Post by ferryfast admin on Jan 26, 2012 10:40:18 GMT -5
New ferries needed, but so is money
By Les Leyne, Times Colonist
www.timescolonist.com/ferries+needed+money/6054183/story.html
January 26, 2012 6:51 AM
All the analysis of load factors and capital plans and regulatory changes comes down to one thing: Fares.
Strip away the chapter and verse account of all B.C. Ferries' challenges and independent commissioner Gord Macatee's review boils down to one central issue. Fares are too high.
There's no way to lower them, barring a series of miracles. The only thing to do is to lower the rate they are increasing.
Even his relatively modest goal of holding fare hikes to the rate of inflation will require major re-thinking of what the system is all about.
It was the planned fare hikes of four to eight per cent on top of all the previous ones that prompted the sustained wave of coastal concern from which the review originated.
Those were provisionally approved by the commissioner after even higher numbers were broached.
That proposal came after an eightyear run during which fares have increased 47 per cent on the major routes and 80 per cent on some of the minor runs.
But Macatee reminds people those proposed hikes could have been a lot worse.
After they were aired, B.C. Ferries objected to the reduction and suggested hikes of 16 to 43 per cent.
Those numbers were so alarming it prompted Macatee to do the review of the system's fundamentals, released Tuesday. It's his projection of neverending rounds of huge fare increases for the next eight years or more that is most alarming. Those estimates are based on B.C. Ferries following its current business plan and running the numbers on that basis.
The thorough analysis shows it's not a picture of generalized fiscal despair. It's one specific aspect that drives all the alarm - the plan to borrow another $2.5 billion over the next decade to build badly needed new ships and do urgent terminal improvements.
That's after the corporation spent $1.7 billion over the past eight years on capital projects such as the three Coastal-class vessels.
The new projects would add about $53 million a year to B.C. Ferries' costs over the short term. That extra cost would rise to $114 million more a year in the medium term, and an average $143 million over the longer term.
It represents a huge looming gap between revenue and expenses.
"The financial sustainability of B.C. Ferries is at considerable risk," Macatee wrote. It would take a significant bump in ridership, a quick and easy conversion to natural gas, a host of streamlining moves and the complete elimination of several routes to cover off those additional debt costs.
It's simply not going to work.
"It's very clear that fares, ancillary revenues, service reductions and costsaving initiatives on their own have little hope of keeping pace with this capital challenge," he said.
"We see little alternative but for the province to consider additional service fees or subsidies."
B.C.'s contribution to the corporation - with a one-off northern exception - has held relatively steady since it was set up as a privately run, publicly owned outfit. That's because the mandate was to force the corporation to a user-pay model.
Macatee recommends eliminating that goal from the mandate. He does so for a surprising reason - they've already achieved it.
The service fee paid by the government to the corporation for most routes has increased marginally since 2003, while fares have jumped dramatically.
The savings to government from not even increasing the payment at the inflation rate amount to over $100 million, he said.
The policy has loaded a lot of cost on to ferry users, but given B.C. what Macatee says is a unique advantage compared to every other system in the world.
"The B.C. ferry system is now covering 100 per cent of operating costs from fare and ancillary revenues."
Some say the system should be stripped of all frills and run barebones. But the system is making more money off add-on services like retail, catering and reservations than ever before.
So the system has a huge problem, but a specific one. It's the perceived need to spend $2.5 billion on improvements to keep doing what it does.
It's clear Macatee wants to take a hatchet to that borrowing plan, and force the company to do things differently.
lleyne@timescolonist.com
By Les Leyne, Times Colonist
www.timescolonist.com/ferries+needed+money/6054183/story.html
January 26, 2012 6:51 AM
All the analysis of load factors and capital plans and regulatory changes comes down to one thing: Fares.
Strip away the chapter and verse account of all B.C. Ferries' challenges and independent commissioner Gord Macatee's review boils down to one central issue. Fares are too high.
There's no way to lower them, barring a series of miracles. The only thing to do is to lower the rate they are increasing.
Even his relatively modest goal of holding fare hikes to the rate of inflation will require major re-thinking of what the system is all about.
It was the planned fare hikes of four to eight per cent on top of all the previous ones that prompted the sustained wave of coastal concern from which the review originated.
Those were provisionally approved by the commissioner after even higher numbers were broached.
That proposal came after an eightyear run during which fares have increased 47 per cent on the major routes and 80 per cent on some of the minor runs.
But Macatee reminds people those proposed hikes could have been a lot worse.
After they were aired, B.C. Ferries objected to the reduction and suggested hikes of 16 to 43 per cent.
Those numbers were so alarming it prompted Macatee to do the review of the system's fundamentals, released Tuesday. It's his projection of neverending rounds of huge fare increases for the next eight years or more that is most alarming. Those estimates are based on B.C. Ferries following its current business plan and running the numbers on that basis.
The thorough analysis shows it's not a picture of generalized fiscal despair. It's one specific aspect that drives all the alarm - the plan to borrow another $2.5 billion over the next decade to build badly needed new ships and do urgent terminal improvements.
That's after the corporation spent $1.7 billion over the past eight years on capital projects such as the three Coastal-class vessels.
The new projects would add about $53 million a year to B.C. Ferries' costs over the short term. That extra cost would rise to $114 million more a year in the medium term, and an average $143 million over the longer term.
It represents a huge looming gap between revenue and expenses.
"The financial sustainability of B.C. Ferries is at considerable risk," Macatee wrote. It would take a significant bump in ridership, a quick and easy conversion to natural gas, a host of streamlining moves and the complete elimination of several routes to cover off those additional debt costs.
It's simply not going to work.
"It's very clear that fares, ancillary revenues, service reductions and costsaving initiatives on their own have little hope of keeping pace with this capital challenge," he said.
"We see little alternative but for the province to consider additional service fees or subsidies."
B.C.'s contribution to the corporation - with a one-off northern exception - has held relatively steady since it was set up as a privately run, publicly owned outfit. That's because the mandate was to force the corporation to a user-pay model.
Macatee recommends eliminating that goal from the mandate. He does so for a surprising reason - they've already achieved it.
The service fee paid by the government to the corporation for most routes has increased marginally since 2003, while fares have jumped dramatically.
The savings to government from not even increasing the payment at the inflation rate amount to over $100 million, he said.
The policy has loaded a lot of cost on to ferry users, but given B.C. what Macatee says is a unique advantage compared to every other system in the world.
"The B.C. ferry system is now covering 100 per cent of operating costs from fare and ancillary revenues."
Some say the system should be stripped of all frills and run barebones. But the system is making more money off add-on services like retail, catering and reservations than ever before.
So the system has a huge problem, but a specific one. It's the perceived need to spend $2.5 billion on improvements to keep doing what it does.
It's clear Macatee wants to take a hatchet to that borrowing plan, and force the company to do things differently.
lleyne@timescolonist.com