August 3, 2016 / 2:44 PM / in 3 years

Deutsche Post DHL sells long-distance bus unit

BERLIN (Reuters) - German postal and logistics company Deutsche Post DHL Group (DPWGn.DE) is selling its long-distance bus unit, Postbus, to market leader Flixbus due to tough competition, it said on Wednesday.

A man walks near a Postbus bus at the main bus station (ZOB) in Berlin, Germany August 3, 2016. REUTERS/Stefanie Loos

Germany liberalised the long-distance bus market in 2013, prompting a flood of entrants onto the market including the bright-yellow Postbus, but also quickly leading to cut-throat price competition, insolvencies and consolidation.

Chief Financial Officer Larry Rosen said the Postbus strategy of offering more comfort and amenities such as WiFi had not worked in a market that boiled down to the cheapest ticket prices.

“We couldn’t cover the costs of this premium strategy, and that’s why it wasn’t financially attractive,” he told journalists after the group reported record second-quarter results on Wednesday.

Its shares were up 2.6 percent at 1048 GMT, the biggest gainer among leading German companies .GDAXI.

Deutsche Bahn’s profits at its rail passenger unit has also been hit by the competition from buses. It is the third-largest long-distance bus operator in Germany behind Postbus but CEO Ruediger Grube said last month Deutsche Bahn would review its bus strategy, because the market was “nonsense” and operators were just burning money.

Flixbus has been leading consolidation in the market for long-distance bus travel, both in Germany and abroad, and had a 67 percent share of the German market in 2015.

“You can make money in the current environment, you just have to ensure the buses are full enough,” Flixbus founder and Managing Director Andre Schwaemmlein told Reuters, saying the company aimed to be profitable this year in Germany.

Flixbus merged with local rival MeinFernbus just over 18 months ago, with U.S.-based private equity firm General Atlantic taking a stake in the merged group.

At the end of June, Flixbus bought the continental European operations of UK-based Stagecoach’s (SGC.L) Megabus.

Schwaemmlein said the company was now large enough to grow on its own but more acquisitions were likely in the future.

Deutsche Post’s Rosen said the parties had agreed to keep the price paid for Postbus confidential, but that Postbus was a small business for the group and the sale would not have a material impact on results.

It reported second-quarter earnings before interest and tax (EBIT) rose 40 percent to a record 752 million euros ($843 million) with the online retail trend driving parcel deliveries and DHL express shipments. That exceeded the average forecast for 725 million in a Reuters poll. [nL8N1AI2ZM]

Rosen said Post had not seen any impact on DHL’s underlying business from Britain’s vote to leave the European Union but that it was looking at hedging, pricing and costs as ways to counteract the resulting drop in sterling.

The group maintained its 2016 target for EBIT of between 3.4 and 3.7 billion euros this year.

($1 = 0.8921 euros)

Reporting by Victoria Bryan; Additional reporting by Matthias Inverardi and Markus Wacket; Editing by Adrian Croft and Susan Thomas

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