An industry challenge is any issue that can affect the development of the market or the competitors in the marketplace. Challenges include customer issues, regulatory programs, economic trends, market measurement trends, competitive strategies, new technologies, sales and marketing strategies, new market opportunities, and market threats. In the analysis of the challenges to the industry, the time frame is important. Each challenge varies depending on the time frame that is likely to see the highest impact on the market. This time frame analysis directly affects the market forecasts and the development of market strategies and investment timing by industry participants.

Erosion of profit margin as a result of keen competition: A large number of operators in major towns in Peninsular Malaysia are facing eroding profits despite the rise in the overall number of stage bus passengers. Several bus companies have reduced the number of buses in operation while others have been absorbed into larger consortiums due to losses and declining profits. Some bus companies even resorted to renting out permits to individuals for a fixed monthly rental. This scenario is attributed by the accession of new competitors competing for passengers in an area where stage bus services are readily available. When new competitors with brand new buses capitalize on the steady stream of passengers of existing operators, revenues of existing operators are likely to be affected. Many passengers would prefer to ride in new buses which are cleaner and more comfortable. This is a challenging situation to the stage bus industry which is of high impact to the short, medium and long term.

Traffic congestion hinders stage bus operation: The biggest issue facing passengers and bus operators is reliability of bus services. Traffic congestion mainly in Klang Valley is choking the roads making bus operation costly and less reliable. Bus operators find it almost impossible to stick to the route schedule when traffic is bad. Adding more buses would not solve the problem as it is cost prohibitive to the bus companies. This factor has caused major difficulty in bus scheduling resulting in consumers receiving poor bus services. Traffic jams in major cities is likely to continue to become a major threat to the stage bus industry.

Escalating cost of bus chassis, diesel fuel and parts drives operational costs: Chassis and common parts for example air conditioning parts have gone up two fold in the last five years. Along with the hike in diesel fuel prices in 2004, higher operating and maintenance costs have placed additional burden to the stage bus operators. Diesel prices rose again and reached 88 cents per litre in early 2005 due to rising oil prices in the world market and the government’s initiative to cut down on diesel subsidy.

The price of bus chassis ranging from RM 120,000 to RM 200,000 has made the purchase of new buses not viable since most operators are already experiencing declining profit margins.

As a result, the industry has to request for more government subsidies like the cost of spare parts, tires and new coaches in addition to the diesel subsidies they are currently enjoying to continue to operate profitably. This is a daunting challenge for the bus operators as this factor would likely affect their decisions as to whether to upgrade their buses now or at a later stage. Currently, most bus companies are stretching their bus refurbishment and replacement after about ten years from the normal practice of seven years due to high cost of parts.