Luxury Coach & Transportation

September 2018

Magazine for the professional limousine, charter and tour industry.

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LUXURY COACH & TRANSPORTATION SEPTEMBER 2018 33 Flexible Structures To Match Company Cash Flow While the industry is strong, choosing the right leasing and financing options is vital to running a motorcoach fleet with long- and short-term stable cash flows. In addition to the types of leases, fleet owners should consider leasing pay- ment structures as well. For instance, the flow of business for many bus and motorcoach companies, such as tour operators, depends on the season. A company's slow season can vary by lo- cation and the exact services offered. In some cases, leases can be struc- tured so payments are non-existent, or minimal during certain months, and higher other months. For example, we offer seasonal-payment lease struc- tures, which benefit fleet operators who experience low and high seasons in their business. We can structure the lease to fit the specific needs of the operator so they can avoid worrying about payments when cash flow slows, whether during winter months or a slow tour season. The Bottom Line Bus and motorcoach transportation is strong and dynamic. Owners and opera- tors should consider specific needs when choosing fleet financing strategies. For example, if operators are con- cerned with upfront costs or high month- ly payments, a TRAC or split TRAC lease might be a more favorable option. If their business is cyclical, they might consider a seasonal-payment lease structure to avoid having to make payments during less profitable months. While the industry will certainly keep transforming due to new technology, laws, and eco-friendly pursuits, owners and operators can stay ahead and main- tain smooth operations by embracing these changes and financing wisely. On the other hand, operating leases provide no obligation of ownership when the lease ends and involve lower monthly payments. is leasing op- tion is often favored by some compa- nies because it allows operators to upgrade their fleet more frequently, reduce maintenance expenses, and increase profits. Motorcoach operators who offer more high-tech or luxury features as a part of their services, or who operate in areas with stricter environmental regulations, might benefit from these structures to allow more frequent fleet updates. Other lease variations motorcoach fleet operators can consider are termi- nal rental adjustment clauses, or TRAC, in motor vehicle leasing, which is one of the most popular leasing options for commercial vehicles. is clause requires an adjustment of lease pay- ments to compensate for the difference between the actual value of the vehicle when the lease ends and the originally projected amount. ese leases provide financial incen- tive for the lessee to perform routine maintenance, therefore improving the overall value of the vehicle. Split TRAC leasing structures can be especially use- ful for bus and motorcoach companies because it entails the lessor assumes some of the estimated residual risk. Further, environmental concerns have led to several major public trans- portation companies boosting their eco-friendly efforts. For example, elec- tric buses are becoming more common in reducing pollution. In fact, the global electric bus market is expected to grow at a compound annual growth rate of 30.2% during 2018-2024, which will likely transform fleets in a relatively short time. Lease Types for Varying Needs With changes to vehicle technology and industry standards on the horizon, as well as potential increased costs to en- sure compliance, this begs the question: What is the best way to acquire and maintain bus and motorcoach fleets? e average lifespan of a motor- coach can range from about 12 to 20 years, depending on the mileage and whether or not the vehicle has been properly maintained. at said, to remain competitive and stay ahead of the curve on efficiency and regulatory compliance, some operators may consider leasing on shorter terms that allow for more frequent, seamless, and affordable upgrades. With capital leases, a company will own the asset at the end of the lease term. Because some of these commer- cial vehicles can last up to 20 years, this can be a viable option for fleet owners depending on their specific needs and circumstances. For example, a vehicle would be owned outright after a seven-year lease term, and could go on to experi- ence another decade of usable life, ren- dering the purchase a solid investment for the company. Austin Wilson is an Account Executive at Summit Funding Group (awilson@4sfg.com). This article first appeared in the July 2018 issue of Metro Magazine. Owners and operators should consider specific needs when choosing fleet financing strategies. To remain competitive and stay ahead of the curve, some operators may consider leasing on shorter terms that allow for more frequent, seamless, and affordable upgrades. ABC Companies

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