What’s up with $1 bus tickets?

FORTUNE — A favorite mode of inter-city transportation for college kids nowadays is riding those cheap buses with tickets for as little as $1. How can that be profitable? First off, most tickets don’t sell for that price. As in the airline industry, low-cost bus companies like Megabus and Greyhound’s Bolt Bus carefully manage their loads, and generally you have to reserve far ahead to get that deal. As Dale Moser, president of Megabus.com’s parent company, Coach USA, explains, “With the $1 tickets, we’re filling what we know will be empty seats.” An algorithm then determines how much more the rest of the seats will cost. The average fare for, say, Boston to New York City ends up closer to $20, which will yield a profit on an 81-seat bus. Next, to keep costs low, the companies park their buses curbside (no need to pay for terminals), and tickets are sold online. Not everything is cut-rate — Megabus and Bolt offer free Wi-Fi. Not bad for a buck. —Anne VanderMey