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Ferry Fares Float Upwards

Company hikes prices despite traffic drop, weak economy.

By Andrew MacLeod 1 Apr 2009 | TheTyee.ca

Andrew MacLeod is The Tyee's Legislative Bureau Chief in Victoria. You can reach him here.

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Passenger numbers at five-year low.

Despite a weak economy and dropping traffic and passenger levels, B.C. Ferry Services Inc. proceeded with April 1 fare increases.

The increase hikes fares by 3.74 per cent on the major routes, and 7.25 per cent on the other routes. B.C. Ferries has steadily raised fares since the government restructured the company in 2003.

In 2008, according to a chart on the B.C. Ferry Commission's website, the company had its lowest traffic since 2003. The B.C. government is predicting the provincial economy will shrink by 0.9 per cent in fiscal 2009-2010.

Does it make sense to raise fares now?

"It does under certain logic," said Brock Smith, a business professor with an interest in tourism who teaches at the University of Victoria. "As a private company what they're trying to do is balance the revenues and their carrying capacity."

Some parts of B.C. Ferries' market will keep using the system as long as it is cheaper than flying, he said. "They seem to be focussing on a price inelastic market, which is probably the business traveller," he said. Many tourists won't be deterred by higher prices either, he said. "People still travel to Paris, and Paris is really expensive."

Some will stop

Others will stop travelling, he said. "What you risk is reducing ridership from the friends and family market." Someone who normally takes the ferry from Victoria to the mainland to visit an aging parent six times a year might just go twice, he said. In Victoria, he said, people visiting family and friends account for as much as 40 per cent of visits to the city.

Deciding how to set fares is largely a question of philosophy, he said, whether it is better to serve larger numbers of people at a lower price or to maximize revenues despite a drop in traffic.

The B.C. government decided in 2003 what the philosophy would be. The Coastal Ferry Act set out six principles for how the B.C. Ferry Commission should protect the public interest. "Priority is to be placed on the financial sustainability of the ferry operators," says the commission's summary of the act.

Operators are to adopt a "commercial approach" to service delivery, minimize expenses and move towards a "user pay system" so the government has to pay less. The restructuring was also supposed to lead to stable fares.

Maximize the earnings

Commissioner Martin Crilly said a great deal of thought went into setting the cap on fares. "B.C. Ferries is free to charge less than [the] cap," he told The Tyee in an e-mail. "However, I would expect them to charge right up to the cap, to maximize their earnings."

Traffic doesn't drop so fast it negates the fare increases, he said. "B.C. Ferries' business case for charging right up to cap is straightforward, as higher fares mean more, not less revenue in these circumstances."

Also, he noted, a drop in fares does not automatically mean traffic will jump. "When fares were reduced by 33 per cent in December and January, there was very little if any stimulative effect on traffic," he wrote. "I'd agree that the awful weather complicated the picture, though."

B.C. Ferries' announcement said, "Fare increases are necessary due to the rising cost of operating and capital expenditures."

The group Save Our Ferries released a plan in mid-March that advocated tying ferry fares to the consumer price index for Vancouver.

"In this economic time I honestly feel a fare increase just has a negative impact on the ridership," said Gregg Dow, Save Our Ferries chair. "I'm fearful ridership is going to drop again."

'Balancing act'

Tourism consultant Frank Bouree said flat passenger levels are a problem for the ferry company. "It's bad if you have to reinvest in the fleet," he said. The company has bought several new vessels in recent years and the money needs to come either from passengers or the government, he said.

"It's a balancing act, really."

Compared to anywhere else in the world, B.C. Ferries fares are a good value, he said, but there is lots of uncertainty. "Consumer confidence is at a 10-year low in Canada," he said. That may well affect the peak summer travel season, he said.

Already many owners of hotels and bed and breakfasts have chosen not to raise their prices, he said. "The challenge right now is to convince hoteliers and B&B operators not to discount."

Rising ferry fares may hurt the overall tourism industry, he said. "Clearly British Columbians in particular are very sensitive about ferry fares. It becomes a negative marketing issue."

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