The Investment Opportunity in School Bus Operators

Many parents around the country are asking the same question: will children be able to return to school? And for good reason. It’s not just a question of learning outcomes, but a question of safety, sanity and livelihood. 

But it’s not just parents that are thinking about when students will return to school. While we don’t usually think about it, there’s an entire industry dedicated to safely and efficiently transporting students to and from school each day: school bus operators.

However, as schools have shut down across the country, the need for school transportation has shut down too. Instead of transporting children twice a day, buses are sitting empty in parking lots across the country. A sleepy industry, school bus operators are an essential job with over 600,000 drivers in the United States. Yet some school bus operators are even going out of business due to the lack of demand. 

In this market situation might lie an interesting investment opportunity. During normal times, school bus operators are strong businesses with deep moats. They are have sticky sales contracts and have exclusivity on school bus routes. Once you own these assets, they are easy to defend. 

In this article I take a look at the makeup of the school bus operator market, what it takes to run a school transportation service, and how there might be an opportunity for investment (that is, if you can stomach the Covid-19 risk). 

Fragmented Market

Approximately one third of all students get transported to school via a yellow school bus. This comes out to about 480,000 buses transporting 26 million students every day of the school year (source). The total market is estimated at $13.5 billion annually with minimal growth.

Of these 26 million students, about 60% are transported by the school district themselves. They own the buses and manage the drivers. This part is largely out of an investors control. But the opportunity is in the other 40%: the students who are transported by private school bus operators.