Greyhound’s bizarre airline experiment

• Their customer service is TERRIBLE.
• This was my FIRST AND LAST TIME riding with Greyhound.
• My experience with Greyhound was absolutely horrible.

It’s easy to see how these are actual reviews for Greyhound, the bus operator we all know and love. It might be harder to believe this: for 14 bizarre months during the mid-90’s, Greyhound ran an airline — in Canada.

Here’s the crazy part — it almost made sense. The business environment of intercity transportation within North America during the 80’s was rigid at best; air travel was prohibitively expensive and rail was notoriously inconvenient, leaving the road as the only feasible mass-market option in a stagnant playing field.

However, complacency has a way of inviting disruption, and Southwest Airlines did just that. The low-cost carrier had broken out beyond Texas in the mid 80’s, eating into the cushy margins of legacy airlines while proving the feasibility of cheap air travel. Crucially, their low fares created an entirely new segment of cost-conscious flyers, enlarging the pie by including those who would’ve otherwise chosen the road.

Greyhound bore the brunt of this low-cost air offensive in the U.S. and were determined to preempt it in Canada, especially with a nascent WestJet looking increasingly threatening.

Both companies were enamoured by the potential market; 5 million people drove between the small cities of Edmonton and Calgary during the summer, for example, and that was just one city pairing. Luring just 10% of these drivers into airplanes would already be significant, creating the same low-cost market that Southwest feasted on without needing to directly steal market share from the incumbents. Greyhound in particular reasoned that their existing bus routes could connect seamlessly into air travel, providing a comprehensive yet affordable travel network.

A quarter century on, one of these airlines is the second largest in Canada — the other is barely a Wikipedia page. The story of Greyhound Air may not grace many textbooks, but I think that their flameout is a prime illustration of poor business strategy.

The airline didn’t understand their passengers, mishandled the competition, and built a weak company with no shortage of internal strife; the resulting operation was deeply unprofitable and ultimately short-lived. This article dives into these three sections of customers, competition, and company, recounting an exciting time in Canadian aviation that we can all draw lessons from.

Customers

Few businesses can succeed — and generate revenue — without satisfying their customers, and Greyhound Air was no exception. While there isn’t a definitive recipe to delivering customer value, this process generally involves identifying a customer base, understanding their preferences, and finding ways to address these desires. Baked into this broad interpretation are critical factors like market trends, but the core aspect of giving people what they want seems painfully obvious.

Greyhound Air understood the first part; they identified a target market of leisure and cost-conscious travellers, those who would typically drive — or not travel at all — between medium-sized Canadian cities.

The carrier then stumbled on the other aspects — understanding and delivering on customer preferences. A simple way of illustrating this is by outlining their shortfalls at several key stages of the typical passenger journey: planning and booking, pre-flight, and flight. I’m missing arrival and post-flight, but those issues were, fortunately, less severe.

Plan and book

Greyhound understood that their intended passengers prioritised low fares when choosing carriers, but then seemed to forget how they would purchase, modify, or even cancel tickets. Like many airlines in the 90’s, budget and legacy alike, Greyhound Air was forging ahead with “ticketless” travel. This meant selling electronic tickets directly to passengers, bypassing travel agents that accounted for up to 10% of airlines’ typical sales costs.

The difference was that while other carriers were slowly reducing their dependence on travel agents, Greyhound completely cut out the agents in their initial launch; passengers accustomed to using travel agents were therefore automatically excluded from flying with the carrier. This insourcing also compromised the service quality regarding typical requests like cancellations or refunds, of which there were plenty. Cheap fares do give carriers wiggle room, but poor service certainly doesn’t help.

Pre-flight

The idea of weaving air service into Greyhound’s existing bus network was an attractive proposition, but the connection logistics proved remarkably complex. It’s difficult enough to catch a connecting bus; bringing planes into the equation typically meant either long waits or missed flights, something extremely irksome for any traveller.

Flight

The flaws of an outdated fleet were exacerbated by Greyhound’s routing philosophy, resulting in a less than ideal flight experience. The carrier only operated Boeing 727s, first-generation jetliners that were rapidly being phased out of commercial service. Greyhound’s hub-and-spoke model then meant that passengers typically had to transit through Winnipeg, increasing the time spent waiting for, boarding, and sitting on loud and cramped 727s.

The inconvenience of these layovers and the overall 727 experience were unquestionable drawbacks for most passengers, further detracting from the value offered by Greyhound Air.

Budget carriers aren’t designed to fulfill every passenger desire; the likes of Southwest have succeeded by understanding which preferences matter and which can be discarded. In a more context-specific comparison, WestJet succeeded with many of Greyhound’s offerings — both carriers prioritised direct bookings and flew to obscure airports, for example — because they offered sufficient upside.

Greyhound Air simply didn’t offer enough value to their customers, compromising their top line and contributing to their financial woes.

Competition

The airline industry after deregulation was very much a red ocean, and Greyhound Air failed to adequately address their competition. The carrier never defined a true competitive advantage, much less a systematic strategy to exploit these advantages. We’ll examine how they misunderstood and responded inadequately to two types of airborne competitors.

The incumbents

Prior to the turn of the century, air travel in Canada was dominated by two players that honestly sound like synonyms: Air Canada and Canadian Airlines. These were full-service carriers that offered the entire suite of services — such as meals and baggage connections — at hugely inflated prices. High prices were partly due to the virtues of duopoly, but were also heavily driven by the incumbents’ bloated cost base. Budget carriers therefore had a competitive advantage and strategy handed to them on a platter:

1. Attract passengers with low prices
2. Let legacy airlines drop their prices in response
3. Survive long enough so that the incumbents have to raise prices again by virtue of their higher costs, leaving behind a robust customer base

Greyhound Air miscalculated the third step — surviving — by having a bloated cost base themselves; we’ll explore this later in the Company section. If the carrier’s management understood what Greyhound had to do against the incumbents, they clearly didn’t follow through.

WestJet

The other upstart in this narrative turned out to be Greyhound’s nightmare, mostly because they did everything a little better. Both players initially struggled to define a true competitive advantage — they targeted the same customers with the same low-cost angle — but WestJet differentiated itself through better routing, a more modern fleet, and superior service. They operated 737s in a point-to-point system, providing a far more appealing experience than the 727s in Greyhound’s hub-and-spoke model.

WestJet’s internal culture was also purposefully built to thrive in this scrappy environment; they hired for a team-first attitude and rewarded staff with stock options, effectively tying their riches to the success of the organisation. Greyhound lacked the internal camaraderie of their direct competitor, leaving staff unprepared and unmotivated to fight the extended battle for air supremacy.

Greyhound Air neither executed their strategy to outlast the incumbents nor differentiated themselves from WestJet to make up inferior service. Despite Greyhound’s inroads against land-based travel, this shortfall limited their share of the travel market and depressed their revenues.

On a more humorous note, Greyhound’s abrasive actions were extremely effective at aggravating their competitors. WestJet and Canadian Airlines were irritated to the point where they attacked the legality of Greyhound Air’s ownership structure, successfully delaying their launch by 2 months.

Company

Greyhound Air’s internal issues all but guaranteed inadequate responses to the aforementioned external pressures from customers and competitors. There was little in the way of a defined vision or strategy; the attempt to combine concepts from Southwest with their existing bus network was poorly planned, glossing over critical components like aircraft maintenance practices and organisational chemistry. This unclear direction fueled devastating financial, cultural, and legal issues, culminating in a fragile organisation that was ill-equipped for a cutthroat airline industry.

Financial issues

Budget carriers succeed by clamping down on operating costs, allowing them to charge lower fares and still maintain profitability. Greyhound Air’s cost structure was inconsistent with this strategy, chiefly due to their fleet construction. Their 727s were over three decades old, requiring a third crew member in the cockpit while burning far more fuel than WestJet’s 737s.

Cheap aircraft were difficult to come by during the airline boom years, but this misstep severely hamstrung Greyhound’s survivability and played a critical part in their downfall.

Cultural strife

Greyhound’s absent North Star made it difficult to build a fit-for-purpose organisational culture. As cliche as it sounds, the fast-moving and demanding environment of an airline startup in the 90’s required employees to over-achieve for the success of the company; financial compensation would simply not be commensurate with effort for several years. Successful upstarts in this space — namely Southwest and WestJet — generally addressed this in two ways:

1. Hiring for attitude. Positivity and drive were prioritised over technical skills; the latter was viewed as being easier to teach than intrinsic drive.
2. Motivating employees through ownership. Compensating employees with stock option plans gave them a real stake in the success of the company, one that promised outsized — albeit delayed — rewards for hard work.

These two factors helped Southwest and WestJet build a sustainable culture tailored towards achieving their central goal of offering a cheap, enjoyable travel experience. Greyhound Air was less attuned to the nuances of building such a culture, resulting in an employee base that was arguably ill-equipped for the intensity of an airline startup.

Legal hurdles

The last thing that Greyhound Air could afford was a regulatory roadblock, but their arcane operational structure all but invited legal scrutiny. Greyhound prioritised speed in the planning process; instead of setting up their own airline, they would partner with Kelowna Flightcraft (KF), a cargo operator based out of British Columbia. The west coast base was important, but KF’s fully Canadian ownership was equally — if not more — crucial to the decision. Greyhound Canada was over 68% owned by an American parent, greatly exceeding the 25% foreign ownership limit for obtaining a domestic airline license.

Piggybacking off Kelowna’s existing license seemed like a crafty backdoor, but — as mentioned earlier — WestJet and Canadian Airlines weren’t amused. Neither was the Canadian Transportation Agency. A cease-and-desist order was threatened, and Greyhound Air launched several months behind schedule. Not only did they miss out on lucrative early-summer revenue, but the turmoil from an extended legal battle and the subsequent restructuring diverted precious attention away from competing in a brutal market.

On a more poignant note, many of these issues could have been prevented through rigorous planning and disciplined execution. The depressingly high operating costs of archaic 727s were common knowledge, and the focus on employee motivation was a core tenet of Southwest’s philosophy; it should have been studied in more depth.

The unnecessary provocation of WestJet also resulted in surprisingly severe business ramifications; WestJet had no qualms about seeking legal action against such an irritating competitor. These issues combined to strain Greyhound’s resources and diminish their competitiveness, often rendering them the second mover behind WestJet — in a market of two.

The result

The recent proliferation of venture-backed, cash-burning tech startups have cast doubt on the notion that businesses have to be profitable, but Greyhound Air was a budget airline in the 90’s — their survival depended on profitability.

Unfortunately, neither side of the equation tilted in their favour. Revenues were compromised by severe misunderstandings of customer needs and competitor capabilities, while a poorly planned strategy led to prohibitively high costs — financial and otherwise.

The carrier was graciously put down after Laidlaw International purchased Greyhound Canada in 1997; the new owners saw little upside in maintaining the airline, ceasing its operations after just 14 months of service.

Prior to Greyhound Air’s launch, many were heralding the creation of a dynamic, accessible air travel market. Vancouver-based airline analyst David Frank reported that:

“[Greyhound] isn’t really getting into the airline business. It is simply replacing some of its long-haul buses with aircraft.”

But that’s the mistake. You can’t ever get into the airline business without realising it — it’ll eat you alive.

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References

• Flight Path: How WestJet Is Flying High in Canada’s Most Turbulent Industry — Paul Grescoe
• Greyhound abandons low-cost air service | News | Flight Global
• Greyhound Air Commercial, May 3 1996 (1 of 2)
• Did You Know Greyhound Had An Airline
• UPSTARTS IN THE AIR | Maclean’s | MARCH 11, 1996
• Air travel without a ticket | Maclean’s | APRIL 22, 1996
• Greyhound Enters the Race In Canada’s Airline Business