Post by ferryfast admin on Dec 5, 2007 16:50:12 GMT -5
Ferries: Spirits are revived after loss of duty-free sales
By Robert Anderson
FINANCIAL TIMES
www.ft.com/cms/s/2/2bf643bc-a0e6-11dc-9f34-0000779fd2ac.html
Published: December 5 2007 07:52 | Last updated: December 5 2007 07:52
North Sea ferry operators have shown that there is life after the end of duty-free sales. They have refocused their businesses and are enjoying growing freight volume and passenger numbers, and improved revenue and profits.
“We’re seeing small growth almost on all routes,” says Gunnar Bromdahl, chief executive of Stena Line, Europe’s largest ferry operator. “The [declining] trend is broken.”
The European Union’s abolition of on-board duty-free sales in 1999 not only hit ferry profits but also made unviable the old business model of basic standards and cheap fares subsidised by drink and cigarette revenue.
The loss of duty-free accelerated an already serious decline in passenger numbers caused by the rise of low-cost airlines, together with the launch of Eurotunnel train services through the Channel Tunnel in 1994.
These tougher market conditions forced a shake-out of the industry. There are now just three main passenger ferry operators in the North Sea – Stena of Sweden, DFDS of Denmark and P&O of the UK (bought by DP World of Dubai last year).
All have struggled in the past decade but are stronger for it. Given the improved market conditions, further consolidation is not expected at the moment. “Consolidation has run its course now,” says William Gibbons, director of the Passenger Shipping Association.
The surviving companies have stripped out costs and are trying to get the most profit out of their remaining routes. P&O, for example, sometimes runs its freight service from Teesside to both Zeebrugge and Rotterdam and uses wind power rather than auxiliary power when its ships are in port.
Most importantly, the operators have put an increased focus on freight traffic and shifted towards larger “ro-pax” (roll on/roll off passenger) ferries that have more room for trucks and offer economies of scale. This drive has been encouraged by steeply rising fuel costs that have hit the profitability of high-speed ferry services.
Stena says its fuel costs have doubled since 2003, forcing it to replace its expensive to run high-speed service between Harwich and the Netherlands with ro-pax ships.
DFDS, the largest passenger and freight operator in the North Sea, has also replaced its “minicruise” ships on the Esbjerg (Denmark) to Harwich route with ro-pax ships. “The market simply disappeared,” says Niels Smedegaard, chief executive.
Ferry companies are also improving their rail handling capacity and their links with rail operators. DFDS for example is trying to attract Italian container traffic by rail to Rotterdam, where it can be loaded on to its ferries to the UK.
All the operators are seeing steadily improving freight revenues, with P&O estimating that volumes at its North Sea operations are increasing by around 6 to 8 per cent annually.
Stena and DFDS now draw 75 per cent of their revenues in the North Sea from freight traffic, while P&O says the breakdown between its freight and passenger revenues is stable at 60-40.
Equally importantly, ferry companies have refocused their passenger services to offer higher quality at stable prices.
Ship cabins have been smartened up, shopping has been improved, and ferries now offer a range of restaurants and entertainment possibilities such as swimming pools and cinemas.
“We have changed the whole concept on board,” says Mr Bromdahl at Stena. “It’s not low-price, bad-quality any more.”
“We are trying to move away from price-based transport towards entertainment,” says Mr Smedegaard at DFDS.
Ferries are even edging into the business travel market by introducing corporate lounges and enabling better access to internet and mobile telephone networks.
North Sea ferry operators have also imitated the low-cost airlines’ by simplifying fares, booking methods and check-in procedures.
This year, for the first time this decade, passenger numbers should increase in the North Sea, with many travellers switching from airlines to avoid long waits at airport check-ins and recurrent flight delays.
DFDS says the total North Sea passenger market declined by 1 per cent last year to 2.7m passengers but for its ships this year it expects a 2 to 3 per cent increase in passenger numbers and revenues.
Stena predicts a 1 to 2 per cent rise in passenger numbers this year, while P&O says its passenger numbers have already been rising by a couple of per cent each year for the past few years.
The improvement in both freight and passenger revenues is boosting the ferry companies’ profits. DFDS says it has doubled its total revenues between 2001 and 2007 and for this year it is forecasting a gross profit of DKr500m, up 18 per cent.
Stena Group, Sweden’s largest private company, bought back struggling Stena Line from public ownership in 2001 and made it profitable again only in 2003. It says the North Sea was lagging its other routes but is now catching up.
“North Sea profits are coming back even with fuel costs as they are,” says Mr Bromdahl.
P&O says its overall profits are stable but the North Sea operation is performing better than before. “The profit of the North Sea service has actually improved because of the unexpected increase in passenger numbers,” says Ronald Daelman, freight director.
This is encouraging the operators to invest even more in refurbishing ships and buying larger and more luxurious vessels.
DFDS has invested €1bn since 2001, while Stena says it expects to invest €900m between 2006 and 2011 just in its North Sea operations,. This will include two new “superferries” for its Harwich to Hook of Holland route.
“The North Sea’s been the major focus over the past three years,” says Mr Bromdahl. “We’ve really shown the market that we are here to stay and we want to expand.”