Consumers, especially commuters, regard ferries as cheap and convenient. And rightly so. Like other craft such as barges, flatboats, and rafts, ferries have inherent efficiencies and economies of scale when it comes to moving passengers, vehicles and freight.
The problem is that ferries do not seem so cheap and profitable to their managers. The plight of ferry CEOs resembles that of their counterparts in the cruise industry. It is one thing to secure and maintain a certain volume of business, but quite another to increase pricing when so many ferry services act on behalf of, or even as a division of, local governments.
So ferry fares remain flat. And when misfortune confounds the business model – perhaps a modest drop in passenger numbers or a spike in fuel costs – management must respond quickly with new ways to enhance revenue.
“Ferry businesses pretty much across the board have challenges on the revenue side and around traffic,” says Brian Corrigan, CEO of British Columbia Ferries (BC Ferries) in Vancouver, British Columbia. “The overall downturn in the world economy is hurting everyone and fairly high fuel prices have been dealing us a blow for a while. There are solutions and remedies, but they may not be adequate.” In BC Ferries’ case, it received more than US$80 million in government subsidies to offset its spiralling costs, particularly fuel.
But in freer, longer haul, less metropolitan markets, where demand has also weakened, such subsidies are less likely, although private operators appear to have a wider range of options. Market weakness can spell opportunity, depending on the operator and market environment – a possibility cruise executives have long been aware of.
DFDS shipping division executive vice president Peder Gellert Pedersen acknowledges the weak demand in his company’s markets, which include several cross-English Channel and cross-Baltic Sea ferry routes, but does not believe it is necessarily a bad thing. He says: “Due to weak market conditions and a need for consolidation, we have been fine-tuning DFDS’s efficiency. We feel we now have the strength to consider ourselves a potential driver for a consolidation of the market.”
In its striving for new types of revenue, DFDS has emulated some elements of the cruise line experience. Pedersen says: “We are upgrading our cabins on an ongoing basis. Cabins are important ways to offer more exciting journeys and to increase sales. We are continuously developing new offers and services such as exciting new types of food and we provide information about those new restaurant or retail offers when guests book or check in. We also offer precatering sales, so customers can book a table and order their food when booking their crossing or checking in.”
Hurtigruten ASA of Narvik, Norway – also known as the Norwegian Coastal Express – is a ferry service borrowing its modus operandi from cruising, although many would say it is so unique, as a creature of its regional roots, that it does not borrow anything at all. Hurtigruten fields a fleet of 13 ships. Eleven of these are ferries following a single round trip along Norway’s scenic coast calling daily at 34 ports. The vessels vary in capacity, handling from 400 to 1,000 passengers each, with ten of the ships accommodating 40 cars. In addition, Hurtigruten deploys two conventional cruise ships that operate as expeditionary vessels, taking guests to polar areas such as Antarctica, Greenland and Spitsbergen.
The intracoastal round trip comprises an 11-day route from Bergen on the west coast, up to Kirkenes in the northeast at the Russian border and back again. But plenty of customers elect shorter, port-to-port excursions. “It’s possible to take a trip from one port to another,” says Daniel Skjeldam, Hurtigruten’s newly-appointed CEO. “So in practice, when guests combine travel from this port to that port, many sub-routes are possible and amenable to promotion.”
Skjeldam explains that, in recent years, to enhance revenue, the company has focused precisely on marketing these shorter trips and says: “We also have a higher focus on winter sailing with our new concept of ‘hunting the light’. This has been very successful. We don’t use the expression ‘low season’ anymore. Now it is winter, spring, summer and autumn seasons.
These seasonal distinctions invoke variations in onboard activities and excursions, as well as small itinerary changes, all of which vastly improve the guest experience, he says. In 2013, Hurtigruten will go so far as to introduce dynamic pricing – prices will fluctuate according to the demand for special dates and routes. Skjeldam says that the firm’s abandonment of a low season in favour of ‘a lively winter season’ and its adoption of ‘hunting the light’ as a slogan, represent its greatest overall achievements in years.
Less majestically but no less materially, the Blue and Gold Fleet at Pier 39 in San Francisco, California, raises extra income to support its passenger-only operations in the Bay Area. President Carolyn Horgan confirms that as with the majority of urban ferry systems, “most of Blue & Gold’s commuter service pricing is fixed by the government agency for whom we operate,” but adds, “for the services we control, we monitor and raise the prices as necessary. We find that the best way to maximise capacity is to run a reliable service on time for our commuter base. But, on our excursion services, we freely adapt the schedule to fit the time of year and the weather.”
Among Blue & Gold’s most crucial revenue-enhancing steps has been the formation of strategic, cross-promotional partnerships. Horgan says that at first she tried enhancing revenue through two modest avenues. First, improving the selection of beer and wine at the ferries’ snack bars – their only onboard profit centre – and second, deploying one of their faster vessels “to consolidate passenger pickup in three locations.”
But the effort that paid off most was thedecision to allow a bike rental company to sublet an area in front of the ferry building. The idea was inspired some three years ago, says Horgan, when management noticed bike rental companies proliferating in downtown San Francisco and the wharf area.
“Many tourists and locals alike were riding across the Golden Gate Bridge and then taking a ferry back from Sausalito or Tiburon in Marin County,” she says. So Blue and Gold decided to take one company under its wing to set up exclusive subletting arrangement.
The relationship has flourished and Horgan says: “We have enhanced our revenue noticeably thanks to our partnership with a bike company. We sell them our ferry tickets wholesale. They include the tickets in the bike rental package. We now work to package our excursions, including our bay cruise, with other companies that have attractions.” The Blue and Gold Fleet occasionally offers special excursions too, she adds.
This is an abridged version of an article that appeared in the Autumn/ Winter 2012 edition of International Cruise & Ferry Review. To read the full article, you can subscribe to the magazine in printed or digital formats.