(FORTUNE Magazine) – When I told the Wall Street analyst I was going to ride a Greyhound bus to Mexico, he burst out laughing: Ha! Ha! Ha! Seven hours on a bus to Mexico! Leave the driving to us!

I know what he imagined. The stinky bus, the fat guy falling asleep on my shoulder. Greyhound is not synonymous with glamorous travel. But don't laugh too hard: After a disastrous spell of strikes, bankruptcy, and lost riders, the 86-year-old dog seems back on track. It's no longer an independent company--Canadian bus and ambulance giant Laidlaw bought it in March--but Greyhound turned a profit last year for the first time since 1993, and its management was able to arrange the merger on far better terms than could have been imagined a few years back.

Greyhound rebounded by figuring out who its customers were and going after them. Those customers are not Wall Street analysts; they're Middle American grandmothers, young people with no money, minorities, and immigrants. When Dallas-based Greyhound realized how many Mexicans working in the U.S. take buses home to visit their families, it set up joint ventures with Mexican companies to serve this market. That's why I paid $25 to ride a bus belonging to one of the joint ventures, Americanos, from San Antonio to Monterrey.

The bus was packed with Mexicans going home for Holy Week. Such was the case with Renaldo Lopez, who works as a pipe layer in San Antonio and accompanies his wife, Patricia, home to visit her family in Monterrey about seven times a year. "This is our first time with this company," he says. "We planned to go with a Mexican company, but last night we waited outside for three hours, and the bus didn't come."

That's music to Greyhound's ears. It's trying to grab business from what it calls unlicensed, unsafe, and unreliable outfits that are serving this $200 million cross-border market, estimated to grow at 20% a year. "A $200 million business potential is almost unheard of," says Greyhound sales and marketing vice president Ralph Borland, "particularly when you're a somewhat mature company and industry."

In the U.S., people take less than 2% of long-distance trips by bus, compared with 98% in Mexico. "In the U.S., people say, 'Oh, boy, you're at the bottom of the rung if you take Greyhound,' " says NationsBanc Montgomery Securities analyst Peter Coleman (who is not the one who laughed at my travel plans). "In Mexico, buses are the primary mode of transportation."

My Americanos bus featured movies (Mark Wahlberg in The Big Hit; Sylvester Stallone in Cliffhanger), but that's not what filled the seats. "Our customers really have to get somewhere, because somebody had a baby, or someone in the family needs help," says Craig Lentzsch, who took over as Greyhound's CEO at its bleakest hour, in late 1994. "They're not buying a trip experience. This is basic transportation, not a cruise or an airline package tour."

Which is just what Lentzsch's predecessors didn't get. In 1993, after emerging from bankruptcy, they announced a reengineering plan that treated Greyhound like an airline, complete with a hub-and-spoke system and high fares for those who didn't reserve early. Wall Street's enthusiasm shot the stock up to $22.75 in May 1993. But riders hated the hub-and-spoke system, and 80% of them didn't show up for reservations, which the company couldn't force them to pay for because many Greyhound customers lack credit cards. By December 1994 riders had fled, and the stock had sunk to $1.75.

Lentzsch brought riders back by giving them what they wanted. "You just have to go down to the terminals and ask people," he says. "They'll tell you it's a real pain in the butt to change buses three times when you go from New York to Miami." Still, with its core customer group growing at only 5% a year, getting riders back wasn't enough. That's why Lentzsch has moved to add casino- and airport-bus service and the cross-border ventures. They require cash, and Laidlaw, which paid $6.50 per Greyhound share, offers that. "Greyhound could have become an $8 or $10 stock, but they were too financially constrained to get there very quickly," says NationsBanc's Coleman. "This merger releases them from that constraint and will let them upgrade their fleet." They're clearly doing something right already: I arrived in Monterrey comfortable, rested--and a half-hour early.

--Erin Kelly