud be 50% of diesel costs…..so total expenditure per day will be arnd 12k per day so assuming a profit of 3k per day(neglecting taxes and driver and conductor salaries)…..they wud onli make 90k per month profits. Now assume these busses are taken on EMI scheme fr a period of 8 yrs(im not sure if these buses will run fr more than 4 yrs) at 8% interest they wud have to pay close to 85k per month…..I do not see BMTC making much profits even if the occupancy rate is slightly higher…(we also have not taken into account road taxes which is by no means negligible)

    ranjan

    December 6, 2009 at 6:38 pm

  17. I use volvo bus every day, I dont think BMTC is making good profit right now, it may take another year are so to see some profit, but it is a good initiative to reduce the traffic, pollution and good comfort to the commuters

    Siddesh

    December 10, 2009 at 12:15 pm

  18. Hi!
    Usually when i see a blog i read through it and move on, however this one was trully a good 1, i thought i would take the time to give you thanx for such a good blog post.

    Allie Pulice

    December 21, 2009 at 6:57 am

  19. Makes interesting reading. Could anyone, please let me know the mileage (on highway conditions) for the following types of buses:

    (a) Ashok Leyland
    (b) Tata
    (c) Volvo

    It would also be great if anyone could help me with the expected tyre life in KM.

    Ullas

    October 20, 2010 at 11:01 am


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