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Jose Manuel Contreras Lomeli

MEXICO - Transport

Hail the Driver

CEO, Grupo Senda

Bio

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.

TBY talks to José Manuel Contreras Lomelí­, General Director of Grupo Senda, on its expanding transportation business, dealing with cost challenges, and a possible future IPO.

How large a role does cross-border passenger transport play in the business?

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.

How has passenger transportation evolved in Mexico in recent years?

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. We 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 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.

What strategies have you implemented to deal with cost challenges?

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 three-four 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 every single year to recoup the industry’s cost inflation. With good strategies, we have successfully been able to transfer this cost.

“Over 2012, we moved more than 20 million people per year in the passenger segment.”

How intense is the competition in the local market?

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.

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