Over the last several years I Used to travel on BC FERRIES several times a year.....now just too expensive...$$$$ interesting business plan?? The fewer people travel, the more you RAISE fares.....?? Read more..... Micro-economic theory informs us that if demand for a good or service is inelastic, customers will buy it no matter the price. Maybe this lesson was at the heart of BC Ferries decisions over the past decade to raise fares by 51 per cent on major routes, 66 per cent in the north, and 75 per cent on minor routes. After all, people must get to Vancouver Island, the Gulf Islands and the North Coast, and BC Ferries enjoys a monopoly on sailings to those destinations. However, it turns out demand for ferry services is more elastic than anyone imagined. Travellers either chose not to go or to fly. Good news for Harbour Air, Helijet and charter airlines, but not so good for the people of British Columbia. A new report from the Union of B.C. Municipalities shows passenger volume on BC Ferries declined by 8.3 per cent, or 1.77 million passengers, between 2003 and 2013, even as other modes of transportation experienced gains. It calculated if ferry fares had increased only at the rate of inflation, ridership would have risen by 19 per cent. By its estimation, the decline in ferry traffic resulted in foregone economic activity, representing a reduction in GDP of $2.3 billion over the 10-year period. That translates into lost tax revenue for three levels of government of more than $600 million. Industries hardest hit by the fare increases were tourism, construction, real estate, finance, transportation, manufacturing and retail. The report’s findings are not a complete surprise. The Vancouver Sun reported in February that Gulf Islands residential properties lost more than $1.6 billion in assessed value since BC Ferries started raising fares; nearly half of businesses surveyed by the Tourism Association of B.C. in the Coast-Chilcotin region, served by a summer ferry connector to Bella Coola, said they expected to close their doors; and an economic impact study in Port Hardy estimated an 80-per-cent loss to businesses dependent on northern Vancouver Island ferry traffic. BC Ferries tried to convince itself that passengers would accept the fare hikes because of the added value in improved food services, renovated terminals, refurbished ships and Wi-Fi, but ferry users weren’t buying it. Instead, higher fares simply kept them at home. From a public relations standpoint, it probably didn’t help BC Ferries’s case recently when it reported that net income for the first quarter tripled to $13.9 million on higher revenues of $213 million; or that ferry fares are set to increase by another four per cent in 2015, still well above the rate of inflation. But then, BC Ferries faced dramatic cost increases for wages and benefits for its unionized employees in a nine-year contract imposed by binding arbitration in 2007. Roughly half its $525-million annual operating budget goes to labour costs. All this is largely by design, the outcome of the 2003 relaunch of BC Ferries as an independent commercial company, B.C. Ferry Services Inc., with a mandate “to provide safe, reliable and efficient marine transportation services that consistently exceed the expectations of our customers, employees and communities, while creating enterprise value.” BC Ferries recovers 92 per cent of its operating costs through fares, one of the highest fare box recovery rates among ferry services in North America. There is no question that BC Ferries fare increases exceeded the expectations of its customers. Perhaps it’s time to review that lesson in micro-economics, and redraw those demand-and-supply curves, and consider charting a different course. © Copyright (c) The Vancouver Sun
Posted on: Sat, 13 Sep 2014 15:14:24 +0000
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