BC Ferries Leaks Money, Riders

Unless there's a course correction soon at British Columbia Ferry Services Inc., in a few years British Columbians may look back at a corporate crash and wonder what the people now at the helm were smoking.

The quasi-private, publicly owned company released its quarterly report last week for the period that ended on Dec. 31, 2007. The company expected to lose money in the quarter, but it lost about five times as much as it did during the same period last year.

At least part of the story is a fall in the number of vehicles and passengers.

"I'm not surprised at all the trend is going downwards," said NDP ferry critic Gary Coons. "Fares are just skyrocketing. The minor routes are feeling a huge crunch. Somewhere along the line it's going to crash."

Fares have increased by as much as 55 per cent since 2003 on some routes, will rise again April 1 and are expected to double again by 2012.

Traffic on the major routes between the Lower Mainland and Vancouver Island has been steady and had roughly the same volume in 2007 as in 2005. The northern routes, which went several months without a replacement for the Queen of the North after it sunk, obviously had a large decline.

There's been a large drop as well, however, on the ferry service's "other" routes which serve many communities on the Gulf Islands and along the coast. Vehicle trips fell by 46,300 and passenger trips by 116,100 in a year. Compared to two years earlier, passenger trips on the routes are down by 2.4 per cent.

Nobody from B.C. Ferries was available to discuss the figures.

Number of factors

At the end of February, however, B.C. Ferries filed its Management's Discussion & Analysis of Financial Conditions and Results of Operations for the Three Months Ended December 31, 2007 with the Canadian Securities Administrator's SEDAR filing system.

The drop in passengers is no big deal, it said.

"Ferry traffic levels are affected by a number of factors, including transportation costs, the value of the Canadian dollar, weather, global security, levels of tourism, disposable personal income, the local economy and population growth," the discussion said.

"During the last two fiscal years, traffic levels were negatively affected by the loss of capacity on our northern routes, an unprecedented number of severe wind and snow storms in November and December 2006, and the implementation of three fuel surcharges."

Compared to five years ago, it said, the numbers are "trending upwards" and added, "Over the next few years, we anticipate modest traffic volume increases on all our routes."

Five years ago, it should be noted, tourism numbers dropped throughout North America following the attacks on the World Trade Centre in New York. While the industry has since rebounded, ferry traffic has not.

Tourism consultant surprised

The drop in passengers should have been anticipated. A 1997 B.C. Ferries study found that on the minor routes a bump in fares of 10 per cent would decrease the number of users by three per cent. On the major routes the decrease would be five per cent.

Observers, however, aren't so sure, given the weak recent performance.

"I'm a bit surprised they haven't seen stronger growth," said Frank Bourree, a tourism consultant with Chemistry Consulting Group Inc. in Victoria. The tourism industry has been generally strong in the past two years. "Tourism numbers have been strong onto Vancouver Island."

Part of the explanation may be changes to the tourism industry in general. "We had a record last year, but it's a different kind of tourist," he said. The number of Americans visiting has dropped by 35 per cent from five years ago, and that's likely to continue with new passport rules coming into effect.

The void for the ferries has not been filled by British Columbians travelling. Many people in the Lower Mainland think ferry tickets are too expensive, he said. "There's been some price perceptions over there." Still, with the new German-built ships arriving, more people may make the trip. "I think with the new ships coming on line in Nanaimo they're going to attract a lot of attention and reduce some of the wait times," he said. "You might get some new trial."

Rising fares blamed

Fares have already risen in the order of 55 per cent on many routes over the past five years. With fares set to rise again on April 1, the NDP's Coons said, passenger numbers will get worse. "I predict ridership's going to go down."

Peter Larose, the director of policy and planning for the Council of Tourism Associations of B.C., said the organization is concerned about future fare increases. COTA made a submission to ferry commissioner Martin Crilly when he was considering B.C. Ferries 2008-2012 plans for price caps and service levels. "We didn't want to see a substantial increase in fares and certainly didn't want to see a reduction in service."

As a business organization, he said, COTA is sympathetic to the ferry company managing its affairs with an eye on the bottom line. But with fares set to double, he said, it will escalate the effect on passenger levels and tourism patterns. "That has to have some form of impact," he said. "You're starting to impact travel behaviours significantly there."

He also pointed out the biggest drop has been on the secondary routes, especially in the off season. Many locals are cutting their trips and staying home, he said.

Locals staying put

Coons has visited 29 ferry-dependent communities in recent months to hold town hall meetings and discuss ferry service. He's heard a lot about the service and the rising cost, he said. "It's a pretty horrific thing happening in the smaller communities."

The government needs to fund the system better, he said. The cost should be shared among all British Columbians, he said, the same way improvements to the Sea-to-Sky Highway or Kelowna's William R. Bennett Bridge are. "It's a marine highway. They have to treat it the same way as other transportation links."

B.C. Ferries' financial situation could make that hard to do. The quarterly results show the company lost $7.8 million in the three months ending Dec. 31, 2007. That compares with $1.8 million in the same period a year earlier.

The company has debt of at least $750 million, taken on since the B.C. Liberals privatized the former Crown corporation in 2003. The privatization, however, guards the company from having to say exactly how much it owes, said Coons. "I've heard it's closer to 1.5 or two billion they're in debt. That's a real concern."

Dropping traffic levels and reduced revenues will make balancing the books that much harder, he said.

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