MEXICO - Transport
CEO, Grupo Senda
Jose Manuel Contreras Lomeli graduated in Industrial Engineering and obtained his MBA from Columbia Business School. He joined Grupo Senda in 2010 as CFO and became CEO in 2012. Before joining the company he held various positions at CEMEX and also worked for McKinsey & Company and Banorte.
The international segment represents 14% of the business. We are actually the only company in Mexico that provides transportation services within Mexico, the US, and cross border. That is related to how we receive permits from the Department of Homeland Security in the US. We have full insurance in the US for all of our units, and comply with both US and Mexican regulations.
Our business is very cyclical throughout the year. During the winter holidays, the summer vacation season, and then during spring break, we see peaks in our passenger segment. Our personnel segment is actually nearly counter cyclical to the passenger segment. The drivers for market performance have traditionally been Mexico’s growing demographics and improving economic performance, both of which have been performing rather well over recent years—more so after the 2008-2009 crisis. As the economy improves, more people move around. You also have to consider that there is no real alternative to bus transportation in Mexico. There is no significant passenger rail system. There are only two railways for touristic purposes, one in Guadalajara and one in Chihuahua, while the rest are freight rail systems. As a result, it is only possible to move by car or by plane. However, only 3% of the population have access to air transport. So, when you look at the demographics, we service 97% of the population. Over 2012, we moved more than 20 million people per year in the passenger segment and another 35 million people in the personal sector. That demographic has been increasing in size, so you would think that the bus industry would be growing; however, unfortunately it has not. That can be attributed to the perception of insecurity. Our company fortunately has not faced any incidents related to organized crime. People who travel by bus usually do not carry much. So, why would they be targeted by organized crime? There have been some unfortunate incidents in the industry with less organized bus companies, co-ops, or companies with fewer controls. We run a pretty tight ship and have strict controls in place. We know where our units are at all times, and mind travel times and passenger loads. We have strong security measures, including metal detectors at boarding stations and K9 units at border crossings.
We have had an increased focus on cost consciousness. Before we ran as four different bus companies, and now we run as one. We have pegged those businesses together and improved margins by roughly 3-4 percentage points. We have also been very successful in our “Route Rationalization Strategy.” That means we have reduced empty kilometers, improved passenger load, and reduced the number of buses needed to service each route. Overall, we have managed to reduce our fleet size by some 200 units while servicing the same market. This translates into better performance and profitability. Our competitors, which are mainly co-ops, are not able to mimic this strategy and reduce kilometers or runs because of their multiple owners. Despite higher operating costs, mostly as a result of increasing diesel prices, we have had a better price environment. Within our cost structure, diesel is the most significant factor, aside from labor, and diesel costs have increased around 65%-70% over the last four years. Being able to transfer that is not easy. We have been increasing prices during the holiday seasons and every single year to recoup the industry’s cost inflation. With good strategies, we have successfully been able to transfer this cost.
It is fierce because bus transportation is slightly regionalized. We have a commanding market share in the northeast, but we have no presence in the south of Mexico. We have a significant market share on all the routes that we operate, which comes as a result of our good service. There are, however, three other large bus transportation companies that mostly follow the co-op model on a different scale, so their business models are very different from ours. Nevertheless, we do compete in several markets, though more so in the center of Mexico, where a large portion of the population resides. In several cities we even operate out of the same bus terminal, which makes competition even harder.
Mexico has built a great road system in the past several years, so there are not many accidents. There are more accidents in the south, where the roads are not as well maintained and bus companies are less professional. Accidents occur when buses are not in optimal condition. In our company, vehicle maintenance is something we take pride in. We are very strict and comply with both Mexican and US standards. We train drivers ourselves, at the Universidad del Autotransporte Senda, using a program that is certified in the US and by the Secretariat of Public Education in Mexico. It is also ISO 9000 certified. This system distinguishes us from our market peers; no other company has its own bus operator university.
Service, punctuality, and more service. Many of our competitors run buses with 48 seats, whereas we run buses with 42. In the US, instead of 44 seats, we have 36, providing extra legroom and thus a lot more comfort. We might not have a high frequency of service in certain parts of Mexico, but we have noticed that customers prefer our service and wait for our buses and drivers, especially for long trips like Monterrey to Chicago, a 36-hour route. We pride ourselves on our good service. Our drivers are not only very well prepared, but are always courteous and formally dressed. We take special attention to security and road safety, and measure punctuality, travel time, and diesel consumption. We also enforce speed limits very thoroughly.
When we decide to do an IPO, the listing will be primary—an IPO would be for growth. The company had been leveraged in the past; however, our shareholders are conservative. In order to keep growing, we need more capital, and we should get that fairly easily with an IPO. The company attempted to go public back in 2006, but markets went stale. We have been preparing for an IPO for quite some time, but we will only go public when the right projects align with the right timing. We are in no real hurry, although becoming a public company would materialize our already advanced institutionalization process. We are no longer a typical family-run business. We have strict corporate governance policies. We boast an outstanding board of directors, of which 50% of the members are truly independent and all very well renowned. We are audited by one of the big four audit companies and have migrated to IFRS accounting principles. We also have a new management team that has been entirely professionalized. We will be ready when the right time comes. The markets have been doing very well during 2H2012, so we will take advantage of the opportunities. We have been approached by basically every investment-banking firm to launch an IPO.
© The Business Year – February 2013
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