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Greyhound: Leave The Driving To Lentzsch

The Corporation: TURNAROUNDS


Greyhound's CEO is improving service and winning riders

For Craig R. Lentzsch, turning around Greyhound Lines Inc. should be getting boring. After all, it's the second time he has been called to duty at the often ailing bus line. It's a task many wouldn't touch, but he doesn't mind. "I've made my career in businesses that nobody else wants to be in," he says.

Taking on a tough job isn't so bad if you can make things better. And that's what Lentzsch is doing at Dallas-based Greyhound. In a sharp break with prior management--which cut capacity, stressed shorter routes, and set up an ill-fated hub-and-spoke strategy to compete with airlines--Lentzsch insists Greyhound's strength is its inexpensive nationwide network. So he's expanding long-haul routes and improving service.

When Lentzsch took over in late 1994, Greyhound was near its second bankruptcy in three years. Now, revenues have grown for 10 straight months through January, and 1995 sales rose 7%, to $657 million. After a loss of $65.5 million in 1994, operating income in 1995 was $9.4 million; this year, Greyhound should return to the black. "This was a near-death situation," says analyst Andrew S. Leinoff of Chicago-based Duff & Phelps Inc. "They've done an astounding job."

Still, if Greyhound is back from the dead, many on Wall Street question how much life it really has. Bus travel's share of intercity travel is 1.5% today, down from 5% in 1950. "I'm not sure about the growth prospects," says Leinoff. But Lentzsch dismisses those who figure there's no future in providing low-cost, no-frills travel. After all, 44% of Greyhound's revenue comes from people with incomes under $15,000. "A bunch of upper-middle-class, middle-aged white guys sitting around a walnut table can't understand my customer base," he says.

Although Lentzsch is a 47-year-old Wharton School graduate, he understands this market. Starting out in strategic planning at rival Trailways Lines Inc., he worked with Fred G. Currey, who later led Greyhound's 1987 leveraged buyout and brought Lentzsch aboard as vice-chairman. The two renovated terminals, boosted traffic, and turned a profit. But after a falling out with Currey in 1989, Lentzsch left. Currey was later replaced by CEO Frank J. Schmieder. Lentzsch ended up as chief financial officer for busmaker Motor Coach Industries International Inc., while a bitter drivers' strike pushed Greyhound into Chapter 11 in mid-1990.

Schmieder took the company out of bankruptcy 17 months later, but his attempt to compete directly with low-cost airlines brought sharp losses. After the stock went from 22 1/2 in June, 1993, to 5 3/4 in August, 1994, investors forced him out. With shareholder lawsuits pending, Schmieder declined comment.

Greyhound's top shareholders quickly asked Lentzsch to rejoin the board--and within months, they pushed him to take the top job as well. His first priority was to stop the hemorrhaging. Lentzsch negotiated a new credit line, got bondholders to trade for equity, and raised $35 million in a 1994 rights offering that priced shares at $2.15.

"NEAR-RIOTS." Then he turned to getting people to their destinations without hassle. The company suffered three-hour waiting lines and "near-riots" in New York's Port Authority in early 1994, Lentzsch recalls. Thanks to a much heralded system Schmieder rolled out in late 1993 to issue tickets and take reservations, phones were clogged with people making reservations--80% of whom wouldn't show up. Yet most customers didn't need the system--72% buy tickets within three hours of a trip. Last year, Lentzsch added a third phone center, and more than 90% of callers now connect the first time.

Lentzsch has also revamped pricing. Under Schmieder, Greyhound slashed advance-purchase fares to compete with airlines, then raised the walk-up fares used by Greyhound's core low-income customers. "My biggest pricing problem is affordability, not what the airlines charge," he says. Today, Greyhound's maximum one-way walk-up fare is $139, vs. $259 previously--and everyday fares average half of airline discount prices. To make sure riders don't wait too long, Lentzsch is adding capacity. The fleet now totals more than 2,000 buses, up from 1,650. And the long-haul routes Schmieder nearly abandoned are coming back. This year, he'll reopen 200 shuttered rural stops.

OFF THE CLIFF? So far, so good. "The story will get better and better," says Gerald R. Connor of Toronto-based Connor, Clark & Co., which, with associates, owns 11% of the stock. Adds Alan B. Snyder of Snyder Capital Management Inc.: "Lentzsch understands the business and knows what to do."

Yet with costs rising, others on Wall Street worry about Greyhound's past tendency to drive itself off a financial cliff. Blaming in part the horrific winter, Lentzsch warned in February that Greyhound will fall short of the $16.7 million in net earnings previously forecast for 1996. Analyst Rosario S. Ilacqua of Rothschild Inc. thinks it will earn just $5 million this year. Though the total debt-to-capital ratio--including bus leases--has come down to just under 70%, analysts say it's still too high. The questions explain why, although Greyhound did another equity offering at 4 1/8 in September, 1995, its shares have slipped to around 3 3/8.

Still, Lentzsch's makeover is far from complete. To produce more revenue, he's expanding the package express business, which did about $31 million in sales last year. Since Greyhound puts packages on buses already carrying passengers, that's mostly gravy. And he expects more growth to come from feeder deals Greyhound is discussing with Amtrak and airlines such as Southwest Airlines Co. He also figures he can boost Greyhound's presence in niches such as casino trips and college markets. Lentzsch is probably on to something. After all, he has traveled this road before.By Wendy Zellner in DallasReturn to top

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