PP120/08 R eport of the S elect C ommittee on THE ISLE OF MAN STEAM PACKET COMPANY November 2008
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PP120/08
R epo r t of th e Selec t C o m m it t ee on
THE ISLE OF MAN STEAM PACKET
COMPANY
November 2008
R epo r t of t h e Se lec t C o m m it t ee o n THE ISLE OF MAN STEAM PACKET COMPANYAt a Sitting of Tynwald Court held on 20th June 2007 it was resolved that a Select Committee of three Members be appointed with powers to take written and oral evidence pursuant to sections 3 and 4 of the Tynwald Proceedings Act 1876, as amended -
• to examine the Isle of Man Steam Packet Company's fare structures over the past twelve months, any increases to fares in that period and the reasons why, to make a comparison of prices when booking on and off the Island,
• to consider whether the prices charged throughout this period are fair and equitable and represent best value for money for Isle of Man customers and off-Island customers,
• to examine whether any excessive charging has taken place, and report by October 2007.
At a Sitting of Tynwald Court held on 12 July 2007 it was resolved that -• the membership of the Select Committee elected at the June sitting to
investigate certain matters relating to the Isle of Man Steam Packet Company be increased by the appointment of two additional Members,
and that the remit of the Select Committee be extended by inserting after the words "excessive charging has taken place"-
• "and to consider the standard of service offered to both passengers and freight users by the Company and the extent to which it is in accordance with the Company's agreements with the Government".
Hon S C Rodan SHK (Garff) Chairman
J R Turner Esq MLC
W M Malarkey Esq MHK (Douglas South)
G H Waft Esq MLC
G D Cregeen Esq MHK (Malew and Santon)
The powers, privileges and immunities relating to the work of a committee of Tynwald are those conferred by sections 3 and 4 of the Tynwald Proceedings Act 1876, sections 1 to 4 of the Privileges of Tynwald (Publications) Act 1973 and sections 2 to 4 of the Tynwald Proceedings Act 1984.
Copies o f this Report may be obtained from the Tynwald Library, Legislative Buildings, Bucks Road, Douglas IM1 3PW (Tel 01624 685516, Fax 01624 685522) or may be consulted at wzvw. tynwald.org.im
All correspondence with regard to this Report should be addressed to the Clerk o f Tynwald, Legislative Buildings, Bucks Road, Douglas 1M1 3PW
INDEX
PART paraqraph Page1 INTRODUCTION 1
Remit 1.1 1Meetings 1.3 2
2 USER AGREEMENT 33 STRATEGY 6
Written Evidence 3.4 7Oral Evidence 3.14 10
4 Sub Index of Issues 125 FARE STRUCTURE in 2006 & 2007 13
Fare structure in 2006 5.1 13Fare structure in 2007 5.3 14
6 FARE INCREASES 2006 - 2007 16Fare Banding 6.4 17
7 COMPARISON OF FARES ON/OFF ISLAND 7.1 20
8WHETHER FARES CHARGED FAIR/EQUITABLE/VALUE FOR MONEY 21
9 EXCESSIVE CHARGING 25additional charqinq 9.2 26
10 FUEL SURCHARGE 2911 STANDARDS OF SERVICE -VESSELS 3512 STANDARD OF SERVICE TO PASSENGERS 38
onboard facilities 12.1 39onshore facilities 12.10 42
13STANDARD OF SERVICE TO FREIGHT USERS 13.1 44
14 STANDARD OF SERVICE -AGREEMENTS 5115 OTHER KEY RELATED ISSUES 52
Company Profit 15.1 52Company Ownership/Structure 15.3 59Investment Obliqations 15.6 62Role of the Department of Transport 15.8 63Role of the Office of Fair Trading 15.10 68Sail & Save/ Islander Discounts 15.12 69Select Committee Report 1999 15.14 70
16 SUMMARY CONCLUSIONS 7117 CONSULTATION ON DRAFT REPORT 7718 RECOMMENDATIONS 78
Index of AppendicesAppendix
A Reports on Committee VisitsB Steam Packet Company SubmissionC Summary of Public CommentsD Submission Office of Fair TradingE Steam Packet Co. Market ResearchF TravelWatch SubmissionG Hansard 23 November 2007H Hansard 30 January 2008I Hansard 3 March 2008J Steam Packet Co. Corporate StructureK Submission Prof A BairdL Consultation on Draft Report
To: The Honourable Noel Q Cringle OBE MLC, President of Tynwald, and theHonourable Members of the Council and Keys in Tynwald assembled
REPORT OF THE SELECT COMMITTEE ON THE ISLE OF MAN STEAM PACKET COMPANY
PARTI
INTRODUCTION
1.1 The Select Committee's remit
At the June 2007 sitting of Tynwald it was resolved that a Select Committee
be established:
• to examine the Isle of Man Steam Packet Company's fare structures
over the past twelve months, any increases to fares in that period and
the reasons why, to make a comparison of prices when booking on and
off the Island;
• to consider whether the prices charged throughout this period are fair
and equitable and represent best'value for money for Isle of Man
customers and off-Island customers;
• to examine whether any excessive charging has taken place, and report
by October 2007.
1.2 At its sitting held in July 2007 Tynwald approved an amendment to that remit
by the inclusion of:
• and to consider the standard of service offered to both passengers and
freight users by the Company and the extent to which it is in
accordance with the Company's agreements with the Government;
* and that the membership of the Committee be increased by the
appointment of two additional members.
Mr Cregeen and Mr Waft were subsequently elected.
Meetings of the Committee
1.3 At its inaugural meeting held on 6 July 2007 Mr Speaker (Hon S C Rodan
SHK) was elected as Chairman. As a consequence of the extended remit
approved by Tynwald, the Chairman made a statement to the October 2007
sitting of Tynwald sitting to advise Hon Members that the Committee was
unable to report until such time that it had completed its research and
enquiries.
1.4 Your Committee has met on 21 occasions of which 3 have included public
hearings. In addition we undertook two visits on the Company's vessels (on
21 September 2007 and on 16 May 2008) travelling on each occasion to
Heysham on the Ben-my-Chree and returning via Liverpool on the Viking.
Reports of these visits are attached at Appendix A.
1.5 The remit requires us to consider matters 'over the past twelve months', (that
is, the twelve month period preceding establishment of the Committee in♦
June 2007). The extended remit refers to/agreements with the Government',
the principle agreement being the User Agreement (see Part 2) which came
about in 1995. Consequently we considered it reasonable, that we might have
a proper overview of all the issues contained in our remit, to consider matters
prior to June 2006 and up to the present day. Having referred to a User
Agreement, we are conscious that we are not charged with undertaking a
review of any Government Agreement but are obliged to consider the
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i______________________________________
existence of any agreement where it may have an impact on issues within our
remit.
PART 2
THE USER AGREEMENT
Purpose of the Agreement
2.1 The Department of Transport (the Department) entered into an agreement
(the User Agreement) with the Isle of Man Steam Packet Company Ltd (the
Company) in 1995 the effect of which was to confer preferential use of the
Edward Pier linkspan to the Company linked to a guaranteed minimum
passenger and freight service. The Agreement followed a period of disruption
to sea services due to strikes in the 1980's, and declining passenger traffic,
and was implemented in 1995 with the intention of providing the Island and
the Company with an operating framework and a security of ferry service
between the Island and adjacent islands which had not previously existed.
The purpose of entering into such an Agreement in 1995 was to -
• provide a secure lifeline for the Isle of Man,
• provide a dependable year round service for both passengers
and freight,
• provide a commitment to fast craft services,
• regulate fares,
• provide minimum service level commitments, including service
frequency to NW England and east coast of Ireland ports,
freight capacity, investment in vessels,
• provide investment level commitments to infrastructure.
Douglas Harbour Linkspans
2.2 The effect of the User Agreement was to create a monopoly situation (in
respect of regular shipping services between the Isle of Man and ports in the
north west of England and the east coast of Ireland) for the Steam Packet
Company in respect of the Douglas harbour linkspans, but not of the harbour
itself. There are two linkspans in Douglas harbour, the King Edward Pier
linkspan being owned by the Department of Transport, and subject of the
User Agreement, and the Victoria Pier linkspan owned by the Company, and
subject of a separate Agreement. The User Agreement provides the Company
with almost exclusive use of both linkspans. This was a deliberate policy of
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the Isle of Man Government to preserve traditional routes and ensure a
quality of service for passengers travelling to and from the Island, and for
freight users to ensure a reliable and consistent service for the benefit of
Island residents and businesses.
The absence of competition on traditional ferry routes drew comments from
members of the public in response to our press notice [see para 3.1(a)],
■ examples of which are -
"Would it be possible . . . to award a licence to a second organisation to operate
alongside the Steam Packet Company, to enable greater freedom of choice for
visitors and provide competition in the market place for the benefit o f visitors
and travellers alike."
[ref pOl UK resident]
"Ifeel the Steam Packet urgently needs some competition as the local airlines
do, monopoly situations only benefit the operator, never those that they
serve. ” [ref 27 IOM resident]
"the Island is dependent on a reliable service to the UK and Ireland and it
should not be solely in the hands o f a private company but should be
answerable to Tynwald." [ref 67 IOM resident]
Overview
2.3 We were given an overview of the User Agreement by the Department on 7
September 2007 which confirmed that there are conditions contained within
the Agreement to which the Company must adhere in relation to fares,
timetables and standards of service relevant to our enquiries.
The User Agreement was implemented in 1995 with agreement on minimum
service levels, benchmarking of fares at 1995 levels, a formula for fare
increases (being no more than the annual increase in the Manx Retail Price
Index less Wfo), and timetable schedules. There is no provision in the
Agreement for the Department to consider profitability levels of the
Company, comparative rates and charges with other Irish Sea ferry operators,
or the ownership of the Company, the Agreement being with the Isle of
Man Steam Packet Company and not the owners of the Company.
4
2.4 In 2002 the Company exercised an option to extend the original Agreement,
with the Department securing increases in freight capacity, the number of
sailings and the introduction of special offer fares to generate extra traffic.
A further extension was agreed in 2004, approved by Tynwald, with a
further increase in minimum level of service and investment in new fast craft.
The timeline of the User Agreement is as follows -
• User Agreement Licence Period was implemented with effect
from 1 October 1995 for ten years;
• By Supplemental Agreement dated 20 February 2002, the
Company exercised its option to extend the Licence Period from
1 October 2005 to 18 September 2010;
• By further Agreement, dated 21 December 2004, the Licence
Period was further extended from 19 September 2010 for a
period of ten years with an option to extend for a further six
years (i.e until 2026);
• A separate Fuel Surcharge Agreement (see para 10.2) was
implemented in August 2005.
2.5 Your Committee was aware at an early stage of its investigations of a legal
challenge to the User Agreement, on the grounds of restrictive access to
harbours having the effect of quantitative restriction on imports and exports.
However, we were advised that until such time as a legal ruling was made in
respect of that challenge, the Agreement remained a legal document and as
such any agreement on matters contained within our remit could be
legitimately considered.
Petition of Doleance
2.6 The Company was called to give evidence in public on 23 November 2007.
Advocate for the Company, Mr J Callin, made a statement at that hearing that
the subject matter of the Select Committee inquiry may be sub judice as far as
other Court proceedings are concerned. The Company had a concern that
there may be a contempt of the High Court if questions relevant to the High
Court proceedings were answered. Mr Callin requested an adjournment of
proceedings until 30 January 2008 by which time it was anticipated that the
question of sub judice could be more accurately determined and the potential
impact of the High Court and the Select Committee process could be
properly considered. We agreed to adjourn matters in accordance with
5
the request until 30 January 2008. Advocates for the Company subsequently
advised the Clerk of Tynwald that the Company had agreed to proceed with
the hearing as arranged.
2.7 Your Committee notes the Judgment delivered by His Honour Deemster
Doyle on 10 July 2008, dismissing that Petition of Doleance, in which it is
stated that "This judgment deals with the motions for strike out on the
ground of delay. It does not deal with the merits, if any, of the Petition."
PART 3
STRATEGY
3.1 Your Committee agreed to the following strategy -
a) A press notice was issued in July 2007 inviting any comments, concerns and
views by way of written submission from members of the public and
organisations;
b) The Isle of Man Steam Packet Company (the Company) was invited to
make a written submission in respect of the remit, and was requested to
provide data in respect of fares, brochures and passenger figures;
(A copy of the Isle of Man Steam Packet Submission is at Appendix B)
c) Certain organisations were invited to make written submission in respect of
the standard and cost of freight service;
d) We referred to a previous Select Committee Report on the Isle of Man
Steam Packet Company presented to Tynwald in June 1999.
3.2 Following the response from members of the public, and taking note of the
concerns raised, we agreed to undertake a return ferry trip to experience at
first hand the standard of service from booking, purchasing tickets and
travelling. We undertook this trip on Friday 21 September 2007, travelling
Douglas to Heysham and returning Liverpool to Douglas later that day. We
repeated that exercise on Friday 16 May 2008 to see for ourselves what
improvements had been carried out.
Copies of reports of those two trips are shown at Appendix A.
3.3 We agreed to appoint a suitable person to provide specialist advice on
maritime and ferry issues. Standing Order of Tynwald 5.17 (5) provides for
6
the appointment of a specialist adviser. We identified several candidates
who were suitably qualified, were available to provide advice and attend
meetings, and who satisfied us that they could act independently. We agreed
to appoint Professor Alfred Baird, Professor of Maritime Transport and Head
of Maritime Research at Napier University, Edinburgh.
Written evidence received
3.4 We received 106 submissions from individuals and organisations, and 8 from
organisations in the freight industry, which were analysed to provide a
breakdown of issues and concerns relevant to our remit, with some
individuals having requested anonymity. Whilst this figure may be regarded
by the Company as insignificant compared to the number of passenger
journeys advised by the Company (see para 3.8), we regard this as above
average for a Select Committee. Accordingly we restrict our comments to a
summary of the views expressed in those submissions, having regard to the
anonymity of the contributor. A summary of the issues raised is shown at
Appendix C.
3.5 The issues raised within individual submissions can be categorised as -
a) Booking Issues;
b) Fares, including variation of prices and excessive charging;
c) Standard of Service, including staff, catering, seating, port facilities and
delays / cancellations;
d) Monopoly Situation and the need, for competition.
These issues are addressed at relevant sections within this report. There were also
comments of a general nature in respect of the overall remit of your Committee, an
example of which is -
"I could list many complaints but it would take a lot o f time and unless there is a
will to solve the problem it would be a waste o f time. Many people on and off the
Island are waiting to see if Tynwald are serious about dealing with the situation."
[ref 6 7 IOM resident]
3.6 The issues raised by freight users are identified as -
a) No access to the terms of the User Agreement
between the Company and the Department of Transport in
order to assess freight charges;
7
b) Impact of freight charges on construction costs;
. c) Assertion by those freight users who responded to the Select
Committee (representing a significant proportion of freight traffic
carried by the Company) of very high freight rates relative to other
Irish Sea routes;
d) Company informs users of rate increases, but no discussion with the
industry (take it or leave it attitude);
e) Efficiency of the Ben my Chree;
f) Commercial rates applying to small vans.
3.7 Your Committee acknowledges that responses from passengers and freight
users in relation to the number of passengers carried are comparatively low,
and that any comments made are likely to be of a somewhat critical nature
and not necessarily within the remit of the Committee. As referred to in the
following paragraph (para 3.8), the Company has over 600,000 passenger
sailings per annum. The passenger responses represent only about 0.02% of
the number of advised passenger sailings, which may not equate to an actual
number of passengers. We were also advised by the Company that it has 231
direct freight customers compared with 8 who responded. We noted from a
submission from the Office of Fair Trading that the numbers of complaints
received by them about the Company were 18 in 2004/5, 19 in 2005/6, 41 in
2006/7 and 53 projected for 2007/8. Again these are not significant numbers,
but we do consider that not everyone may necessarily wish to complain or to
identify themselves. However, we do note the numbers are increasing and, as
with the response from our press notice, express concern about standard of
service and fares. The way in which the Office of Fair Trading deals with
complaints from consumers is shown at para. 15.10. The submission from the
Office of Fair Trading is shown at Appendix D.
3.8 We were aware of a market research survey undertaken by the Company. In
response to the issue of the number of complaints referred to above, Mr Woodward stated -
"We have over 600,000 passenger journeys per annum and the Company has had
very few complaints regarding, for example, seating availability. We note the
Committee has only attracted around 100 submissions which, as a proportion of
8
600,000 passenger journeys, cannot in any way be deemed a significant percentage of
the travelling public.
We have already supplied the Committee with market research data from
5,360 passengers surveyed in depth last year (2007). This indicates that the
cleaning, seating or other service issues raised by the Committee would not
appear to be common issues. Indeed, our own much larger survey o f customers
indicates that the vast majority are satisfied with the value for money o f our fares,
and our comfort and cleanliness ratings are good."
[EPSPC 030308 paras 955/960]
The figure of 5360 passengers surveyed relates to 0.9% of the total passenger
journeys.
We append a copy of the market research survey chart at Appendix E.
3.9 We would like to express our thanks to all those who responded to our
request for views and comments. We would also like to express our thanks to
the Company who provided a substantial written submission and responded
to all our requests for information promptly.
Background Information
3.10 We agreed that it was necessary to meet with officers of the Department of
Transport (the Department) at an early stage to obtain background
information in respect of any agreements with the Company. Mr I Thompson
(Chief Executive), Captain M Brew (Director of Harbours) and Mr R
Christopher (Director of Properties) attended a meeting on 7 September 2007
and gave your Committee a presentation on the User Agreement on behalf of
the Department.
3.11 The presentation addressed -
• the reason for the need for an agreement following disruption of sea
services due to strikes in the 1980's;
• the preferential use of the King Edward Pier linkspan by the Company;
• the Agreement's assurance of long term stability for the Company;
• the Agreement is between Government and the Company - the
ownership of the Company not being an issue;
9
• the ability for Government to exert influence over service, prices and
price increases;
• the timetable of the Agreement and subsequent amendments;
• the requirement for the Company to invest in new vessels;
• the requirement for provision of special fares to generate new business;
• the ability to exert some influence over the formula for special fare
discounts.
3.12 Notwithstanding our comments on confidentiality in para 3.4, we received an
extensive written submission from Travel Watch and invited the
organisation's Chairman, Mr B O'Friel, and Mr J R Clague to meet with us to
explain the background to the organisation, who it represented, the rationale
behind comments in their submission and to assist with our perception of
their views.
The submission from Travel Watch is shown at Appendix F.
Travel Watch provided the Company with a copy of its submission, which
allowed the Company an opportunity to address or counter any of its
comments. The Company in turn provided us with an amended copy of
that submission showing their detailed response to TravelWatch comments
and observations.
A copy of the amended submission with the Company's comments
highlighted in blue text is also appended at Appendix F.
3.13 Both the Department and Travelwatch were later called to give evidence at
public hearings at which questions on the substance of their submissions
would be posed.
Oral Evidence
3.14 Your Committee agreed to a schedule of public hearings to take oral evidence
from witnesses as follows -
Friday 23 November 2007 IOM Steam Packet Company(statement made by Mr J Callin, Quinn Kneale)
Travel Watch Isle of ManMr B O'Friel and Mr J R Clague;
10
Wednesday 30 January 2008 IOM Steam Packet CompanyMr M Woodward, Chief Executive Mr J Watt, Commercial Director;
Monday 3 March 2008 Department of TransportCapt M Brew, Director of HarboursMr R Christopher, Director of Properties
IOM Steam Packet CompanyMr M Woodward, Chief Executive Mr J Watt, Commercial Director Mr D Grant, Chief Financial Officer.
Hansard records of all public sessions are shown at Appendices G, H and I.
PART 4
ISSUES CONTAINED WITHIN OUR REMIT
4.1 Our remit requires us -
• to examine the Isle of Man Steam Packet Company's fare structures
over the past twelve months, any increases to fares in that period and
the reasons why, to make a comparison of prices when booking on and
off the Island;
• to consider whether the prices charged throughout this period are fair
and equitable and represent best value for money for Isle of Man
customers and off-Island customers;
• to examine whether any excessive charging has taken place;
• to consider the standard of service offered to both passengers and
freight users by the Company and the extent to which it is in
accordance with the Company's agreements with the Government.
11
SUBINDEX TO ISSUES SUBSEQUENTLY ADDRESSED IN THIS REPORT
Part 5 The fare structure in 2006 and in 2007 page 13
Part 6 Increases in fares between 2006 and 2007 page 16
Part 7 Comparison of fares when booking on and off the Island page 20
Part 8 Whether fares charged in 2006 and 2007 are fair andequitable, and best value for money page 21
Part 9 Whether any excessive charging has taken place (booking fees, reserved seat!accommodation charges)
page 25
Part 10 Fuel surcharge page 29
Part 11 Standard of Service - Vessels page 35
Part 12 Standard of service to passengers (Onboard and Onshore services)
page 38
Part 13 Standard of service to freight users page 44
Part 14 Standard of service in accordance with agreementswith Government
page 51
Part 15 Other Key Related Issues page 52
Company Profit(Ownership/Structure page 52
Concept of a Regulator page 61
Investment Obligations page 62
Role of The Department of Transport page 63
Role of the Office of Fair Trading page 68
Sail and Save Scheme/Islander Discount page 69
Select Committee Report 1999 page 70
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PART 5 FARE STRUCTURE IN 2006 AND 2007
Examples of comments from public submissions in respect of fares
"I am finding it increasingly difficult to book special offer fares.""We are noticing a huge difference in the price o f tickets. There was an immediate 20% increase in the price when the Sail and Save was abandoned."
[ref 03 IOM resident]
"Initially I was going to book a return ticket, for which I was quoted a price o f £60, but on looking at the price o f 2 single tickets, found that it would cost only £54, £35 for the first trip and £19 for the return". [ref 05 IOM resident]
"It is clear that a less complicated fare structure should be introduced to reduce the extremes for the same journey". [ref 06 IOM resident]
"The increase in foot passenger rates during the TT period was incredible. Nearly 100% ". [ref 09 UK resident]
"The Steam Packet have been very good in offering us discounted fares. ..we have paid for car trips (car + 4 passengers for UK hospital visits) 31 Mar(2007) £120, 7 Apr £133,14 April £133, 28 Apr £189, 5 May £145 [ref 10 IOM resident]
"Comparing it (pricing structure) to the school closure dates, you will see a definite trend". [ref 24 UK resident]
"travelling from Dublin (enquiry Jan 2007 for August 2007 sailings for car + 2 adults + 2 children)cost £422, yet travelling on the same dates from Liverpool cost £259, Heysham £208 and Belfast £234 [ref 56 ROI resident]
"Myself & 4 colleagues travelled to the Island on 01/0612007 in a high car not over 5.5m long at a cost o f £597.00 returning on 07/06/2007. I f we were to take the same trip on 26/07/2007 .& returning on 2/08/2007 in the same vehicle the cost would be £338.00. Therefore the cost o f the TT trip was 76.5% higher. I f this is not blatant profiteering then I do not know of any other name for it.The Steam Packet, or as it is known in motor cycle racing circles - the Steam Racket- .......have long lost interest in a friendly and efficient, cost effective service totheir customers.' [ref 13 NI resident]
5.1 Fare structure in 2006.
The Company's 2006 brochure clearly sets out the timetable of sailings and
identifies each sailing with a banding reference, marked A,B,C,D or E.
(Banding is explained at para 6.4). The brochure shows a defined standard fare
structure indicating the maximum price for any sailing, as shown in the
following examples extracted from that brochure (not a comprehensive version
of the list of fares).
13
Prices shown are in £s.
Sing e Standard Fare
Band Reference E D C B A
Adult Foot Passenger 29 31 33 34 34
Car+driver+passenger 114 139 165 173 177
Standard 5 day return each way
E D C B A
25 27 29 30 30
89 108 118 129 133
The Company has indicated that these standard fares are maximum prices for each
banding, paid only by a small percentage of customers and that customers would
also benefit from special offers.
5.2 The 2006 brochure also carries a number of low fare special offers to be
completed between specified dates. Examples of these are shown below.
Foot Passengers £ singlefootloose Single 15day return (sprinq/autumn/winter) 10day return (summer) 11
Car Special Offers car+driver+onespringtime short break 69autumn/winter short break 59summertime short break 79
Special offer fares are advertised in the 2006 brochure as being the lowest
online fares and subject to availability, and may not necessarily be the only
online fares.
The examples show that the structure makes clear to passengers the band for
particular sailings and provides the opportunity to select a sailing according
to convenience or according to maximum price. With band A being the most
expensive, this would indicate that the standard single tariff for foot
passengers is £34 and provides options for discounted fares on identified
sailings.
5.3 Fare structure in 2007
The Company's 2007 brochure provides only a summary of the operating
timetable and highlights discount offers. Discount offers for foot passengers
are shown as 'starting from' with no indication of the standard fare.
Discounted offers for vehicles with drivers are identified by the name of the
14
offer, e.g. Spring Special, Starlight Special, with no indication of the standard
fare. Weekend supplements apply to these offers, as does booking by
telephone or in person as opposed to when booking on line.
5.4 We noted from written submissions and from TravelWatch in evidence, that
passengers are confused by the fare structure and what actually defines a
discounted fare. Discounts appear to be anything less than the standard fare,
yet the 2007 brochure does not advise what the standard fare is.
The Company advised us that -
'no other UK ferry operator or airline serving the Island produces brochures
or websites which purely lists all maximum prices for various bandings. It is
the lOMSPC's position that to revert to a strict banding display identifying
only maximum prices paid by a very small portion o f travellers is likely to
cause greater confusion and would also deter many potential visitors from
travelling to the Island. To include all possible fares in the brochure would
also cause more confusion; as IOMSPC has already stated, fare prices change
in real time (potentially by the second) as the computerised booking system
will always calculate the cheapest fare available. This service can never be
replicated by a brochure as clearly a brochure can never reflect a real time
pricing mechanism/
Nevertheless we believe that customers would benefit from seeing the
banding structure in the brochure, as opposed to the website alone, as this
would more fully address the requirement of Section 3.37 of the User
Agreement (see para 15.8(h)) that-
"the Company shall ensure that at all times there is issued or published by
the Company or with its authority and available during normal business
hours to the public on request:-
A publication which contains all necessary information to enable foot
passengers to calculate therefrom the up to date maximum fares or
charges for each scheduled sailing by foot passengers for travel by Fast
Craft and Conventional Vessel to and from the Isle o f Man",
and of paragraph 2.3.10 of the Supplement to the User Agreement, which states -
"The Company will produce and maintain a clear and professionally
presented brochure and will introduce a website providing (inter alia) an
ability to make passenger bookings on-line which a potential customer can
navigate use and understand and which clearly shows the lowest available
fares for any available journey...."
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5.5 We are aware that the 2008 brochure, as with the 2007 brochure, does not
identify sailings by bandings, but that the website, again, does provide a table
showing maximum banded fares. However, these fares are not discounted
fares and the passenger still does not know, by studying the brochure, which
particular sailing in 2008 is at which particular banding, nor the difference
between a banded fare and a discounted fare.
Conclusion5.6 Comments from the public, regarding the structure of fares and availability
of discounted fares, and the change to the format of the published
brochure, suggest to us that there is confusion concerning the Company's
fare structure. While we acknowledge the Company's argument that
highlighting maximum band tariffs or publishing all discounts would
itself cause confusion, we nonetheless conclude that the way fares are
currently set out can cause difficulty in planning selection of sailings
according to convenience and comparative cost. The confusion arises
because the Company's assurance that the customer always benefits from
the cheapest fare available only becomes clear at the time of booking, and
can be quite mystifying when the customer cannot find that fare
advertised.i
PART 6 FARE INCREASES BETWEEN 2006 AND 2007
Example of comments from public submissions
"As we travel with two school age children our travel is restricted to the school
holidays. In the past two years we have noticed a substantial increase in fares. We
used to travel to the UK for between £220 and £260, this has risen o f late to between
£350 and £ 4 6 0 [Ref 6 9 IOM resident]
6.1 Mr Christopher gave evidence that Schedule 6 of the User Agreement
provides a formula by which the Department can deem proposed fare
increases to be excessive. That formula permits the overall 'weighted' fare
increase to be no greater than the increase in the Manx. Retail Price Index
(MRPI) minus V£ %.
16
6.2 He confirmed that fare increases over the period were in accordance with the
requirements of the User Agreement
In answer to the Chairman's questions concerning the procedure for annual
approval of fare increases, Mr Christopher said -
"The Steam Packet submit their schedule 6 proposals, which is the formula
laid down within the User Agreement. The Department can deem that to be
excessive if it is greater than the increase in the Manx Retail Price Index
minus lh% " [EPSPC 030308 para 190]
and
"Providing the weighted average comes out at less than MRPI minus Vi%,
they are in compliance. " [EPSPC 030308 para 425]
6.3 The definition of 'weighted' contained in the User Agreement states -
"Weighted basis" means for the purposes o f clause 5.2 or clause 5.3 the aggregate of
the product o f the proposed percentage change in each category o f published (as
applicable) fare or charge and the volume of traffic in that category o f published fare
or charge expressed as a decimal fraction of the total volume o f traffic.
6.4 Banding
a) Section 4 of the 1995 User Agreement states that 'the Company's published
passenger fares and freight charges for the year 1995 are to be treated as the
benchmark against which the Company's future obligations hereunder are to be
measured.'
b) The Company's published fares for 1995 provide bands of fares. However we
noted that the 'A' band was not included in the 1996 calculation due to the
removal of the SeaCat service in 1996 but reinstated from 1997.
c) The fare calculation for the 2008 increase showed the following in respect of
standard car fares -
Band Revenue weighting 2007 Fare 2008 Fare %increaseA 22.60% £111 £113 1.80%B 42.40% £107 £109 1.87%C 19.15% £101 £103 1.98%D 7.05% £79 £81 2.53%E 8.80% £60 £62 3.33%
17
The fare calculation for the 2008 increase showed the following in respect of
standard foot passenger fares -
Band Revenue weighting 2007 Fare 2008 Fare %in creaseA 28.99% £35 £36 2.86%
B 44.39% £35 £36 2.86%
C 13.32% £33 £34 3.03%
D 5.35% £31 £32 3.23%
E 7.94% £29 £30 3.45%
Similar tables are provided for all classes of fares and charges, making up the
'weighted basket of fares', the average of which is the recommended annual
increase. The formula used for fare calculation is broadly in line with the
example formula contained in Schedule Six of the User Agreement.
For the approved increase in fares for 2008, the weighted average of all
components of the basket of fares was 3.39%. This figure is within the User
Agreement requirement that increases do not exceed the current Manx Retail
Prices Index (being 3.9%) less lA%. Thus the increase in fares for 2008 of 3.39%
was not deemed excessive.
d) We compared the 'basket of fares' calculation for the 1997 and 2008 annual
increases and found that the weighting of revenue in each fare banding is
comparable. However, we note that the freight revenue accounted for 39.37%
of total revenue in 1997, and 75.01% in 2008.
When applying the fare banding to the 2006 brochure, it is quite clear
that the customer has the option to select a lower banding sailing. However,
although the fare banding structure appears on the Company's web site, it
does not appear in the 2007 or 2008 brochures. The increase in the bands may
appear to be contained within the terms of the User Agreement but it is not
apparent if a sailing may have been rebanded in the updated brochure, thus
for example a D sailing in 2006 may have become a C sailing in 2007.
We note that the revenue weighting is heavily applied to B banding.
e) Whilst we acknowledge that there are special offers (examples of which we
show at para 5.2), not all special offers are available at the time of booking.
There is no information as to how many special offers are made available,
18
nor which banding applies to a particular sailing and only serves to create
frustration for the passenger.
f) As 'an example of this lack of transparency, the banding of fares for a foot
passenger standard fare and standard 5 day car, extracted from the
Company's website on 16 July 2008, is reproduced below -
STERLING STANDARD FARES 2008
standard 5 day rtn (eachstandarc sing e
Fare Banding E D C B AFootPassengerAdult 30 32 34 36 36
Vehicle FareCar + 1 up to 5.5m 92 113 137 145 149
E D C B A
26 28 30 31 32
68 85 93 102 107
The following booking enquiries, with quotes, were made on 16 July 2008 -
Foot passenger !OM>Liverpool 22 July 0730, Heysham >10M 24 July 1415 £34 rtn
Foot passenger lOM>Heysham 22 July 0845, Liverpool >IOM 24 July 2115 £38 rtn
Car + 1 IOM>Liverpool 22 July 0730, Heysham >IOM 24 July 1415 £178 rtn
Car + 1 IOM>Heysham 22 July 0845, Liverpool >IOM 24 July 2115 £158 rtn
6.5 The fares quoted bear no relation to the standard 5 day return, in any band
(except for the return car from Heysham which appears to be a D band one
way and a C band the other) and there appears to be no rationale why the
foot passenger fare is more expensive in the IOM>Heysham- Liverpool>IOM
option when the car plus one is cheaper for the same sailings.
The cheapest standard 5 day foot passenger return advertised in the 2008
brochure is an 'E' band at £52.
A Footloose Any Length of Stay Special Offer adult return fare advertised in
the 2008 brochure is "from just £35".
From the above enquiry a foot passenger return is quoted at £34, cheaper than
the cheapest special offer, and therefore is neither a standard fare, a footloose
fare nor a banded fare.
This we consider to be an example of the confusion referred to in
comments made to us (albeit that the quote is cheaper than any
19
advertised fare) and where it is not clear to the passenger the basis of
what is being quoted. Whereas the Company maintains that the customer
will always be quoted the cheapest fare, this can be quite mystifying when
the customer cannot find that fare advertised. The Company has indicated to
us that very minimal increases have applied to web offer prices between 2006
and 2007 and that in most cases the prices are exactly the same. For example,
the Company advised that a car plus two short break is exactly the same in
2007 as it was in 2006. (The 2007 brochure does state that 'All offers and prices
quoted are strictly subject to avail ability').
Conclusion6.6 We are satisfied, from evidence available to us showing the calculation of
the formula used to obtain Department approval for the fare increase for
2007, that the increase in standard fares is in accordance with the User
Agreement However, we consider that the lack of information available to
the passenger in respect of discounts may create a perception of fare
increases.
PART 7 COMPARISON OF FARES WHEN BOOKING ON AND OFF THE
ISLAND
7.1 We received a submission from an Island resident [ref 02] who wished to
book online for a car plus driver plus one passenger to travel to Liverpool on
14 June 2007 returning to Douglas on 20 June 2007. The gentleman
inadvertently selected an option to sail Liverpool>Douglas>Liverpool,
paying the advertised fare of £258.00. Upon realising his error, he re-booked
only to find that the cost of his sailing Douglas>Liverpool>Douglas on the
same dates was £408.00.
This particular issue was raised by the Chairman when he asked Mr
Woodward (Chief Executive) how such a variation can occur when the
corrected booking is made within a matter of minutes. Mr Woodward said -
"that can only be a function of time and availability o f the system in real time,
working through the tiers o f discounts available." [EPSPC300108 para740]
and
"If a person in Liverpool and a person in the Isle o f Man were booking onto
the identical sailing at the same time, they would get the same fare."
[EPSPC300108 para760]
20
The Company assured us that there are no differences in the computer
program and any difference in price can only be a function of time and
availability of the applicable offers in real time.
7.2 We received a submission from an Island resident [ref 34] who advised that a
relation had secured an additional discount of £40 from that advertised online
to travel to the Island by booking through an Island based agent but the
discount did not apply when booking the return travel.
7.3 We are aware that fares are standard fares within the banding structure
agreed with the Department at the time of annual review of fares, and will
apply to journeys to or from the Island. However, as we have previously
commented on the confusion concerning availability of discounts, it may well
be that at certain times of the year (such as the TT Festival), the out bound
capacity may be much greater them inbound (or vice versa) and as such
contain fewer discounted fares which give the perception of disparity. It may
also be, for example, that some outward sailings may have a higher banding
than inward sailings at certain times such as Bank Holidays which create a
perception of disparity.
Conclusion7.4 We consider that while the issue of confusion concerning availability of
discounted fares may create a perception that there is a disparity, in reality
there should be no difference between persons booking on and off the
Island.
PART 8 WHETHER FARES CHARGED IN 2006 AND 2007 ARE FAIR AND
EQUITABLE AND REPRESENT BEST VALUE FOR MONEY
Examples of comments from public submissions
"I travel to/from the Island on a number o f occasions
whole represent good value for money".
"a ticket for a car and 2 adults (peak su mmer season) on the ferry from Heysham with
Steam Packet costs around £380 to travel to the UK. On Brittany Ferries, to travel
- in my opinion the fares on the
[Ref 86 UK resident]
21
from Portsmouth to St Malo in August costs £300. From Dover to Calais with P&O
Ferries in August, you can take 2 adults and a car for £120".
[Ref 34 IOM resident]
8.1 Standard fares agreed under the User Agreement are benchmarked at 1995
prices. Therefore, to assess whether fares were fair and equitable in 2006 and
2007 logically requires us to consider whether they were so in 1995. We do
not find such a level of investigation practical, even if it were possible to
reach a definite conclusion about fares in 1995. The Department is only
required to consider annual increases in line with an agreed formula rather
than take into account the impact of competition or lack of it. We have
already satisfied ourselves (para 6.6) that the formula is correctly applied.
8.2 Furthermore, as already indicated, the introduction of discounted fares, and
the withdrawal of the defined sailings banding from brochures, makes it
difficult for a fair comparison of a particular sailing in 2007 against one in
2006.
8.3 Your Committee therefore decided to focus on value for money and
undertook an online reservation analysis of other ferry operators, the results
of which are presented in the following tables -
Winter Comparison
Online price for 2 adults plus car, return trip, November 15-22, 2008Route Operator Distance
Miles£ Price £ per
MileRosslare-Fishguard Stena Line 55 216 3.93Dublin-Holyhead Irish Ferries 58 264 4.55Stranraer-B elf ast Stena Line 48 196 4.08Cherbourg-Pool e Brittany Ferries 60 232 3.87Stomoway-Ullapool Caledonian MacBrayne 48 211 4.40Liverpool-Douglas Steam Packet Company 70 206 2.94Douglas-Heysham Steam Packet Company 58 206 3.55Online survey dated Saturday 7th July 2008All sailings undertaken between 0900-1900Economy prices inclusive of surcharges
This indicates that Steam Packet Company prices for passengers/car transport in
winter appear to be very competitive in comparison with other Irish Sea
ferry operators on routes of a similar distance.
22
Summer Comparison
Online price for 2 adults plus car, return trip, August 09-16, 2008
Route Operator DistanceMiles
£ Price £ per Mile
Rossi are-Fi shgu ard Stena Line 55 260 4.73Dublin-Holy head Irish Ferries 58 419 7.22Stranraer-Belfast Stena Line 48 275 5.73Cherbourg-Poole Brittany Ferries 60 433 7.22Stornoway-Ullapool Caledonian MacBrayne 48 211 4.40Liverpool-Douglas SteamPacket Company 70 290 4.14D ou gl as-Hey sham Steam Packet Company 58 290 5.00Online survey dated Saturday 7th July 2008All sailings undertaken between 0900-1900Economy prices inclusive of surcharges
This indicates that Steam Packet Company prices for passengers/car
transport in summer also appear to be very competitive in comparison with
other Irish Sea ferry operators on routes of a similar distance.
It should be noted that Scottish ferry services are heavily subsidised whereby
the operating loss /deficit is covered by a grant from the Scottish Government.
In 2007 the loss across the Western Isles and Clyde services was £33.27m. The
loss across the Northern Isles Orkney /Shetland services was c£31m.
However, the total subsidy of c£64m was in respect of some 34 routes and
over 30 ships of varying size.
8.4 In its evidence, TravelWatch did not complain about the general level of
fares, but rather the way in which fare structures are communicated, in
addition to other factors relating to service quality (for example, reliability,
complaints and cancellation policy, integrated transport, user consultation
etc.). This also tends to suggest that the level of pricing for passengers is in
general not excessive. However, this does not detract from the fact that at
certain times of the year (e.g. during TT) the Company applies only standard
maximum fares in a quite robust manner for a short period. The consequence
of this may be additional special offers for residents to encourage off Island
travel to fill empty capacity. We were advised that in excess of 80% of
passengers travel on offer fares of some type.
Late/Emergency Travelling
8.5 Your Committee has noted that the pricing system applied by the Company
favours those booking well in advance of travel. For the many islanders and
23
others who must make travel arrangements at the last minute, for instance, to
visit relatives in hospital, to attend funerals etc, the only fares available will
tend to be at the very highest levels as discounted fares are not
necessarily available.
8.6 As an example we were advised in a submission that a couple on holiday in
the UK had to travel back to the Island in an emergency. They were able to
find secure parking for their camper van whilst breaking their holiday to
attend a family emergency.
"We turned up at Liverpool and booked one way tickets back to the Island. We
were charged £75 for two one way adult foot passengers I Is this a case o f daylight
robbery ? " [ref p69 IOM resident]
8.7 We have already stated that the Company's fares for passengers/ car
transport are very competitive but are conscious that to have a policy of
providing a discounted fare for such "distress travel" may be open to abuse.
We note that the Company has advised that it does what it can for islanders
having to make travel arrangements at very short notice. The Company does
recommend that passengers should obtain personal travel insurance.
Airlines8.8 Competition from airlines may represent a major factor in the need for the
Company to maintain competitive prices in the Isle of Man passenger market.
We considered whether or not comparison of fares with airlines should be
taken into account in our investigations but concluded that such a
comparison did not reflect the range of services provided by the Company.
Although Liverpool, Dublin and Belfast are destinations served by both the
Steam Packet and certain airlines, travel is restricted to only foot passengers
and to compare like for like in a constructive manner would need to include
transfer costs between city/town centres, and this may not achieve a fair
comparison of pricing. We do acknowledge that no airline has exclusive
use of any one airport or destination and that competition is a factor in
fare pricing. We also acknowledge that certain airlines have been unable to
sustain services due to competition.
8.9 With regard to pricing structures, we are aware that the airlines operate a
system by which fares are generally cheaper the longer before departure they
are booked. Thus, if a passenger wishes to travel by air to Liverpool in March
24
2009, it is likely the fare will be substantially cheaper if it is booked in October
2008 rather than March 2009. This is general practice amongst airlines, and we
find that the Steam Packet Company follows a similar model, providing at
least one similarity between the two forms of transport.
Conclusion8.10 The introduction of discounted fares and withdrawal of tariff banding in
brochures makes it difficult to compare fares in 2007 with those in 2006.
However, we consider that Steam Packet prices for passengers/car
transport appear to be very competitive and to represent reasonable value
for money in comparison with other Irish Sea ferry operators on routes of
a similar distance, with in excess of 80% of passengers travelling on offer
fares of some type.
PART 9 WHETHER ANY EXCESSIVE CHARGING HAS TAKEN PLACE
Examples of comments from public submissions
"Why should people be financially penalized for booking by telephone or in person,
instead o f on-line? The Isle o f Man has many elderly and retired people who may not
have access to computers, or for other reasons cannot book on-line".
[Ref 76 IOM resident]
"the peak fare periods coincide with the two principal motor sports events".[Ref 89 UK resident]
This section addresses excessive charging, not to be confused with additional
charges for extra services. For clarification it may be necessary to differentiate
between excessive charging, overcharging and additional charging and to
consider if extra charges are legitimate.
9.1 Excessive charging suggests that a price is deemed to be unreasonable and
goes beyond that expected. We have already concluded that fares charged in
respect of passengers and cars are comparative with other Irish Sea ferry
operators and as such are not deemed excessive.
25
Overcharging implies that too high a price has been charged from that
advertised or quoted. In this context any fare or charge which is above the
advertised standard fare can be deemed an overcharge. Any advertised
special offer fare is offered 'subject to availability' and, if not available at the
time of booking, application of the standard or banded fare is legitimate. We
found no evidence of prices being charged in excess of the standard advertised fare.
Additional charges are those for services in addition to the standard service.
9.2 Additional charges imposed by the Company in excess of the agreed
standard fare, payment of which may be a matter of choice. These can be
defined as -
• booking fees
• reserved seating fees
• cabin accommodation
9.3 Booking Fees
The following is an extract from the Company's terms and conditions
All special offers shown online or in the Company brochure are online
fa res , which may only be booked at w w w .steam -packet.com Special Offer
bookings made in person, through a travel agent, or over the telephone
are subject to a Serv ice Fee of £12 / €18 per car or £6 / €8 for foot
passenger or m otorcycle offers.
All Standard Fares shown in this brochure are the fares applicable when
bookings are made in person, through a travel agent or over the
telephone. These fares will be discounted by 2% when booked online at
w w w .steam -packet.com Bookings paid for by credit/charge card (e .g .
V isa, M asterCard, Am erican Express e tc .) are subject to a non-refundable
£3/€4 credit charge per booking. Bookings paid for using debit card (e .g .
Sw itch) will not incur the £3/€4 charge.
9.4 As shown in this extract, the Company refers to these additional fees as
service fees when they may be more properly considered booking fees.
Special offers, which are discounted fares, are subject to a booking fee for
those who wish to book in person, by telephone or through a travel agent. It
26
follows that a person without access to a computer, or who does not
understand computers, is required to pay a booking fee.
Standard fares apply to those who wish to book in person, by telephone or
through a travel agent, but are discounted by 2% for those booking on
line. This again clearly disadvantages those without access to a computer, or
who do not understand computers, who can only book by a more traditional
method. The Company advised that internet bookings provide a significant
administrative cost saving which are passed through to the customer, and
that this is a fairer way of dealing with customers. Whether or not this should
be construed as excessive charging, clearly the inability to navigate to a
booking and benefit from discounts by booking in this manner disadvantages
some.
9.5 The Company imposes an additional charge of £3 per booking for those
paying by credit/charge card. Travel Watch, in its submission, suggests that
most ferry companies make similar charges. The passenger does have the
option to pay by means other than credit card and avoid these charges.
9.6 Reserved Seating Fees. The Department and the Company entered into an
Agreement on 21 December 2004 -
"to vary and extend Agreement dated 19 September 1995 in respect o f the
Linkspan and a Licence dated 19 September 1995 in respect o f Victoria Pier
Douglas
This Supplement to the User Agreement, at paragraph 2.3.10, states -
"The Company will produce and maintain a clear and professionally
presented brochure and will introduce a website providing (inter alia) an
ability to make passenger bookings on-line which a potential customer can
navigate use and understand and which clearly shows the lowest available
fares for any available journey AND the Company will introduce a
system to enable it to allocate some seats when potential customers are
booking the same or checking in for a sailing for which a reasonable
charge may be made, "
9.7 The Company imposes an additional charge for a reserved seat, for a first
class lounge and for cabins. We consider that the facility of a first class lounge
or cabin accommodation is a matter of choice for the passenger and therefore
27
is acceptable. The Company has stated that buying a ticket guarantees a seat.
Nonetheless, from evidence and from our own experience, many
passengers feel that they have no choice but to pay an additional charge, not
only to guarantee a level of comfort but to enable families to sit together in
standard class, which we consider less than acceptable.
9.8 With regard to provision of reserved seating, this would appear to be a
requirement by the Department. However, it follows that provision of
reserved seating, for which an additional charge is imposed, reduces the
availability of guaranteed seating for those who do not wish to pay and
consequently reduces the overall passenger capacity of the vessel. In a letter
dated 3 October 2007, Mr J Watt, Commercial Director, advised that -
"The Ben my Chree is certified to carry 630 passengers but has 670 seats, whilst
SuperSeaCat is certified to carry 694 passengers and has 707 seats. Under
certification rules there is always a seat for every passenger booked."
The letter also explained that included in the total of 670 seats for the Ben my
Chree are 108 in cabins, 24 in the Blue Riband Lounge and 59 in the First
Lounge, a total of 191 for which an additional charge is applicable. Of the 707
seats on SuperSeaCat, 94 are in the First Lounge and 57 in the Blue Riband
Lounge, a total of 151 for which an additional charge is applicable.
In response to the question in the public hearing held on 30 January 2008
from the Chairman, "Does buying a ticket guarantee you a seat?", Mr Woodward
(Chief Executive Officer) replied, "Yes, absolutely. That is a marine requirement."
In response to a question from Mr Malar key if the Department considers it to
be good practice to impose an additional charge for reserved seating, Capt
Brew stated -
"... that is not an issue with respect to the User Agreement."
[EPSPC030308 para 345]
The supplement to the User Agreement shown at para 9.6 suggests that this
is certainly an issue with respect to the User Agreement.
28
9.9 We consider that inclusion of cafeteria and bar seating in the number of
available seats on the Ben my Chree is inappropriate when a person who has
a cabin or reserved seat may justifiably sit in the cafeteria or bar to consume
food or drink, and potentially occupy two separate seats. Evidently this is
standard, and typical practice, across probably every European ferry
company. Although the Company did advise us that less than 3% of sailings
actually operate to full capacity, for those full and nearly full sailings a
passenger not wishing to reserve a seat should have no difficulty in finding
one. We do acknowledge that the Company does provide free upgrades into
reserved seating areas when required, but it may require a persistent
approach by the passenger to achieve this.
The Company advised that, even at full capacity, there are 40 spare seats on
the Ben-my-Chree and 15 spare seats on the SuperSeacat. As we have already
discussed in para 9.8, a degree of the vessels capacities is included in cabins
which are not available to all passengers. The maximum capacity can only be
achieved by including seats in cabins, blue riband, café areas and bars.
9.10 Cabin Accommodation
We are aware that cabin accommodation is available on the Ben my Chree, the
current lowest advertised price being £37 per single journey. Such
additional cost is a matter of choice.
Conclusion9.11 We consider that, as the increase in standard fares is monitored by the
Department, and as additional charges are in the main a matter of choice,
no excessive charging in respect of passenger/car fares has taken place.
PART 10 FUEL SURCHARGE
10.1 It is quite clear that the price of fuel is going to be a major factor in all
transport costs in the foreseeable future. Your Committee received comments
about the additional fuel charge supplement charged as an addition to
advertised fares. These comments chiefly relate to the existence of a separate
charge, suggesting that the charge should be absorbed into the fare, rather
than complaints about application of the charge itself. This may suggest that
customers recognise the volatility of the world fuel market, the subject
29
having received a good deal of media coverage and customers having
personal experience of rising domestic fuel prices and petrol prices. There
were comments that falls in Marine Gas Oil prices had not been reflected in a
reduction of the surcharge.
10.2 In August 2005 the Department of Transport approved the recommendation
contained in a paper submitted by the Director of Harbours advising that the
Company had requested approval to introduce a fuel oil surcharge to
compensate it for the significant increase incurred in relation to Marine Gas
Oil. The paper recommended that the Company be permitted to introduce a
fuel oil surcharge to be charged in respect of foot passengers, vehicles, freight
by metre and trade car or van. This approval is by way of a Department
approval and is not included within the User Agreement We were advised
by the Economics Division of Treasury that marine fuel is not included in the
MRPI inflation figure calculations.
However, we note that the agreed formula appended to that paper, upon
which the Fuel Surcharge Agreement is based, refers to the cost of Gasoil and
that the fuel is used both by the Ben my Chree and SuperSeaCat2 (Viking).
Our own research (see para.10.5) would indicate that fast craft appear to use a
different grade of fuel.
10.3 Table 1 of the Isle of Man Retail Prices Index, shows that' fuel and light7 and
'fares and other travel costs' are included in the MRPI calculation. Therefore
the Company obtains a degree of benefit from the inclusion of the domestic
fuel and sea travel elements by 1.2% in the MRPI calculation. The Treasury
Press Release issued on 23 June 2008 stated -
"Isle o f Man inflation measured by the Retail Price Index rose from
4.9% in April to 5.6% in May. The main factor behind this increase
was the cost o f Fuel and Light which contributed 1.2% to the overall
rate o f inflation, having increased by 17.8% over the year."
We therefore suggest that the Department consults with the Office of Fair
Trading and takes account of the domestic fuel element in the MRPI
calculation when considering fuel surcharge increases.
10.4 In considering the proposal to introduce a fuel surcharge put forward by the
Company, the Department was provided with data showing the annual cost
of Marine Gas Oil having risen from around £65 per tonne in 1998
progressively to £309 per tonne at 13 July 2005. The Company had estimated
30
that the annual budget of £2.6m for fuel may reach £5m if the current rate of
increase was sustained.
10.5 There are four categories of grades most frequently used by ships, being
• MDO Marine Diesel Oil
• MGO Marine Gas Oil
• IF0180 Intermediate Fuel Oil
• IF0380 Intermediate Fuel Oil
Fast craft use MDO, a blend of heavy fuel and gas oil. The Ben my Chree uses
IF0180, a blend of heavy fuel with 6/7% gas oil. On 18 July 2008 the
Rotterdam spot price was
• US$1130.00 per metric tonne for MDO
• US$730 per metric tonne for IF0180
The following table shows bunker oil price development since 1999 up to
2008. This indicates a very steep rise, with a more than tenfold increase in the
price of IFO 180 from just US$65/tonne in 1999, to US$730/tonne in 2008.
MDO has risen in price from US$170/tonne in 1999 to US$1,130/tonne in
2008. Bunker prices have more than doubled over the past two years.
Bunkerfuel prices, 1999-2008 (Rotterdam)
1130
1999
m IFO 180■ MDO
2006 2008
10.6 In August 2005, the Department approved a recommendation that the
Company be permitted to introduce the following surcharges per single
journey -
a) £2 per foot passenger,
31
b) £5 per vehicle,
c) £1 per metre on all roll-on roll-off freight,
d) £5 per trade car/van
and that these surcharges be subject to the following conditions -
a) the maximum amount of fuel oil surcharge that can be collected
be set at £1.7m per annum, based on the current fuel oil price,
b) in the event that the forecasted fuel price varies above or below
these levels the maximum amount that can be raised, as a resul t
of the fuel oil surcharge, to be amended on a pro rata basis,
c) a procedure is to be agreed with the Company to allow the
surcharge to be reviewed on a six monthly basis, from the date
of implementation,
d) during a review the Company will be required to provide to the
Department details of its actual expenditure on fuel oil with
comparable information supplied for the previous year on a
route-mile basis,
é) the Department to have the power to cancel the surcharge on
the issue of six months notice.
10.7 We note from the submission by Travel Watch Isle of Man (Appendix F, page
18) that, at the end of July 2007, Stena Line and P&O Ferries were applying a
fuel surcharge on their Irish Sea routes, but Irish Ferries and Norfolk Line
were not.
From June 16 2008 Stena Line introduced a fuel surcharge of £2 per adult
passenger and per motorcycle, £10 per car, and £30 per coach
(http: / /news.bbc.co.uk/1/hi/business/ 7440421 .stm). Competitor P&O
Ferries has refrained from introducing a fuel surcharge for passengers,
however P&O has a surcharge on freight which in April 2008 was £15.60 per
trailer on the Liverpool-Dublin route, less for Caimryan-Lame. Like P&O,
Irish Ferries adjusts its fuel surcharge on freight in line with the rise in cost of
fuel per tonne, in its case assessed on the quarterly average price. During first
quarter 2008 this surcharge amounted to £19.50 per trailer
(http: / / www.irishferriesfreight.com/fuelsurcliarge/surchcirge.aspx).
In his letter dated 23 June 2008 Mr J Watt (Commercial Director) advised -
32
"Stena Line have this week confirmed they are adding an extra £20
return per car to Ireland as a fuel surcharge. Both Stena Line and Irish
Ferries have previously reduced fast craft trippage by up to a third."
10.8 In response to Mr Turner's questions concerning the procedure for agreeing
any amendment to the fuel surcharge, and in particular how the approach to
the Department is made, Capt Brew said -
" It is made through the monthly meeting between the senior
officers o f the Department, in accordance with the Agreement that the
Company has with the Department specifically related to fuel
surcharges" and
"It is subject to a six monthly review, and any changes in the surcharge
require a paper to the Department for approval"
[EPSPC030308 paras 275 / 280]
10.9 The current (August 2008) level of fuel surcharge applying to foot passengers
is £2.50 per single sailing. In his letter dated 22 May 2008 Mr Woodward,
Chief Executive, advised that this figure was based upon a Gasoil price of
£340/mt whereas the current market price had reached £660/mt. (Note that
the references 'tonne' and 'mt' both refer to metric tonne).
We are aware that levels of fuel surcharge were increased by £6 per metre, to
£8 per metre for freight, and by £2.50 to £5 per single journey for passengers,
with effect from 1 September 2008.
However we note that by the end of October 2008, with the decline of world
oil prices since their summer peak, there had been significant falls in the cost
of fuel.
10.10 In response to the Chairman's questions concerning the absence of a
reduction in fuel surcharge when the market price had fallen, Mr Watt
(Commercial Director ) said -
"It (the fuel surcharge) will automatically reflect fluctuations, so i f the price
has come down over a sustained period it will automatically come down."
[EPSPC300108 para 1050]
Mr Woodward added -
"Well, I suspect what actually happened was that when the fuel surcharge
model first came in we were in a certain band. The fuel surcharge
subsequently increased and we were entitled to put that surcharge up to a
33
higher level in the following hand. We chose not to do that and when the
fuel price model then came back down for a sustained period we were
actually in the band we had been in originally."
[EPSPC300108 para 1070]
10.11 Your Committee expressed concern at the public hearing held on Monday 3
March 2008 that, despite assurances given by Capt Brew that the Department
and the Company had yet to discuss any increase, it had already been
reported in the press that the Company was to increase the fuel surcharge
and had advised freight users of the agreed increase. The Department later
qualified the assurances made by Capt Brew, advising that the Department
had, when approving the introduction of a fuel surcharge in August 2005,
already agreed a review period and a procedure by which the surcharge can
be varied without the specific need for Department approval.
10.12 We note a comment by the Company in a letter dated 23 June 2008 that
"Our fuel costs for one return trip to Liverpool currently exceed £15,000".
We also note a comment by the Company in a letter dates 22 May 2008, when
advising of the purchase of the Incat 050 fast craft vessel (see para 11.4) to
replace Viking, that -
"The Committee should note that as well as higher costs o f ownership, this
new larger vessel will also consume more than Viking. This extra cost is not
covered by the fuel surcharge agreement as that agreement is based on the
consumption o f our existing fleet”, and
"The £2.50 passenger fuel surcharge is based on a Gasoil price o f £340/mt whereas
the market price today is £660jmt. At this level, the Steam Packet will incur an
additional £3.5m in fuel costs annually."
Your Committee would draw to the Department's attention that the purchase
of this particular vessel is a commercial decision and any consequential
increase in cost of fuel should be contained within operating costs and not
addressed in further reviews of the fuel surcharge.
Conclusion10.13 Your Committee concludes that Steam Packet Company fuel surcharges are
in accordance with the Agreement with the Department and appear to be
broadly similar to those of other ferry operators serving Irish Sea routes.
34
However, we note that the agreed formula upon which the Fuel Surcharge
Agreement is based refers to the cost of Gasoil and states that this fuel is
used both by the Ben my Chree and Super Seacat 2 (Viking). However, our
own research would indicate that fast craft appear to use a different grade
of fuel which may have a different cost. Given that the Agreement provides
a condition that the Department has the power to cancel the surcharge on
the issue of six months notice, we would recommend that the Department
imposes this condition and that a new agreement is negotiated with the
Company to clarify the type of fuel used by vessels, and that the formula
upon which the fuel surcharge is agreed reflects this. By imposing this
condition, the Department will not only have the opportunity to reassess
the position, but also to ensure that the fuel surcharge better reflects the
forecasted fuel price and current fuel price.
We also conclude that the Department should consult with the Office of
Fair Trading and take account of the domestic fuel element in the MRPI
calculation when considering fuel surcharge increases.
PART 11 STANDARDS OF SERVICE -VESSELS
Vessels
11.1 We noted several concerns from public written submissions in relation to
cancellations, and are aware that in recent months, on at least two occasions,
the Viking has had to return to port because of inclement weather. We are
also aware that the Company cancelled its fast craft Liverpool service during
the winter months to ensure reliability of service. And as recently as mid June
2008, the Viking was again encountering gearbox problems such that journey
times were extended to 3 hours for Douglas-Liverpool services. This does
bring into question the continuing reliability of the Company's existing fleet
of fast craft, as well as their ability, to operate in the Irish Sea during bad weather.
11.2 It is clear that the Company's investment in its fleet has a significant bearing
on service standards. The User Agreement 1995 requires the Company to
invest £20m in vessels, increased by a further £26m agreed in the extension to
the User Agreement in 2004. The Company provided a summary of its
investment in service provision (3.2 of the Company's submission at
Appendix B, page 10) as follows -
35
11.3
• Ben my Chree 1998 £24m
• Ben my Chree extension 2004 £ 2m
• SuperSeaCat2 lease c£l8m vessel valuation new
• SeaCat 10M c£l3m vessel valuation new
• Annual refits c£ 1m per vessel
• New Maritime Reservations System £1 m investment
• New Liverpool Terminal Project c£2.8m
The Company also agreed to continue to provide a Fast Craft in its fleet.
We note that the Ben my Chree has now completed ten years of service to the
Island since being introduced into service in 1998, completing 14,000 sailings
covering more than 800,000 miles with a near 100% reliability performance.
Spirit o f Ontario
In answer to a question from the Chairman asking "what recent attempts
have there been to acquire new vessels", Mr Woodward replied-
" Chair man, I am happy to confirm we have been close, on several
occasions, to new vessels, and I am afraid, for a variety of reasons, on
each occasion we have not been able to conclude these potential
purchases. Most recently, you may have read o f a vessel called the
Spirit o f Ontario, which was available in North America:
unfortunately, that proved to be unattainable for a variety of
reasons." [ref EPSPC030308 paral660]
Our own research showed that the Spirit o f Ontario was built in 2004, but
hardly used due to financial problems experienced by its owner, (the City of
Rochester). The vessel is capable of carrying over 800 passengers, 240 cars,
plus the capability of carrying 10 freight trailers or buses. It was reported in
the shipping press (Cruise & Ferry Info May 2007) that the Company was
one of three companies bidding for the vessel. In answer to a question from
Mr Cregeen concerning his understanding that one of the bidders wished
only to charter, Mr Woodward said -
"I am aware that one o f the companies did, or could, only charter.
That was not us, I do not think so, no [ref EPSPC030308paral750]
The Spirit o f Ontario was subsequently sold to FRS/Tanger Jet for c£15m.
36
Incat 050
11.4 Your Committee was advised by the Company that it has acquired a
Fast Craft (Incat 050) to replace Viking and is due to enter service in 2009.
The vessel, previously used by the US military, is already 10 years old, which
is the same age as the vessel it is intended to replace. We understand from the
Company's press release that the total project cost of the acquisition is
'approaching £20 million'.
Mr Woodward provided us with further information concerning the vessel
addressing general areas of concern raised in public comment. He advised
that "Ineat 050 will offer a significant improvement in standard o f facilities to
those on our current fast craft",
and
"The fact that Incat 050 has back up freight and coach capability will help maintain
the Islands lifeline requirements in the event of technical difficulties with Ben my
Chree. In addition she will be able to provide some new Ro-Ro freight and coach
connections with Ireland, as well as providing an enhanced service for the larger
competitors vehicles for special events such as the TT".
11.5 The definition of a vessel contained within the User Agreement means
"either a Conventional Vessel or a Fast Craft for the time being owned leased
chartered or operated by or in conjunction with the Company."
The obligations in respect of investment in new vessels contained in section
3.15 of the User Agreement refers to -
'the purchase or (subject to prior written agreement between the Department
with the advice o f its Auditors as to the-calculation thereof) capitalised value
of a lease or charter or refurbishment of Vessels for use in compliance with the
Company's covenants and obligations hereunder..."
11.6 Whilst we welcome the news that the Company is making this substantial
investment in accordance with its obligations, we are aware that public
comment about reliability of service invariably concerns Fast Craft and their
ability to operate in the Irish Sea during bad weather. The Ben my Chree does
not receive such critical comment and we are aware that only the extremes of
bad weather, or mechanical breakdown of that vessel, see suspension of
sailings. We asked the Company why the Isle of Man should have to
depend on a 10-year old second-hand fast craft which is simply replacing
another 10-year old vessel when profit levels might suggest that it is possible
37
for the Company to acquire a new or nearly new vessel. Mr Woodward
advised that the Incat 050 has not been used for commercial passenger
services for a number of years and consequently her main engines and other
equipment have proportionately lower usage than similar newer vessels. The
Company anticipates a useful life expectancy of approximately 25 years
overall and has advised that the Incat 050 'has been permitted to operate to a
4 metre wave high restriction, thus demonstrating the capability of this fast
craft to operate in rough sea conditions'.
Conclusion11.7 We consider that, as the extended User Agreement Licence period is until
19 September 2020, with an option to extend for a further six years, the
Department should enter into discussion with the Company, even at this
stage, to satisfy itself that the newly acquired fast craft, and the Ben my
Chree, which will both be over twenty years old in 2020, will be able to
maintain the required standard of service under the current terms of
investment within the User Agreement or that provision is made for further
investment.
PART 12 STANDARD OF SERVICE TO PASSENGERS
Onboard Facilities
Section 3.13.3 of the User Agreement requires that vessels -
"provide reasonable standards of services and facilities to passengers".
Section 2.3.6 of the Agreement to vary and extend the User Agreement, dated 21
December 2004, states that -
"..all replacement vessels with a passenger capacity o f over one hundred
passengers shall have a ramp and/or lift as far as practicable principally for
the use o f disabled passengers leading to the main passenger lounge"
and that
" .....all replacement Vessels with a passenger capacity o f over one hundred
passengers in regular service shall have catering facilities, retail facilities,
children's play area, a first class or similar standard lounge, television
38
monitors for passenger entertainment, external deck space, disabled toilets and
other appropriate facilities.."
The 2004 Supplement to the User Agreement requires, at paragraph 2.3.3, that
"The Company shall provide a minimum standard o f on-board services
broadly comparable with United Kingdom passenger ferry operators to the
reasonable satisfaction o f the Department."
12.1 Examples of comments from public submissions in respect of onboard
facilities -
"The cleanliness o f all o f the vessels overall is shabby and below standard in
my view. A quick lick ready for the next crossing seems to be the order of the
day." [Ref 52 IOM resident]
"The staff whilst sailing in general are very pleasant, well groomed and as a
whole carry out their duties to an acceptable standard."
[Ref 52 IOM resident]
"The Seacat is a grubby boat - children's play area is like a padded cell."
[Ref 57 IOM resident]
"The Seacat toilets are a complete joke, always smelly and dirty - on the Ben
my Chree the seating has been dangerously squashed in - food prices are
unbelievable." [Ref 75 IOM resident]
"Food (on Seacat) is served on plastic plates with small plastic knives and
forks. Because o f the lack o f a designated eating area passengers are forced to
take food to their places." [Ref 78 IOM resident]
"When we finally boarded the ferry there was nowhere to sit, even the
children's play area had people with sleeping bags already asleep, the only
place to sit was at the top o f a stair well leading to the outside decks."
[Ref 99 UK resident]
"When travelling with the Steam Packet, there are frequent tannoy
announcements 'Will parents please control their children.' How can parents
do this when they cannot get seats together as a family and find themselves
dotted about the seating area in individual isolated seats ? "
[Ref 36 IOM resident]
39
12.2 Seating. The layout of seating and ability for families to sit together are
issues of concern raised by the public. Although the Company has
confirmed that the purchase of a ticket does guarantee a seat, it
has been a repeated concern that the seating arrangement does not practically
accommodate those wishing to sit together when some passengers may use
seating to lie down or place baggage and effectively take up more than their
allocated space. Those who have reserved a seat and then sit in the cafeteria
areas to eat, may well exacerbate the situation for those who board later and
are frustrated by the unavailability of seating, particularly at busy times.
12.3 The arrangement of seating on the fast craft, with its airline style seats, does
eliminate this problem to a degree, but comments received from the public
relate more to the general grubby nature of these craft. We do note, however,
that both the Viking and the Ben My Chree, have recently seen improvements
to the on-board décor following the livery rebranding in preparation for the
2008 summer season.
Catering and Retail Facilities
12.4 All the Company's vessels have catering and retail facilities, plus a children's
play area, a first class or similar standard lounge, and television monitors for
passenger entertainment as required in the 2004 Supplement to the User
Agreement. We note that some public submissions commented on such
matters as poor facilities in the children's play areas, the cost of food, the
inability to watch videos because of noise, and acknowledge the difficulty in
providing such services that please all of the people all of the time.
Disabled Access
12.5 We noted a submission from a disabled passenger who contacted the
Company both to congratulate the Company on the service when boarding
the Ben my Chree to the Isle of Man, but could not access the vessel replacing
the Seacat ("hired vessel from France") on his return as it did not have a lift
40
from the car deck. We note the courteous response by Mr Woodward in
which he states -
"Many Fast Crafts in operation around the world lack disabled lift facilities
....but I can assure you that when we purchase a new Fast Craft vessel we
will insist that these facilities are provided".
12.6 We also were made aware, by a passenger at Liverpool on one of our visits,
that she found difficulty in having to deal with steps with a small child and
pushchair when boarding the Viking.
12.7 We make reference to these particular difficulties to raise awareness of
potential problems and feel sure that the Company will address these issues
when undertaking the refit of the Incat 050.
Groups
12.8 We noted from our own experience on the vessels that there are occasions
when groups of passengers are travelling - such as coach parties and school
trips. Depending upon the sequence of how passengers are boarded, it can be
difficult to find seating to accommodate groups, unless prior arrangements
are made. In particular, such groups as school children must be
accommodated together, for safety reasons and to assist those
teachers/guardians who have responsibility for the safety of those in their
care. We were extremely concerned, on the second of our trips, to find that a
party of school children were accommodated together in the bar area on the
Ben my Chree as there was nowhere else available. The Seacat style of seating
does lend itself to blocks being cordoned off, but the Ben my Chree does not.
We suggest that the Company considers this issue and also urge those
organising such group trips to assist the Company by making prior
arrangements.
Toilets
12.9 We were aware of comments on the general appearance of toilet facilities, and
had noted on our trip in September 2007 the lack of an inspection regime. We
are pleased to note that hourly.checks have now been introduced on vessels.
41
12.10 Onshore Facilities
Examples of comments from public submissions in respect of onshore
facilities -
"1 normally travel around 14 return sailings each year....Bearing in mind that it is a
monopoly, the Steam Packet has more strengths than weaknesses. Overall, sailings
are reliable, fares reasonable and facilities adequate.. ..Customer service is
appreciably better on-board Ben-my-Chree than on the Seacat, where more seasonal
staff tend to be employed. Marshalling facilities at Heysham, moreso Liverpool, are
relatively disorganized [Ref 3 3 IOM resident]
"..being herded into Heysham/Liverpool corrals before boarding." [Ref 06 IOM res]
12.11 On shore facilities at Douglas have had the benefit of investment over recent
years and we consider, from comments and from first hand experience, that
passengers are accommodated in clean and spacious surroundings whilst
waiting to board. Marshalling facilities for vehicles waiting to embark are
very good.
12.12 On shore facilities at Heysham are undergoing refurbishment and whilst
there are issues of the grubby nature of the terminal building, we are aware
that these issues are being addressed. Our impression is that progress is
extremely slow.
12.13 On shore facilities at Liverpool have been a source of many adverse
comments. The terminal building, being a port-a-cabin, and the marshalling
yard facilities for vehicles awaiting embarkation, are inadequate. We referred
to our trip earlier in this report (see para 3.2) and addressed our own
complaints, with photographic evidence, to the Company with a view to
seeing some immediate improvements to an area which is effectively the
gateway to the Island for many of the travelling public.
We had conflicting evidence as to who is responsible for this area. The
Company advised that "the upkeep and maintenance o f these facilities in
Liverpool is the responsibility o f the Mersey Docks and Harbour Board." However,
when we took up this issue with the Mersey Docks and Harbour
Company, a response from the Princes Dock Development Co Ltd advised
that " The responsibility o f the upkeep and maintenance o f this facility clearly falls
with the Isle o f Man Steam Packet Company and not that o f Peel Holdings/MDHC".
We are pleased to note that, following our representations, the Company
advised that improvements were to be carried out. We were pleased to note
those improvements were ongoing on our recent visit.
12.14 We did not include a visit to Dublin or Belfast in our investigation. We note
the comments contained within the Travel watch submission which states that
the Dublin terminal is of a high standard and the possibility of relocation of
the Belfast terminal due to redevelopment of the current facility at Donegall
Quay.
12.15 Other on shore facilities were addressed in their submission and referred to
as 'connecting transport' arrangements. Whilst it may be considered that
onward travel connection is not the Company's responsibility, it would be
helpful if consideration was given to adequate signage in ports to assist the
traveller with onward links to bus and rail networks, in common with such
services provided in other sea and air terminals. We do acknowledge that,
where the sailing schedule has been disrupted for reasons such as adverse
weather or delay, the Company does provide assistance with connections.
However, it is not unreasonable for a passenger disembarking from a ferry to
be directed to bus and taxi services by adequate signage.
Conclusion12.16 From comments in submissions and from our own experience travelling on
the ferries, the general appearance and facilities on the Ben My Chree are of
an acceptable standard. Most comments of a critical nature in respect of
onboard services are primarily directed at the fast craft. From our own
observations, and following our visits to the vessels, we are satisfied that
the Company is complying with the requirements contained within the
Agreement with the Department However, we would expect the Company
to take notice of our comments when undertaking the refit of the newly
acquired Incat 050.
43
PART 13 STANDARD OF SERVICE TO FREIGHT USERS
13.1 The 1995 User Agreement placed an obligation on the Company to provide a
minimum number of sailings to North West UK ports with an agreed lane
metre capacity for inbound freight The Agreement set down 382 annual
return sailings and 2,600 lane metres. The 2002 extension provided for 764
sailings and 7000 lane metres, and the 2005 extension, 936 and 7800
respectively.
13.2 Freight Rates relative to the User Agreement
a) Section 4 of the User Agreement dated 19 September 1995 states -
"For the purpose o f this Agreement the Department hereby acknowledges that
the Company's published passenger fares and freight charges for the year
1995 are to be treated as the benchmark against which the Company's future
obligations hereunder are to be measured."
b) Mr Christopher, Director of Properties Department of Transport, said -
"Freight rates are part o f the schedule 6 calculation ” [EPSPC030308 para 420]
c) Capt Brew, Director of Harbours Department of Transport confirmed that the
Department does not keep a watching brief on industry standards and
competitors' rates across the Irish Sea and is not concerned with
comparison with other rates.
13.3 Freight Rates relative to Other Irish Sea Operators
Steam Packet Freight Rates
a) Your Committee received a number of submissions from major freight
customers, most of which commend the Steam Packet Company on the
quality of service provided, but all without exception complain of high
pricing. In a written submission, one freight customer stated -
"We spend nearly £5,000,000 per annum with IOMSPC. At no time did
our Government or IOMS involve us in the discussions over the User
Agreement", and
"Members will be aware that freight prices to the Island are exceptionally
high being a multiple o f those to Northern Ireland despite one o f the ports
44
being the same, and the sea journey shorter. You will also know that freight
is by far the biggest contributor to IOMS profits."
b) The same SPC freight customer stated in that submission -
"A 13.6 metre curtain sided trailer costs us £783 ex VAT, one way,
quay to quay only."
As a comparison, this example means it costs about the same to ship a freight
unit to the Isle of Man as it does to ship the same unit across the Pacific
Ocean between China and the USA (Containerisation International, May 2008, p.
40 states a figure o f US$1,643 or approx £800 'all in').
Another freight customer stated in his written submission that he pays £1,700
per trailer for a round trip (i.e. £850 each way).
c) In the Company's written submission to your Committee dated 31 August
2007 it was stated -
"Freight charges provide the 'bedrock' o f revenues throughout the year
which help support the full range o f Island services as required under
the terms o f the User Agreement." [Appendix B, para 1.4 page 9)]
The submission also stated -
"Freight charges may be absorbed by the UK supplier or retailer so
that Manx consumers do not necessarily pay any significant differences in
retail prices in many stores. Indeed some goods originating and sold on the
Isle o f Man are more expensive than UK equivalents, even though there are no
shipping costs involved."
In reply to the Chairman's question why the Company's freight rates are so
high, Mr Woodward stated -
"....at the time o f the User Agreement, the freight rates were well understood
and were obviously part and parcel o f the Agreement that was reached. That
fundamentally accepted the principle that freight rates were used, in part, to
provide winter loss-making passenger services that, in any other scenario,
would simply not be provided." [EPSPC300108 para2015]
Small vans
d) Even for vans, we have received evidence that freight rates can be as high as
£600 per crossing. The Committee could see no reason why small vans taking
45
up the same deck space as private cars should have to pay such high rates (a
concern raised at 3.6). We note that CalMac does not classify vans of 5metres
and under in length as commercial vehicles but comment that such policy
may be affected by the level of subsidy received from the Scottish
Government in respect of operating deficit. We can understand how it may be
deemed unfair for a trader to be bringing goods into the Island for resale in a
van when other retailers receive goods for resale via hauliers, paying normal
commercial rates. However there will occasions when a van is used by a
tradesman carrying tools and his vehicle is no larger than a standard people
carrier vehicle or motor home, or when someone moving to the Island uses a
large van to import furniture. Indeed a retailer of small items may well use a
standard vehicle for importing goods and gain advantage.
The Company advised that it provides for a private exemption certificate
scheme which allows small vans users travelling on a non-commercial basis
to benefit from normal passenger fares. We received a copy of
correspondence from an Island based manufacturer who regularly uses a
small van to attend exhibitions in the UK to promote their products. On a
recent occasion they were stopped and asked to fill in a 'Van Concession
Form'. Consequently, as the vehicle contained commercial items, the
company was informed, in the following terms, that it would be subject to
commercial rates, being 'approx. 650-700GBP/ -
"Our company (SPC) offer a concession to commercial vehicles travelling for
non-commercial purposes subject to the following rules be adhered to(sic) ;
>The vehicle must NOT exceed 2.5m in height, 6.5m in length and be no
more than 3.5ton in weight.
>The vehicle must be doing a return trip, (single journey trips would be
charged at commercial rates no matter the purpose o f the trip or the
contents o f the vehicle).
>No commercial items should be carried in the vehicle (Tools o f the
trade, items for re-sale, delivery or exhibition)
>The purpose o f the trip must NOT be for commercial purposes (i.e.
Working, delivery, selling or exhibition)
Please be aware that the company reserves thr (sic) right to withdraw this concession
if it is applied for and then not adhered to. We would ask that all future bookings are
made correctly, any incorrect bookings could be searched and excessed at the port
upon arrival and the concession withdrawn completely".
46
The proprietor of the company suggests that, by offering a concession, the
Steam Packet Company recognises the fact that a van takes up no more room
than a car, and also suggests that he could use his own car without paying
freight rates. He regards the Company's policy as discriminatory.
Conclusion
We suggest that the Company reconsiders its policy on vehicle size and
recommend that the Department addresses this issue.
Irish Sea comparative rates
e) Your Committee notes that consultants Strategic Transport Solutions stated in
its presentation at a recent transport conference that the cost of shipping a
trailer across the Irish Sea between Fishguard and Rosslare in late 2007 was
€270 (i.e. about £200). In line with this, the Manx NFU in its written
submission to your Committee referred to a freight rate of £15 per metre (i.e.
£204 per trailer) for shipping livestock between Scotland and Ireland,
compared to "a staggering" £50 per metre (i.e. £680 per trailer) between the
UK and Isle of Man.
As already shown at para 13.3(b) the evidence from freight customers
indicates that the Steam Packet rates are significantly higher than some other
Irish Sea operators.
f) In response to the Chairman's question why the Company's freight rates are
so high, Mr Woodward stated -
"Since 1995, freight rates have been reduced in real terms by more than 20 per
cent as a direct result o f regulation under the User Agreement. Since 1985,
freight rates, as I said earlier, have reduced by 60 per cent. Freight rates on
Isle o f Man routes cannot simply be compared to the vastly different
economies o f scale on other Irish Sea routes. Other similar island routes have
either higher freight routes (rates) or are subsidised".
[ref EPSPC030308 paral885]
In response to the Chairman's comment - "Just to reiterate, you believe freight
rates............. are competitive in real terms, cheaper than in the past and competitive
compared with the Channel Islands and other Irish Sea operators ? ",
Mr Woodward stated -
"Not necessarily Irish Sea competitors because o f the different economies and
market size but certainly within any comparable similar-volume operators
that do not have subsidies, certainly."
[ref EPSPC030308 para 1895/1900]
Economies of Scale
g) Economies of scale in shipping are primarily achieved through increases in
ship size. In this sense a small vessel would be expected to have higher unit
costs than a larger vessel. From the table below it is evident that the Ben my
Chree is in no way the smallest ship operating on the northern area of the Irish
Sea. Indeed, Stena's RoPax ferries serving the Stranraer-Belfast route are
considerably smaller than the Ben My Chree in terms of freight capacity, as are
Seatruck's RoRo vessels. Further analysis suggests that the Ben my Chree is of
average size in terms of freight loading capacity compared with 17 other
ferries operating throughout the northern area of the Irish Sea (in 2007). This
implies that the average cost (per unit of freight carried) of operating the Ben
my Chree should not be too dissimilar to the cost of operating other vessels.
On this basis one would expect that freight rates (to/from Isle of Man), and
especially given the buoyant freight market over recent years, should be
broadly comparable to freight rates on other ferry services in the same area.
Economies of scale in ship size do not therefore provide sufficient explanation
for the very marked (i.e. three or four-fold) difference in freight rates
prevailing in the Isle of Man market compared to Irish Sea ferry services.
48
Comparison of ferry freight capacity/lane metres on Irish Sea (North &South Corridors), 2007
Vessel Operator RouteLaneM Type
Ben My ChreeIsle of Man Steam Packet Heysham-Douglas 1,235 RoPax
Lagan Viking Norfolk Line Belfast-Birkenhead 2275 RoPaxMersey Viking Norfolk Line Belfast-Birkenhead 2275 RoPaxRR Arrow Norfolk Line Heysham-Belfast 1057 RoRoSaga Moon Norfolk Line Heysham-Belfast 948 RoRoEuropean Causeway P&O Irish Sea Cairn ryan-Larne 1771 RoPaxEuropean Highlander P&O Irish Sea Cairn ryan-Larne 1771 RoPaxEuropean Mariner P&O Irish Sea Larne-T roon 752 RoRoMoondance Seatruck Ferries Heysham-Warrenpoint 752 RoRoRiverdance Seatruck Ferries Heysham-Warrenpoint 752 RoRoRR Challenge Seatruck Ferries Heysham-Warrenpoint 1057 RoRoStena Caledonia Stena Line Belfast-Stranraer 750 RoPaxStena Voyager Stena Line Beifast-Stranraer 750 RoPaxStena Leader Stena Line Fleetwood-Larne 1540 RoRoStena Pioneer Stena Line Fleetwood-Larne 1540 RoRoStena Seafarer Stena Line Fleetwood-Larne 1180 RoRoIsle of Inishmore Irish Ferries Pembroke-Rosslare 2060 RoPaxStena Europe Stena Line Fishguard-Rosslare 1150 RoPax
Average capacity 1,312
RoPax = Freight and passenger vessel RoRo = Freight only vesselSource: ShipPax Market 07 Statistics, ShipPax, Halmstad.
Having been invited to comment on a final draft of this report, the Company
commented that it considered it unfair and factually misleading to only quote
freight rates on Northern Ireland routes, that the Port of Larne handles
approximately 420,000 commercial units compared to the Port of Douglas 38,000
units, and that operators to Ireland pay as little as 1 / 6th for port duties as those in Douglas.
We would comment that traffic volumes on vessels comparable in capacity terms to
the Ben-my-Chree show -
Stena Line - Fishguard - Rosslare - 54,500 trailers in 2006
P&O - Larne-Troon - 24,000 trailers in 2006Source: ShipPax (2008) Market 07 Statistics. ShipPax Information: Halmstad, Sweden.
The suggested difference in port duties would not, on its own, account for the fact
that Isle of Man freight rates are much greater than on . other Irish Sea routes. The
Company did state in its evidence that comparison with the Channel Islands would
49
provide a more accurate assessment, stating the published cost of shipping with
Condor, the local operator, is around £75/metre, about 20% higher than IOMSPC.
Whilst we acknowledge the Company's comments, such a comparison illustrates the
pricing policy of another similar provider whereas the Irish Sea has a greater degree
of competition.
Conclusion13.4 Your Committee is satisfied that the standard of service to freight users is
in accordance with the requirements of the User Agreement but the
evidence presented to us does appear to suggest that the Company's freight
rates are between three and perhaps even four times as high as freight rates
on other Irish Sea ferry routes, some of which are longer voyages. We
consider it reasonable to assume that lower freight rates on other Irish Sea
routes are as a consequence of competition on these routes, unless some are
subject to subsidy. Average ship size on northern Irish Sea routes is
broadly comparable with the Ben My Chree, which means economies of
scale in ship size cannot be the reason for such a wide difference in freight
rates. Whilst the Steam Packet Company maintains that freight charges
have reduced in real terms,, which may be so, it is nevertheless the case that
the cost of shipping freight in trailers to the Isle of Man is still very high
relative to other Irish Sea routes (discussed further in para 15.1). We
acknowledge that the User Agreement only obliges the Department to
consider whether the overall weighted average of the 'basket of fares' is
"excessive" in relation to an agreed formula, (i.e. more than MRPI less V2
%). The freight component within that basket of fares, or comparison with
other Irish Sea ferry operators, is not, according to the Department's
evidence, scrutinised at all. Your Committee believes this to be
unsatisfactory given that the User Agreement also requires the Company to
"furnish the Department with a reasonable written explanation for the
proposed increase".
50
PART 14 STANDARD OF SERVICE IN ACCORDANCE WITH OTHER AGREEMENTS WITH GOVERNMENT
Example of comments from public submissions
"how is it possible for the public to make informed comments when the
members o f the public have not openly been advised o f the details of
the agreement or what the clauses in this agreement are?"
[ref 72 IOM resident]
14.1 Whilst we acknowledge that our comments thusfar (in response to comments,
views, complaints made by contributors, and also from our own perceptions
from travelling on the vessels) may appear to have a negative vein, we have
properly taken account of the counter arguments put forward by the
Company in its compliance with the User Agreement. It has to be
remembered that the User Agreement was entered into following a period of
disruption to ferry services and declining passenger traffic and its purpose
was to guarantee a minimum level of service.
14.2 The Department has confirmed in evidence that the Company has complied
with the terms of its agreements with Government, these being the User
Agreement, the 2004 Supplement to the User Agreement and the Fuel
Surcharge Agreement. Services provided by the Company, since the
User Agreement"s inception, have brought a level of stability in ferry services,
albeit there has been some disruption due to the occasional unreliability of
fast craft, and their ability to operate, in certain weather conditions.
The Company informed us that it considers the Isle of Man to have further
benefited from the User Agreement by -
• avoidance of a cycle of "competition/ company failure / unregulated
de facto monopoly" which is a feature of the local airline services,
• doubling of the number of passenger services since the User
Agreement was introduced (for example, the Company operates twice
daily trips to Liverpool whereas the User Agreement only requires one sailing),
• a commitment to expenditure in the community.
14.3 From data provided by the Company, and from our own investigation of the
terms of the User Agreement, the minimum standard of service has been
achieved, and in some instances, exceeded.
51
We would draw attention to section 2.1 of the Company's submission (at
Appendix B) which summarises the service requirements contained within
the User Agreement and the levels of compliance in 2007, and with which we
are in agreement.
We note that the Company has achieved a level of growth not experienced by
other UK ferry operators,, which we consider justifies the introduction of the
User Agreement. Since 1995 the Company has achieved a substantial increase
in traffic and provided stability in provision of services required by the User
Agreement.
We also note from some public submissions that complaints are addressed
promptly by the Company, generally involving a personal letter from the
Chief Executive or the Commercial Director. We conclude that the Company
does take notice of customer complaint and responds in an efficient manner.
Conclusion14.4 We are satisfied that the Company has met standards of service in
accordance with the terms of its agreements with Government and
welcome where the required standards have been exceeded.
PART 15 OTHER KEY RELATED ISSUES
15.1 Company Profits
a) In response to a question by the Chairman whether the Department would be
aware of the Company's accounts and fast rising profitability, Mr Christopher
(Director of Properties Department of Transport) stated -
", .,my role is relating to the User Agreement, so it is not an issue whether the
Company is profitable or not; it is the obligations on the Company within
the User Agreement that we enforce upon them."
' ’ . [EPSPC030308 para 240]
b) As profitability is a function of revenues (and hence pricing) as well as costs,
and having regard in the User Agreement for future capital investment and
service standards, we decided it was legitimate and not outwith our remit to
examine recent Company accounts. Furthermore, as revenues also relate to
traffic volumes as well as to pricing, we also decided to consider trends with
respect to traffic flows.
52
c) When giving evidence, the Company was not in a position to discuss the 2006
audited accounts. These were later provided. We were also given an
assurance by the Company in March 2008 that the audited accounts for 2007
would be provided. At the time of publication of this Report, they had not
been provided. Steam Packet Company accounts for the period 1998-2006
were obtained through the FAME Database, which contains company account
information for some 2.6 million companies in the UK and Ireland, A selected
summary of the Company's accounts for the period 1998-2006 is shown
below.
d) This data shows that profit before tax has more than quadrupled over the
period 2000-2006, rising from £4.1 million to £17.5 million. Turnover over the
same period increased by only 22%. Very substantial profits were also
achieved in 2004. (£12.5 million) and in 2005 (£15.3 million). The Company's
profit margin effectively more than trebled between 2000 and 2006, rising
from 10.4% (coincidentally the industry average) to 36%.
e) A substantial dividend of £15.1 million was paid to shareholders in 2002, and
further dividends of £6.0 million and £19.6 million were paid in 2005 and
2006 respectively. It is clear from this data the Steam Packet Company is both
very profitable and able to pay out substantial dividends to its owners.
Isle of Man Steam Packet Company Ltd£000s
2006 2005 2004 2003* 2002 2001 2000 1999 1998
Turnover 48,692 45,969 51,090 50,998 47,424 38,276 39,852 50,577 41,473
Profit (Loss) before Tax 17,514 15,291 12,462 315 7,605 6,936 4,142 249 1,917
Profit Margin 36.0% 33.3% 24.4% 0.6% 16.0% 18.1% 10.4% 0.5% -4.6%
Tangible Fixed Assets 20,508 20,506 24,089 23,057 38,502 39,813 40,039 42,180 43,057
Dividends 19,644 6,089 15,100
Retained Profit(Loss) 2,130 9,202 12,462 315 7,495 6,936 6,606 504 1,653
Total Reserves 68,139 67,130 65,909 53,645 16,427 24,583 17,452 10,846 10,342
* Exceptional Items amounted to £7.5 million in 2003 Source: FAME (www.fame.bvdep.com)
53
The Company advised that accounting treatment over this period has changed on a
number of occasions and that it would be misleading to simply compare year on
year.
Traffic Volumes-Passengers/Vehicles
f) In the Company's submission to the Select Committee dated August 31 2007,
for the period in which profitability had grown, UK-Isle of Man traffic
statistics (as shown in the table below) indicate that passenger traffic peaked
in 2003 but had since been in decline; in 2006, passenger traffic fell to 556,000,
which is the same volume as that carried in 2000. Car traffic peaked in 2004
at 184,000 vehicles, but in 2006 had fallen to 166,000, which is almost the same
as in 2002.
[Appendix B section 3.7]
As passenger and car fares have not increased substantially, this would imply
that the significant increase in the Company's profitability over the period
must be due to other factors.
UK-Isle of Man ferry volumes carried, 1996-20061996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
000's PASSENGERS pa 424 444 466 510 556 518 607 625 601 566 556
000's VEHICLES pa 85 90 144 140 151 129 167 170 184 171 166
Source: Derived from SPC submission to Select Committee, August 2QQ7.
Traffic Volumes - Freight
g) In probing further, your Committee found that freight traffic (shown in the
following table) had increased from 25,779 trailers carried in 1997, to 38,583
trailers in 2006, equivalent to a near 50% rise over the 10-year period.
Population growth, increases in consumption, and economic growth, has
contributed to this phenomenon, the net result of which appears to be
constantly rising freight traffic.
UK-Isle of Man Trailer Traffic, 1997-20061997 1998 1999 2000 2001 2002 2003 2004 2005 2006
25,779 27,237 29,567 32,773 34,974 38,198 37,614 37,613 37,618 38,583
Source: ShipPax Statistics, 1997-2007
54
h) As freight volumes increase, so also must Company revenue derived from
freight. According to the Company's written submission to the Committee
dated 27 July 2007, freight rates range from a regular customer volume
discount rate of £56.11 per metre, to a higher standard rate of £63.40 per
metre. At the lower rate, this means that one-way transport of a 13.6metre
trailer would cost £763 (i.e. £56.11 x 13.6m), excluding surcharges, which is in
line with written submissions from freight customers. We note from the
Company's written evidence that loaded Flat Deck Trailers are priced slightly
below this (£663.50 per 12.0m unit), whereas empty Flat Deck Trailers of 12,0
metre and over are priced at £245.50. If we assume an average revenue of
£650 per trailer, then based on 38,583 trailers carried, this would equate to
annual revenue of £25.0 million (i.e. 38,583 x £650). This would imply that
freight revenues account for approximately 50% of the Company's total
revenues.
i) The proportion of profits derived from freight is altogether another matter.
Although freight may account for approximately 50% of total revenues, it
could well account for a rather greater share of profits (than passengers/cars).
This may be deduced from the fact that freight volumes are regularly
increasing, whereas passengers and car traffic is not; in the last 3-4 years the
latter have been in decline. Moreover, whilst freight rates are regularly
increased, passenger / car rates are subject to special offers and the effects of
competition from airlines which results in added pressure to keep prices
down; conversely, there is no competition in the freight trailer market, and
hence limited pressure, if any, to reduce prices.
Comparison with Other Ferry Operators
j) In order to consider this matter further, your Committee decided to compare
the profitability of the Steam Packet Company with that of other ferry
operators. The table below presents the relative profitability of 23 ferry lines,
mostly European, with financial data for 2007, some for 2006. This indicates
that the profit ratio (i.e. operating profit or EBIT as a percentage of turnover)
for these 23 operators ranges from -1% up to a maximum of 25%, with an
average for all operators of 13%. By contrast, the profit margin for the Steam
Packet Company appears to be far higher, at 36%, for 2006, and has been
consistently high over recent years (e.g. 33% in 2005, and 24% in 2004).
[note - EBIT - Earnings Before Interest
55
Revenue and Operating Profit of Ferry Companies, 2006-07(€EurosMillion)
Company Country Year Measure Revenue EarningsProfitRatio
Bornholmstraffiken Denmark 2007 Operating profit 71.9 7.1 10%Birka line Finland 2007 Operating profit 105.1 14.0 13%Viking Line Finland 2007 Operating profit 436.0 32.8 8%DFDS Passenger Denmark 2007 EBIT 259.1 13.5 5%DFDS RoRo Denmark 2007 EBIT 493.5 85.6 17%Finnlines Finland 2007 Operating profit 685,5 68.8 10%Gotlandbolaget Sweden 2007 Operating profit 164.5 23.8 14%Hurtigruten Group Norway 2007 Operating profit 481.0 -4.5 -1%TidoSjo(HSD) Norway 2007 Operating profit 126.3 9.3 7%Attica Holdings Greece 2007 Operating profit 254.3 42.4 17%Blue Star Ferries Greece 2007 Operating profit 168.1 30.0 18%Brittany Ferries France 2006 EBIT 379.4 17.4 5%Color Line Norway 2007 Operating profit 598.7 37.2 6%Fosen Trafikklag Norway 2007 Operating profit 210.1 11.7 6%Irish Ferries Ireland 2007 Operating profit 197.9 41.1 21%Minoan Lines Greece 2006 EBITDA 165.1 27.6 17%Mols-Linien Denmark 2007 Operating profit 107.0 9.1 9%TT-Line Co Pty Australia 2007 Operating profit 97.8 6.9 7%Scandlines Denmark 2006 EBIT 546.9 76.0 14%Hellenic Seaways Greece 2006 EBIT 165.4 10.1 6%Wightlink UK 2007 EBIT 77.4 16.0 21%Condor Limited UK 2007 EBIT 101.7 25.0 25%Red Funnel Ferries UK 2006 EBIT 42.5 7.0 16%
Average above 23 ferry lines 13%
Isle of Man Steam Packet Isle of Man 2006 EBIT 61.4 22.1 36%
Source: Cruise & Ferry Info, Ship Pax Information, Halmstad, Sweden; FAME Database Note: £1 » €1.260 (for UK ferry lines)
We recognise that different accounting policies, particularly with regard to
interest and depreciation, and different modes of operation, will give rise to
results which are not necessarily fully comparable on a like for like basis.
56-
k) This data appears to suggest that the Steam Packet Company is today one
of the most profitable ferry companies in Europe, and indeed it may very
well be the most profitable ferry company in Europe. Aside from highly
competent management, in light of the evidence submitted to your
Committee, and given that a competitive market exists for passengers, we
must conclude that such high profit levels are also largely due to:
• high freight rates prevailing;
• the significant rise in the volume of freight traffic carded over
recent years; and,
• the absence of competition in the roll on-roll off freight
market.
1) The other important issue to consider here relates to whether in future the
Department of Transport could more effectively apply some form of
control over the profitability of the Company. The User Agreement does
not provide a mechanism to consider the profitability of the Company as
confirmed by Mr Christopher (in response to the Chairman's question if
the Department has a view on an acceptable level of profit), when he said -
"It is not a requirement on the Department under the terms o f the User
A g r e e m e n t [EPSPC030308 para 250]
The contribution to profits from the freight business is discussed at para
15.1(i) but it is already evident from the above analysis (and acknowledged
in the Company's own evidence (para 13.3(c)) that freight business
significantly subsidises passenger fares and less economic sailings.
m) The level of, profit made by the Company is not a factor for consideration
under the terms of the User Agreement. The downside of such an
approach is that it is the Isle of Man freight transport/logistics sector
which appears to be the apparent source of the Company's higher profits
through high freight rates, and this will, to a greater or lesser extent,
adversely affect the competitiveness of Isle of Man commerce and the
economy as a whole. This is an especially important issue for an economy
which has to import a very large proportion of what it consumes. Clearly
the Department does not have the ability to impose controls, even if it
were minded to do so, when considering extensions to the User
57
Agreement, but also appears not to have taken the opportunity to
scrutinize the influence of freight profits on the basket of fares calculation.
We note that Section 17 of the User Agreement does provide for matters of
dispute to be referred to arbitration.
15.2 ConclusionInsofar as freight is concerned, the Company could be simply seen to be
taking full advantage of its position within the context of the User
Agreement which has resulted in achievement of high profit levels. It is
nevertheless the opinion of your Committee that there appears to be
significant scope for Isle of Man Steam Packet Company freight rates in
particular to be reduced from current levels (arguably by a third), whilst
still ensuring the company maintains satisfactory profits (i.e. still well
above the industry average). Such reductions in freight rates would
benefit transport organisations and other businesses on the Isle of Man,
as well as benefiting Isle of Man consumers more generally. Whether
reduction of freight rates would threaten passenger fares is yet to be
assessed and beyond the remit of this Committee.
We conclude from our investigations that Steam Packet freight rates
appear to be very high, as we have already stated in para 13.4.
58
15.3 Company Structure/Ownership
a) Comments were received from the public in respect of the ownership of the
Company - some with such strongly worded comments as 'assett strippers'
and 'moneymaking operator'. Whilst we note the views submitted to us, it must
be emphasised that the ownership of the Company is not an issue affecting
the User Agreement (the Agreement is with the Company and not the
owners). However, given that the Company ownership, which has given rise
to public comment, is also linked to profitability issues some comment is
warranted.
Recent sales/acquisitions
b) Over recent years there has been a focus by equity investors/funds in
acquiring the Company. Your Committee considered it important to note
such developments as they arguably do ultimately have an impact on pricing
policy as well as other matters within our remit.
c) In August 2003, Montagu Private Equity bought the Company for £142
million. This seemed a very high price to pay for a company with total fixed
assets at end 2003 of only £24.5 million. Essentially the Company's goodwill
and/ or future earning streams were valued at in excess of £100 million by the
buyer.
d) The Company was subsequently sold on by Montagu just 2 years later in 2005
to Macquarie Bank of Australia for a reported £225 million. Montagu Private
Equity therefore made a very rapid gain of approximately £80 million in
return for owning SPC for little more than 2 years. This meant the value of the
company in 2005 was equivalent to more than 10 times the value of its most
valuable asset, the Ben My Chree.
Current Structure
e) From our investigations into the Company's accounts and Companies
records, we were able to determine that the shareholding of the Company is
distributed between Macquarie European Investments Pty Ltd and three
Australian pension funds. This was confirmed by the Company's advocates
who advised that Macquarie had placed the asset into a Macquarie managed
fund, 90%of the shareholding being held by Cbus, NSW State Super and
N amb aw an Super.
59
Following our invitation to the Company to comment on a draft copy of . this
Report, the Company's advocates provided us with a revised structure and
advised that -
'The Shareholding held by Macquarie is now held by Macquarie International
Holdings No2 Ltd, not Macquarie European Investments Pty. The ownership
by the Pension Funds is an independent ownership and not through a
Macquarie managed fund . Macquarie are currently engaged as an advisor to
the Pension Fund holder.'
We append the 'Group Structure' and 'Steam Packet Decision Making
Structure', at the time of our enquiry in February 2008 , and the revised
'Company Overview' as provided to us in October 2008 prior to publication
of this Report.
Appendix J.
f) We fully acknowledge that the User Agreement is between the Department
and the Company, and not the Company's owners. Moreover, it is not within
our remit to review that Agreement or the Company's ownership. However,
having already acknowledged the value of the Agreement, in guaranteeing
set levels of service, stability of service, planned service delivery and future
investment, we also take note of the opinion of Professor Baird who in his
submission (at Appendix K) said -
"The User Agreement (UA), which functions as a guarantor o f ferry service
provision, appears to be unique to the Isle o f Man. This may have been an
appropriate mechanism in 1995, when SPC was still in part under local and
UK ownership, and island ferry services were encountering some difficulty.
But times have changed, as has the ownership o f SPC, the company now being
owned by an Australian bank."
and -
"Extensions to the UA have tended to be closely followed by an early
subsequent sale o f SPC. Such extensions have had a materially significant
impact on the re-sale value o f SPC. This also implies that a great deal o f the
value o f SPC (probably in excess o f 50%, given the limited asset base) is due
to the existence o f the UA. This in turn implies that the UA, which is
ultimately in the gift o f the Isle o f Man Government, has a current economic
worth somewhere in excess o f £100 million. This 'gift'or'asset'perhaps
60
deserves more careful consideration than it currently receives, particularly
from the relevant authorities who are awarding it."
In response to Professor Baird's comments the Company advised -
.. the purchase o f lOMSPC by Montagu took place after the exercise o f an
option which was effectively a call option for IOMSPC. There was never any
question therefore that an owner did not have the option to extend the User
Agreement to, at that stage, 18 September 2010 whether he purciiased before
or after 2002. The reality is that the User Agreement has only ever been
extended by negotiation on one occasion, namely the 21 December 2004.'
We would not dispute that statement but would comment that it was the
issue of the value of the Company that was commented upon by Prof Baird,
and not the timeline of events. In any case, it was the Company that had the
option to extend and not the owners.
Conclusion15.4 Your Committee has already commented on the importance of freight rates
towards creating high profit levels, a situation which the Company's
owners will wish to maintain for the benefit of shareholders. It is evident
that the real value of the Company is derived not from its assets, but from
its User Agreement with the Isle of Man Government. The User Agreement
to all intents and purposes guarantees the Company, and whoever may
own it, a virtual monopoly position in the Isle of Man ferry market, which
thereby guarantees its future income, and moreover also guarantees it
future price increases through the price mechanism applying - at a time
when transport prices across ferry markets have generally been falling> and
a move towards larger ships has reduced unit operating costs, especially for
freight.
We would also conclude that the Company has provided a very stable
lifeline link to the Island since the User Agreement at rates which have
been limited to MRPI increases throughout.
15.5 Concept of a Regulator
Any change in the terms of the User Agreement can only follow mutual
agreement and cannot be imposed by one party on the other. If a degree of
61
control over, for example, Company profits were to be introduced, this would
require the Agreement itself to make provision for a Regulator.
The concept of a Regulator to protect customers from exploitation is one that
is well established in the UK. Regulators exist for services such as water, gas,
electricity etc. Whilst no such bodies exist in the Isle of Man, it might be felt
that the establishment of such a body in relation to the Steam Packet
Company, would provide a more effective solution in any quasi monopolistic
situation.
However, your Committee considers that it would be inequitable to single
out any particular operator and that any system of regulation should apply to
the transport/travel sector as a whole. We therefore have made no
conclusions but invite Government to consider the wider issue of freight
rates on the Island's economy.
15.6 Investment Obligations
a) The User Agreement 1995, dated 19 September 1995, required the
Company to invest £20m in the purchase or capitalised value of a lease or
charter or refurbishment of vessels within the Licence period, being ten
years from 1 October 1995.
b) The Company exercised its option to extend the period of the Licence
period by way of a Supplemental Agreement dated 20 February 2002 for
five years (i.e from 1 October 2005 to 18 September 2010) and by further
Agreement dated 21 December 2004 from 19 September 2010 for a period
of ten years with a further option for an extension of six years. It was
agreed, in the December 2004 agreement, that the Company will invest a
further £26m in a vessel or vessels provided that not less than £18m shall
be invested by no later than 31 December 2012.
c) We have already mentioned the investments already made by the
Company (see para 11.2) and are aware of the recent investment in the
Incat 050 to replace Viking. However, we. are concerned that, although the
level of investment does comply with those agreements, there is only
limited provision for further guaranteed investment by the time the
Company's fleet will have aged considerably.
62
Conclusion15.7 We would therefore consider it important that the Department makes
provision sufficiently early in future discussion for further investment in
new and replacement vessels.
15.8 Role of the Department of Transport
a) The User Agreement and extensions to that Agreement are between the
Department of Transport and the Isle of Man Steam Packet Company. It is
therefore the Department7s responsibility to monitor and ensure compliance
with those Agreements. With regard to the Fuel Surcharge Agreement we
have already commented at para 10.11 that the Department has agreed a
procedure by which the surcharge can be varied without the specific need for
Department approval.
Meetings
b) In response to the Chairman's question concerning meetings between the
Department and the Company, Capt Brew advised -
"There are monthly meetings at officer level. Principally, that is Mr
Christopher and myself with the Steam Packet's Managing Director
and other directors as necessary, Other than that, there are meetings
at political and Chief Executive levelr as determined by events."
[EPSPC030308 para 150]
c) In response to Mr W affs questions concerning political involvement in the
schedule of meetings, Capt Brew advised -
"In our monthly meetings, no politicians are involved. It is simply a
meeting at officer level to discuss matters o f mutual interest."
[EPSPC030308 para 495]
and to whether these meetings are reported back to the Department,
"Not directly, but if there are issues that crop up during those meetings then,
yes, we do use those to inform the Department, to ensure that the Department
is up to date." [EPSPC030308 para 505]
d) The Department was subsequently asked in March 2008 to provide a
schedule of meetings over the previous two years including minutes of all
63
recorded meetings. Your Committee was provided with agendas for
monthly meetings relating to the 'Department of Transport and the IOM
Steam Packet Liaison Group'. Although formal agendas were provided
which contained provision for apologies for absence and matters for
discussion, no minutes of those meetings identifying who attended, or who
had given their apologies, or any record of the outcome of discussions
were made. Without proper record, it is not clear if revisions of the
User Agreement (such as increase in service levels) are as a result of
proposals by the Company, which are then agreed and recommended at
officer level, or proposed by officers and negotiated with the Company.
e) It appears from our investigations that operational matters are left to the
two officers (Capt M Brew, Director of Harbours, and Mr R Christopher,
Director of Properties) to discuss with the Company and that
recommendations made to the Department following meetings of the
Liaison Group are restricted to the requirements of the User Agreement, a
term repeated many times when the officers gave evidence.
Fare Increases and Sailing Schedules
f) With regard to annual fare increases, the Department advised in a letter
dated 14 March 2008 that -
"As the assessment o f a proposed fare increase and charges is governed
by an agreed formula there are no regular meetings to agree them."
g) In response to questions by the Chairman concerning the procedure for
approval of fare increases and sailing schedules, Mr Christopher advised -
"The Steam Packet submit their schedule 6 proposals, which is the formula
laid down within the User Agreement. The Department can deem that to be
excessive i f it is greater than the increase in the Manx Retail Price Index
minus Vi%. I f it is not greater than MRPI minus Vi%, then the Department cannot deem it to be excessive.
As part o f the Department's internal process, there is a paper submitted to the
Minister after the Steam Packet have submitted their information and we have
checked all the calculations, which just signs that increase off and then the
Steam Packet get confirmation back in writing."
[EPSPC030308 para 190]
64
and
"With regard to the schedules, the Steam Packet submit their schedules. They
are copied round the Department's operational staff, just to make sure that
there are no operational issues from Douglas port end.'
[EPSPC030308 para 195]
For example, the approved 2008 increase of 3.39% was just below the agreed
figure of 3.4% (being MRPI of 3.9% less Vi%) which may suggest that the
increase recommended by officers was simply in accordance with the
Agreement, maximising the provision within the Schedule 6 basket of
fares formula and discussed at meetings neither minuted nor recorded,
provided that the overall percentage increase is within the requirements of
the Agreement. The Department has since advised that 'to avoid difficulties
in future, our monthly meetings are now the subject of formal notes'.
Timetables
h) Section 3.37 of the User Agreement requires -
"that the Company shall ensure that at all times there is issued or published by the
Company or with its authority and available during normal business hours to the
public on request:-
A publication which contains all necessary information to enable foot
passengers to calculate therefrom the up to date maximum fares or
charges for each scheduled sailing by foot passengers for travel by Fast
Craft and Conventional Vessel to and from the Isle o f Man".
We referred in part 5.1 to the 2006 brochure which clearly identified each
sailing by band and so identified the maximum fare for each scheduled
sailing. We referred in part 5.3 to the change to the 2007 brochure which
provided only a summary of the timetable and therefore did not identify a
particular sailing by band. The Company decided to remove the banding
from the 2007 brochure, stating that "production o f all possible fare combinations
would create an enormously complicated brochure and likely to cause far greater
confusion amongst passengers."
We consider that simply providing available fares on a website alone is not
good enough. Whereas section 3.37 of the User Agreement requires a
publication to enable foot passengers to calculate the maximum fare for a
particular sailing, such a publication does not provide any information
regarding cheaper fares.
65
i) When questioned about publication of standard fares by Mr Turner, Mr
Christopher replied -
"There is a requirement, I think, that they have to publish a brochure
which is similar to other companies o f a similar standard",
and
"Certainly, as far as I am aware, their standard fares are available on
their website. I know they are no longer displayed in their brochure,
and I am aware o f the arguments both for and against",
[EPSPC030308 paras 680-690]
j) The Department has an obligation to ensure that a publication is available to
enable passengers to calculate the cost of ferry travel. We feel that the
Department could and should have addressed the issue of the amended
brochure at the appropriate time, as the necessary information available
(and commented upon by members of the public) is not clearly available and
creates confusion for the passenger when trying to determine the cost of a
sailing.
Extension to User Agreement
k) Whilst we acknowledge the stability of service and improvements which the
Agreement has enabled the Company to provide, we question why the
Department did not recognise that the extension of the Licence Period for a
potential 21 years (i.e. 2005 to 2026) beyond the original Licence Period might
require reassessment of monitoring measures. The Department" s
responsibility to ensure that the Company is able to deliver the required
substantial investment in future years in our view means it must at least
acknowledge such issues as Company ownership and profit levels, currently
regarded as not being within the requirements of the User Agreement.
1) The magnitude of the extension of the Licence Period for a potential 21 years
may have warranted a more vigorous assessment of such issues to determine
how future investment is to be achieved and if levels of profitability have a
consequential effect on the economy of the Isle of Man. In the words of
Professor Baird (para 15.3),
"This 'gift' or 'asset' perhaps deserves more careful consideration than it
currently receives, particularly from the relevant authorities who are
awarding it."
66
m) We note the comments of Professor Baird in his submission (Appendix K)
where he states -
"Competitive tendering, which is now a standard approach to island ferry
operator selection, could help bring about a more optimal solution in terms o f
overall ferry service provision, perhaps even resulting in more modern vessels
being deployed as well as service enhancements. Conversely, the continuation
of a single 'negotiated agreement' between the DoT and one foreign-owned
ferry service provider may not be the most optimal solution. Competitive
tendering could include safeguards for SPC employees, especially those based
on the island, with employees transferring to any new operator (as was the
case with the P & O Scottish Ferries/ Northlink Ferries transfer in 2002)".
The Department of Transport advised that -
"Mr Christopher and Captain Brew have met officers from the Scottish
Executive that visited the Island previously to carry out research into options
for ferry tendering. They expressed a view that the User Agreement may
have been a better model as short-term tendering o f services has required large
subsidies. The Department are not aware o f any evidence that tendering
services has reduced costs without large subsidies or brought about any
benefits by increasing traffic."
Whilst noting the comments of Professor Baird and of the Department, your
Committee recognises that the User Agreement is a legal document and does
not advocate introduction of a tendering process.
Conclusion15.9 It is not clear the extent to which the Department challenged the change to
publication of fares which has brought some confusion to the travelling
public, or examined the effect of freight charges on the calculation of the
annual increase in fares. Whilst we appreciate that monitoring of
performance and discussion on operational matters is undertaken at officer
level, and within the requirements of the User Agreement, we are
concerned that minutes of all meetings were not properly recorded. Your
Committee recommends that the Liaison group should be put on a formal
footing and that all such meetings should preferably be chaired by a
political Member to ensure that issues of concern, including all those
outlined in section 15.8, are properly identified and given proper scrutiny.
67
15.10 Role of the Office of Fair Trading (OFT)
a) Your Committee notes the submission from the Office of Fair Trading (see
Appendix D) in which it states that -
'Section 57 (1) o f the Consumer Protection Act 1991 states that it is the
function o f the Board (meaning the Statutory Board o f the Isle o f Man Office
of Fair Trading)
"...to protect, inform, advise, support and represent generally the
interest o f consumers as such, and to provide information and advice
to persons on legislation for which it is responsible."
b) We note from the OFT submission the number of complaints made by
consumers about the Steam Packet Company between 1999/0 and 2006/7,
with a projected number of complaints for 2007/8, broken down into
categories of -
• TT price indications,
• Fuel surcharge,
• "Excessive" price complaints,
• General price complaints,
• Terms and Conditions.
c) The submission states -
"Over the years the OFT have received a number o f complaints from members o f the
public who were unhappy with the level o f the fare being charged by Isle o f Man
Steam Packet Company. Many expressed an opinion that these fares were higher than
they should be to some degree and felt that there was an element o f the company
abusing its monopoly position in terms o f being the sole supplier o f ferry services to
the Island.
Rather than refer the matter to the Council o f Ministers for investigation under
Section 19 o f the Fair Trading Act, the OFT has referred complaints o f this nature to
the Department o f Transport. The Agreement contains a pricing formula that
restricts the increase in the company's tariff basket (the aggregate increase o f
individual tariffs weighted by revenue) to RPI -0.5% per annum. In answer to a
question in Tynwald Court on 11th July 2006, the then Minister o f Transport, Mr P
Braidwood MHK advised that "...on an annual basis, under the terms of the User
. Agreement with the Isle o f Man Steam Packet Company, my Department considers
any application for overall price increases proposed by the Company."
68
Therefore any complaints received that the consumer feels that the Steam Packet fares
and increases maybe excessive or unfair in their nature are referred to Director o f
Properties at the Department o f Transport."
Conclusion15.11 Your Committee considers that it may be a simplistic view by the Office of
Fair Trading to refer complaints to the Department of Transport and
assume that the User Agreement provides an adequate mechanism to
investigate particular complaints. Independent scrutiny of the basket of
fares calculation by the OFT may be considered a more appropriate
mechanism to deal with customer complaints. We conclude that a travel
consultative body (as referred to in para 15.15) may provide a suitable
reference for matters of complaint.
In the same way that we considered at para 10.13 that the OFT is consulted
at the time of review of fuel surcharge, similarly we conclude that the
Department should involve the OFT when it enters substantive discussion
with the Company on fare increases.
Sail and Save Scheme/ Islander Discount
We make reference here to the Sail and Save Scheme previously operated by
the Company, an issue raised in public submissions and referred to by
TravelWatch in its submission (Appendix F para 4.1). Comments suggested
that withdrawal of the Scheme, which provided one free sailing for
five purchased within, one year, effectively increased prices by 20% when the
sixth sailing was no longer free.
b) We also looked at the potential for an islander discount which would apply
to all. As an example, full-time residents in Orkney qualify for the North
Link Ferries Islander Discount. The benefits of registering your residency
with North Link Ferries is a 30% discount on standard fares for passenger
and non-commercial passenger accompanied vehicles.
In his evidence, Mr Woodward stated -
"The Sail and Save Scheme came about as a frequent traveller discount
scheme, at a time when there were no special offers, when standard fares
were the only fares that were available. So they did reward people genuinely
who were travelling on a more regular basis. Since special offers have come
in, the amount o f discount provided, on average.....have, by many times,
69
15.12
a)
outnumbered the discounts the Sail and Save Scheme generated for certain
people, and I think it is important to realise that. "
[ref EPSPC300108 para 700]
Conclusion15.13 We conclude that the fare structure does already include a range of
discounted fares and that a more transparent method of accessibility will
provide residents and those requiring urgent transportation with the
necessary information. Such transparency may alleviate the need for any
additional schemes.
15.14 Report of the Tynwald Select Committee on the Isle of Man Steam Packet
Company 1999
a) We referred to the 1999 Select Committee Report and have noted the
recommendation for the establishment of "a Manx Transport Users'
Consultative Committee". We believe that such a body would be of value
and that that recommendation should have been followed through by
Government.
b) We also note that TravelWatch Isle of Man was established in January
2007 by members of the public interested in travel issues and partly as a
response to the 1999 Select Committee recommendation for a consultative
body not being implemented by Government itself.
In evidence, Mr B O'Friel, Chairman of TravelWatch Isle of Man, said -
I wrote an article in the periodical Manx Tails a year or so ago,
outlining the case for having a passenger watchdog on the Island. That was
followed up by a public meeting in Douglas in January this year (2007),
attended by at least 70 people....From then on we have been busy trying to
deliver some benefit for Manx passengers. " [ESPC231107 para 165]
Conclusion15.15 Whilst we make no comment on the merits of any particular
organisation, your Committee recommends that the Department of
Transport considers the establishment of a consultative body on a statutory
basis to which members of the public may refer all matters of travel and
complaint.
70
PART 16
SUMMARY CONCLUSIONS
Issues contained within Remit
a) With regard to the issue of fare structure - comments from the public,
regarding the structure of fares and availability of discounted fares, and the
change to the format of the published brochure, suggest to us that there is
confusion concerning the Company's fare structure. While we acknowledge
the Company's argument that highlighting maximum band tariffs or
publishing all discounts would itself cause confusion, we nonetheless
conclude that the way fares are currently set out can cause difficulty in
planning selection of sailings according to convenience and comparative cost.
The confusion arises because the Company's assurance that the customer
always benefits from the cheapest fare available only becomes clear at the
time of booking, and can be quite mystifying when the customer cannot find
that fare advertised. (Report reference para 5.6 - Recommendation 3)
b) With regard to the issue of fare increases in 2007 - Your Committee is
satisfied, from evidence available to us showing the calculation of the formula
used to obtain Department approval for the fare increase for 2007, that the
increase in standard fares is in accordance with the User Agreement.
However, we consider that the lack of information available to the passenger
in respect of discounts may create a perception of fare increases.
(Report reference para 6.6)
c) With regard to the issue of comparison of fares when booking on and off
Island/ your Committee concludes that, while the issue of confusion
concerning availability of discounted fares may create a perception that
there is a disparity, in reality there should be no difference between persons
booking on and off the Island.
(Report reference para 7.4 - Recommendation 3)
d) • With regard to the issue whether prices are fair and equitable and best value
for money, your Committee concludes that the introduction of discounted
fares and withdrawal of tariff banding in brochures makes it difficult to
compare fares in 2007 with those in 2006. However, we consider that Steam
Packet prices for passengers/car transport appear to be very competitive
and to represent reasonable value for money in comparison with other Irish
71
Sea ferry operators on routes of a similar distance, with in excess of 80% of
passengers travelling on offer fares of some type.
(Report reference para 8.10)
e) With regard to the issue whether any excessive charging has taken place,
your Committee concludes that, as the increase in standard fares is monitored
by the Department, and as additional charges are in the main a matter of
choice, no excessive charging in respect of passengers /vehicles has taken
place. (Report reference para 9.11)
However, we note that the agreed formula upon which the Fuel Surcharge
Agreement is based refers to the cost of Gasoil and states that this fuel is
used both by the Ben my Chree and Super Seacat 2 {Viking). However, our
own research would indicate that fast craft appear to use a different grade of
fuel which may have a different cost. Given that the Agreement provides a
condition that the Department has the power to cancel the surcharge on the
issue of six months notice, we would recommend that the Department
imposes this condition and that a new agreement is negotiated with the
Company to clarify the type of fuel used by vessels, and that the formula
upon which the fuel surcharge is agreed reflects this. By imposing this
condition, the Department will not only have the opportunity to reassess the
position, but also to ensure that the fuel surcharge better reflects the
forecasted fuel price and current fuel price.
We also conclude that the Department should consult with the Office of
Fair Trading and take account of the domestic fuel element in the MRPI
calculation when considering fuel surcharge increases.
(Report reference para 10.13 - Recommendations 5 and 8)
f) With regard to the issue of the standard of service to passengers, your
Committee is satisfied that the Company is complying with the
requirements contained within the Agreement with the Department.
(Report reference para 12.16)
We also conclude that the Department of Transport should ensure that
standards of service will be maintained in the future by adequate investment
provision as fleet vessels age.
(Report reference para 11.7 - Recommendation 4)
72
g) With regard to the issue of the standard of service to freight users -
Your Committee is satisfied that the standard of service to freight users is in
accordance with the requirements of the User Agreement but the evidence
presented to us does appear to suggest that the Company's freight rates are
between three and perhaps even four times as high as freight rates on other
Irish Sea ferry routes, some of which are longer voyages. We consider it
reasonable to assume that lower freight rates on other Irish Sea routes are as a
consequence of competition on these routes, unless some are subject to
subsidy. Average ship size on northern Irish Sea routes is broadly comparable
with the Ben My Chree, which means economies of scale in ship size cannot be
the reason for such a wide difference in freight rates. Whilst the Steam Packet
Company maintains that freight charges have reduced in real terms, which
may be so, it is nevertheless the case that the cost of shipping freight in
trailers to the Isle of Man is still very high relative to other Irish Sea routes
(discussed in para 15.1). We acknowledge that the User Agreement
only obliges the Department to consider whether the overall weighted
average of the 'basket of fares' is "excessive" in relation to an agreed formula,
(i.e. more than MRPI less Vi %). The freight component within that basket of
fares, or comparison with other Irish Sea ferry operators, is not, according to
the Department's evidence, scrutinised at all. Your Committee believes this to
be unsatisfactory given that the User Agreement also requires the Company
to "furnish the Department with a reasonable written explanation for the
proposed increase".
(Report reference para 13.4 - Recommendation 2)
With regard to small vans, we suggest that the Company reconsiders its
policy on vehicle size and recommend that the Department addresses this
issue. (Report reference para 13.3(c ) - Recommendation 8)
h) With regard to the issue of the standard of service being in accordance with
the Company's agreements with Government, your Committee is satisfied
that the Company has met the required standards of service and welcomes
where those standards have been exceeded. (Report reference para 14.4)
73
Other Issues
Company Profits. ^
i) Insofar as freight is concerned, the Company could be simply seen to be
taking full advantage of its position within the context of the User
Agreement which has resulted in achievement of high profit levels. It is
nevertheless the opinion of your Committee that there appears to be
significant scope for Isle of Man Steam Packet Company freight rates in
particular to be reduced from current levels (arguably by a third), whilst
still ensuring the company maintains satisfactory profits (i.e. still well
above the industry average). Such reductions in freight rates would benefit
transport organisations and other businesses on the Isle of Man, as well as
benefiting Isle of Man consumers more generally. Whether reduction of
freight rates would threaten passenger fares is yet to be assessed and beyond
the remit of this Committee. •
We conclude from our investigations that Steam Packet freight rates appear
to be very high. (Report reference para 15.2)
Company Ownership
j) Your Committee has already commented on the ownership of the Company
at para 15.3(d) and on the importance of freight rates towards creating high
profit levels, a situation which the Company's owners will wish to maintain
for the benefit of shareholders. It is evident that the real value of the
Company is derived not from its assets, but from its User Agreement with
the Isle of Man Government. The User Agreement to all intents and
purposes guarantees the Company, and whoever may own it, a
monopoly position in the Isle of Man ferry market, which thereby
guarantees its future income, and moreover also guarantees it future price
increases through the price mechanism applying - at a time when transport
prices across ferry markets have generally been falling, and a move towards
larger ships has reduced unit operating costs, especially for freight.
We would also conclude that the Company has provided a very stable lifeline
link to the Island since the User Agreement at rates which have been limited
to MRPI increases throughout.
(Report reference para 15.4)
Investment Obligations
k) Your Committee is concerned that, although the level of investment does
comply with Agreements, there is only limited provision for further
74
guaranteed investment by the time the Company's fleet will have aged
considerably. We consider it important that the Department makes provision
sufficiently early in future discussion for further investment in new and
replacement vessels. (Report reference para 15.7 - Recommendation 4)
The Department of Transport
1) It is not clear the extent to which the Department challenged the change to
publication of fares which has brought some confusion to the travelling
public, or examined the effect of freight charges on the calculation of the
annual increase in fares. Whilst we appreciate that monitoring of
performance and discussion on operational matters is undertaken at officer
level, and within the requirements of the User Agreement, we are
concerned that minutes of all meetings were not properly recorded. Your
Committee recommends that the Liaison group should be put on a formal
footing and that all such meetings should preferably be chaired by a
political Member to ensure that issues of concern, including all those
outlined in section 15.8, are properly identified and given proper scrutiny.
(Report reference para 15.9 - Recommendation 1)
The Office of Fair Trading
m) Your Committee considers that it may be a simplistic view by the Office of
Fair Trading to refer complaints to the Department of Transport and
assume that the User Agreement provides an adequate mechanism to
investigate particular complaints. Independent scrutiny of the basket of
fares calculation by the OFT may be considered a more appropriate
mechanism to deal with customer complaints. We conclude that a travel
consultative body (as referred to in para 15.15) may provide a suitable
reference for matters of complaint.
(Report reference para 15.11 - Recommendation 7)
In the same way that we considered at para 10.13 that the OFT is consulted
at the time of review of fuel surcharge, similarly we conclude that the
Department should involve the OFT when it enters substantive discussion
with the Company on fare increases.
(Report reference paral5.11 - Recommendation 6)Discount Schemes
n) Your Committee concludes that the fare structure does already include a
range of discounted fares and that a more transparent method of accessibility
will provide residents and those requiring urgent transportation with the
75
necessary information. Such transparency may alleviate the need for any
additional schemes. (Report reference para 15.13)
Consultative Body
o) Your Committee recommends that the Department of Transport considers the
establishment of a consultative body on a statutory basis to which members
of the public may refer all matters of travel and complaint.
(Report reference para 15.15 - Recommendation 7)
General Observation
The Company
p) Your Committee concludes that the Company has provided a stability of
service which has seen services improve year on year. The User
Agreement does provide a level of security for the Company into the future
which enables it to plan and invest Achievement of its planned service
delivery will undoubtedly maintain its financial stability. The terms of the
User Agreement provide a mechanism for the Company to determine its
financial future and the Company has done no more than take full advantage
of its position.
76
PART 17
CONSULTATION ON DRAFT REPORT
Your Committee agreed that the Department of Transport, the Isle of Man Steam
Packet Company and Office of Fair Trading each be provided with a draft copy of
this Report for their comment on factual accuracy prior to completion and our final
approval.
We append copies of the responses from the Department and the Company with our
response to each issue raised highlighted.
(Appendix L)
We note the Department's comments that Professor Baird "appears to have little
knowledge o f the Isle o f Man or the User Agreement and this is reflected in the draft report."
We also note (in respect of Professor Baird's Supplementary Comment/Report) the
Company's request that if "the Committee intends to retain this report as an appendix, it
is made clear that the report does not form a supplement to the Select Committee's report but
is a document purely reflecting the personal opinion o f Professor Baird."
With regard to both comments, we hold the view that Professor Baird is an expert in
the field of maritime research and is completely detached from any previous
involvement with the creation or administration of the User Agreement. As such
your Committee engaged Professor Baird to provide independent and impartial
advice on all relevant matters. Professor Baird undertook his brief in a professional
and competent manner and reported to us based upon his professional, and not
personal, opinion. From such advice your Committee has cross referenced to its
Report only those matters pertaining to its remit and investigations, and moreover
would contend that the level of scrutiny undertaken is justified.
77
PART 18
RECOMMENDATIONS
Your Committee believes it has thoroughly investigated the issues contained
within its remit. We have acknowledged in this Report that we were not required
to undertake a review of the User Agreement. However, we consider that matters
governed by the terms of the User Agreement directly affecting the issues within
the remit have justified comment.
Your Committee recommends -
Recommendation 1 that the Department of Transport Liaison Group is put
on a formal footing as the Steam Packet Liaison
Committee, preferably chaired by a Department of
Transport Member, to monitor compliance with the
User Agreement, and supplements to that Agreement,
and to ensure that all matters of concern are given
proper scrutiny.
that the Department, when considering the Company's
proposals for increased fares and charges, scrutinises
comparable freight rates charged by other Irish Sea
ferry operators in its assessment of the overall basket of
fare calculation.
that the Department reviews the next annual review of
timetables and fares to ensure that those timetables and
fares are clearly available to all passengers, in brochure
form and electronic form and in accordance with the
User Agreement.
that the Department enters into discussion with the
Company to determine a level of investment in new
craft from 2020.
that the Department imposes the condition contained
within the Fuel Surcharge Agreement, to cancel the
surcharge on the issue of six months notice, and that a
Recommendation 2
Recommendation 3
Recommendation 4
Recommendation 5
78
APPENDIX A
Reports on Select Committee Visits
Select Committee of Tynwald on the Isle of Man Steam Packet Company
Ferry crossings undertaken by the Committee, 21 September 2007
Summary
On 21 September 2007 the Committee travelled to Heysham on the Ben My Chree at 0845 and back from Liverpool on Super Sea Cat 2 at 1900, without prior notification to the Steam Packet Company, to assess the standard of service at first hand. As well as conditions on board the vessels, the Committee and clerk also experienced for themselves two types of booking facilities (online and at the Sea Terminal) and two methods of boarding and disembarking (foot passenger and vehicle).
2. Weather conditions on both crossings were calm and broadly speaking the crossings were uneventful. The ferries were busy but not grossly overcrowded. The staff were pleasant and helpful and the conditions on board were reasonable.
3. The following points were identified for further investigation:
i. identity - no attempt was apparently made to verify the identity of those travelling. How does this comply with legal requirements?
ii. Sea Terminal bookings - could staff be more proactive in telling customers they can get cheaper internet fares by using the terminals provided?
iii. late booking fares: at Liverpool just before the sailing, could someone have been quoted a fare of £80 single to travel immediately, and if so, is this a reasonable fare?
iv. Douglas waiting area - should there be an announcement to notify foot passengers when-boarding begins?
v. security standards - at Douglas all foot passenger baggage was searched whereas at Liverpool the Committee did not see any foot passenger baggage being searched. Meanwhile vehicle searching on both sides appeared to be being done on a random sample basis. Why the different standards?;
vi. capacity and crowding - what happens about using the restricted areas (First Class lounge and Blue Riband lounge) when a vessel is full?
vii. inspection routine for toilet facilities - could they move to a timed inspection plan?
viii. conditions at the port of Liverpool - as a “gateway to the Isle of Man” it was agreed that the environment of the marshalling yard was in an appalling state. The Committee thought greater attention needed to be
paid to keeping the existing facilities clean and tidy even if they are due to be replaced at some time in the future;
ix. explanation of delay - could they explain the reason for delays on first announcing the delay, rather than an hour later?
x. films and videos - operational practice did not seem to reflect what was said in promotional material. Should these be better aligned?
xi. first class lounge - is £12 a reasonable charge and is the service sufficiently welcoming?
Detail
Identity of those travelling
4. The Committee noticed that no attempts were made at any time by the Steam Packet Company to verify the identity of those travelling. Nor did it appear that particularly strenuous attempts were being made to confirm the number of passengers travelling in a vehicle. Names were requested at the time of booking but no documentary proof of identity was required before boarding. Members recalled that in the past, passengers had been asked to fill in a card before travelling. It was agreed to investigate this change in practice with the Company and in particular to ascertain from them how they believed their procedures complied with legal requirements in this regard (action: clerks).
Advance booking
5. The six individuals travelled in the following subgroups:
Mr Speaker and Mr Cregeen - in vehicle, booked onlineMr Turner and Mr Malarkey - foot passengers, booked onlineMr Waft and Mr King (acting Clerk) - foot passengers, booked at the Sea Terminal
The online bookings were straightforward. At the Sea Terminal Mr King was not advised of the option of getting a better fare by booking online until he asked. When he asked he was directed to the computer terminals provided and these terminals worked, although it was not clear from the main screen that the journey proposed could be booked as a “return” journey from the Island to Heysham.
Douglas foot passenger waiting area
6. After the four foot passengers had checked in they were advised that they should wait in the terminal and that boarding would commence later. The Committee heard no further announcement. They simply saw a queue form and begin to move, and so they joined it. Members thought it was possible that older people or people with small children who wished to use the play area at the other end of the waiting
area might have benefited from an announcement so that they could have boarded sooner and had more chance of getting a seat.
7. While in the waiting area, some Members took part in a survey being undertaken on behalf of the Economic Affairs division of the Treasury. It was agreed that it would be interesting for the Committee to learn the outcome of the survey.
Security standards
8. The four foot passengers had their bags scanned at Douglas before boarding the vessel. However, at Liverpool comprehensive searching was not being undertaken although they saw some fellow foot passengers being searched. Meanwhile those travelling in a vehicle were also not searched.
Capacity and crowding
9. Neither sailing was grossly overcrowded although on the Ben My Chree the only six seats available together were in the Legends Bar, and there was an announcement at 0840 that all cabins had been allocated. A Committee member suggested obtaining from the Company its figures for the capacity of both vessels and for passengers and cars carried for both sailings, to see if these figures gave a fair reflection of the crowding experienced (action: clerks).
10. Staff on the Super Sea Cat 2 advised a Committee member that the capacity of the vessel was 672, of which 93 seats were first class and 57 blue riband. This raises the question of how 672 passengers would be able to have a seat if all the first class and blue riband seats were not taken up.
Inspection routine for toilet facilities
11. The male toilets had a sign inviting passengers to report any problems to staff. A Committee member suggested it would be preferable to have a chart showing when the last inspection took place, as this is now considered best practice in the hospitality industry.
Liverpool
12. The outstanding feature of the journey was the appalling state of the marshalling yard at Liverpool. The surrounding areas of Liverpool have benefited from extensive redevelopment in recent years. For example, the Albert Dock has been transformed into a very positive environment with shops, cafés, restaurants etc. From the Pier Head the visitor can see one of the iconic vistas of the British Empire, symbolised by the Liver Building and the ferries across the Mersey. Amid all this splendour, by a stark and alarming contrast, the temporary portacabins which house the Isle of Man Steam Packet terminal facilities stand in a shabby yard strewn with weeds and litter. As European Capital of Culture for 2008, Liverpool will be attracting visitors from all around Europe and beyond. The Isle of Man will be aiming to entice some of these visitors to travel to the Island as part of their visit. As things stand at present, any such visitors would start their journey by running a gauntlet of rubbish and weeds before they could even get on the ferry.
13. The Committee noted that the maintenance of the yard may be the responsibility of the Port of Liverpool rather than the Steam Packet Company. Nevertheless, the name of the Company — and of the Island — stands over the yard and the Committee felt the Company should be doing more to ensure the yard is well looked after and presented, irrespective of where formal responsibility may lie.
14. The Committee decided to make a written complaint to the responsible authorities about this particular issue. It was suggested that the photographs taken by the Committee might be sent to Liverpool City Council and to the MP for the area.
Explanation of delay
15. The return sailing was scheduled to last 2Vz hours but in the event took 3 hours. In an announcement at the beginning of the crossing, passengers were advised of the delay. However, it was not until a second announcement an hour later that any explanation was given for this.
Films and videos
16. On the return crossing no film or video was being shown either in the main lounge or in the children’s play area. Committee members discussed this with staff. The staff quickly rectified the situation in the children’s play area. For the adult lounge, staff explained that they do sometimes show videos, but that on other occasions some passengers object and so staff may decide not to show anything. Committee members were not sure this was adequately explained in the Company’s promotional materials.
First class lounge
17. Although they did not pay the upgrade themselves, some Committee members spoke to other passengers who had done so. Those passengers said the staff were not especially attentive and that they thought £12 was a high price to pay for a seat and some cups of tea or coffee.
Jonathan KingActing Clerk to the Committee 25 September 2007
Select Committee of Tynwald on the Isle of Man Steam Packet Company
To: Chairman and Members
From: Les Crellin, Clerk
Date: 19 May 2008
Re: Ferry crossings undertaken by the Committee May 2008
1. On Friday 16 May 2008 the Committee travelled to Heysham on the Ben My Chree at 0845 and back from Liverpool on Viking (Super Sea Cat 2) at 1900 to assess at first hand service standards compared to its previous trip in September 2007.
2. The Members travelled in the following subgroups:
a) Mr Cregeen and Mr Turner - in vehicle, booked online.b) Mr Speaker, Mr Malarkey and Mr Crellin (Clerk) - foot passengers,
booked online.
3. Booking
a) Mr Cregeen booked his own car plus himself and Mr Turner, with prebooked Manannan lounge seats. The website timetable shows the IOM>Heysham 0845 sailing as being a C band, and the Liverpool>IOM 1900 also a C band. The website Standard fares table shows a C band on that date as
£93 each way for car + driver - £186£30 each way for a passenger = £ 60
£246Mr Cregeen was charged £246 plus fuel surcharge £ 10 plus reserved seating £ 27 plus credit card charge £ 3 less web discount 2% -£ 5.46
£280.54
The highest advertised fare on the website fares table for a one way standard fare is the A band, being £149 for a car + driver single fare, £107 each way fora five day return, and £36 each way for a foot passenger.
The 2008 brochure does not identify sailings by banding. The brochure only refers to special offer return fares for car+2 passengers (subject to availability)
Springtime Short Break (to 21 May) £148 + £28 w/e supplement Springtime Any Length (to 30 May) £184 + £44 w/e supplement
Special fares are for online booking only.
b) Mr Crellin booked three foot passenger returns online. The website timetable shows banding and cost as follows -
each way(5day rtn) Standard single Banding A (highest available) £32 £36Banding B £31 £36Banding C £30 £34
The 2008 brochure refers to ‘Footloose Any Length of Stay’ adult returns from £35 return, and Adult Summer Day Trips (from 1 May 2008) starting from £27 return.
An enquiry made on 25 April gave four available options for a day return (with sail banding in brackets)IOM>Liverpool 0730(B), Heysham>IOM 1415(C) £12 each way IOM>Liverpool 0730(B), Liverpool>IOM 1900(C) £14.50 each way IOM>Heysham 0845(C), Heysham>IOM 1415(C) £30 each way IOM>Heysham 0845(C), Liverpool>IOM 1900(C) £30 each way
This enquiry confirms comments made from public submissions about confusion of availability of discounted fares. Within the same quote, the Liverpool>IOM 1900 return sailing has two different fares, £30 or £14.50, and the IOM>Liverpool 0730 sailing has two, £12 and £14.50. In addition, the Adult Summer Day Trip, according to the 2008 brochure, shows fares starting from £27 return, yet the enquiry shows availability of a Liverpool day return at £24.
There appears to be no clear rationale between brochure fares, website fares and prices quoted or charged. It would appear that standard fares are discounted from the (A) standard fare by rebanding and then further discounted.
Mr Crellin paid £180 plus £15 fuel surcharge less online discount for debit card payment (£3.60) = £191.40.
Douglas to Heysham
a) Sea Terminal facilities are spacious and clean. Mr Malarkey and I were approached by a lady undertaking a DoT survey. Questions related only to the purpose of our visit and how much we were likely to spend off Island including cost of our tickets.
b) All baggage was being put through a scanner at check in, and passengers were also subject to screening procedures, as at airports. Identification was not requested, I obtained three boarding passes without any check.
c) Ben my Chree appeared to be fairly full. All vehicles had been loaded when the foot passengers embarked, with four/five coaches with passengers yet to board. There appeared to be adequate seating for everyone. (Clerk to obtain passenger figures for the sailing).
d) A school party returning to the UK was accommodated en bloc in the bar area.
e) The general standard of cleanliness and service was very good. The seating area for those with dogs has now been screened off with door access.
f) The vessel departed on time and arrived as scheduled. The weather was good and the crossing comfortable. The staff on board were polite and accommodating.
g) Improvements are still underway at Heysham Port. The amended layout for car parking has meant a limited area for vehicles awaiting embarkation. Only about 20 vehicles can be accommodated before check in with others having to wait in the centre approach lane until they can be moved passed the check in hut to the secure area. This may cause problems if an inbound vessel is late or at particularly busy times.
h) The exit route for vehicles is by way of the Heysham bypass, with access to the M6 motorway connection via Lancaster reasonably easy.
5. Liverpool to Douglas
Security at Liverpool is less stringent that when leaving Douglas.There is a person scanner but this was not operated as we passed through. Again, three boarding passes were acquired by one, with no identification required.The overall appearance of the marshalling yard has greatly improved since the previous visit. Improvements are ongoing, although some attention could have been made to discarded seating and weeds still evident at the gateway entrance to the marshalling yard. Whether or not this is on land for which the Company is responsible, someone should have attended to it. The overflowing bins, were not a feature this time. The approach for vehicles is clear.On shore staff were polite and helpful.The standards within the Viking were clean, with available seating for everyone. There were several school parties on board returning to the Island, and it may have assisted teachers accompanying the children if areas had been cordoned off to enable all the children to be seated together. This may not be a fault of the Company, unless they had been aware of a request, but the seating layout of the Viking does lend itself to such accommodation if needed.The sound system did not allow the safety announcements to be heard clearly.The Viking left on time and arrived as scheduled shortly after 9.30pm It was reassuring to note that a drug sniffer dog and his handler were present at Douglas to check disembarking passengers and carousel luggage.
The general consensus of the Committee was that, although the calm weather was a contributing factor, the trip was comfortable and the vessels, staff and service showed improvement to the previous visit.
a)
b)
<0d)
e)
f) g)
6.
APPENDIX B
Submissions from the Isle of Man Steam Packet CoLtd
Introduction to Discounted Fare Policy/ Summary Fare Structure/ Frequency of sailings/freight rates
and
Submission dated 31 August 2007
INTRODUCTION TO DISCOUNTED FARE POLICY
The Company’s policy for generating additional traffic with special offer fares has remained broadly the same for the past ten years although availability has increased. The policy has been extremely successful in stimulating Sea traffic growth particularly at off-peak periods, thus helping to justify many marginal services. This type of variable pricing model is used throughout the travel industry and has also led to a substantial growth in UK airline and railway traffic in particular.
Offers are sold subject to availability and on a first come, first served basis but if they are sold out on a particular crossing they will be available at alternative times. It pays to book early to get the best deals.
Steam Packet Company Special Offers are extremely widely available. The vast majority of passengers benefit from the range of discounts, around 75/80% of the total carryings in 2006, whereas prior to 1996 a fixed standard fare policy applied to all customers.
In 2007 the Company’s Special Offer web fares have largely been fixed at 2006 rates, but the telephone booking supplement for Special offers was increased from £5 per passenger to £6. Special Offer price increases in 2007 were, therefore, well below the general rate of inflation. The Company has increased capacity and frequency of service in 2007 and at the same time increased Special Offer availability by 90,000 seats.
Whilst, in some cases, airline prices have increased substantially in 2007, The Steam Packet remains committed to its low fare growth strategy and carryings have increased every month this year, in marked contrast to airline carryings. Further detailed information will be supplied to the Committee by 31st August 2007.
2006/2007 SUMMARY FARE STRUCTURE
Current InilationRatc (July 2007) 4.4%User Agreement Standard Fare increase permitted 2.8%
2.75% was applied to 2007 Standard Passenger and Freight charges (see 2007 Standard Passenger and Freight charges enclosed separately)
Vast majority of passengers benefit from range of Discounted fares.
Single or Each Wav Web Offer Price________________________ 2006_2007
Fuel surcharge Jan-Feb £2.00 £2.50(applies to all fares) Mar-Aug £2.50 £2.50
Sep-Dee £2.50 £2.00^2.50
Foot Passenger Offers -from Adult £15.00 £15.00(single or each way) Child £9.00 £9.00
Day Ret £10.00 £10.00
Car+2 Short Break OfTers-from(Each way) New Year £49.00 £49.00
Spring £69.00 £69.00Summer £79.00 £79.00Autumn £59.00 £59.00Weekend Travel £10.00supp £12.00supp
Car + 2 Any Length Offers - from(Each way) New Year £49.00 £49.00
Spring £87.00 £87.00Summer £99.00 £99.00Autumn £84.00 £84.00Weekend Travel No offer £25.00supp
Non web booking supplement Foot Passenger £5.00/ticket £6.00/ticketCarl-2 £10.00/rctum £12.00/retura
Passenger Services First Lounge Upgrade £12.50 £12.50Cabins £35day-£59night £36day-£59nightReserved Seating £2 £2Dogs in car Free FreeDogs on board BMC £5 £5Bicycles Free Free
Steam Packet advertising from July 2007 onwards now includes the fuel surcharges. These surcharges are variable and regulated by the DOT by reference to the actual costs incurred in a fair and equitable manner. On the basis of average fuel costs incurred in the February to July period Fuel Surcharges may change in September 2007.
The Steam Packet Company does not charge for debit card payments or passenger luggage in contrast to the practice of some airline carriers who charge extra. Steam Packet Company offer bookings are amendable, in contrast to some airline offers.
Frequency of Sailings 2006 & 2007
2006 Liverpool Heysham Belfast/Larne Dublin Total
Jan 26 121 147Feb 24 122 146Mar 26 94 120Apr 96 114 16 4 230May 103 125 20 5 253Jun 104 158 26 14 302July 106 122 18 17 263Aug 104 124 14 16 258Sep 95 118 12 4 229Oct 58 122 2 182Nov 21 117 138Dec 20 107 4 131
Total 783 1444 108 64 2399
2007 Liverpool Heysham Belfast/Lame Dublin Total
Jan 18 111 129Feb 3 112 115Mar 34 111 145Apr 100 120 18 4 242May 107 138 23 6 274Jun 120 170 39 14 343July 124 122 24 20 290Aug 134 124 24 16 298Sep 104 118 18 2 242Oct 62 126 188Nov 16 120 136Dec 20 115 4 139
Total 842 1487 146 66 2541
Extra Services 2007 59 43 38 2 142
% Change 7.5% 3.0% 35.2% 3.1% 5.9%
Monthly Passenger Figures - past two years
Passenger Volumes bv Calender Month
2005 2006 2007actual actual actual
Jan 16,178 16,925 17,326Feb 20,062 20,979 21,980Mar 35,871 23,752 28,206Apr 41,448 55,231 55,896May 56,705 50,410 68,020Jun 87,019 83,227 98,137
Jan-Jun Subtotal 257,283 250,524 289,565
2005 2006 2007actual actual estimated *
July 77,642 77,445 81,000 *Aug 96,629 95,129 101,000 *Sep 61,319 54,640 56,000 *Oct 39,776 39,992 40,300 *Nov 19,954 24,825 25,100 *Dec 25,866 25,129 25,300 *
Juf~Aug Subtotal 321,186 317,160 328,700 *
Annual Passenger Total 578,469 567,684 618,265 *Freight Drivers 13,060 12,759 13,397
% Change 2007
2%5%19%1%
35%18%
16%
5% * 6% *
2% * 1% *
1% * 1% *
4% *
9%
* = estimated
Ail standard fares shown Mow ere applicable when bookings are made In person, through a travel agent, or over the telephone.These fares w)!I be discounted by 2% when booked online at www.steam-packet.CDin. These are the highest payable fares through until January 7th, 2008.
¿STERLING STANDARD FARES 2QQ7<steid2rd^lnql^__^__^_>isteidard>5_dai^^eft;rn^^hw£^
Fool Passenger fares V. EM’t D f . C\ ■ **irA*i: D ■ C.-: w as- 5* AW;Adult ' 29Ì* 31 ■’"33‘v. 5*35»; 475 27 29 r*-30tf iS HsChild 14-.' IS ■; 16; - * * w : 13 -1 4 - *>' 1SW SfcW*Senior Citizen (60 years*) 2D ;" 26 ■- 27,'r t t S F - •MB':' 24 26 :• ^30!P i£3IfefStudent " 20 ’ 26 • 27’- ■Î3SΓ" 24 ' 26r * 3 0 »Infant FREE: FRŒ ff^E FRHr- tfPE* FR& FRŒ FREEDm > •: .5 ’ j& s p j. '5'1’ 5 * ?■ .?E5*J|
standard single standard S day return (each way)Vehids Fares ■\EC D Gs-: «■' p*f >sriA' 0 -■•G ■Car+1 Car, Motorised Caravan or Minibus (up to 5.5m long) + driver " 89’- 110 ’134:" t w .•>"66r' 62 s* 90 &99*£i:*i0«iwCar+2 Car, Motorised Caravan or Minibus (up to 5.5m long) + driver '•118^ 41 167 5 1 7 ? /' KIMS Ì 91-i 109 r-ur '1 3 K3 Wheeler + 1 (3 wheeled vehicle Inc combination motorbikes + driver) 54'S; 61 >79,v ^10 IS. -46'.’-î se - 74- '■¡r. B6yAdditional metre ftjppiement par metre (or part thereof) jupptomertt for veNde» ov«r S.Sfn ''10' 12 ■ • 16 ■by'26-V .$ 90-v l l ■15Trailer per metre (or part thereof) 12 AJ16'. * 9 ; n ■'Î5-Motorcycle + 1 Motarcvde or scooter dIus driver ,5 4 ' ■V 731 x-esn * 46 ' 5£_ 63' 1^70^1^-75^
Above fanes exclude fuel surcharge (currently £2.50 per person per single journey)
CEUBP STANDARD PARES 2007
Foot P snangw fare* ^ ■ Bfv ; D . •. CV. 'S '.tt* <> E^. D. : - aMult 4ÎH. S'st*- .*37^‘> 4P .-43?- ^ 4 4 « ^ 4 6 ^Child • 22 - r- ¡ft* m 18V 19Senior atjzen (60 years+) - 30?. :■ ?0- 40^ iftszitt h53& :^27.v i 36 - 30V ■'*-14W: *'4«îîStudent > 30," 38'; 40- vsa-i; 36 38°- . ^44V; ^46*dInfant FREE: FREE FREE; nFREE1i n ® ; FRŒ FREE FREE- ;FRŒ? m mDoa '■J 7i- J . J - ^ 7 : ' : 7 — 2 L ± 2 2 .
standard ! standard 5 day return feaeh wayVehida Fares : Eh- D ¡ - ' .e ; . !V K%, D ;1. Cv- V 'B i^Car+l Car, Motorised Caravan or Minibus (up to 5.5m long) + driver 132V 163 * 19B1? • 210i • $8 *. 121 • 133 : 147: M54*,Car+2 Car, Motorised Caravan or Minibus (up to 5.5m long) + driver 175Î 209 24?' ■-262ÎJ i; 135^ ' 161 176 ‘•vlM* >2005;3 Wheefer + 1 (3 wheeled vehicles Inc combination motorbikes + driver) * ?o r ' ?P 117' L149î -T155Ï • ÇP'- 83 - 110 -••■law ¿‘13911Additional metro lupplsmant per metre (or part thereof) »upplament for vehicle* over S. 5m 19- ï 24- "^38?C - • p ' i 16 • 22. •v ^33^.Trailer per metre (or part thereof) ■* 15V" ib , 24‘V ^2r,i'. 16 • 22r •,227oT- ^ '33^Motorcvcle + 1 Motorcvde or scooter d Ius driver ■ 80^- 90 100^ M 24: .’¿130.1 ^68^. 83 . 93 •:.104v- ^ « W
Above fares exdude fuel surcharge (currently €3 per person per single Journey)
Infant fores - please note; the fare tor an adult passenger Includes any Infant passenger under 4 years of age accompanying that passenger. All prices quoted are In £Sterl!ng andCEuro for the period January 9th, 2007 ttrough until January 7th, 2009,Size vehfde limitations apply * please check at Ume or booking.Bicycles are carried free of charge unless otherwise stated by the company.For additional vehicle fares see foot passenger table above.
Vans/Commerria) vehldes: All commercial vehicles are subject to the prevailing commercial rate.However the company can offer a concession to those passengers travelling In a commercial vehicle if travelling for a non-comrnerdal purpose. This must be agreed In advance with the company.For further details, please contact the Freight Office on 01624 645620 prior to making a booking.
STEAM PACKET COMPANY
FREIGHT RATESEffective 1st January 2007
The Isle of Man Steam Packet Company Limited Imperial Buildings
Douglas Isle of Man IM1 2BY
Telephone: 01624 645620 Fax; 01624 645627
e-mail: iom. freight@steam-packetcom
STEAM PACKET COMPANYFREIGHT RATES
Isle of Man Routes
Effective 1 January 2007 until further notice
SELF-PROPELLED VEHICLES(Not exceeding 2.6 metres in width, 38,000 kg Gross weight).(including when conveying livestock and unaccompanied self-propelled vehicles).
RATES ARE ‘PER METRE’ BASED ON ACTUAL LENGTH, PER SINGLE JOURNEY.
Standard Rate £63.40
Regular Customer Rate £60.10
PASSENGERSOne driver accompanying a self- propelled freight vehicle will be carried free of charge, subject to availability of space within the ship’s authorised capacity. Vehicles conveying livestock must always be accompanied by a driver.
Drivers will be issued with meal vouchers. Cabin berth will be offered subject to availability.
Subject to availability of space, an authorised Driver’s mate will be carried at a special rate of £42.85 single journey. Driver’s mates will be issued with meal vouchers. Cabin berth will be offered subject to availability on Ben my Chree evening sailings from the Isle of Man and overnight sailings from Heysham.
EXCEPTIONAL LOADSLoads of exceptional dimensions in excess of those listed below must be notified to the Company prior to being offered for shipment
16.5 metres in length (18 metres for low loaders and draw-bar combinations)4.6 metres in height2.6 metres in width 3 8,000 kg in weight
Additional conditions relating to the carriage may apply. Charges and availability will be quoted on request.
HAZARDOUS CARGOESLoads containing Hazardous cargoes are welcome but by special arrangement only.
Due to the continued high costs of marine fuel and after consultation with the Isle of Man Government all Self propelled vehicles will also be subject to fiiel surcharge currently at £1.50 per metre length of vehicle per single journey.
Steam Packet Company Freight Rates Page 1
NON-PROPELLEP TRAILERS(Not exceeding 2.6 metres in width, 32,000 kg Gross weight).
RATES ARE ‘PER METRE’ BASED ON ACTUAL LENGTH, PER SINGLE JOURNEY.
Standard Rate £61.30
Regular Customer RateUp to 5,000 metres £57.165,001 - 15,000 metres £56.9015,001 - 25,000 metres £56.74Over 25,000 metres £56.11
EXCEPTIONAL LOADSLoads of exceptional dimensions in excess of those listed below must be notified to the Company prior to being offered for shipment.
15 metres in length4.6 metres in height2.6 metres in width32,000 kg in weight
Additional conditions relating to the carriage may apply. Charges and availability will be quoted on request.
HAZARDOUS CARGOESLoads containing Hazardous cargoes are welcdme but by special arrangement only. Charges will be quoted on request
Due to the continued high costs of marine fuel and after consultation with the Isle of Man Government all non-propelled vehicles will also be subject to fuel surcharge currently at £1.50 per metre length of vehicle per single journey.
Steam Packet Company Freight Rates Page 2
SMALL VANS
Not exceeding 2.3 metres high or6.5 metres long . maximum gross £165.05weight not to exceed 2,900 kilos. per vehicleMust be driver accompanied.(Driver’s fare NOT included, mealvouchers or cabin berth are notprovided).
LOW COMMERCIAL TRAILEREither as an unaccompanied Low Trailer or when being towed by a small van or car.
Not exceeding 2.3 metres high or £40.066.5 metres long - up to nearest lA per metremetre rounded up
UNACCOMPANIED AND TRADE CARS
Unaccompanied Private Cars. £136.55(by special arrangement only) per vehicle
Trade Vehicles For Garages.Cars and small trade vans(Applicable only if vehicles are £111.34empty) not exceeding 2.3 metres per vehiclehigh or 5.5 metres long.
All other trade vehicles will becharged at the per metre rate.
Due to the continued high cost of marine fuel and after consultation with the Isle of Man Government all low vans, low trailers, unaccompanied trade cars and trade cars will also be subject to fuel surcharge currently at £7.50 per vehicle or trailer per single journey.
Steam Packet Company Freight Rates Page 3
SPECIAL NOTES
1. All rates quoted are subject to Value Added Tax at the prevailing rate.
2. The Merchant Shipping (Weighing of Goods Vehicles and other Cargo) Regulations 1988. All units exceeding 7.5 tonnes conveyed on our multi-purpose Ro-Ro vessel either from Heysham or the Isle of Man require to be weighed at the appropriate Port of departure. The weighing charge is included in the freight rates.
3. All goods are carried subject to the company’s standard conditions of carriage of goods (including livestock) as exhibited in their offices and on board their vessels.
4. Reporting Time: Customers are asked to present their traffic for shipment at least 90 minutes before sailing times or shipment cannot be guaranteed.
5. DANGEROUS GOODS: Dangerous goods of any description are shipped strictly in accordance with Statutory Regulations and The International Maritime Dangerous Goods Code. The Isle of Man Steam Packet Company Limited require at least 24 hours notice of any intended shipment of Dangerous Goods. Such notice should be given to the Company’s Freight Office, Douglas - (Tel: 01624 645620). Failure to declare Dangerous Goods before shipment could result in prosecution and the shipment may be refused if the above has not been complied with.
6. Overweight Vehicles / Trailers. Any vehicle / trailer (other than those specifically arranged) which exceed the permitted gross weights as required by the current Isle of Man Legislation may be refused shipment or surcharged.
7. EXCEPTIONAL LOADS. Loads of in excess of those listed below must be notified to the Company prior to being offered for shipment.
Self Propelled Vehicles.16.5 metres in length (18 metres for low loaders and draw-bar combinations)4.6 metres in height2.6 metres in width38.000 kg in weight
Non Propelled Trailers.15 metres in length4.6 metres in height2 .6 metres in width32.000 kg in weight
Additional conditions and charges relating to the carriage of exceptional loads may apply.Availability will be quoted on request.
Steam Packet Company Freight Rates Page 4
FLAT PECK TRAILERS.(Not exceeding 2.6 metres in width, 32,000 kg Gross weight).
Any loaded Flat Deck Trailer ex Heysham:Up to and including 11.9 metres in length £628.05From 12.0 metres to 12.4 metres in length £663.50
Flat deck trailers Ex Heysham in excess of 12.4 metres will be charged pro-rata based on £663.50 per12.4 metre.
Any loaded Flat Deck Trailer ex Isle of Man:Up to and including 11.9 metres in length £221.95From 12.0 metres to 12.4 metres in length £245.50
Any single banked MT Flat Deck Trailer ex Isle of Man:
Up to and including 11.9 metres in length £221.95From 12.0 metres to 12.4 metres in length £245.50
Flat deck trailers Ex Douglas in excess of 12.4 metres will be charged pro-rata based on £245.50 per12.4 metre.
Historically the Company has absorbed the charges levied by the Isle of Man Government for the shipment of double banked empty flat deck trailers off bound from the Island. From 2006 the direct costs incurred by the company for the shipment of double banked empty flat deck trailers ex Isle of Man will be passed on with an initial charge of £15.00 per double banked trailer for 2006. This charge will be increased annually over the next four years increasing by £15.00 per annum. Thereafter it will be subjected to general inflationary increases.
Any empty double banked Flat Deck Trailer ex Isle of Man:
Up to and including 13.6 metres in length £30.00
Due to the continued high costs of marine fuel and after consultation with the Isle of Man Government all flat deck trailers will also be subject to fuel surcharge currently at £1.50 per metre length of vehicle per single journey.
Steam Packet Company Freight Rates Page 5
FLAT DECK TRAILERS COMMODITY RATE(Not exceeding 2.6 metres in width, 32,000 kg Gross weight).
The flat deck trailers must be foil loads of the following:
• Bricks (incl. Thermal Blocks).• Plaster or Plasterboard.• Timber (incl.plywood).• Cement / Mortar.• Tiles.• Asphalt• Underground drainage items. ( Includes Concrete Pipes or Clay Pipes, Plastic and steel pipework
and joints destined for underground drainage. Does NOT include standard above ground drain pipes, or general copper pipes and joints)
• Insulation materials (slab, roll and polystyrene)• Agricultural Fertilisers.• Bulk Animal Food Products
Commodity rate flat deck trailer loads cannot be booked in advance and will only be shipped on a non priority basis and must be notified to the company in advance of shipment. Mixed loads will be charged at standard flat deck trailer rate.
Loaded Flat Deck Trailer ex Heysham:Up to and including 11.9 metres in length £468.75From 12.0 metres to 12.4 metres in length £504.55
Flat deck trailers in excess of 12.4 metres will be charged pro-rate based on the £504.55 per 12.4 metre.
Due to the continued high costs of marine fuel and after consultation with the Isle of Man Government all flat deck trailers at commodity rate will also be subject to fuel surcharge currently at £1.50 per metre length of vehicle per single journey.
Steam Packet Company Freight Rates Page 6
THE ISLE OF MAN STEAM PACKET COMPANY LIMITED
SUBMISSION OF EVIDENCE TO TYNWALD SELECT COMMITTEE
Submission dated 31 August 2007
WS: 647194_1
TABLE OF CONTENTS
INTRODUCTION ...........................................................................................................................................................................3
SECTION 1 : PRICING...........................................................................................................................................................4
1.1 User Agreement Requirements & Compliance........................................................................................41.2 Passenger Pricing Policy............................................................................................................................... 51.3 2007 Steam Packet Company Fare Comparisons..................................................................................81.4 Freight Pricing..................................................................................................................................................91.5 Fuel Surcharge................................................................................................................................................ 9
SECTION 2 : SERVICE....................................................................................................................................................... 102.1 User Agreement Requirements & Compliance......................................................................................102.2 Service Improvements Summary.............................................................................................................. 112.3 Passenger Service Improvements 1995+................................................................................................112.4 Freight Service Improvements 1995+...................................................................................................... 122.5 TT 2007...........................................................................................................................................................122.6 2007 Service Initiatives............................................................................................................................... 132.7 Other Steam Packet Services and Benefits........................................................................................... 15
SECTION 3 : ADDITIONAL DATA.................................................................................................................................. 163.1 User Agreement - Purpose.........................................................................................................................163.2 Steam Packet Investment in Fleet............................................................................................................173.3 Fare Comparison...........................................................................................................................................183.4 Steam Packet Company - Lower Fare Comparison 1995 - 2007.................................................... 193.5 Passenger Volumes..................................................................................................................................... 203.6 Frequency of Sailings 2006 & 2007....................................................................................................... :.213.7 Steam Packet and UK Ferry Industry Comparables - Volumes Carried 1996-2007..................... 223.8 Steam Packet Service Frequencies 1948+.................................................................................... ...... 243.9 Passenger Carryings 1996-2007..............................................................................................................243.10 Air and Sea Passenger Carryings Comparison 1987-2007............................................................... 253.11 Passengers per sailing................................................................................................................................ 253.12 On-board catering........................................................................................................................................ 263.13 Steam Packet Sponsorship 2007 (Charity & Commercial).................................................................26
W S:647194_1 2
INTRODUCTION
The Isle of Man Steam Packet Company welcomes the opportunity to supply evidence to the Select Committee. The Company sees the Committee as helpful in highlighting how much has been achieved for the Isle of Man under the User Agreement, and believes the findings will assist in dispelling some recent erroneous perceptions about the Company and its management.
The Department of Transport has acknowledged that Steam Packet is fully compliant with all pricing and service obligations of the User Agreement and in most cases, substantially exceeds these requirements. Since the commencement of the User Agreement in 1995, the Company has dramatically improved the level of service offered to both passengers and freight customers, with frequency of sailings and service capacity continually increasing, now twice as high as only a decade ago, whereas in the same period many UK services have experienced decline. The number of Special Offers has been increased further this year and with many prices held at last year’s rates it is encouraging that carryings have increased every month in 2G07 in contrast to airline traffic which has been in decline for the first few months of the year.
The User Agreement has also provided Steam Packet with a stable base for investment in its vessel fleet and enabled the Company to invest in the development of additional services. Since 1995, the Company has invested more than £60 million in maintaining and upgrading its fleet, most recently investing in a second fastcraft to provide an expanded summer service to Ireland and Liverpool. Steam Packet is also actively investigating replacement fastcraft investment options around the world. The Company is also one of the largest employers on the Isle of Man with over 250 Manx resident employees.
The Company is proud of its long tradition of service to the Isle of Man and remains totally committed to maintaining and indeed improving services for the long term benefit of the community. The Company is also committed to fulfilling its obligation to provide a reliable, year-round service without the taxpayer subsidy received by many other UK Island operators.
WS: 647194_1 3
SECTION 1 : PRICING
1.1 User Agreement Requirements & Compliance
Under the terms of the User Agreement signed in 1995 between The Isle of Man Steam Packet Company (“Steam Packet" or "the Company”) and the Department of Transport (“DoT") and ratified by Tynwald, the Company is obliged to reduce Standard fares by 0.5% every year in real terms.
Clause 5.2.4.1.1 specifies increases must be capped:
“on a weighted basis (as exemplified in the Sixth Schedule) the annual percentage rate of increase in the Manx RPi for the twelve months immediately preceding the issue of any such
notice less one half of one percent'
The pricing restriction is a weighted average increase which ensures that while the Company is able to adjust individual fares in order to manage and stimulate traffic volumes, there must be a corresponding adjustment elsewhere to ensure the overall basket of both Standard Freight and Passenger Fares is reduced every year by 0.5% in real terms. Steam Packet has been 100% compliant with the User Agreement pricing restriction since its inception in 1995.
The chart below compares the Manx RPI index to the overall weighted basket of Standard Fares since the start of the User Agreement in 1995.
Comparison of Manx RPI to Overall Basket of Fares 1995 - 2007
— Manx RR{ 1995 Base = 100%) —■— SPC Standard fares (1995 Base = 100%)
The DoT monitors Clause 5.2.4.1.1 on an annual basis and checks that the weighted average increase for Standard Freight and Passenger Fares always complies with this restriction. This is confirmed in writing every year. The DoT's written confirmation of pricing compliance for 2007 is included at the end of this submission.
RPI Calculation
The Company is permitted to apply to the DoT to increase fares by RPI - 0.5% using the latest published RPI data from Treasury. Over the past 12 years, the Company has always complied with this restriction although inflationary fluctuations can work both for, and against, the Company on a monthly basis.
In August 2006, the Company voluntarily decided that it would determine fare increases annually against the September inflation figure (announced October). This provides greater forward visibility and certainty to the Company's customers and eliminates any suggestion that the Company may try and ‘select1 the month used for determining RPI - 0.5% price increases.
WS: 647194 1 4
Actual Fare Increases
In 2007, the maximum allowable weighted average standard fare increase was 2.80%, calculated using the September 2006 RPI published figure of 3.30%. In practice, the Company increased its Standard Fares by only 2.75%, 0,55% less than inflation at the time. Isle of Man 2007 inflation, as measured by the retail price index, subsequently rose to as much as 4.4% (see Economic Affairs Division July 2007 Inflation Report at end of this submission). Inflation has subsequently dipped to 4.1% but Steam Packet’s price increase for 2007 Standard Passenger/Freight Fares remains at 2.75%.
1.2 Passenger Pricing Policy
Prior to 1996, all customers paid Standard Fares and the volume of traffic and service provision had been stagnant, or in decline, for several years. Since 1996, the Company has tried to boost traffic volumes by introducing Special Offer fares, particularly on quieter sailings. Special Offers are primarily designed to stimulate extra traffic at off peak periods and rates can vary considerably day to day, and sailing to sailing. The special offer policy has been extremely successful in stimulating Isle of Man sea traffic growth, particularly during off- peak periods. Over the past decade, the total number of passengers carried by Steam Packet has increased from around 440,000 pa to over 600,000 pa, thus helping to support the viability of many marginal off-peak services. This variable type of pricing policy is commonly used in the travel industry including the UK rail network and worldwide airline, industry. Steam Packet's £17.50 single footloose fare is highly, competitive with alternative low cost destinations. In contrast to many very restricted airline ‘headline’ prices, this fare’s availability to and from the Island is widespread.
In addition, many airlines servicing the Isle of Man earn a significant proportion of revenues from additional charges e.g. amendment fees, credit card charges, debit card fees and luggage charges. Steam Packet keeps these fees to a minimum, and in some cases, does not levy a charge.
Special Offers
The pricing cap in the User Agreement was introduced when all customers paid Standard Fares and thus applies only to these fares, in practice, average fares today are significantly lower than the User Agreement pricing 'cap' as the vast majority of tickets sold are Special Offer fares. In 2006, the Company sold over 450,000 seats at discounted rates. This number is expected to increase in 2007 as the Company has made available an extra90,000 seats at special rates.
The Company's policy for stimulating additional traffic with Special Offer fares has remained broadly the same for the past ten years; however availability of these fares has increased, and many offer prices have been held flat year to year.
Special Offers are sold ‘subject to availability’ and on a ‘first-come, first-served' basis. Standard Fare details are available on-line, or at request, but are not highlighted in the 2007 brochure - in common with usual travel trade practice - as the Company seeks to stimulate travel by promoting the larger range of Special Offer fares. It is noted that only a minority of customers - approximately 22% in 2006 - pay Standard Fares.
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Steam Packet Company - Special Fares available
% of Sales at Standard Fares -1995 % of Sales at Standard Fares * 2006
% Sat«« Discounted
Far** 5% % Salas
Standard Far«» 22%
% Sal«« Standard Far»
100%
DiscountedFarsi78%
The Steam Packet reservation system automatically quotes passengers with the cheapest fare available at the time of enquiry for the preferred time and date. Therefore, the vast majority of passengers benefit from the Special Offer fares, as these represent the default fare offered. The reservation system also highlights the prices on alternative sailings, in case the cheapest fare has sold out on initial selection. Special Offers are widely available on all sailings except for some peak TT and MGP periods, where Standard Fares one way effectively have to offset the costs of the return ’light’ trip and the additional charter costs incurred. It is noted that the Company highlights that it generally pays to book early and be flexible to get the best deals.
In 2007, the Company’s Special Offer fares advertised both on-line and in the brochure, have largely been fixed at 2006 rates, with the overall increase well below the general rate of inflation. The table overleaf illustrates the main price comparisons as highlighted in the 2006 and 2007 brochures. With general Manx inflation running at over 4% and many airline fares having increased substantially this year, this policy has contributed to a sizeable increase in sea traffic month by month in 2007, whereas airline traffic has decreased.
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Single or Each Way Web Offer Price
2006 2007
Fuel surcharge (applies to all fares) Jan-Feb £2.00 £2.50Mar-Aug £2.50 £2.50Sep-Dee £2.50 £2.50
Foot Passenger Offers - from (single or each Adult £15.00 £15.00way) Child £9.00 £9.00
Day Ret £10.00 £10.00
Car+2 Short Break Offers - from (Each way) New Year £49.00 £49.00Spring £69.00 £69.00Summer £79.00 £79.00Autumn £59.00 £59.00Weekend Travel £10.00supp £10.00supp
Car + 2 Any Length Offers - from (Each way) New Year £49.00 £49.00Spring £87.00 £87.00Summer £99.00 £99.00Autumn £84.00 £84.00Summer Weekend Travel No offer available £25.00supp
Non web booking supp Foot Passenger £5.00/ticket £6.00/ticketCar+ 2 Occupants £10.00/retum £12.00/return
Passenger Sen/ices First Lounge Upgrade £12.50 £12.50Cabins £35 day-£59 night £36 day-£59 nightReserved Seating £2 £2Dogs in car Free FreeDogs on board BMC £5 £5Bicycles Free Free
Steam Packet advertising from July 2007 onwards now includes the applicable fuel surcharges within total fares. These surcharges are variable and regulated by the DOT by reference to the actual costs incurred in a fair and equitable manner (see Section 1.5).
User Agreement Special Offers Condition
Since January 2005, the User Agreement has required that Steam Packet offer a minimum number of seats at Special Offer fares. This change was in order to recognise that the Company was selling the majority of tickets at discounted rates, and to 'guarantee' availability for residents and visitors into the future.
Since the introduction of the Special Offers condition, the Company has been 100% compliant and significantly exceeded this requirement. In 2007, the minimum requirement was approximately 290,000 seats, while Steam Packet actually offered over 143,000 Special Vehicle (and occupant) fares and 226,000 Foot Passenger fares, in theory, each Vehicle Offer could be booked by 5 passengers or more although in practice most bookings are on average for around 2.5 passengers.
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1.3 2007 Steam Packet Company Fare Comparisons
Steam Packet's Special Offers and Standard Fares qompete very well on a like for like basis with services to Ireland, especially on a 'cost per mile’ basis, even though operators on the high volume Holyhead-Dublin route benefit from greater economies of scale. Short break offer fares to the Isle of Man often undercut the lowest fares available Holyhead-Dublin both during the off peak periods and peak summer periods. Fares to the Isle of Man are generally a fraction of those to the Channel Islands, where single foot-passenger fares often exceed £39.50 single.
Steam Packet Company Condor Ferries
Douglas-Uverpool UK-Channel IslandsFast Craft Passage Time 2hr30 2hr+Mileage 71 76
Foot Passenger Single (incl fuel surcharges)Adult £17.50 £39.50Cost per mile £0.25 £0.52
Spring Car plus 2 return (incl fuel surcharges) £148 £235Cost per mile £1.04 ■ £1.55
Max Peak Sailing Fast Craft (incl fuel surcharges)Car plus 2 single £184 £250Cost per mile £2.59 £3.28Source : Company Websites 7/05/07. Note IOM Steam Packet fares start at £98 return Car+2, plus Fuel Surcharges £10
Visitors vs Resident Pricing
All Steam Packet Standard Fares and Brochured Offers are equally available, on all sailings, to both visitors and residents.
To stimulate travel to and from the Island, the Company from time to time introduces or 'packages’ special rates to promote specific sporting or other special events on the Isle of Man. In 2007, this included special rates for competitors in the MGP, Southern 100 and Honda Powerboats. To ensure that such offers are relevant to the target customers, certain travel restrictions must apply. An example of this is the “TT Escape" offer which is only available to customers who start their journey in the Isle of Man, in effect limiting this fare to Island residents travelling on off-peak TT period sailings. Special rates are also introduced for Manx and visitor clubs, and 'hotel package’ holiday traffic is encouraged both to and from the Island with specially reduced “ITX" rates.
A high proportion of visitor traffic to the Isle of Man occurs around peak special events, such as the TT, when travel is usually booked at Standard Fare rates regulated by the User Agreement ‘cap’. Hence, the average fare paid by visitors is typically slightly higher than that paid by residents, who tend to travel more at off-peak periods.
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1.4 Freight Pricing
The Company maintains a standard pricing policy for all freight users. However, some discounts are available to all customers for larger volumes, lower value commodity cargoes, and for direct debit payments.
Clause 5.2.4,1.1 of the User Agreement - restricting the increase in the basket of fares to RPI -0.5% - also applies to Steam Packet’s freight charges. This implies that over time, the Company’s freight charges represent a decreasing proportion of the cost of goods which are sold on the Island. Isle of Man freight charges are also lower today than when there was no User Agreement and an unregulated market for competing freight services. As detailed in section 3.4 below, the Company has consistently provided a first class freight service which is supported by this pricing policy. The Company has been fully in compliance with the User Agreement pricing restriction on freight charges since 1995.
Steam Packet freight charges are as much as 20% cheaper than the similar low-volume Channel Islands ferry routes (although the Channel Islands’ population is considerably larger). Although relatively more expensive compared to some high volume freight services, Steam Packet’s freight charges reflect a modernised, reliable, twice-daily, high capacity, quality service and offer a level playing field for all customers.
Freight charges provide the ‘bedrock’ of revenues throughout the year which help support the full range of Island services as required under the terms of the User Agreement. The User Agreement provides for a balanced service obligation to protect the provision of uneconomic services, many of which do not even cover the marginal operating costs incurred. Half of Steam Packet's passenger sailings have less than 200 passengers, implying less than 40% loads, and are clearly difficult to justify on ‘stand-alone’ economic grounds. The Company also employs Manx, British and EU labour to man vessels rather than utilising cheaper non EU labour as used in much of the UK and worldwide shipping industry.
It is noted that the relative competitiveness of Isle of Man freight charges is adversely affected by the relatively expensive cost of Douglas dues which are as much as 3 - 6 times higher than UK commercial norms due to the poor economies of scale for the Harbour.
Freight charges may be absorbed by the UK supplier or retailer so that Manx consumers do not necessarily pay any significant differences in retail prices in many stores. Indeed some goods originating and sold on the Isle of Man are more expensive than UK equivalents, even though there are no shipping costs involved.
1.5 Fuel Surcharge
Marine fuel costs have risen from around $100/mt in 1999 to as much as $650/mt in recent years, with the annual cost for the Company rising from around £1 million pa to over £5 million pa. The increased cost was absorbed by the Company for many years while airlines introduced fuel surcharges of as much as £10 per passenger for short haul flights and £30 or more for long haul. However, ultimately, the Company has passed on a proportion of these additional costs through a fuel surcharge mechanism.
The current fuel surcharge of £2.50 per passenger and £1.50/metre freight is regulated by agreement with the Department of Transport as part of the User Agreement. The surcharge agreed effectively guarantees that the Company has to absorb much of the increased cost but can pass on additional cost movements above a certain level.. The Agreement protects passenger and freight customers by stipulating the relevant surcharge, ensuring a fair level playing field is established, and having a pre-agreed formula in place for the reduction of charges when fuel costs decline. The Department and the Company review the surcharge on a six monthly basis. The Company has from time to time waived its entitlement to levy the surcharge, instead absorbing some of the additional fuel costs.
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SECTION 2 : SERVICE
2.1 User Agreement Requirements & Compliance
The table below is a summary of the service requirements in the User Agreement and Steam Packet’s degree of compliance. It is worth noting that the DOT monitor the Company’s compliance and that the current User Agreement requirements far exceed the service and obligations introduced when the Agreement was first introduced in 1995.
UA Requirement Company Provision 2007 Compliance
Frequencies & SchedulesLiverpool Summer Frequency Min Once Daily Twice Daily mast days ExceedsLiverpool Winter Frequency Min 1 per week 3 per week ExceedsNW Sailing Frequency Min 936 returns pa 1164 ExceedsWinter pax services any port Min 7 per week 13/17 per week ExceedsIrish Summer Sailing Frequency Min 3A per week 5 per week ExceedsIrish Easter/Christmas sailings Specified Scheduled CompliantIrish Spring sailings Min 1 per week 2 per week ExceedsIrish services pa Min 63 returns 106 returns ExceedsOvernight services “Regular" Daily - bar maintenance ExceedsUse of one fast-craft tf commercial Two fast craft Exceeds
CapacitiesMin Freight metre capacity inbound 7800m per week Circa. 16,800m ExceedsFreight Capacity excess vs demand Min 12% additional 50%/80% additional ExceedsFastcraft capacity vs demand Min 115% capacity Min 180% capacity Aug Exceeds
InvestmentInvestment 1995+ Min £20m Circa +£60 m ExceedsInvestment 2005/2012 Min £18m Allowed For CompliantInvestment 2005/2015 . Min £26m Allowed For Compliant
Service MeasuresManagement presence Local Management Provided CompliantIOMSPC Co Brand To be maintained Provided CompliantMax age replacement tonnage Max 25 years Circa 1998 built CompliantDisabled facilities - new vessels Lift/ramp access SSC & BMC CompliantMin UK advertising expenditure Min £309k pa £496k ExceedsMin marketing expenditure Min £391 k pa £550k+ ExceedsIntroduce Website ‘cheapest quote' To be introduced Already provided CompliantBrochures Available for public Always provided CompliantIntroduce Reserved seating facility To be introduced Already provided CompliantVictoria Pier Itnkspan Regular Maintenance Provided CompliantStandard Fares/Proposed Schedule DoT/DTL consultation Completed Compliant
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2.2 Service Improvements Summary
Over the past ten years the UK ferry industry has seen declining volumes of passenger traffic. Some operators have ceased trading altogether (e.g. Hoverspeed, SeaCat Scotland, Irish Sea Express, Swansea-Cork) while others have pulled back service provisions or frequency (e.g. Stena Line, Irish ferries). Additionally, many Island services are supported by substantial and increasing taxpayer subsidies (e.g. Northlink, Calmac).
Cross Channel ferry traffic has declined 35% in the past decade from around 31 million passengers pa to around 20 million; UK-lreland traffic has declined 19% from 3.9 million to 3.1 million; and Channel Islands services have declined 36% from 516,000 passengers pa to around 328,000 passengers pa today. During thè same period, Steam Packet’s services have dramatically increased passenger carryings, growing by 43% from approximately420,000 in 1996 to 605,000 projected for 2007.
Over the past decade, English Channel and Channel Islands’ vehicle traffic have declined by 15% and 13% respectively. In the same period, UK-lreland vehicle traffic increased by only 3% while the number of vehicles carried on Isle of Man-UK routes has increased by 124%.
Steam Packet has achieved this level of growth while many ferry routes have declined as it has invested heavily in its vessels, increased the speed of service, increased the frequency and capacity of services, and introduced a range of discounts to promote additional traffic. Steam Packet’s strategy to promote growth remains unchanged and has been boosted in 2007 by the use of a second fastcraft, increasing the availability of Special Offers and improving the frequency, capacity and timetables for the Liverpool and Irish routes.
2.3 Passenger Service Improvements 1995+
The number of Heysham passenger services has more than doubled from 769 sailings in 1996 to 1,487 in 2007. Similarly, Liverpool trippage has increased from 246 sailings in 1996 to 842 in 2007.
During the peak summer period of 1996, Manx residents typically had a choice of 7 or 8 conventional sailings per week to Heysham or 4 sailings to Liverpool. In 2007, residents now have the choice of 14 conventional services to Heysham and a further 14 fast craft sailings to Liverpool. The introduction of the second fast craft in 2007 has meant that Liverpool departure timings are now even more convenient and consistent.. Irish sailing frequencies have increased by 15% since 1996 and in total an extra 142 sailings are scheduled in 2007 as compared to 2006.
Passenger capacity on the Liverpool-Douglas City Centre-City Centre service has increased from 200,000 pa in 1996 to 580,000 pa today, while Liverpool vehicle capacity has increased from 32,000 pa to over 110,000 pa. Passenger carryings have increased by over 150,000 on this route in the past decade.
Currently, the vast majority of Liverpool services are performed by fastcraft, completing the trip in as little as 2 Vi hours. This compares to zero services by fastcraft in 1996 and a sailing time of 4- 4 Va hours. Similar to all UK operators, Steam Packet's fastcraft are more susceptible to weather disruption than conventional vessels. In spite of this, the Company’s reliability record stands at around 97%. In 2007, SuperSeaCat2 has had a particularly reliable year, losing only one return trip to date due to non-weather related problems. In contrast, some airline services have been particularly susceptible to non-weather related delays and cancellations.
Steam Packet has concentrated many of its service improvements on the Liverpool route as it is considered the route with the greatest growth potential. Around 90% of Steam Packet marketing expenditure (£500,000 pa) is spent in the UK to increase inbound visitor numbers. Visitor growth is however sometimes restricted by the lack of peak season bed stock availability, seasonality issues, and some lack of awareness of the Isle of Man. The Company works closely with the Department of Tourism and other tourism partners to address these limitations.
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2.4 Freight Service Improvements 1995+
In 1996, the Company had a daily overnight freight service, Monday to Friday, with around 500 lane metre capacity. Today, the Ben-my-Chree offers a twice daily, return freight service, seven days a week, with 1,200 metres vehicle capacity per sailing. The Company's excess freight service capacity will provide sufficient capacity to accommodate the Island's economic growth for many years to come.
The Ben-my-Chree is believed to be the most reliable ship ever used by thè Company, operating some years without a single weather or technical disruption. With the Ben-my-Chree offering 99-100% reliability, many stores in the Island have grown accustomed to certainty of supply and a first-class service, and operate a ‘just in time' delivery policy. This allows for more efficient stock management and can confer a significant cost benefit which may be passed onto the end consumer.
2.5 TT 2007
The Centenary TT was a real success for the Isle of Man - Steam Packet was an instrumental part of this result. The Company scheduled an additional 242 sailings, used six extra vessels, employed an additional 270 staff and worked 24/7 to successfully carry 94,000 passengers and 46,000 vehicles without a single passenger service cancellation. The Company carried as many vehicles during the short TT period as were carried in the whole of the first 20 weeks of 2007, a level of capacity growth which few businesses could achieve.
Steam Packet Company Vehicle carryings - By Week - 2007
Week
At the commencement of the TT Centenary planning process in April 2005, Steam Packet made the decision that it would that it would seek to accommodate as many extra passengers seeking to travel to the Isle of Man over the Centenary period as possible, despite its limited fleet capacity and the limited port slots and facilities available. Over the next 24 months the Company devoted significant time, resources and expense to securing the necessary capacity to accommodate the travel demand for the TT Centenary period. This task was complicated by the number of additional vessels sought - six - and because the nature of chartering vessels for a short period means that owners will not commit until the last moment as they are always hopeful of obtaining a longer term charter instead. In addition, as most European ferries are fully committed on scheduled services elsewhere, owners cannot afford to have spare tonnage, and most conventional ferries are physically too large for the relatively limited confines of Douglas harbour. Ultimately, the Company was successful in securing the necessary additional vessels and crew to provide adequate sailing capacity. Had the Company limited advanced bookings to guaranteed departure timings, the Isle of Man would have lost the capacity for an extra10,000 visitors. The Department of Tourism has confirmed that this volume loss would have reduced visitor spend on the Island by approximately £5 million.
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Steam Packet has attracted negative press regarding the regrettable need for late transfers of provisional bookings during the TT period, although there was limited media explanation of why the practical restrictions will always be a factor in trying to accommodate such an exceptional increase in traffic. Approximately 5,000 bookings were moved to either a different time or departure port as part of the contingency planning. This was due to practical restrictions with acquiring charter vessels for such a short period in the peak season and the port slot restrictions which are a factor in the Isle of Man. Although customers were made aware that bookings were provisional, and the majority of these changes were to a more favourable option (e.g. fastcraft rather than the Ben-my-Chree), the changes were inconvenient for a small minority of passengers. Following the TT Centenary, Steam Packet has reviewed its process of communication and improvements are being made for the future. These improvements include: ensuring passenger contact details are always recorded, encouraging passengers to provide mobile telephone contact numbers, improving travel agent communication, and automated dialler systems which will provide additional resources to supplement letters, e-mails, and SMS text message communications.
2.6 2007 Service Initiatives
The Company is committed to a continuous programme of service improvements. A number of new initiativesare highlighted below with approximate timing.
Vessel Investment
■ Investment in use of second fastcraft in Summer of 2007 (against backdrop of many operators cutting backon fast craft trippage over past few years, e.g. Stena Line, Irish Ferries, Hoverspeed, Sea Express Ltd)
■ Evaluation of fastcraft replacement options (It should be noted that this investment is supported by the UserAgreement, which both creates this obligation and provides a stable operational environment to support this significant investment. However former Government airline subsidies in 2005 jeopardised investment plans at the time due to abstraction of traffic and uncertainty regarding future traffic).
Service Expansion
■ Additional 142 Liverpool, Heysham & Belfast services for 2007
* Increased capacity for passengers & vehicles in 2007
■ 400+ services, 3 freight vessels & 270 extra staff for TT2007
■ More conveniently timed Dublin, Belfast & Liverpool services in Summer 2007
Marketing Initiatives
■ New Irish TV/media campaign - joint DoTL - Spring/Summer 2007
* 90,000 extra Special Offer seats made available 2007
■ Many 2007 Foot Passenger & Vehicle Offer fares held at 2006 rates (many at 2005 rates)
■ Foot Passenger adults from £17.50, child £11.50, car+2 from only £54 each way (including fuel surcharges)
■ New cheaper weekend “Any Length" offers - Summer 2007
■ Increased marketing expenditure, c £550k in 2007
■ New system to register online and view transactional history
■ New facility to amend bookings on-line
■ Popular excursion trips, including record breaking Whitehaven trip
■ Variable fuel surcharge now included in all advertised pricing for clarity
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Port Investments (with Mersey Docks & Harbour Co - “MDHC")
■ Heysham Port Terminal Investment £150k and Unkspan investment - Spring 2007
■ Liverpool Marshalling area and Landing Stage second Linkspan investment £2.8m - Autumn 2007
■ Liverpool Terminal investment - planned for completion Spring 2008The Company has been a strong advocate of terminal facility improvements at Liverpool for many years as the current facilities are not of a suitable standard. Unfortunately delays to terminal refurbishment plans have been out of the Company’s control. The progress of improvements has been hampered by the planning process and other MDHC priorities. The Isle of Man Government has been supportive in pressing the importance of these improvements to Liverpool City Council and MDHC.
On Board and Customer Service Initiatives
■ Fair-trade products initiative 2007
■ Local supplier initiative 2007 - including IOM Creameries, Ramsey Bakery, Fenton Cambell, Bushy's and Robinsons
■ New menus introduced onboard 2007 after extensive review and research
■ On Board price/review with market and regional hospitality outlets (see comparisons Data section)
■ Shorter foot passenger & vehicle check in times
■ Maintenance of zero luggage fees or debit card fees in contrast to recent competitor airline practice
■ Development of Knowat customer feedback product
■ Re-design of customer facilities, seating and ‘Coast to Coast’ Cafe on SuperSeaCat2
• Manx Welcome Training for crews
■ Development of products and offers to give extra value and product mix for passengers
■ Extensive crew customer service training
■ Blue Riband member night to get feedback
■ New CEO blog “Word with Woodward" introduced Summer 2007 to encourage closer links with the travelling public and provide an additional feedback mechanism
Other Services/Programmes
■ Leading sponsor at sporting/special events
■ Leading supporter of Manx charities
■ Leading ferry operator in developing web systems
■ Extensive market research on board and on-line
* "Customer Relationship Management” systems under review for future development
■ Company investigating how best to promote Isle of Man as a 'green' destination - UK Independent article 28 May 2005 “Air travel 13x more damaging than car/ferry travel"
■ "Freedom to Flourish" Brand Champion initiative and “Set Yourself Free" logo on SuperSeaCat2
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2.7 Other Steam Packet Services and Benefits
Commitment to Isle of Man Community
Steam Packet is committed to supporting the lifeline requirements of the Isle of Man and is conscious of the need to support unprofitable or marginal services wherever practical. The Company works closely with tourism partners to develop and promote new and existing events on the Island and is one of the Island’s leading sponsors of community, sporting and social events.
Steam Packet has sponsored or supported over fifty different events and organisations on the Isle of Man in the last six months. A list of these can be found in the Additional Information section of this Submission.
It is the Company's preference to source supplies locally wherever practical and the Company is active in the promotion of Manx products.
Significant Local Employer
The Company is one of the largest Manx employers in the Isle of Man with over 250 Manx resident employees. The Company's management, administration and crew are based in the Isle of Man. Steam Packet is proud of its long tradition of service to the Island which dates back to 1830, making it the longest continuously operating passenger shipping company in the world.
It is the Company's policy to recruit locally wherever practical. Labour relations are proactively managed, with no industrial problems to date. The Pension Scheme is fully funded having received £2.9 million deficit funding from the Company in 2005. Steam Packet invests heavily in recruitment and customer service training for ail employees. Evidence of the benefits of this training can be seen in recent Company commissioned market research which indicates that customers are very satisfied with Company’s staff.
The Company is a major contributor to Treasury tax receipts.
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SECTION 3 : ADDITIONAL DATA
3.1 User Agreement - Purpose
The User Agreement was introduced in 1995 to provide a guaranteed service provision throughout the year. Competition between Steam Packet and Manx Line proved unsustainable and led to the forced merger of the two companies. Freight demand can support year-round service provision, however many required passenger services are uneconomic on a stand-alone basis.
The User Agreement has provided the platform for a real improvement in shipping services over the past decade. Prior to the introduction of the User Agreement, Steam Packet usually offered one passenger sailing per day to Heysham and relatively infrequent sailings to Liverpool with only Standard Fares available. This summer the Company offers four passenger sailings per day to England with the vast majority of customers benefiting from Special Offer fares and faster crossing times.
UK Island ferry services (e.g. Orkney/Shetland) tend to be very heavily subsidised by the UK taxpayer and indeed many other UK ferry operators have contracted their services over the past decade in the face of airline competition. In contrast, Isle of Man ferry services are unsubsidised, but heavily regulated by the User Agreement to provide minimum service guarantees. Since 1995, Steam Packet has provided twice the frequency, twice the capacity, substantially lowered fares, invested £60 million in new tonnage and encouraged a dramatic increase in passenger carryings.
The Company is obliged by the User Agreement to provide unprofitable winter and other extra services and a frequency and capacity of service that exceeds demand throughout the year. It is obliged to reduce standard passenger and freight prices in real terms every year, obliged to offer a specified level of freight and passenger capacity and it is obliged to offer more than 50% of tickets as Special Fares. The Company is 100% compliant with each of its many obligations and indeed exceeds these in every respect, even though the User Agreement conditions are now even more stringent than those introduced twelve years ago. The Company maintains a constructive working relationship with the Department of Transport who monitor closely the Company’s compliance with its various obligations. The Company also maintains a dose dialogue with the Department of Tourism & Leisure and other tourism industry representative bodies.
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3.2 Steam Packet Investment in Fleet
Steam Packet has invested heavily in service provision over the past ten years. The progress made can be summarised briefly by the points below:
t 1996 - aged fleet 20 years old, aged technology, aged image
■ 2007 - modern fleet, modem technology, modern image
■ BMC £24 million 1998
■ BMC £2 million extension 2004
■ SuperSeaCat2 long term lease to 2010 - worth c.£18 million new
■ SeaCat IOM - now too small, but value £13 million new
■ Annual refits c.£1 million per vessel
■ New 'Maritime' Reservations system £1 million investment
■ New Liverpool Terminal Project c.£2.8 million
■ Steam Packet committed to further fastcraft investment in short/medium term
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Comparison of Steam Packet Company Passenger Fares with Manx RPI and loM Weekly Wages 1996 / 2007
Steam Packet fares have decreased markedly over the past ten years and the effect is very significant when compared to general cost and wage inflation.
3.3 Fare Comparison
1996 2004 2005 2006 2007% increase 1996-
2007
Manx RPI Index - January (Year 2000 = 100)
90.9 111.0 117.7 121.6 125.7 1 38.3%
Average Weekly Earnings IOM £328 £485 £489 £536 £552(estimated at
2006+3%)
68.3%
Steam Packet Company cheapest brochured foot passenger single
■ £23 £19 £15 £15 £15 -34.8%
■ Fare as % weekly wages 7.0% 3.9% 3.1% 2.8% 2.7%■ Fuel Surcharge £0.00 £0.00 £2.00 £2.50 £2.50■ Total fare ind surcharge £23.00 £19.00 £17.00 £17.50 £17.50 -23.9%■ Total fare as % weekly wages 7.0% 3.9% 3.5% 3.3% 3.2%• Tolal fare in real 2007 prices £31.80 £21.52 £18.16 £18.09 £17.50
Steam Packet Company Brochured Car +2 starting price
£73.50 £49.50 £49.00 £49.00 £49.00 -33.3%
» Fare as % weekly wages 22.4% 10.2% 10.0% 9.1% 8.9%• Fuel Surcharge £0.00 £0.00 £4.00 £5.00 £5.00• Total fare incl. surcharge £73.50 £49.50 £53.00 £54.00 £54.00 -26.5%■ Total fare as % weekly wages 22.4% 10.2% 10.8% 10.1% 9.8%• Total fare in real 2007 prices £101.63
(i.e. adjusted for Manx inflation
£56.06 £56.60 £55.82 £54.00
Notes: Fuel Surcharges regulated by DOT by direct reference to fluctuations in marine fuel costs - in fair and equitable manner.
Price
[£
]
Prices over period 1995 - 2007
160
140
120
100
80
60
40
20
01995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
IS Foot Standard Single E tariff ■ Car +2 Standard Single E tariff ■ Short Break Return Car + 2* □ Foot passenger Single*
* Lowest brochured price
3.4 Steam Packet Company - Lower Fare Comparison 1995 - 2007
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Monthly Passenger Figures - past two years
While airline traffic has declined in 2007, Steam Packet carryings have increased every month.
3.5 Passenger Volumes
Month Year Year Year % Change
2005 2006 2007 % Changeactual actual actual 2006-07
Jan 16,178 16,925 17,326 2.4%Feb 20,062 20,979 21,980 4.8%Mar 35,871 23,752 28,206 18.8%Apr 41,448 55,231 55,896 1.2%May 56,705 50,410 68,020 34.5%Jun 87,019 83,227 98,137 17.9%Jan-Jun Subtotal 257,283 250,524 289,565 15.6%
2005 2006 2007actual actual estimated
July 77,642 77,445 81,000 4.6%Aug 96,629 95,129 101,000 6.2%Sep 61,319 54,640 56,000 2.5%Oct 39,776 39,992 40,300 0.8%Nov 19,954 24,825 25,100 1.1%Dec 25,866 25,129 25,300 0.7%Jul-Aug Subtotal 321,186 317,160 328,700 3.6%
Annual Passenger Total 578,469 567,684 618,265 8.9%Freight Drivers 13,060 12,759 13,397
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3.6 Frequency of Sailings 2006 & 2007
Steam Packet Company services have again expanded across all routes in 2007
I Liverpool Heysham Belfast/Larne Dublin Total
2006Jan 26 121 147Feb 24 122 146Mar 26 94 120Apr 96 114 16 4 230May 103 125 20 5 253Jun 104 156 26 14 302July 106 122 18 17 263Aug 104 124 14 16 258Sep 95 118 12 4 229Oct 58 122 2 182Nov 21 117 138Dec 20 107 4 131Total 783 1,444 108 64 2,399
2007Jan 18 111 129Feb 3 112 115Mar 34 111 145Apr 100 120 18 4 242May 107 138 23 6 274Jun 120 170 39 14 343July 124 122 24 20 290Aug* 134 124 24 16 298Sep* 104 118 18 2 242Oct* 62 126 188Nov* 16 120 136Dec* 20 115 4 139
Total* 842 1,487 146 66 2,541
Extra Services 2007 59 43 38 2 142
% Change 7.5% 3.0% 35.2% 3.1% 5.9%’ Estimated
WS: 647194 1
3.7 Steam Packet and UK Ferry Industry Comparables - Volumes Carried 1996-2007
While most UK ferry routes have seen decline over the past decade, Steam Packet has stimulated significant growth in contrast to industry norms.
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007Cumulative
Effect
000’s PASSENGERS pa Forecast 1996+UK-Continent(ferry )
30,597 31,940 28,691 26,810 24,175 23,581 24,467 22,141 21,660 19,722 19,824 20,020 -34.6%
UK-lreland 3,871 4,333 4,600 4,228 4,132 3,766 3,755 3,680 3,555 3,198 3,097 3,146 -18.7%
UK-Channel Islands 516 474 421 430 402 451 453 416 381 364 322 328 -36.4%
UK-lsle of Man(excl Ireland)
424 444 466 510 556 518 607 625 601 566 556 605 42.7%
000*s VEHICLES DaUK-Continent(ferry & tunnel)
7,536 8,320 8,816 8,401 7,420 7,057 7,053 6,844 6,496 6,265 6,246 6,433 -14.6%
UK-lreiand 732 815 922 879 907 817 858 860 837 757 746 757 3.4%
UK-Channel islands 107 108 99 110 105 109 111 107 100 97 91 93 -13.1%
UK-lsle of Man 85 90 144 140 151 129 167 170 184 171 166 190 123.5%Source - UK Ferry Stat Annual Reviews 2002, 2005, 20062007 Forecast based on Jan-May 07 UK Ferry Slat Review, extrapolated for Continent/lretand/Channel Islands and Steam Packet forecast for Isle of Man
While Channel Islands (and UK) ferry services have declined over the past decade, Isle of Man services have expanded significantly.
Comparison Isle of Man / Channel island carryings 1996 - 2007
Isle of Man & Channel Island Passenger Ferry Traffic 1996 - 2007
700 -
200 -------- ,------- ,------------------- :-------------,------- ,---------------- ,------- ,----- --1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
—♦— UK-Channel Islands —■— UK-Isle of Man
WS: 647194 1 23
3.8 Steam Packet Service Frequencies 1948+
While many people consider that the Company historically operated a larger fleet and therefore more extensive services, in practice service frequency has improved substantially over time, with significant growth since the introduction of the User Agreement in 1995.
Number of Sailings per Annum
3000 -
1948 1958 1968 1978 1988 1998 2007
3.9 Passenger Carryings 1996-2007
The investment in new tonnage and the expansion of services, capacities, and improvements in speed and availability of low fares has led to significant growth since 1996. The Company forecasts passenger growth to exceed 9% in 2007, while year to date carryings have increased every month.
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
WS: 6471 ‘>4 I 24
3.10 Air and Sea Passenger Carryings Comparison 1987-2007
Liverpool - IOM Air/Sea Passenger Comparison 1987 - 2007
350
1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007
■ Sea passengers a Air Passengers
3.11 Passengers per sailing
A significant proportion of Steam Packet sailings to and from the Isle of Man have very low passenger volumes with low revenues and insufficient demand to help support a wider range of on-board services. With around half of sailings having less than 200 passengers, and almost three-quarters having less than 300 passengers, it is clear that Steam Packet does not benefit from the same economies of scale that many other large volume ferry operators often enjoy.
Passengers per Sailing - Annual %
601+501 *€00
20%
WS:A47I*)4 I 25
3.12 On-board catering
Unlike some airlines, Steam Packet does not charge additional fees for debit card transactions or luggage. The Company charges for credit card payments and booking amendments, however these are significantly lower than some airline charges. Further, onboard food and beverage costs appear significantly lower than comparable ferry and airport operators. Examples of onboard catering prices are set out in the table below.
ProductSPC price
2006 Stena Irish FerriesIOM
AirportBirmingham
AirportSPC Price
2007
Tea £1.30 £1.50 £1.35 £1.65 £1.60 £1.40Coffee £1,45 £1.85 £1.45 £2.25 £1.60 £1.49Coke 500ml £1.30 £1.40 £1.50 £1.50 £1.75 £1.40Water £1.30 £1.40 £1.50 £1.50 £1.55 £1.40Breakfast £6.75 £7.45 £7.75 £6.55 (7 items) £6.95
Breakfast Bap £3.80 £3.95 (2 items) £3.95 £3.69
Main Meal £7.50 £7.45 £8.00 £6.35 £7.25Danish £1.45 £1.80 £2.25 £2.35 £1.65Sandwich £2.65-2.95 £2.69-2.99 £3.05-3,85 £3.00-3.25 £2.55-3.05 £2.69 - 2.89
3.13 Steam Packet Sponsorship 2007 (Charity & Commercial)
The Company is one of the Island's leading sponsors and supporters of local sporting, social and special events. Steam Packet assists a wide variety of causes including:■ Auldyn Boot Sale Fun Day• Awards for Excellence (loM Newspaper)■ BBC Look North West - Stuart Finders walk around the Island 8/07• Border Bus (in conjunction with Department of Tourism)• Breakthorough Breast Cancer■ Breast Cancer Care■ Bunscoill Ghaelgagh• Castletown Golf Club Event• CIPD Charity Night■ DHSS - Social Services Summer Ball■ Douglas Town Band■ Excellent Development Aid Project - Kenya Visit■ Fairbum Bank Charity Raffle■ Gaiety Theatre (Piano Fund)
Great Wood Primary School■ Hands of Hope (Romanian Charity)■ Helen Rollason Heal Cancer Charity■ Hilton Hotel & Casino Summer Ball■ Honda Power Boat Racing■ loM Sporting & Dining Club■ Island Games Team
Isle of Man Children’s Centre■ Isle of Woman (Breakthrough Breast Cancer)• It’s a Knockout 2007■ Joey Dunlop Foundation• Junior Achievement■ King George’s Fund for Sailors - The Seafarers' Charity - loM
WS: í>471‘>4 I 26
Laxey Fair Tuesday Ladies Group AGMLions Club Duck DashManchester House, Port ErinManx Foundation for the Physically DisabledManx Grand PrixManx National Youth BandMarown School PTA RaffleMGP Riders’ AssociationMSPCA TombolaOakwood Integrated primary SchoolOlde English FairOnchan Silver BankPeel Bay FestivalPeel CarnivalPoppy AppealPort Erin Lifeboat Annual Lifeboat DayPort Erin Raft RacesRamsey Cottage HospitalRamsey Grammar School RaffleRamsey National WeekRamsey Town BandRowney Golf ClubRushen Silver Bank Gala DinnerSchool ValajeeltSouthern 100 RacingSt Cecelia’s Infant & Nursery SchoolSt John’s Summer School FayreTesco Stores Race NightThe Royal British LegionYouth Orchestra Exchange with Liverpool
: M 7 m 1
Department of TransportRheynn Arraghey
Properties Division,Sea Terminal Building, Douglas, Isle of Man,IM1 2RF.
Telephone (01624)686600 Fax (01624) 660411
Contact: C.R. ChristopherOur Ref: CRC/YW/G5
Date: 7th December 2006
Dear John,
2007 Fares and Charges
I refer to your company's submission in respect of the above and the Schedule 6 calculation provided which deals with your company's proposed Fares and Charges for 2007.
Your company's proposals have now been considered by the Department and I would confirm the Department's agreement to the proposed increase of 2.75% on a weighted basis. The proposed increase falling below the level under which the Department could deem the fare increase to be excessive in line with the terms of the User Agreement.
The Department's approval is on the basis that your company will maintain the availability of special offer fares as at present and in accordance with requirements within the User Agreement.
If you have not already done so I would be pleased if you could advise the Department of Tourism and Leisure of the revised Fares and Charges for 2007.
Yours sincerely,
C.R. Christopher, Director of Properties.
cc Captain M. Brew - Director of Harbours
Mr. J. Watt,Director, Strategy and Planning,Isle of Man Steam Packet Company Limited, Imperial Buildings,DOUGLAS,Isle of Man, IM1 2BY.
WS: (i471l>4 I 26
The Treasury A dm inistration Division,J Government Office,
Douglas,Isle o f Man, IM1 3 P U , British Isles.Yn Tashtey
C hief Financial O fliccr Telephone (01624) 685584M. Shimmin Fax (01624) 685662
Administrator: Miss K. Corlett
News ReleaseNews ReleaseNews Release
NOT TO BE RELEASED BEFORE 0700 ON THURSDAY 2nd AUGUST 2007
ISLE OF MAN GENERAL INDEX OF RETAIL PRICES 18th JULY 2007
The Island’s Retail Price Index has recorded the first fall in the annual rate of inflation since October last year. The annual rate of inflation fell to 4.1% in July compared with 4.4% in June.
During the year to mid-July Housing continued to record the largest change with an increase of 10.2%. The annual rate of inflation for All Items Excluding Housing now stands at 2.9%. The Catering index rose by 7.1% over the same period. Decreases of 0.3% and 0.2% were recorded in the Motoring expenditure and the Household services categories respectively over the year.
During the month the largest change was recorded in the Fuel & light index which fell by 1.4%, this being partly attributed to a fall in natural gas prices.
The General Index of Retail Prices for All Items now stands at 128.0 (January 2000 = 100.0).
This report is available at 0700 on the day of release. If you would like to receive future monthly inflation reports by e-mail or by post, please send details to the address below.
All enquiries to:
Ray Sloane
Economic Affairs Division
Illiam Dhone House
2 Circular Road
Douglas
1M1 1PQ
Tel. 0044 (0)1624 685753 Email: [email protected]
TABLE TWO - ISLE OF MAN RETAIL PRICES INDEX. 18TH JULY 2007
CURRENT INDICES AND TWELVE MONTH CHANGE (%)
% % % %Food 142.2 4.2 Household goods 109.4 2.5Bread 137.3 3.6 Furniture 107.0 4.3Cereals 134.2 3.4 Furnishings 96.9 3.6Biscuits and cakes 149.8 12.3 Electrical appliances 88.4 0.4Beef 100.6 2.6 Other household equipment 105.8 4.5Lamb 144.5 -4.0 Household consumables 125.2 0.0Pork 107.1 0.0 Pet care 113.0 2.5Bacon 137.4 0.6Poultry 92.4 10.0 Household services 110.1 -0.2Other meat 132.5 -0.3 Postage 123.2 0.0Fish 174.8 1.7 Telephones, etc. 100.0 0.0Butter 116.2 2.4 Domestic services 127.3 -1.7Oils and fats 125.7 1.2 Fees and subscriptions 117.7 0.6Cheese 119.2 7,6
.Eggs 140.8 15.6 Clothing and footwear 113.6 0.3fyiiik 123.3 1.2 Men’s outerwear 96.5 -0.9Milk products 148.6 14.8 Women's outerwear 124.1 -2.8Tea 147.2 2.1 Children’s outerwear 112.6 4.7Coffee and other hot drinks 135.7 8.0 Other clothing 115.4 4.9Soft drinks 172.5 5.2 Footwear 120.2 2.1Sugar and preserves 134.8 7.7Sweets and chocolates 135.7 5.9 Personal goods and services 131.6 3.2Potatoes 121.2 -1.2 Personal articles 87.2 -11.1Vegetables 189.7 3.8 Chemists goods 134.9 6.7Fruit 179.7 0.7 Personal services 137.3 0.0Other foods 145.3 3.5
Motoring expenditure 115.4 -0.3Catering 128.9 7.1 Purchase of motor vehicles 82.5 -2.8Restaurant meals 130.2 8.1 Maintenance of motor vehicles 141.1 -0.1Canteen meals , 115.4 0.0 Petrol and oil 119.8 0.3Take-away meals and snacks 132.0 8.2 Vehicle tax and insurance 146.2 1.3
Alcoholic drink 125.1 3.7 Fares and other travel costs 118.2 2.8Beer 'on' safes 140.3 4.5 Sea travel 116.5 0.0Beer ’off sales 111.7 3.1 Air travel 108.9 5.0
|) Wines & spirits 'on' sales 139.4 1.8 Bus and coach fares 115.4 6.5Wines & spirits 'off sales 101.0 3.3 Other travel costs 139.9 0.0
Tobacco 145.0 4.5 Leisure goods 104.6 3.0Cigarettes 148,7 4.8 Audio-visual equipment 92.8 -0.8Other tobacco 102.9 0.8 CD's and tapes 112.9 0.0
Toys, photographic and sports goods 92.0 0.3Housing 131.6 10.2 Books and newspapers 119.3 5.4Rent 166.2 3.8 Gardening products 101.0 5.8Mortgage interest payments 112.9 17.6Rates 191.2 7.9 Leisure services 130.6 2.0Repairs and maintenance charges 138.3 11:9 Television licences and rentals 142.3 1.8DIY materials 110.2 4.9 Entertainment 106.7 1.0Dwelling insurance 100.0 0.0 Holidays 138.9 3.0
Fuel and light 165.9 5.8 ALL ITEMS EXCLUDING HOUSING 127.3 2.9Coal and solid fuels 138.8 6.5Electricity 137.0 14.5 ALL ITEMS 128.0 4.1Gas 194.8 3.1Oil and other fuels 213.9 -3.5
January 2000 Base = 100
APPENDIX C
Summary of Public Submissions
123456789
1011121314151617;18192021222324252627282930313233343536373839
Public Comments
Fares Standard of Service Competition
Variation
Excessive Charging (Incl fuel
sur)
Staff Catering Seating PortFacilities
Delays/Cancel.
Need for competiton
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APPENDIX D
Submission from the Isle of Man Office of Fair Trading
SUBMISSION ON BEHALF OF THE ISLE OF MAN OFFICE OF FAIR TRADING TO THE SELECT COMMÜTEE OF TYNWALD ON THE ISLE OF MAN STEAM
PACKET COMPANY
Introduction
The public notice issued by the Select Committee in late July 2007 advised that the Committee is very keen to receive the views of members of the public and organisations in relation to the issues to be examined. Section 57 (1) of the Consumer Protection Act 1991 states that it is the function of the Board (meaning the Statutory Board of the Isle of Man Office of Fair Trading)
" . . . t o protect, inform; advise, support and represent generaify the interest o f consumers as such, and to provide information and advice to persons on legislation for which it is responsible
Accordingly the Board of the Isle of Man Office of Fair Trading (OFT) agreed that it was appropriate for a submission to be made to the Committee for its consideration to represent those Isle of Man consumers who had contacted the Office over the years regarding the Isle of Man Steam Packet Company.
Consumer Complaints Statistics
The OFT offers a Consumer Advice Service to members of the public. Consumers contacting the OFT receive advice on civil aspects of consumer protection legislation which provides consumers with certain rights when purchasing goods and services. The OFT can offer a mediation service, should both parties be agreeable but if this does not succeed in reaching an satisfactory conclusion, these rights can ultimately only be enforced by the consumer through the Courts - the OFT cannot enforce these rights on the consumer's behalf.
The OFT logs all consumer complaints received of this nature on a specialist database which allows statistics to be compiled regarding types, levels and nature of complaints made by consumers against companies trading from both on and off the Island. It is from this database the following information concerning complaints received by the Office of Fair Trading regarding the Isle of Man Steam Packet Company have been taken.
The table and chart below show how increasing numbers of consumers have been contacting the OFT over recent years to complain about the Isle of Man Steam Packet Company.
Page 1 of 5
Year Total number of complaints made
1999/00 282000/01 132001/02 92002/03 102003/04 92004/05 182005/06 192006/07 412007/08 (projected) 53
Note: The 2007/08 projected figures are extrapolated on the basis o f the number of complaints during the year to date. To date 20 complaints have been received about the company since 1st April 2007.
Tout numbw of comma In f mad«
1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08(projected)
The complaints recording database operated by the OFT records the category of complaint against standard trading practice codes. Detailed below is a breakdown of the categories of complaints received against the Steam Packet for the last two full financial years.
Year SubstandardService
Price Delivery, collection or repair
SellingPractices
Misleading claims or omissions
Offers of inadequate
redress
Termsand
conditions
Access to Goods
and Services
Total
2005/06 7 4 2 4 1 1 192006/07 7 21 1 2 1 3 5 1 41
Page 2 of 5
2006/07 saw noticeable Increases in complaints received by the OFT against the Isle of Man Steam Packet Company In the "Price" and "Terms and conditions" categories. To try and establish if there are any common causes behind these increases, the complaints recorded in these categories have been analysed in more detail.
Looking first at the "Price" category of complaints, these can be broken into further general sub-categories as follows:-
• TT price indications: Five consumers contacted the OFT for advice early in 2007 regarding their bookings for the forthcoming TT period. At the time the Steam Packet were unable to advise them of the final price for their booking. The OFT were able to advise, foltowing consultation with the Steam Packet, that the final price would not be more expensive than the "Tariff A" fares indicated in the current brochure.
• Fuel surcharge: Four consumers contacted the OFT during the year in question to complain about the fuel surcharge that the Steam Packet were levying on fares. Specifically complainants referred to the fact that they were not seeing the surcharge reduce in times when fuel prices were falling. The OFT raised the issue with the Steam Packet who advised the following by e-mail :-”777e level o f surcharge is directly linked to the costs incurred by the Company and is set by a Formula Agreement with the Department o f Transport. The formula is reviewed in detail by the Department every six months in February and August each year, and considers the weighted average marine fuel costs/tonne actually incurred over the previous six months. I f marine fuel costs breach certain levels then the surcharge is increased or reduced for the whole o f the following six months until the next review. Thus although the world fuel price fluctuates on a daily basis the level o f surcharge is fixed for the following six months on the basis o f the weighted average cost incurred in the previous six months, leading to a time lag. The formula is 'policed'by the Department o f Transport and the level is directly linked to the actual costs incurred...The formula agreement with the DOT also ensures that the Company absorbs the lion's share o f fuel cost increases since 2000/1 without any surcharge. However as Marine Fuels increased from around $100/tonne to over $650/tonne during this period it was impossible for the Company to continue to absorb all the exceptional increases forever. "
• "Excessive" price complaints: During the year five consumers contacted the OFT to complain about the high nature of the Steam Packet fares being of an excessive type nature and some expressed the viewpoint that the company was abusing its position as the sole supplier of ferry services to the Island. The response of the OFT to these complaints was to explain the existence of the user agreement and the role of the DOT in this. Any complaints of this nature are then forwarded to the DOT for their consideration. This is expanded upon in the following section below.
• General price complaints: The remaining five "price" complaints were general in nature and topics covered range from how prices are displayed in advertisements to the differential between single and return fares.
Page 3 of 5
The other category of complaint type that saw a noticeable increase during 2006/07 was that of "Terms and Conditions". Of the 5 complaints received in this category, the complaints made were of a general nature and it is impossible to pinpoint a single cause.
Role of the Linkspan User Agreement
Section 19 of the Fair Trading Act 1996 (as amended) allows the OFT to investigate a price providing that it is one of major public concern, with a view to providing the Council of Ministers with information on the price. Should the Council of Ministers feel, after considering a report from the OFT under Section 19 of the Act, that there is the possibility that an excessive price is or has been charged, then Council can refer the matter to a Commission, which may or may not be the OFT, for further investigation. Following further investigation by a Commission under Section 19A of the Fair Trading Act, the Council of Ministers, after considering a report of the Commission that concludes that an excessive price was charged for the goods or services, can accept an undertaking or ultimately make an order capping the price.
Over the years the OFT have received a number of complaints from members of the public who were unhappy with the level of the fare being charged by Isle of Man Steam Packet Company. Many expressed an opinion that these fares were higher than they should be to some degree and felt that there was an element of the company abusing its monopoly position in terms of being the sole supplier of ferry services to the Island.
Rather than refer the matter to the Council of Ministers for investigation under Section 19 of the Fair Trading Act, the OFT has referred complaints of this nature to the Department of Transport. The Agreement contains a pricing formula that restricts the increase in the company's tariff basket (the aggregate increase of individual tariffs weighted by revenue) to RPI-0.5% per annum. In answer to a question in Tynwald Court on 11th July 2006, the then Minister of Transport, Mr P Braidwood MHK advised that '\..on an annual basis, under the terms of the User Agreement with the Isle of Man Steam Packet Company, my Department considers any application for overall price increases proposed by the Company."
Therefore any complaints received that the consumer feels that the Steam Packet fares and increases maybe excessive or unfair in their nature are referred to Director of Properties at the Department of Transport.
Trading Standards
In addition to providing an Advice Service to consumers, Trading Standards Officers work within the OFT to advise and enforce consumer protection legislation. Officers have worked closely with the Isle of Man Steam Packet Company to ensure that their activities do not breach any legislative provision.
The OFT has the opportunity to peruse advance copies of brochures in order to advise on any potential areas of discrepancy. Trading Standards Officers have also had to advise on pricing issues, ensuring that advertised fares are representative of
Page 4 of 5
the final price to be paid by consumers. The Isle of Man Steam Packet Company has responded positively to any requests made in this area.
Conclusion
• The OFT would like to make it dear that this submission has been provided to assist the Select Committee by representing the views of consumers as expressed to the officers of the OFT and recorded on its database. The Board of the OFT has a statutory obligation to represent the interests of consumers and to ensure that the Office's criminal legislation is appropriately enforced.
• The Board would wish to remind the Select Committee that the pricing of Isle of Man Steam Packet Company travel fares is subject to control through the Linkspan User Agreement made between that company and the Department of Transport. It is the view of the Board that this agreement offers a dedicated mechanism for government to regulate prices and as such may be seen as being a more appropriate route than the application of general fair trading legislation.
Page 5 of 5
APPENDIX E
Steam Packet Company Market Research
HOW DO YOU RATE US?
The Isle of Man Steam Packet Com pany conducts market research throughout the year to monitor feedback, highlight potentia l customer concerns and identify market trends or areas tha t may need improvements. Research is conducted onboard our vessels every week and elsewhere from time to time, using electronic hand held devices. This method of collection allows for honest feedback and a greater volume of responses.
Although some of our research is commercially sensitive we also monitor perceptions on customer service issues and value for money.
We would like to thank our many customers for taking the trouble to com plete our surveys and share the most recent results from 2007 with you. Our aim is always to improve wherever •practical!
Results to O ctober 2007 based on 5360 customers responses:-
titeum of value tor money, howwoukJyou fete your trip as a w bote?
|c Btcefltnf or ‘Good' o ’Average'd T&yt' a Vary F to fJ
100%90%80%70%60%50%40%30%20% i10% | \---------------------
How h e£ fj have you found the crew onboard?
|o Bremen? or ’GoocT o 'Average' o R ä t ' or Very Fbor j
you rate the contort of the aeatng and lounge areas on (he vessel?
je Bttefenf o r'Gcxxf d 1Av«iege'lj oTv«ry ftx*" I
hbw would you rate the standard of the rich meab aerved on board?
d w 'Goaf a ’AvweBe' o ‘Ffcor1 or Very R » r ‘
00%60%70S 60%50%40%30%20%10%0%
W ist has been you- overai option of your *4h us today?
| d 'BtcHenf or*Goo<r o 'Average* O 'fcor' or Very ftior' |
'imm" ■*Hew w otid yog ret« the appearsnoe of the crew on boarcP
|o Very SrrBrf or'Srnjrt' Q 'Average' c Th& V'ofVcry Lhfay |
100%90%00%70%60%50%40%W%20%10%0%
ftiw w<xitf you rate me eteenlnos of the lotet f eclties?
|o Very OearT or ‘flaerf a TJnctean* or Very Undggrf |
60%
50%
40%
30%20%
10%
0%titerrm of vabefor nroney hwr w oufdyuu rate the food served on board?
Jo ,&cet#nt' or *Qoorf □ ‘Avcfape1 o T^of1 or Very Pbor* |
70%
60%
50%
40%
30%
20%
10%0%
fo v w a id you rate the standard of the enacts serv ed on board?
fn~’Btcajenr or ‘Goäd1 ö^Ävefaäet o ‘foor* or Very ftwr* |
100% 60% BOH 70% 60% 50% 40% 30% 20% ] 10% J 0% i
t a * wcnitf you rate standard of 1 rod service in genertf on board?
|(3 'fecatant'’ or 'Qootf o 'Average' □ *Rxjtj or Very Fdcx' j
How doyM jfndthetttoton If) the oo beard shop?
|c Qf ‘Gcotf p VWargQa' □ 'Rxy' or Very Po m ' |
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APPENDIX F
Submission from TravelWatch Isle of Man
Steam Packet Company Response
T ravel Watch IS L E O F MAN 1
Submission from TravelWatch-fSLE OF MANto the Tynwaid Select Committeeon the isie of Man Steam Packet Company.August 2007
Introduction:
TravelWatch ISLE OF MAN was formed in January 2007 to represent and promote the interests of Isle of Man Passengers. It is part of a much larger TravelWatch network based in the UK, giving us access to expertise, advice and support across all modes of public transport. We seek to work with the relevant authorities and operators to drive up standards and improve the travel experience for residents and visitors alike, to from and on the Island. Further details of TravelWatch ISLE OF MAN are provided in Appendix 1.
Our submission: is made under the five headings under which the Select Committee has invited comment, and on which we would be prepared to give oral evidence.
We would however make three preliminary observations:
a/ The User Agreements and amendments which regulate certain aspects of the Company’soperations have not been open to inspection in the Tynwald Library by MHKs or the public until very recently. There are therefore many misconceptions over what is and what is not covered by these agreements. This has led to incorrect assumptions that the company is acting outside the agreements.
b/ Having heard both the views expressed by the travelling public and examined thedocumentation lodged in the Tynwald Library we believe that passengers have legitimate concerns most of which are in areas either not covered at all, or inadequately covered within the User Agreement(s). Some of these concerns may ultimately be addressed by pending EC legislation which will apply to all maritime carriers serving EC ports. Given that the User Agreement(s) are a "done-deal” legally, it may be beneficial for all if the parties reach voluntary agreement to address some of these passenger concerns.
d Our submission includes a number of suggestions for improvements for passengers. Wewould be prepared to work with the Company as a passenger consultative organisation on the detail of these proposals. Such co-operation with transport operators is an objective of TravelWatch ISLE OF MAN.
This evidence is submitted by TravelWatch ISLE OF MAN - www.travelwatch-isleofman.orgChairman: Brendan O’Friel 01624 833636 [email protected] High StreetPort St MaryIsle of Man IM9 SDR
Compiled: by Dick Clague 01624 834606 [email protected] Eagle Mews Marina Lane Port ErinIsle of Man IM9 6LB
Travel Watch ISLE OF MAN 2
Contents: Page
Executive Summary and Main Recommendations 3
Submission:
1 Fare structure 5
2 Price comparisons when booking on/off the Island 6
3 Whether prices are fair and equitable, and represent best value for money 7
4 Determination of whether excessive charging has taken place 10
5 Standards of service and their compliance with agreements 12
Appendices:
1 TravelWatch ISLE OF MAN 17
2 Fuel surcharges 18
3 Fare comparisons 19
4 EC Consultation on Maritime Passenger Rights 21
5 Ruling on availability of advertised ferry fares 22
6 TravelWatch comments and update on the 1999 Tynwald Select Committee report. 24
Travel Watch ISLE OF MAN 3
EXECUTIVE SUMMARY & MAIN RECOMMENDATIONS
PRICING:
A. We find no evidence that the pricing policies followed by the Company are in breach of the User Agreements reached between the Department of Transport and the Isle of Man Steam Packet Company in 1995 (extended in 2002) and 2004. [see section 4]
3. The lack of transparency in those pricing policies has led to widespread confusion and public expectation that advertised special offer fares will be more readily available than appears to be the case. [see section 1]
C. This» coupled with absence of standard fares being listed in the Company’s brochures, or in advertisements, has led to a view that those unable to benefit from special offer fares are being over-charged and are not getting value for money.
D. A formula for fares which was established in 1995 can hardly be expected to be appropriateuntil 2026 [see para 3.8]
Whatever modes of transport are used to or from the ferry, other costs will be involved, and these will form part of the passenger's judgement on the value for money of making the total journey - or in some cases whether or not to make that journey at all.
If visitors are to be encouraged to travel to the Island by sea the costs and convenience of the whole journey need to be seen as competitive. [see paras 3.7 and 5.5]
STANDARDS OF SERVICE:E. User Agreement shortcomings in the area of passenger service requirements were
identified by the Select Committee which reported in 1999. These and the suggested remedies appear not to have been given any consideration when the User Agreement was renegotiated in 2004. [see paras 5.1 & 5.2 and Appendix 6]
F. We are concerned at the lack of agreed and published service standards - [see paras 5.2 to 5.6]
MAIN RECOMMENDATIONS:
We recommend that:
G. The Steam Packet website and literature be required to show Standard Fares as well asSpecial Offers (as in previous years). [see para 1,2]
H. A full timetable be included in the printed brochure (as in previous years).I. The Company be required to publicise its 01524 telephone number in all advertising on and
off the Island [see para 4.5.4]J. Service standards be agreed across a number of areas not covered by the User
Agreement(s) [see section 5]K. Performance against these standards should be regularly and publicly reportedL. A remedy process be established in the event of non-performance.M. Regular consultation with passenger representatives be instigated.
Some of these concerns and recommendations may ultimately be covered by pending EU legislation which, once enacted, will apply ultimately to all maritime carriers serving EU ports.Given that the User Agreements are a “done-dear it would be beneficial for all the parties if voluntary agreement could be reached to address these passenger concerns, [see Appendix 4].
/continued
Travel Watch ISLE OF MAN 4
There are other areas of concern to us which in the absence of publicly available information we have been unable to explore fully. We would suggest that the Select Committee might wish to look into:
: N. The accounts of the Company which are not available to the public but are needed to determine whether prices charged are equitable i.e. enabling the company to make a reasonable but not excessive profit from its business. The Select Committee will be able to obtain the necessary financial information to form such a judgement and may also wish to ask the Company for details of price-related complaints, [see section 3 Overview]
0. The appropriateness of the control mechanism on Standard Fare levels in the UserAgreements^ possibly to include benchmarking of fares against other operators, [see para 3.6.1]
P. Whether in a monopoly situation on life-line routes it is acceptable that the lowest fares can only be purchased on-line. This practice is common across the travel industry in competitive markets, [see para 4.4]
Q. The application of Fuel Surcharges to determine whether the current arrangements benefit anyone other than the company and to establish transparency. [See para 4.5.3 and Appendix 2 which gives details of current ferry industry applications of fuel surcharges].
1 - Examine the Isle of Man Steam Packet Company's fare structures over the past twelve months, any increases to fares in that period and the reasons why.
Overview:
* The basic fare structures have not changed in the last 12 months.
* Standard fares for 2007 have been increased in line with inflation as permitted by the User Agreements.
• Some slight changes have been made to special offer fares - some beneficial to weekend passengers and some detrimental to those unable to book on the internet.
• Costs for extras such as Cabins, 1st upgrades and Reserved Seating are substantially unchanged from 2006.
Comments:
1.1 SPC fare structures are unclear to passengers - so it is difficult for passengers to know whether they have been quoted correct fares or not. There were particular difficulties earlier in the year for people booking for the TT period to establish the fare they were likely to have to pay.
1.2 Unlike previous years the printed brochure for 2007 does not display tariff “standard” fares at all, and all “special offer" fares are "from" fares i.e. the lowest fare is quoted but may not always be available.
1.2.1 We recommend that brochures and the SPC website should be required to display full details of all Standard Fares.
1.3 All fares are currently subject to a fuel surcharge
1.3.1 The question of fuel surcharges and their application is addressed as a separated topic [see para 4.5.3 below and appendix 2]
1.4 2007 “Special fares" changes
1.4.1 In the spring and peak summer (post TT to mid September) periods “any length of stay” special offers in recent years were restricted to midweek (Mon-Thurs) travel. In 2007 that restriction was removed but a £20 / £25 per vehicle per single journey weekend surcharge was applied. This is a benefit over the standard fares previously offered - but there is limited availability at these new lower fares.
1.4.2 Foot passenger day return fares which are advertised as being available on allsailings at defined times (outward journey must commence before 11.30 and subject to availability)have been completely withdrawn during the Manx Grand Prix. (as per Mark Woodward’s BLOG dated 18 July).
1.5 The Steam Packet website shows the sailing and fare options available for any potential booking - but excludes fuel surcharges until the booking is made. There appear to be a few instances when two single fares may be cheaper than booking the return options displayed - this is addressed in section 3 (below).
Travel Watch ISLE OF MAN 5
2 Make a comparison of prices when booking on and off the Island
Travel Watch ISLE OF MAN 6
Overview:
♦ A common tariff of both Standard and Special Offer fares applies to sailings both to and from the Island. The only exception to this is “TT Escape Fares” (see para 2.2 below).
• The actual time and date of sailing will lead to variations in cost of travel and (apart from the TT period) the closer to the date of travelling the booking is made the lower will be the chance of obtaining a special offer fare. The tariff applied to standard fares at busy periods and the limited availability of special offer fares also means that the fuller the vessel the more people will be travelling at higher fares. This means that at times when the traffic into the Island is heaviest (e.g. at the start of the school summer holidays) the average fares charged will be higher than they are for (smaller number of) people leaving the Island the same day. This is standard yield management technique widely used by airlines, ferry companies and train operators.
Comments:
2.1 Standard fares have for many years been banded into 5 categories (designated A-E) with the highest fares (A) applying to peak (mainly weekend) sailings on the Liverpool route and during the TT period. The lowest standard fares (E) have only been available in the winter The standard fare is not always the same on ail sailings on the same route on the same day, as sailings later in the day may sometimes be offered at a lower tariff than morning ones. This means that the time of travel will have more bearing than the direction/origin of travel on the fare paid.During the 2007 TT period (as for 2006) no standard fares tariff has been published, so we are unable to determine whether all sailings have been rated at tariff A - or whether there may have been some offered at lower prices (presumably on lightly loaded sailings in the direction opposite to the main traffic flow)
2.2 Special offer fares will always be more freely available on sailings for which there is low demand and are, we believe offered on a first come - first served basis. Dates of availability of special offer fares are clearly stated in the company’s literature both in 2007 and in previous years. Most Special Offer fares are not available during the TT race period (defined in 2007 as 24 May to 12 June - the same overall period as in 2006). There has in recent years been only one special offer fare available at this time: T T Escape" Fares ~ which originate only from IOM, offering return fares “from £158” for a car plus 2 - or from £88 return for a motor cycle + rider.
Comparable standard fares (which would apply to bookings at the same time from UK/Irish ports) would be more than double this (£354 in 2006 - £362 in 2007)
2.3 Unlike some ferry companies e.g Northlink serving Orkney & Shetland, the Steam Packet Company (and the airlines serving the Island) do not offer any form of Resident Discount fares. They are not required so to do by the User Agreement, but the point is raised only to suggest that if there are occasions when Manx residents have some slight benefit then they should be retained! The discontinued Frequent Traveller scheme offered an effective discount of 20% to those making more than 5 trips a year - a preponderance of whom would probably have been Island residents. The promised replacement scheme has never materialised.
/continued
Travel Watch ISLE OF MAN 7
2.4 An actual example: For a family with car and two children, booked on-line on 29th July 2007 and wishing to travel on Saturday 4th August arid return on Saturday 11th August, the following range of fares and options was available (an option being a combination of sailings at different times to/from either English port):
Starting from Liverpool/Meysham to IOM: (all prices would be increased by £20 to cover fuel surcharges)
• 4 options @ £300• 4 options (3) £318• 1 option @£410• 2 options @ £422• 1 option @ £426
If the journey started on the same date from IOM the availability offered was:
• 9 options @ £300• 3 options @ £318• 2 options @ £410• 1 option @ £414
Again these prices would be increased by £20 to cover fuel surcharges. Further details are shown in appendix 3
3. Consider whether the prices charged throughout this period are fair and equitable and represent best value for money for Isle of Man customers and oftjsland customers1
Overview:
• The accounts of the Company are not available, and are not required to be available for public inspection. We therefore cannot form an opinion as to whether prices charged are equitable i.e. enabling the company to make a reasonable but not excessive profit from its business. The company’s prime objective must be to maximise its profits for the Australian Pension Funds and the Macquarie Bank who are now its owners. The Select Committee will be able to obtain the necessary financial information to form such a judgement and may also wish to ask the Company for details of price-related complaints.
• Those able to benefit from Special Offer fares are usually getting good value for money - those paying full tariff fares will find the Isle of Man an expensive place to reach or leave. This is true both for IOM and off-lsland travellers.
• At times of high demand we believe that the on-line booking system may not always show all the fare options that are available - two single fares may be cheaper than any of the return fares displayed, (see para 3.4).
Travel Watch ISLE OF MAN 8
Comments:
3.1 The standard tariff fares and charges are regulated by the User Agreement. These are based on the tariff fares for 1995 which the company is permitted to increase by up to Manx RPI less 0.5%. Any increase above this figure is subject to Dept of Transport approval and may be referred for binding arbitration. Increases above this level were envisaged in the event of reductions in traffic volume causing the company to go into loss, increases in costs beyond the Company's control or to allow the company to re-coup costs associated with investment.
3.2 The number of special offer fares to be made available has been specified since the 2002 supplemental agreement but the level of special offer fares is not regulated, nor is there a definition of “special offer fares". It would therefore appear possible for the company to increase special offer fares considerably (provided they remain below the standard fares), without being in breach of the User Agreement.
The on-line booking system also makes it difficult to appreciate at the start of the booking process what terms and conditions are associated with the various price options displayed, e.g an enquiry for foot passenger day return fares to the iOM on Saturday 25* August produced a range of prices between £24 and £61 (exd Fuel Surcharges) but stated that the Ticket type was: STD 5 Day Return, Fully Flexible, Amendment fee £0pp per amend, Max. fee £0. These conditions presumably would not be applicable to the lower prices quoted.
3.3 There is no requirement in the User Agreement for the benchmarking of fares against other ferry operators/routes - although the Company themselves published figures (Steam Packet Company TIMES - Issue 7 Dec 06/Jan 07) which suggested favourable cost/mile comparisons with Holyhead and Channel islands routes. It should be noted that the figures used were compiled in March 2006.
3.4 In the peak Summer period the price for a car plus two on weekend Standard tariff A is £374 (£354 plus 4 x £2.50 fuel surcharges). The Special Offer return fare (any length of stay) if available would be £258 (£198 + 2 x £25 w/e surcharge + 4 x £2.50 fuel surcharges).Travelling mid-week on tariff B there would be a saving of £8 on the Standard fare = £366, and £50 on the special offer fare = £208 (with a greater chance of availability on the latter).
For foot passengers, the difference between special offer and standard fares can be even more extreme. For someone wishing to make a day trip from the Island to Liverpool on Saturday 18th August (booking 8 days ahead) the prices ranged between £38 and £61 (both plus fuel surcharge). Coming to the Island the same day it was £37. Mixing and matching routes ie out to Heysham and back from Liverpool (or w ) cost £60 or £61 that day.It appears that if no special offer return fares are available a standard return fare is the only alternative offered, even if a special offer fare is available in one direction. Whilst there may be some difficulty for the booking system to mix and match standard and special offer fares it appears perfectly possible to purchase a single journey at a standard fare in one direction and a special offer fare in the other. A similar anomaly in the (UK) railway booking system (www.thetrainline.com) has been overcome by indicating on each pricing page that it may be cheaper to book two single tickets.
Whatever the User Agreement may allow, it would be difficult to convince oassenqers that the standard fare is either fair or equitable.
3.5 Similarly residents have long complained about the costs of getting off the Island. Despite the decline in tourist numbers the total passenger numbers travelling by ferry has held up well over the last 10 years. This is substantially based on Island residents travelling more - and particularly in the off peak months. This appears to be the area where special fares have successfully encouraged more travel.
/continued
. TravelWatch ISLE OF MAN 9
3.6 The Select Committee might wish to consider the following:3.6.1 A review of the appropriateness of the control mechanism on Standard Fare levels -
possibly to include benchmarking of fares against other operators,3.6.2 A definition of the relationship between special offer and standard fare levels, e g
"special offers will be at a level of between 50% and 75% of standard fares" We suspect this is probably about what happens now but the purpose would be stop them raising them above (say) 75% without reference.
3.6.3 The wider availability of Special Offer fares for Island Residents travelling “against the flow" of TT traffic who may not be able to meet the requirement for TT Escape fares.
3.6.4 More transparency being required of the company over the number of special offer fares available at peak times. A recent Commission finding into a complaint against Stena Line’s advertising of special offer fares in Ireland is illustrative of the general issues, (see Appendix 5).We would also suggest that the Select Committee might wish to take a view on whether an adequate number of special offer fares are being offered at peak times.
3.7 Whatever modes of transport are used to or from the ferry other costs will be involved, and these will form part of the passenger's judgement on the value for money of making the total journey - or in some cases whether or not to make that journey at all. If visitors are to be encouraged to travel to the Island by sea, the costs and convenience of the whole journey need to be competitive. [See also para 5.5]
3.8 In forming a view over whether fares are fair and equitable, passengers will not be convinced by comparative “cost per mile” arguments against other routes, much less compliance with any formula. Since P&O Ferries can offer night and early morning fares between Dover and Calais for last minute bookings through August from just £40 each way for any length of stay (covering a car and up to nine people), why should holidaymakers go to the Isle of Man?
The economics of the Dover and 10M routes are totally different, but the problem is one which faces many island communities. The Scottish Executive announced on 13th August 2007 a study to establish the most effective and sustainable structure for a Road Equivalent Tariff (RET) pilot scheme for setting ferry fares on the basis of the cost of travelling an equivalent distance by road - because high ferry fares are seen there as a barrier to economic growth on the Islands. Details are on their website http://www.scotland.gov,uk/news/refeases/2007 We do not advocate this particular solution but we believe that some “thinking outside the box” will be needed. A formula for fares which was established in 1995 can hardly be expected to be appropriate until 2026.
3.9 The company has been conducting on board surveys recently using a touch-screen handheld device on which passengers were asked to respond to a series of questions by indicating which option best described their view. One question related to perceived value for money - but this did not ask people to indicate the level of fare they had paid. It is unclear whether the devices were pre-programmed with journey details or date/time information, but without this the results could be quite misleading. Passengers on the Whitehaven day trips were surveyed and would presumably regard the fares they paid as good value - but they would hardly be typical of the fares paid on most other routes.
Travel Watch ISLE OF MAN 10
4. Examine whether any excessive charging has taken place.
Overview:
Whilst we have found no evidence of charges in excess of those allowed by the user agreement, many passengers regard the higher levels of standard fares charged as being excessive. It would be helpful to have passenger opinion independently surveyed on this point, (but see para 3.9 above).
Comments:
Bearing in mind that the Company is only advertising its lowest fares and has only included Special Offer fares in its printed brochure for 2007, there is in our view an inevitability that people finding themselves charged up to twice the advertised figure will, not withstanding the small print, feel that they have been charged an excessive fare.
The Select Committee might consider asking for the Company's complaints statistics on fares issues - also to enquire if they have any comments about fares from any Customer Satisfaction surveys they have conducted!
There are also a number of ways in which revenue can be increased without tariff prices being raised:
4.1 The company withdrew its frequent traveller scheme which effectively increased prices for those making more than 5 trips in a year by up to 20%. It was claimed that special offer fares effectively replaced this scheme. Whilst the scheme certainly pre-dated special offers, the two ran together for a number of years so for regular travellers this represented a real and substantial increase in travel costs. Suggestions of a replacement scheme have not materialised.
4.2 The ratio of special offer fares available at different price levels can be changed without apparent scrutiny. The lack of transparency in special offer pricing (see 3.2 above) means we are unable to determine to what extent (if any) this may have been done.
4.3 The five classes of standard fare (see para 2.1) are regulated by the User Agreement but the number of sailings to be offered at each fare level is not. It would be quite possible therefore to increase the number of sailings at higher tariff rates (and reduce the number at the lower bands). Examination of the 2006 and 2007 timetables suggests that this has not been done but there appear to be no safeguards provided for passengers in this respect.
4.4 When the on-line booking system was introduced for the 2006 season a discount of 2% was offered on standard fares. Special Offer fares were then quoted at approximately the same levels as 2005 but this now included a discount of £5 per foot passenger (single or return) and £10 on return car offers - i.e those unable to book on line suffered a £5 / £10 increase. In 2007 the online net prices remained unaltered but this included a higher discount for booking on line (£6 / £12) ie those who booked on line paid the same as the previous year but those booking by traditional means paid £1 / £2 more than the previous year. It seems perverse that what the company claims as an increased discount for on-line booking leaves prices unchanged for everyone except those unable to benefit from them.
It should however be noted that best prices across the travel industry are often only available to those who book on line. In a competitive environment this is acceptable but the Select Committee might wish to consider whether this is acceptable on monopoly life-line routes.
/continued
Travel Watch ISLE OF MAN LI
4.5 There are a number of other charges which have been introduced - no doubt in line with industry practice - in recent years which will have been beneficial to the company’s revenue. Individually the charges are small but the cumulative revenue from them may be significant.
4.5.1 There is a £3 surcharge per transaction for payment by credit card. The 2007 brochure indicates “there is currently no charge for debit card payments". If such a charge were to be introduced the company would no doubt benefit. Most ferry companies make similar charges.
4.5.2 An amendment fee of £5 per person is charged for changing special offer tickets. This is in line with industry practice for tickets on special offers. There is some feeling that as the "Island Lifeline” there should be some discretion shown where changes have to be made because of illness or bereavement.
4.5.3 A fuel surcharge was introduced during 2005. It is currently £2.50 per single passenger journey. The company state on their website: “This will be constantly monitored by the Steam Packet Company and may be adjusted in the future at our discretion." The company have however indicated to TraveiWatch Isle of Man that a formula has been agreed with the Department of Transport which allows them no discretion in this regard. This is apparently confirmed by the statement made by Mark Woodward in his “blog” on the company website dated 23 July in which he stated: “These charges are regulated by the Department of Transport by direct reference to the cost of marine fuels. When the cost decreases below a certain range, the surcharge will also decrease. The system ensures that the consumer is only charged what is fair and equitable”. We have not found specific reference to Fuel Surcharges in the documentation lodged in the Tynwald Library, nor discovered the relationship between fuel costs and the surcharge applied by the Company. We suggest that the Select Committee may wish to probe this further in the interests of transparency, particularly in the light of the recent MEA statement that they do not forsee any need for a Fuel Cost Adjustment over the next 12 months.
The application of Fuel Surcharges across the ferry industry is inconsistent - probably showing the tension between competition/market forces and bunker costs. The Select Committee may wish to probe further into this area to determine whether the current arrangements are equitable There are few industries in a position to automatically recover additional costs of any sort from their customers. Whilst we recognise both that fuel costs have risen substantially over the last couple of years and that the Company will wish to offset those additional costs through increasing prices, we do not believe that a surcharge mechanism is the appropriate way of dealing with this on an ongoing basis. Appendix 2 gives details of current ferry industry applications of fuel surcharges.
4.5.4 For those booking by phone the company provides an 0871 (national rate) telephone number. This is common travel industry practice and a proportion of the cost of each call is paid to the company. Although the local number 01624 661661 still works it seems no longer to be advertised. This means that island callers are being encouraged to use a higher rate number for the company’s benefit when a local call would suffice. Those callers, whether on or off Island, who have inclusive telephone tariffs usually only have geographical dialling codes included in their free calls so would be able to call the 01624 number free but would have to pay for calls to the 0871 number The Select Committee might therefore recommend that the company advertise its 01624 booking numbers.
5. Consider the standard of service offered to both passengers and freight users bv the
T ravel Watch ISLE OF MAN j 2
Company and the extent to which it is in accordance with the Company's agreements with the Government
Overview:
• The service requirements contained in the User Agreement relate mainly to the number and frequency of sailings, ports to be served and capacity (both freight and passenger) to be provided. We have seen no evidence to suggest that the company is not fully compliant in this respect.
• There is a need for service standards to be agreed across a number of areas not covered in the User Agreement(s).
• Performance against these standards should be reported and a remedy process established in the event of non performance.
Comments:
■5.1 It appears that the User Agreement was drawn up by the Dept of Transport and the Company without any form of independent market research or consultation with passengers to ascertain their service requirements. This shortcoming was identified by the Select Committee which reported in 1999 but it appears not to have been given any consideration when the User Agreement was subsequently extended. A review of the report and recommendations made by that Select Committee, insofar as they impinge on the terms of reference of the current committee is included as Appendix 6.
5.2 In view of the effective monopoly which the company holds, the lack of any agreed service standards and reported performance monitoring in the following areas needs addressing:
5 2.1 Cancellations and timekeeping - targets should be set and performance reported.5.2.2 Complaint reporting procedures, response times and resolution targets. An analysis of the type of complaints received, particularly in respect of fares would be desirable. Standards should be set against which progress can be monitored.5.2.3 What passengers can expect from the company in the event of cancellations:
5.2.3.1 method(s) of notification.Our experience here is very variable. It has been reported that passengers who have supplied their mobile phone numbers have not received any notification of cancellations or delays. Our own enquiries reveal that passengers are unlikely to be contacted if delays are anticipated to be less than 3 hours. Other passengers report excellent service. Passengers need to know what to expect.5.2.3.2 assistance the company will provide in the event of cancellations.In the event of a Liverpool sailing being cancelled transport is usually provided for foot passengers to/from Heysham. At one time petrol vouchers were provided for affected motorists but this no longer appears to be the case.5.2.3.3 During the TT passengers switched between ports appear to have been offered no such assistance - despite the absence of any connecting public transport for foot passengers at Heysham for passengers diverted from Liverpool. This can involve passengers in considerable extra expense.5.2.3.4 Passengers with connecting travel arrangements / hotels can face considerable extra cost if sailing arrangements are changed. What is the company's position over this?5.2.3.5 A mother travelling to the Island with young children from SE England found on arrival at the port that her sailing from Liverpool had been cancelled due to bad weather. Rather than travel on the 02.15 from Heysham she elected to stay in a hotel (at her own expense) and travel the next day. She was initially told that as she had not accepted the offered alternative sailing she would have to pay an amendment charge - although this was later retracted.
/continued
TravelWatch ISLE OF MAN 13
5.2.3 6 Standards for coach transport and terminal facilities to be provided at times of disruption need to be the subject of consultation with TravelWatch in their capacity as passenger representatives. TravelWatch North West have produced a report on Rail Replacement buses which is pertinent to this. It is available on their website: www.travelwatch-northwest.orq.uk.
5.3 The Select Committee should be aware that there are draft proposals from the EU to introduce minimum service standards for ferry operators both within EU and subsequently those from outside the EU (such as lOMSPCo) serving EU ports. Further details are provided in Appendix 4.
5.4 Procedures in the event of delaved sailings:- the first requirement is that the company should be “up front" about delays. Often the first passengers will know about a delay is after the vessel has sailed. Unless this arises from an incident during passage this is unacceptable.- on-board staff seem ill-equipped to assist passengers with advice over onward travel arrangements. To carry rail and bus time tables on board for destination ports, plus a list of phone numbers for taxi companies would hardly be difficult to organise, would cost very little and would substantially enhance service standards.
5.5 Information for passengers
5.5.1 Reliable and up to date information on sailings needs to be available both to passengers before they travel and those meeting them on arrival. Currently this can be provided in five ways:
• the company website• the recorded sailing information line [01624 645745]• Seawatch reports twice daily on Manx Radio• Monitors in the Sea Terminal• Text messages
The first two appear to be the responsibility of the Steam Packet’s duty staff to update, and in the absence of updates default to what amounts to timetable information. It is often the case that a
vessel “arrives" 15/20 minutes later than claimed and passengers may reach the terminal up to 30minutes after a so-called on-time arrival. I60807
Our experience is that at busy times staff often have other priorities which mean that when updated information is most required it is sometimes not available through these means.
The Seawatch reports used to be provided by Steam Packet staff live on air - which usually ensured that the information was reasonably up to date and accurate. They are now bulletins read by the radio announcer from a script written many hours before, and perhaps updated from the announcer’s own observations through the studio window. It appears rare for any updates to the script of the day to be broadcast.
The monitors in the Sea Terminal are controlled by the Port Security staff and appear to be programmed on a daily basis. There are no regular updates. A system similar to that used at the airport, giving details of arrivals and departures would be more useful - although it is recognised that this may not be cost effective against the number of sailings operated. Similar information needs to be displayed at the other ports the Company uses.
/continued
Travel Watch ISLE OF MAN 14
The Company introduced a system some years ago whereby passengers could be sent a text message in the event of delayed sailings. There have been complaints from passengers who have not received such messages despite supplying their contact details at the time of booking.Enquiries of the company suggest that the system is only implemented in the case of delays exceeding three hours - which we believe to be quite unsatisfactory. It also appears that at the time of the TT many delayed and diverted passengers (who had supplied their contact details) did not receive messages at all. We are therefore unclear whether this system is still being used by the Company at all. We would recommend that it should be used and that any sailing more than an hour late should be advised to passengers. Best practice in the industry would suggest that this should be brought down further and that an automatic text message should be sent to all preregistered passengers confirming the status of their sailing - even when it is expected to operate on time.
5.5.2 Passengers need ready access to information about
• how to compliment or complain to the Company (Passenger Comment Forms have been found on board but not in the terminals. The forms do not include any information about how to contact the company subsequently)
• service standards• performance (reliability and timeliness)• all fares and other charges• a summary of the User Agreement and how to access full information.
5.6 Connecting transport information
As already mentioned the ferry crossing will in most cases form only part of a journey. Information about onward transport (both on and off-lsland) should therefore be provided to facilitate the total journey. A desk has been fitted out on the Superseacat Two to provide such information. The display board is in position, but the literature racks are empty of everything except a few copies of the Company’s on-board magazine. It is particularly ironic that there is no information provided about the Ferrylink bus service which runs between Liverpool Pier Head and Lime Street Station - the timetable for which includes a full page advertisement for the Steam Packet Companyi There is also no timetable information carried on board for Buses and Railways on the Island.
This is a common problem for passengers using our airlines as well. TravelWatch ISLE OF MAN provides connecting transport information on its website www.travelwatch-isleofman .orq to help both sea and air passengers. TravelWatch NORTH WEST published a report in July 2007 "Air Passengers and Public Transport" which is available on their website www.travelwatch- northwe5t.orq.uk
/continued
Travel Watch ISLE OF MAN
5.7 Through-booking facilities
15
We welcome the participation of the Company in the Rail and Sail scheme which enables tickets to be purchased between many main UK railway stations and Douglas - either via Liverpool or Heysham. Tickets can either be purchased from the Company in Douglas or on-line via some UK rail booking websites such as http://www.thetrainiine.com
We believe this concept can be extended further to include multi-modal journeys. Rail/bus tickets are now commonly available in UK and Northlink Ferries are now offering through tickets to Kirkwall (Orkney) from UK railway stations. These recently introduced tickets include train to Thurso, a bus transfer to Scrabster, the ferry to Stromness and a final bus ride to Kirkwall. http://www.northlinkferries.co.uk/default.aspx.locid-QQqnew3av.Lanq-EN.htm The scheme is backed by HiTrans http://www.hitrans.orq.uk which is tasked to improve public transport in the Scottish Highlands.
The UK ferry industry is showing signs of resurgence this year arising partly from the delays at airports and {probably to a lesser extent) because of increasing passenger awareness that ferry travel has less environmental impact. This is not a theme the Steam Packet Company has taken up yet - its “Go green this summer" advertisements are only being used to market Irish sailings.
Given these trends we would hope that if improved through booking facilities were made available that it would make it easier to attract foot passengers to visit the Island.
5.8 On board facilities
The 2004 User Agreement (para 2.3.3) requires the Company to “provide a minimum standard of on-board facilities broadly comparable with UK passenger ferry operators „.and allowing for differences in the scale of operations or other differences applicable".
In terms of providing catering outlets, children’s play areas etc this requirement is met. However the comfort and layout of seating, facilities and general ambience of the company’s vessels, particularly on the fast craft, is below that of most other ferry companies on the Irish Sea. It must be in the interests of the company and the Island that the travel experience is improved for all passengers. Regular upgrades of existing craft are essential to provide higher standards for passengers
5.9 Terminal facilities
5.9.1 Heysham
• We welcome the recent improvements made to passenger facilities at Heysham Port.
• We appreciate that the changed vehicle check-in and queuing arrangements are not in their final form but would stress the need for passengers to have adequate access to toilets and other facilities whilst waiting to board the vessel.
• We are concerned at proposals to move the location of the railway station further away from the passenger terminal (possibly necessitating the use of a transfer bus).
5.9.2 Liverpool
• We welcome the new priority boarding system for foot passengers - and hope that it can be extended to the other ports at times when large numbers of foot passengers are travelling.
/continued
TraveiWatch ISLE OF MAN 16
5.9.3
5.9.4
*
5.9.5
We are encouraged by the efforts of Merseytravel, in co-operation with the Liverpool Terminal manager, to improve public transport links between the Pier Head terminal, the main railway stations and the City Centre but are disappointed at the Company’s failure either to display the timetables on its vessels or to brief on-board staff of their existence - particularly as the Company has taken advertising space in the timetable.
Wq look forward to tha opening of tha now vehida marshalling and boarding facilities currently under construction. In the meantime approaching the terminal is like driving through a construction site.
The standard of the current Passenger Terminal facilities is woefully inadequate, as the Company and its staff working there appreciate, and we would urge that all parties are encouraged to press ahead with plans for its replacement at the earliest available opportunity.
Douglas
The standard and provision of facilities at Douglas is good, reflecting the investment and improvements made in recent years.
We would suggest an audit of signage in the terminal to ensure that required information is clearly provided and that outdated (and consequentially confusing) information is removed. TraveiWatch Isle of Man would be pleased to assist with such an audit.
Dublin
The terminal is of a high standard
The major drawback is the lack of regular public transport links with the city centre and shortage of taxis at the port. Although the Company’s agent arranges a bus to meet incoming sailings it is doubtful whether this is sufficient to meet the obligations of para3.9.1.1 of the (1995) User Agreement which states that the company is to “ensure that eachselected port: has good accessibility ......... by public transport". In our view this is notwithin the Company’s ability to provide and no alternative port is available which could remedy the problem.
We would suggest the Company be required to ensure that a bus is provided from Dublin City Centre/stations to the Ferry Port to connect with sailings and that the times and starting point of this service be advertised. Irish Ferries provide such a service for their passengers.
Belfast
The company are now the sole user of the SeaCat terminal at Donegall Quay, an area we understand is likely to be re-developed in the next few years. The port authority appear to be moving commercial shipping berths seaward which may prove less convenient for foot passengers.
Should the Company's Belfast berth be re-located we would ask that provision for public transport access for foot passengers be a key part of any plans.
. Travel Watch ISLE OF MAN
APPENDIX 1: TravelWatch ISLE OF MAN
17
TravelWatch ISLE OF MAN was founded in January 2007 in order:
"To represent and promote the interests of Isle of Man passengers"
Our key objectives are:
• To provide opportunities for passengers to express their concerns and needs• To influence Public Transport Authorities and Operators to improve services for passengers• To provide Public Transport Authorities and Operators with a passenger organisation to
consult• To encourage integrated public transport provision both on and off the Island• To co-operate with other bodies in the interests of passengers.
In pursuit of these objectives TravelWatch ISLE OF MAN has had meetings with the Minister for Tourism & Leisure, the Airport Director, the Director of Harbours and the Director of Properties at the Department for Transport as well as the Director of Service Delivery at the Department o f... Tourism and Leisure. We have also held meetings with Directors of EuroManx, Manx2.com and the Steam Packet Company. A meeting is pending with Flybe.
Regular meetings of our steering group are held, to which all supporters are invited. The first public meeting is currently being planned. TravelWatch ISLE OF MAN has established its own website www.tra velwatch-is leof man.ora which provides a range of information for travellers.
We welcome the opportunity to contribute to this review and also plan to contribute to the pending Bus Review.
The 1998 Select Committee of Tynwald charged with examining the performance of the Steam Packet proposed the formation of a Manx Transport Users* Consultative Committee. Their proposal was summarised in section 6.5 ff (pp 30-32) of their June 1999 report. Although this proposal was accepted in principle by Tynwald it was never acted on, and much of the analysis and many of the recommendations of that report remain valid today (see Appendix 6). The EC looks likely to endorse many of these recommendations on Maritime Passenger Rights (see Appendix 4).
TravelWatch ISLE OF MAN is chaired by Manx-born Brendan O’Friel who in 1998 was appointed by the (UK) Minister for Transport to head the North West Rail Passenger Committee. This was later superseded by TravelWatch North West which he also chaired before returning to live full time on the Island.
After input from supporters this submission was drawn up on behalf of TravelWatch ISLE OF MAN by Dick Clague, a specialist writer on the ferry industry and lifetime user of the Steam Packet who worked with the shipping industry in the area of Quality Assurance and service delivery standards.
Both submitted evidence to the 1998/9 Tynwald Select Committee on the Steam Packet Company.
Travel Watch ISLE OF MAN 18APPENDIX 2: FUEL SURCHARGES
Unlike the ocean freight market, where negative or positive Bunker Adjustment Factors (BAP) - reviewed according to a published formula on a monthly or quarterly basis - were a semi-permanent feature of tariffs, the passenger ferry industry has generally only applied fuel surcharges to fares on a temporary basis when fuel costs have been particularly high.
Whilst BAF calculations were historically made by the (about to be abolished) rate-controlling Liner Conferences and applied by all member lines of that Conference (as well as by non-conference member lines operating on the same routes) such collective rate and surcharge fixing has not been permitted by the EU competition authorities in respect of the ferry industry (or airlines) - so there has been no collective wisdom as to how, at what levels, and when these should be applied. Ferry companies have therefore made their own decisions with varying degrees of transparency. These decisions will no doubt have taken into account not only feel costs but also the competitive situation in which the company concerned operates.
At the end of July 2007:
• lOMSPCo were charging £2.50 per head per single journey. An annual passenger throughput of500,000 (a figure likely to be substantially exceeded in 2007) produces extra annual revenue of £1.25 million for the company.
• Stena Line were charging £2 on their Irish Sea routes
• Irish Ferries did not appear to be making any passenger fuel surcharge.
• Norfolk Line had withdrawn their previous £5 per head single surcharge on their Irish routes to/from Birkenhead.
• P&O Irish Sea were surcharging the Lame routes by £2, and £4 on the Liverpool-Dublin route.
Apart from NorfolkLine the above companies operate both conventional and fast craft services.
Further afield neither Caledonian MacBrayne nor Northlink (both state controlled/subsidised conventional operators serving the Clyde, Hebrides, Orkney and Shetland) were making a fuel surcharge. Condor (Channel Islands) charge £5,50 both per passenger and per vehicle (the only company we have discovered also surcharging private vehicle fares). Condor operate both fast craft and conventional vessels - but HD Fem es who have recently established fast craft services between the Channel Islands and on to France make no fuel surcharge.
Whilst it can be seen that lOMSPCo fuel surcharges are in the same bail park as those charged by other operators, not all Irish Sea operators have found it necessary/competitive to apply/maintain such surcharges. This suggests that not all operators are finding it possible to recover the additional costs arising from (continuing) high bunker prices, a device apparently allowed to the Steam Packet by their agreement with the Department of Transport.
Bunker prices (US dollars) on a daily / monthly / 30 day basis can be checked on websites such as www.bunkerworld.com - but it is necessary to know which grades of fuel are used. It should also be pointed out that changes in exchange rates may to varying degrees off set some of the effect of US Dollar increases in bunker prices and that forward buying of fuel can also affect current costs.
Recommendations:
• We would therefore suggest that the Select Committee scrutinises the formula agreed between the Department of Transport and the Company and has it published, to ensure not only transparency, but also with a view to establishing at what point the surcharge would be removed.
• We would also recommend that any current surcharges must be included in headline fares advertised by the Company, and that all bookings should (continue to) be taken on the basis of the surcharge applicable at the time of booking/payment.
Travel Watch ISLE OF MAN 19
APPENDIX 3 : FARE COMPARISONS
The maximum return fare payable for a car + 2 on peak summer weekend sailings is £372 (including fuel surcharges). This fare would be discounted by 2% for an internet booking. The lowest (internet only) midweek any-lenglh of stay special offer fare (available early Jan - mid March) Is £108 - rising to £208 in summer. At weekends these special return fares are increased by £20 - £50 according to season. From this it will be seen that the range of fares available is complex - but fortunately the Steam Packet website displays actual available route and fare options clearly. Those unable to access the internet remain confused- and pay more.
Public reaction to the Company's fares is based on the fares which actually have to be paid - rather than the lower offers which may all be sold out before a booking can be made. Using the Company’s on-line booking system it is only possible to look at forward availability and pricing. The following data reflects actual availability for bookings made on 29 July 2007 for the dates of travel indicated.
Return costs for car+2 adults.Lowest prices avaiiabie for oiviine booking on 29 July 2007 and include fuel surcharges where applicable.
Outward travel date
Sat 4 Aug
Wed 31 Oct
Return travel date
Sat 11 Aug
Wed 7 Nov NOTES
lOMSPCoHeysham - Douglas £354 £178 conventional service
lOMSPCoLiverpool - Douglas £270 £178**
fast ferry ** return via Heysham
StenaHolyhead - Dublin £319 £174 conventional service
Stena
Holyhead - DunLaoghaire £3S9 £194 fast ferry
IrishFerries
Holyhead - Dublin £317 £172 conventional service
P&OTroon-Lame £347 £165AA
fast ferry ** out 24 Sept return 1 Oct
CondorPortsmouth - Jersey £468 £290 conventional ferry
CondorWeymouth - Jersey
notavailable £331 fast ferry
NcrthiinkFerries
Scrabster - Stromness £151 conventional ferry
CalMacUifapool - Stomaway £206 conventional ferry
The above figures surprisingly show a higher cost from Heysham than Liverpool on the August dates. What this suggests is that there are no special offer fares available for the dates required ex Heysham but there are some from Liverpool. It is unclear to us whether this is the result of demand levels or whether the company is using pricing techniques to actually encourage more passengers to travel via Liverpool.
/continued
TraveiWatch iSLE OF MAN 20The “Steam Packet Company TIMES’5 Issue No 7 Dec 06 /jan 07 published a similar table based on fares at 20 March 2006, so these were already out of date. The same table also showed cost per mile on selected routes in 2006. Whilst this is a valid approach for ascertaining comparative value for money, it ignores the fact that the total cost of travel is more likely to be a barrier than the cost per mile. A family of 2 adults and 2 children travelling with a car on peak Saturdays can find themselves being asked to psy 35 much as E45Q (Car +2, plus 2 children, plus feel surcharge on a tariff A sailing). This is a lot of money!
01.08.2007
• Travel Watch ISLE OF MAN 21
APPENDIX 4 : EC POSITION ON MARITIME PASSENGERS1 RIGHTS
The current EC CONSULTATION ON MARITIME PASSENGERS’ RIGHTS may lead to legislation which would affect all passenger shipping companies serving EC ports.
In the White Paper "European transport policy for 2010: time to decide", the European Commission had proposed establishing passengers’ rights in all modes of transport. The Community had since made substantial progress in air transport (on denied boarding, persons with reduced mobility and the identity of the operating carrier), and the proposal for a Regulation on international rail passengers’ rights and obligations was currently in the late stages of the co-decision procedure, (n 2006, the Commission had also completed a public consultation on the rights of bus and coach passengers. In its commuHNbn of 16 February 2005 on strengthening passenger rights within the European Union, the Commission had presented a policy approach extending passenger protection measures to modes of transport other than air. On maritime and inland waterways transport (for the purpose of these minutes, “maritime transport"), the Commission had identified the following fields of action: rights of persons with reduced mobility, automatic and immediate solutions where travel was interrupted, liability in the event of death or injury to passengers, complaint handling and means of redress, passenger information, and other initiatives.
On maritime transport, a proposal for a regulation on liability in the event of death, injury or damaged baggage was currently (Jan 2007) before the Council and Parliament The Commission had launched a publie consultation in January 2006 on the basis of Commission Staff Working Paper "Strengthening the protection of the rights of passengers travelling by sea or inland waterway in the European Union" containing a detailed questionnaire addressed to the Member States and other stakeholders on the other four chapters referred to above. The Commission had received 46 responses to the working paper.
Their proposals, and points being considered, come under four headings:
1. Compensation for passengers in the event of denied boarding, cancellation and Iona delays -Rapid remedies are required when things go wrong. Should there be a minimum standard for 'on the spot’ remedies? Should there be a common standard? Consistency is required - passengers must be able to understand. Proportionality too - length of voyage should be a consideration. The Commission takes the point that weather may be a force majeure.
2. Protection of rights of Passengers with Reduced Mobility fPRMsl The Commission took it as an absolute that PRMs should not suffer discrimination solely on grounds of their disability, The related principle is that PRMs should be able to travel as freely as anyone else. From this flowed a need to provk^acoper access facilities and good information. There is a benchmark of PRM protection aiffWpport in 261/2004 and in the draft legislation on rail passengers’ rights. The German government believes there is a need for harmonisation because ferries are usually interconnected with other modes. Many of these issues are practical like the narrow car-parking spaces on ferries and steep, narrow staircases up from the car decks.
3. Complaints handling and redress - The Commission generally accepts that a light-iouch approach to complaint handling is best. Two approaches can be identified - either to conciliate and then if that fails to suggest a move to the Small Claims Courts. A second line is that, in case of non- compliance, the enforcement body may impose penalties on the licensed operator. In other states the complaints and the non-compliance issues are handled by a single body. The need for enforcement, the need to address not just complaints but systemic failures, the importance of consumer advocacy, and the development of best practice, the need for consumers’ representatives to be involved in all this and for those to be funded adequately
4. Quality standards - passengers are as interested in quality standards as cost. Quality standards need monitoring independently. Some in the shipping industry claim that the regulation of quality is unnecessary in the conditions of a free market. (TWfOM comment: Free market conditions do not apply to !QM routes).
The consultation process with interested parties and representative has now been completed and proposals from the Commission are expected shortly.
Travel Watch ISLE OF MAN 22
APPENDIX 5 - Details of decision on complaint made against RTi= in respect of Stena Line’s television advertising in Ireland.Complaint made by: Mrs.Ref. No. 103/07 Station: RT& RT£Advertisement: Advert - Stena Line Date: 11 April 2007
Complaint Summary:
Mrs. complaint submitted under Section 24(2)(e)(general advertising codes) of theBroadcasting Act, 2001, relates to an advertisement for Stena Line. The complainant states that Stena Line is advertising a fare of 70 euros for a car and plus driver travelling to England. However, she states that when she tried to book this fare through the companyrs Limerick office, the assistant made it quite clear that she could not avail of that fere. The cheapest fere she was offered was Eur 320. Mrs. Duffy, also states that she subsequently telephoned the Stena Line office in Limerick in an attempt to book a car plus driver, 28 days in advance as required, travelling out on 20 August and returning on 29 August, these being the relevant days, Monday to Thursday, on which the fare advertised is available. However, the fere quoted was still the same - ?320. The complainant, therefore, believes that this fare does not exist and that the advert is misleading.
Station's Response:
RTil in their response state that it accepted the advert in good faith. If Stena Line claim that fares are available to England at Eur 70, then R t£ believe this fare does exist. As is the norm in the travel industry, advertisers promote their cheapest fares. The advert claims "fares from Eur 70". In order for the advert to be truthful, it is necessary for Stena Line to be able to show that there are a reasonable number of crossings available at this price. It is not for RTE to determine how many fares are available at this price to avoid the advert being judged misleading. The advertisement claimed that the Eur 70 fare applied to a single journey and was for the car and the driver only, travelling Monday to Thursday and subject to availability. The terms of the offer are clearly visible on the screen during the advert
Advertiser’s Response:
Stena Line state that it is difficult to be specific in relation to Mrs. f l B V complaint as she had not provided the details of when she tried to book this fare, her proposed travel, date, destination, vehicle and number of passengers who are travelling.
Stena Line submits that the fare on offer is from Eur 70 single for a car plus driver, when booked online at least 28 days in advance, for travel on selected days and sailings and subject to availability. This is a valid publicly available lead-in fare subject to the customer meeting the necessary conditions for purchase. The script for the advert is as follows:
"Book 28 days in advance. Eur 15 supplement for telephone booking. Conditions apply. Travel Monday - Thursday, selected dates, subject to availability.'’
The price message is clearly given in the red dot device as "Britain from Eur 70 single car + driver". The call to action states: "Book early at stenaline.ie"
Stena believes that their advertising fully complies with general advertising code.
/continued
Travel Watch ISLE OF MAN 23
Decision of the Commission:
The Commission has considered the broadcast, the submissions made by the complainant, the broadcaster and the advertiser. The advertisement promotes an offer for sailing with Stena Line to the UK. The Commission noted that the viewers are informed that 'conditions apply' and that the Eur 70 fare is for a car plus driver. In other words, the terms of the offer are visible on t he screen during the advertisement. In assessing the complaint, the Commission had regard to Section 3.1. of the General Advertising Codes: all commercial communications shall be prepared with a sense of responsibility both to the individual and to society and shall not prejudice the interests of either.All commercial communications shall be legal, honest, decent and truthful'.
While the Commission acknowledges that specific terms were visible on screen in the course of the advertisement, the issue of availability was not alluded to. The Commission noted that the advertiser submitted in their response that in order to reply in detail they required specific dates for which the fare was sought* The Commission supplied the advertiser with the information. There was no subsequent submission from the advertiser. On this basis, the Commission adjudicated on the complaint with the information before it. Firstly, the broadcast item promotes a Eur 70 fare to the UK for a single car and driver, travelling on Monday through to Thursday, booked 28 days in advance and subject to availability. Secondly, the submission by the complainant gives details of her effort to attain such a fare. She was not successful. Thirdly, the broadcaster submits that they took the advertisement on good faith; if Stena Line claim that fares are available to England at Eur 70, then RTÉ believe this fare does exist. Fourthly, the advertiser submitted that to respond to the complaint, they required further details of the travel arrangements sought by Mrs. Duffy. The Commission forwarded such details to the advertiser, but no response was submitted.
The complainant initially contacted a Stena Line office in Limerick in early April to try to avail of the advertised offer. The cheapest return fare she was quoted at this time was Eur 320. She subsequently contacted the same office on 25 April 2007 looking for travel on Monday 20 August and. returning on Wednesday 29 August* She was again quoted Eur 320. The Commission would acknowledge that it is common practice for advertisers to promote their cheapest fares. However, such fares must be reasonably available for it to be an honest and truthful offer. Including the caveat ’subject to availability' does not exclude the advertiser from the obligation to ensure that the offer is realistic i.e. the fare is reasonably available.
In the opinion of the Commission, the advertiser failed to produce evidence that was contrary to the submission made by the complainant. There was no information submitted that informed of the availability, or otherwise, of the fare on offer. The complainant submitted that the cheapest fare she was offered was Eur 320 for a return journey. On viewing the advertisement, it is evident that Stena Line was (and still is) running an 'offer*. Normally such 'offer* strategies are pre-planned and therefore, the company should have been in a position to submit the details of the offer, and how the organisation is implementing it.
On assessing the written material submitted and the broadcast, the Commission was of the opinion that the advertisement does not inform the viewer sufficiently of the terms of the offer. In the view of the Commission, the advertisement clearly promotes an offer of Eur 70. On foot of the advertisement, the complainant contacted Stena Line, but the best fare she was offered for the round trip was Eur 320. Therefore, the Commission determined that the advertisement breached3.1 of the General Advertising Codes and in particular, the requirement to be truthful and honest.
Travel Watch ISLE OF MAN 24
APPENDIX 6 - Comments on the 1999 Select Committee Report and Recom mendations.
A - Summary of those parts of the earlier report which relate to the issues being considered bv the 2007 Select Committee
1____ General conclusions:
• the company lacks customer awareness although it is reactive after events.• the Linkspan User Agreement provides no public sector mechanism to determine customer
needs.
2____ Examples of Best Practice:
These were suggestions that the company (and other carriers to and from IOM) should consider adopting in both the public and their own interest:
• Customers' Charter• Customer Services Committees to include customers in England and Ireland as well as
the Isle of Man.• Customer Satisfaction Surveys• Open Forums
3____ Recommendations:
After reviewing various models of public sector regulation of services, including the Linkspan User Agreement and the (UK) Rail Users Consultative Committees (the Scottish one is responsible also for CalMac) the following recommendations were made: Legislation be introduced to establish a Manx Transport Users' Consultative Committee (which would cover all passenger and freight carriers to the Island). Its responsibilities to include:
• timetabling• fare structures and special fares• provision of information on services including cancellations, delays or alterations• reliability and punctuality• number and nature of customer complaints• degree of compliance with best practice proposals
B - Comments on the above in the light of subsequent developments in UK and elsewhere.
• We believe that the above General Conclusions are still valid. The shortcomings identified 8 years ago have not yet been systematically addressed.
• The Steam Packet Company has carried out Customer Satisfaction Surveys for its own purposes but the results have generally not been made public. Para 4.3 (p23) of the 1999 report commented “If the surveys are to have a value there must be an independent element in them. Commonly the survey form is constructed independently”. We believe that this statement is still valid as no such independent element appears to have been included so far.
• The other examples of Best Practice have not been adopted.
/continued
TravelWatch ISLE OF MAN 25
In terms of the recommendation for Legislation to establish a Manx Transport Users’ Consultative Committee, we would point out that there have been considerable changes to the situation in UK on which this recommendation was based. The statutory models covering rail users’ consultative committees no longer apply and the application of EU rules for subsidised ferry services has involved major and costly changes in the organisation and structure of Caledonian MacBrayne, as well as the introduction of competitive tender processes which have failed to attract other bidders.
In London and Scotland statutory passenger representation is in place. In some of the English regions, including the North West, non-statutory TravelWatch organisations have emerged- which now cover many forms of public transport. This enables focus on the complete travel experience rather than just a single component of the journey. In the UK these organisations have representation and support from local authorities and transport undertakings, as well as from various passenger representative groups in their areas.
TravelWatch ISLE OF MAN has started to provide representation for Isle of Man passengers on a non statutory basis and with very limited resources
On 18/9/07 10:52, "John Watt” <[email protected]> wrote:
Dear Mr Swan,
Further to our telephone conversation today Travelwatch kindly left a copy of their Submission with us at the end of last week.
The report regrettably has a large number of inaccuracies or potentially misleading statements that the DOT or the Company could have verified for Travelwatch.
We have not been given much time to review the document as we now understand from the media that Travelwatch are meeting the Committee today, but please find enclosed our initial comment which will be forwarded seperately to Travelwatch for their advice. We hope this is of some assistance and we would be happy to clarify any questions.
We have had to re-type the Travelwatch document so that our initial comments can be identified in blue font for ease of use.
Very Best Regards
John WattCommercial DirectorIsle of Man Steam Packet Company.
TravelW atch ISLE OF MAN
EXECUTIVE SUMMARY & MAIN RECOMMENDATIONSG e n e ra ! in itia l C o m m e n t fro m Company (ail in b lu e font)-
Travelwatch does not refer to enormous service improvements made over the past decade, nor reflect that only a decade ago all customers paid Standard Fares. Travelwatch author is aware that most UK ferry routes have experienced substantial decline in carryings in the face of airline competition . Channel Islands carryings have reduced from around 500.000pa in 1996 to around 300.000 today, whereas Steam Packet service and price initiatives have ted to a dramatic increase in traffic from c440.000pato around 600.000pa. English Channel and UK/Ireland routes have also seen a reduction in volumes and a reduction in services. Travelwatch report would have been strengthened if they had checked with either the Company or DOT first, whereas a very large number o f points are misleading , unrepresentative or inaccurate.
PRICING:
A. We find no evidence that the pricing policies followed by the Company are in breach of the User Agreements reached between the Department of Transport and the Isle o f Man Steam Packet Company in 1995 (extended in 2002) and 2004. The DOT check the compliance on a regular basis and have confirmed publicly the Company exceeds its obligations in every respect.
B. The lack o f transparency in those pricing policies has led to widespread confusion and public expectation that advertised special offer fares will be more readily available than appears to be the case. Travelwatch has around 50 members whereas Steam Packet Company has600,000 customers annually. There is no evidence to suggest widespread confusion. The reservation system clearly displays the cheapest fare available on the selected sailing, the alternative choices and this system is used throughout the travel industry.
C. This, coupled with absence o f standard fares being listed in the Company’s brochures, or in advertisements, has led to a view that those unable to benefit from special offer fares are being over-charged and are not getting value for money. DOT know no-one is being overcharged and there is no evidence to suggest this. In the absence o f further information this would appear to be anecdotal comment.
D. A formula for fares which was established in 1995 can hardly be expected to be appropriateuntil 2026. User Agreement has worked so successfully in providing a framework for investment and route/service development precisely because it provides minimum service guarantees, maximum price guarantees but also gives the Company commercial freedom to start new fare and service initiatives to boost traffic. Special Offer guarantee availability was only introduced 2005 and effectively guarantees these into the future whereas they were not guaranteed at all for the first ten years o f the Agreement. [see para 3.8]
Whatever modes o f transport are used to or from the ferry, other costs will be involved, and these will form part o f the passenger’s judgement on the value for money or making the total journey - or in some cases whether or not to make that journey at all. Onward travel costs/arrangements are out-with the Company control. Economic Affairs inflation reports confirm Steam Packet prices have increased at less than the cost of general inflation.
I f visitors are to be encouraged to travel to the Island by sea the costs and convenience o f the whole journey need to be seen as competitive. [see paras 3.7 and 5.5]
STANDARDS OF SERVICE:
E. User Agreement shortcomings in the area of passenger service requirements were identified by the Select Committee which reported in 1999. These and the suggested remedies appear not to have been given any consideration when the User Agreement was renegotiated in 2004. [see paras 5.1 & 5.2 and Appendix 6 ] User Agreement works because it is measurable. In practice DOT acts as a conduit for all customer service issues and frequently liase with the Company in this regard.
F. We are concerned at the lack o f agreed and published service standards -
[see paras 5.2 to 5.6] Arrival details published daily, yearly performance data alsoreleased. Company happy to report other statistics when all ÍOM carriers do so.
MAIN RECOM M ENDATION S:
We recommend that:
G. The Steam Packet website and literature be required to show Standard Fares as well asSpecial Offers (as in previous years). {see para 1.2]Against interestso f Isle of Man. Customer feedback indicates promoting Standard (highest) fares is confusing especially as so few customers have to pay these. Nearly all airlines/ferry operators promote the lowest fares and it makes the Island appear uncompetitive to promote the maximum fares when of course so few pay these. The majority o f Company customers are visitors and the Company needs to promote travel ! Standard fares only tend to apply on very busy sailings such as at TT. Standard fare details are available on the website and on demand but it is normal industry practice for publicity material to highlight the cheaper offers available(which most people pay) rather than the maximum price payable.
H. A full timetable be included in the printed brochure (as in previous years). Why? Customer feedback indicates customers want simplified timetables and as the number of services has expanded two-fold over the past decade it is now a much simpler sailing schedule. Customers make their choice by date and then enquire on the sailings available or alternatives. Reservation system simple to use and clearly highlights alternatives. Customer feedback on website and reservation system positive. Format of brochure now follows industry norms.
I. The Company be required to publicise its 01624 telephone number in all advertising onand off the Island [see para 4.5.4] All Companyadverts on 30M advertise local number. Reservation resources more extensive outside IOM, hence UK advertising promotes other number.
J. Service standards be agreed across a number o f areas not covered by the UserAgreement(s) [see section 5]DOTmeasure/monitor, and frequently question/probe areas not covered by User Agreement.
K. Performance against these standards should be regularly and publicly reported. Companydoes publish data
L. A remedy process be established in the event o f non-performance. Company very opento feedback. Complaints procedures, customer feedback forms, new blog, daily market research - thousands interviewed annually -(not unrepresentative anecdotal comments)
M. Regular consultation with passenger representatives be instigated. Daily customerresearch. Also focus groups, online research on schedules etc and new blog.
Some of these concerns and recommendations may ultimately be covered by pending EU legislation which, once enacted, will apply ultimately to all maritime carriers serving EU ports. Given that the User Agreements are a “done-deal” it would be beneficial for all the parties if voluntary agreement could be reached to address these passenger concerns, [see Appendix 4].
TravelW atch ISLE OF M AN
There are other areas o f concern to us which in the absence of publicly available information we have been unable to explore fully. We would suggest that the Select Committee might wish to look into:
N. The accounts o f the Company which are not available to the public but are needed to determine whether prices charged are equitable i.e. enabling the company to make a reasonable but not excessive profit from its business. The Select Committee will be able to obtain the necessary financial information to form such a judgement and may also wish to ask the Company for details of price-related complaints, [see section 3 - Overview] IOM Freedom to Flourish. SPC is a private company. Company complies with all its many obligations, fares lowered every year 12 years, special offer fare availability far more than requirement. Investment £60m to date since 1995 far more than Agreement requirement. Service frequency doubled, capacity increased, journey times reduced.
O. The appropriateness of the control mechanism on Standard Fare levels in the UserAgreements - possibly to include benchmarking o f fares against other operators. [ see para 3.6.1] Stringent conditions RPI-1/2%. plus minimum number special fares.
P. Whether in a monopoly situation on life-line routes it is acceptable that the lowest farescan only be purchased on-line. This practice is common across the travel industry in competitive markets, [see para 4.4] Web discounts possible because we pass on the administrative savings . IOM needs to compete with web discounts elsewhere and removing the discounts would mean higher costs, higher fares.
Q. The application o f Fuel Surcharges to determine whether the current arrangementsbenefit anyone other than the company and to establish transparency. [See para 4.5.3 and Appendix 2 which gives details of current ferry industry applications of fuel surcharges].
DOT will confirm agreement ensures Company has to absorb most o f increased cost of fuel prices, only passing on a proportion in a 1 0 0 % fair and equitable manner.
TravelW atch ISLE OF MAN
1 - Examine the Isle of Man Steam Packet Company’s fare structures over the past twelve months, any increases to fares in that period and the reasons why.
Overview:
• The basic fare structures have not changed in the last 12 months. In fact structure largely unchanged since introduction of offers for first time in 1996. However availability steadily increased over time and availability has increased by a further 90,000 in 2007. Prices have reduced in real terms every year for 12 years.
• Standard fares for 2007 have been increased in line with inflation as permitted by the User Agreements. Untrue. Inflation now 4.1 %, whereas the Company's peak Standard fares went up by 2 . 7 5 and many offers held at 2006 rates, some even reduced (eg Summer any length offer)
• Some slight changes have been made to special offer fares - some beneficial to weekend passengers and some detrimental to those unable to book on the internet. Misleading. The extra £2 for non web bookings is less than inflation for a typical car booking. Therefore cheaper in real terms than 2006
• Costs for extras such as Cabins, 1st upgrades and Reserved Seating are substantially unchanged from 2006. They are completely unchanged, ie a reduction in real terms of 4.1%
Comments:
1.1 SPC fare structures are unclear to passengers - so it is difficult for passengers to know whetherthey have been quoted correct fares or not. Anecdotal comment and the Company regularly receives
praise that its reservation system is clear and helpful. There were particular difficulties earlier in the year for
people booking for the TT period to establish the fare they were likely to have to pay. Website and staff made it clear TT prices would go up by around RPl-1/2%
1.2.1 Unlike previous years the printed brochure for 2007 does not display tariff “standard” fares at all, and all “special offer” fares are “from” fares i.e. the lowest fare is quoted but may not always be available. Around 80% of customers benefit from offer fares. Many thousands o f offers go unsold too. Standard industry practice for brochure to promote services.
1.2.1 We recommend that brochures and the SPC website should be required to display full details o f all Standard Fares. Against interests o f promotion IOM . Customer feedback was that Standard fares confusing. Fares are published on website, or available on request.
1.3 All fares are currently subject to a fuel surcharge
1 .3.1 The question of fuel surcharges and their application is addressed as a separated topic [see para 4.5.3 below and appendix 2] DOT will confirm arrangement fare and equitable, and requires Company to absorb much o f additional cost before surcharges can be imposed in a fair manner.
1.4 2007 “Special fares” changes
1.4.1 In the spring and peak summer (post TT to mid September) periods “any length of stay”special offers in recent years were restricted to midweek (Mon-Thurs) travel. In 2007 that restriction wasremoved but a £20/ £25 per vehicle per single journey weekend surcharge was applied. This is a benefit over the standard fares previously offered — but there is limited availability at these new lower fares.New offer fare for Summer 2007 offers a significant discount and is widely available, although clearly designed to boost traffic on less busy weekend sailings not replace income on busy sailings.
1.4.2 Foot passenger day return fares which are advertised as being available on all sailings at defined times Incorrect assertion as offers advertised as subject to availability (outward journey must
commence before 11.30 and subject to availability) have been completely withdrawn (in July many MGP sailings were already fully booked, others nearly full, hence cheapest offers no longer available for new bookings .during the Manx Grand Prix (as per Mark Woodward’s BLOG dated 18 July).
1.5 The Steam Packet website shows the sailing and fare options available for any potential booking -b u t excludes fuel surcharges until the booking is made. Price is shown prior to completion booking and indeed fuel surcharge price is shown on first page. Standard fare quotes excludes the web discount on web standard fares. There appears to be a few instances when two single fares may be cheaper than booking the return options displayed-this is addressed in section 3 (below). Very isolated number of anomoi ies (in all carriers) but these could occur for less than 1 % o f Company bookings.
TravelW atch ISLE OF MAN
Overview:
• A common tariff o f both Standard and Special Offer fares applies to sailings both to and from the Island. The only exception to this is “TT Escape Fares” (see para 2.2 below). And some other packaged offers in interests o f tourist industry.
• The actual time and date o f sailing will lead to variations in cost o f travel and (apart from the TT period) the closer to the date o f travelling the booking is made the lower will be the chance o f obtaining a special offer fare. The tariff applied to standard fares at busy periods and the limited availability o f special offer fares also means that the fuller the vessel the more people will be travelling at higher fares. This means that at times when the traffic into the Island is heaviest (e.g. at the start of the school summer holidays) the average fares charged will be higher than they are for (smaller number of) people leaving the Island that same day. This is standard yield management technique widely used by airlines, ferry companies and train operators. System has contributed to a massive growth in carryings since 1996.
Comments:
2.1 Standard fares have for many years been banded into 5 categories (designated A-E) with the highest fares (A) applying to peak (mainly weekend) sailings on the Liverpool route and during the TT Period. The lowest standard fares (E) have only been available in the winter. The standard fare is not always the same on all sailings on the same route on the same day, as sailings later in the day may sometimes be offered at a lower tariff than morning ones. This means that the time of travel will have more bearing than the direction/origin o f travel on the fare paid.During the 2007 TT period (as for 2006) no standard fares tariff has been published, so we are unable to determine whether all sailings have been rated at tariff A - or whether there may have been some offered at lower prices (presumably on lightly loaded sailings in the direction opposite to the main traffic flow) DoT monitor sales at Standard fares. Less than 10% of sailings are A tariff.
2.2 Special offer fares will always be more freely available on sailings for which there is low demand and are, we believe offered on a first come - first served basis. Dates o f availability o f special offer fares are clearly stated in the company’s literature both in 2007 and in previous years. Most Special Offer fares are not available during the TT race period (defined in 2007 as 24 May to 12 June - the same overall period as in 2006). There has in recent years been only one special offer fare available at this time: “TT Escape” Fares — which originate only from IOM, offering return fares “from £158” for a car plus 2 - or from £ 8 8 return for a motor cycle + rider.
Comparable standard fares (which would apply to bookings at the same time from UK/Irish ports) would be more than double this (£354 in 2006 - £362 in 2007) In common with ferry travel norms but far cheaper than Channel Islands for example.
2.3 Unlike some ferry companies e.g Northlink serving Orkney & Shetland, the Steam Packet Company (and the airlines serving the Island) do not offer any form o f Resident Discount fares. Northlink and Calmac have been subsidised by over £100m and they are required to offer residents discounts. Tliis is of course unfair for the tourist industry and Island residents only enjoy the frequency o f service currently offered because of the number o f visitors. O ff peak out o f season services are uneconomic and would not be provided without the User Agreement protection. They are not required so to do by the User Agreement, but the point is raised only to suggest that if there are occasions when Manx residents have some slight benefit then they should be retained! The discontinued Frequent Traveller scheme offered an effective discount of 20% (actually 16%. but only for the small minority) to those making more that 5 trips a year - a preponderance of whom would probably have been Island residents. The promised replacement scheme has never materialised. Sail & Save was first introduced when standard fares applied and was retained long after other carriers had removed theirs. Relatively few
2 Make a comparison of prices when booking on and off the Island
low-cost carriers now offer regular user discounts as fares are kept low through ‘no-frill' approach. Automated system for rewards is however under development/review.
TravelW atch ISLE OF MAN
2.4.1 An actual example: For a family with car and two children, booked on-line on 29th July 2007 and wishing to travel on Saturday 4th August and return on Saturday 11th August, the following range of fares and options was available (an option being a combination of sailings at different times to/from either English port): 4th August peak weekend quote made a few days before is somewhat selective and even potentially misleading as vast majority customers obtain an o ffer. Standard fare customers are also offered the choice o f cheaper alternatives.
Starting from Liverpool/Heysham to IOM: (all prices would be increased by £20 to cover fuel surcharges)
• 4 options @ £300• 4 options @ 3 1 8• 1 option @ £410• 2 options @ £422• 1 option @ £426
If the journey started on the same date from IOM the availability offered was:
• 9 options @ £300• 3 options @ £318• 2 options @ £410• 1 option @ 4 1 4
Again these prices would be increased by £20 to cover fuel surcharges. Further details are shown in appendix 3
3. Consider whether the prices charged throughout this period are fair and equitable and represent best value for money for Isle of Man customers and off-Island customers.
Overview:
* The accounts o f the Company are not available, and are not required to be available for public inspection. We therefore cannot form an opinion as to whether prices charged are equitable i.e. enabling the company to make a reasonable but not excessive profit from its business. The company’s prime objective must be to maximise its profits for the Australian Pension Funds and the Macquarie Bank who are now its owners. The Select Committee will be able to obtain the necessary financial information to form such a judgement and may also wish to ask the Company for details of price-related complaints. Company fares are cheaper in real terms. Offers are more widely available than User Agreement requires. Company has more than exceeded all its many obligations.
♦ Those able to benefit from Special Offer fares are usually getting good value for money - those paying full tariff fares will find the Isle of Man an expensive place to reach or leave. This is true both for IOM and off-Island travellers. Travelwatch confirmed in meeting with Company in May 2007 they believed Steam Packet pricing was reasonable, and offers widely available and anyway should be a DOT matter. Travel watch representatives did state airlines in 2007 had increased fares. Travelwatch price comparisons in their Submission confirms that peak Standard fares and offer fares are competitive with alternative destinations. Company has published similar studies before. Standard fares apply only to minority bookings.
• At times o f high demand we believe that the on-line booking system may not always show all the fare options that are available - two single fares may be cheaper than any o f the return fares displayed, (see para 3.4). Rare , unrepresentative.
TravelWatch JSLE OF MAN
Comments:
3.1 The standard tariff fares and charges are regulated by the User Agreement. These are based on the tariff fares for 1995 which the company is permitted to increase by up to Manx RPI less 0.5%. ie reduced in real terms every year for 12 years so far. Any increase above this figure is subject to Dept o f Transport approval and may be referred for binding arbitration. Increases above this level were envisaged in the évent o f reductions in traffic volume causing the company to go into loss, increases in costs beyond the Company’s control or to allow the company to re-coup costs associated with investment.
3.2 The number o f special offer fares to be made available has been specified since the 2002 supplemental agreement but the level of special offer fares is not regulated, nor is there a definition of “special offer fares”. Defined in User Agreement as fare to stimulate traffic. It would therefore appear possible for the company to increase special offer fares considerably (provided they remain below the standard fares), without being in breach o f the User Agreement DOT and Company would not agree with this statement. Counter-productive commercially.
The on-line booking system also makes it difficult to appreciate at the start of the booking process what terms and conditions are associated with the various price options displayed. E.g an enquiry for foot passenger day return fares to the IOM on Saturday 25th August produced a range o f prices between £24 and £61 (excl Fuel Surcharges) but stated that the Ticket type was: STD 5 Day Return, Fully Flexible, Amendment fee £0pp per amend, Max.fee £0. These conditions presumably would not be applicable to the lower prices quoted. This is incorrect. The web identifies the ticket type on the first page o f enquiry and later pages also and the Company has not had problems with this.
3.3 There is no requirement in the User Agreement for the benchmarking of fares against other ferry operators/routes - although the Company themselves published figures (Steam Packet Company TIMES- Issue 7 Dec 06/Jan 07) which suggested favourable cost/mile comparisons with Holyhead and Channel Islands routes. It should be noted that the figures used were compiled in March 2006.2007 studies have confirmed again that Steam Packet prices remain competitive, both for Special Offers and peak fares, especially on a cost per mile basis. However comparisons always difficult due to volume differences (or subsidies, or differing distances, or cost variations)
3.4 In the peak Summer period the price for a car plus two on weekend Standard tariff A is £374 (£354 plus 4 x £2.50 fuel surcharges). Misleading example, the vast majority obtain an offer fare.The Special Offer return fare (any length of stay) if available would be £258 (£198 + 2 x £25 w/e surcharge + 4 x £2.50 fuel surcharges). The short break fare which most customers want/utilise is only £168 - the Isle o f Man is primarily a short break destination.Travelling mid-week on tariff B there would be a saving of £ 8 on the Standard fare = £366, and £50 on the special offer fare = £208 (with a greater chance of availability on the latter).
For foot passengers, the difference between special offer and standard fares can be even more extreme. Usual travel industry differential. Special fares are designed to boost traffic at quieter periods, not replace income. Special offers are designed to boost traffic at off peak periods.For someone wishing to make a day trip from the Island to Liverpool on Saturday 18th August (booking 8 days ahead) the prices ranged between £38 and £61 (both plus fuel surcharge). Coming to thé Island the same day it was £37. Mixing and matching routes ie out to heysham and back from Liverpool or (w ) cost £60 or £61 that day. Most day trip customers pay around £27-£30 return (less than price in 1995!) and 18 August is one o f busiest weekends of the year coming up to MGP.It appears that if no special offer return fares are available a standard return fare is the only alternative offered, even if a special offer fare is available in one direction. Whilst there may be some difficulty for the booking system to mix and match standard and special offer fares it appears perfectly possible to
purchase a single journey at a standard fare in one direction and a special offer fare in the other. A similar anomaly in the (UK) railway booking system( www.thetrainline.com> has been overcome by indicating o f each pricing page that it may be cheaper to book two single tickets. This suggestion would inconvenience vast majority SPC customers by making them waste time with a separate price quote - estimated 99.9% would be inconvenienced as two single quotes would either be same price or more expensive..
Whatever the User Agreement may allow, it would be difficult to convince passengers that the standard fare is either fair or equitable. All ferry operators have maximum fares that apply at peak periods and Steam Packet peak fare comparisons compare favourably with the Irish routes and the Channel Islands as Travel watch have also confirmed.
3.5 Similarly residents have long complained about the costs of getting off the Island. Despite the decline in tourist numbers the total passenger numbers travelling by ferry has held up well over the last10 years. This is particularly misleading. The numbers travelling has increased markedly over the past decade whereas most ferry companies in UK have experienced considerable decline. Travel watch author is aware that Company has doubled frequency and commented to Steam packet staff that fares are very reasonable — why does this report not provide a balance to identify the real and measurable service improvements? This is substantially based on Island residents travelling more - Where is the evidence for this? Visitor numbers have increased too, albeit less significantly, and particularly in the off peak months. This appears to be the area where special fares have successfully encouraged more travel. Special fares have boosted travel FROM IOM and TO IOM.
TravelWatch ISLE OF MAN
3.6 The Select Committee might wish to consider the following:3.6.1 A review o f the appropriateness o f the control mechanism on Standard Fare levels -
possibly to include benchmarking o f fares against other operators. Impossible to reflect different market size, subsidies, economies o f scale, differing cost factors etc etc.
3.6.2 A definition o f the relationship between special offer and standard fare levels. E.g “special offers will be at a level of between 50% and 75% o f standard fares” We suspect this is probably about what happens now but the purpose would be stop them raising them above (say) 75% without reference. Travelwatch were aware that around 80% benefit. However Company cannot guarantee 80% into the future . nor can it guarantee to provide such an excess number o f sailings. Vast majority of sailings have less than 200-300 passengers and are financially unjustifiable on a stand alone basis.
3.6.3 The wider availability o f Special Offer fares for Island Residents travelling “against the flow” of TT traffic who may not be able to meet the requirements for TT Escape fares. TT escape offer designed . like all offers, to stimulate additional traffic on off peak sailings.
3.6.4 More transparency being required o f the company over the number of special offer fares available at peak times. A recent Commission finding into a complaint against Stena Line’s advertising o f special offer fares in Ireland is illustrative of the general issues, (see Appendix 5). We would suggest that the Select Committee might wish to take a view on whether an adequate number of special offer fares are being offered at peak times. Company has already supplied evidence to Select Committee identifying'number o f discounted fares available far exceeds requirements, and compliance with User Agreement obligations.
3.7 Whatever modes o f transport are used to or from the ferry other costs will be involved, and these will form part o f the passenger’s judgement on the value for money or making the total journey - or in some cases whether or not to make that journey at all. I f visitors are to be encouraged to travel to the Island by sea, the costs and convenience of the whole journey need to be competitive. [See also para 5.5]. Likewise all other destinations, and outside direct control Company
3.8 In forming a view over whether fares are fair and equitable, passengers will not be convinced by comparative “cost per mile” arguments against other routes, much less compliance with any formula. Since P&O Ferries can offer night and early morning fares between Dover and Calais for last minute bookings through August from just £40 each way for any length of stay (covering a car and up to nine
people), why should holidaymakers go to the Isle o f Man? IOM much to offer visitor and regrettable that Island residents ‘knock* the Island as a destination as there is in reality enormous potential for growth. Why else would the Company have invested over £60m in developing its services whereas it was only obliged to invest £20m. and why else would it have doubled service frequency? Company fares are very competitive with so called ‘low-cost’ airline earners. Differences in fares will always exist for different ferry distances, eg the operator on the short sea English Channel is able to offer three times the number o f crossings for less operating cost than one return in 10M - ie on the English Channel one vesssel can earn three times the income in a day and therefore the fare should be 1/3 the cost. In addition IOM costs (eg Harbour dues, British crew etc) are greater and economics o f scale vastly different.
The economics o f the Dover and IOM routes are totally different but the problem is one which faces many island communities. The Scottish Executive announced on 13th August 2007 a study to establish the most effective and sustainable structure for a Road Equivalent Tariff (RET) pilot scheme for setting ferry fares on the basis o f the cost of travelling an equivalent distance by road - because high ferry fares are seen there as a barrier to economic growth on the Islands. Details are on their website http://www.scotland.gov.uk/news/releases/ 2007. We do not advocate this particular solution but we believe that some “thinking outside the box” will be needed. A formula for fares which was established in 1995 can hardly be expected to be appropriate until 2026. Subsidies to Scottish Island already top £100m.in past few years and operators have had to request further emergency state support. RET pilot scheme would potentially increase subsidies required.
3.8 The company has been conducting on board surveys recently using touch-screen hand-held device on which passengers were asked to respond to a series o f questions by indicating which option best described their view. One question related to perceived value for money - but this did not ask people to indicate the level of fare they had paid. It is unclear whether the devices were pre-programmed with journey details or date/time information, but without this the results could be quite misleading. Passengers on the Whitehaven day trips were surveyed and would presumably regard the fares they paid as good value - but they would hardly be typical o f the fares paid on most other routes. System records sailing details.
Travel Watch ISLE OF MAN
4. Examine whether any excessive charging has taken place
Overview:
Whilst we have found no evidence o f charges in excess o f those allowed by the user agreement, many passengers regard the higher levels o f standard fares charged as being excessive. It would be helpful to have passenger opinion independently surveyed on this point, (but see para 3.9 above). It would be more helpful if passenger perceptions were addressed
Comments:
Bearing in mind that the Company is only advertising its lower fares and has only included Special Offer fares in its printed brochure for 2007, there is in our view an inevitability that people finding themselves
charged up to twice the advertised figure will, not withstanding the small print, feel that they have been charged an excessive fare. Anecdodatal evidence? Common practice throughout wor 1 wide travel industry. And used by Company since 1996.
The Select Committee might consider asking from the Company’s complaints statistics on fares issues - also to enquire if they have any comments about fares from any Customer Satisfaction surveys they have conducted. C o m m e rc ia lly sensitive/confidential but 9 9 .7 % do not complain.
There are also a number of ways in which revenue can be increased without tariff prices being raised:
4.1 The company withdrew its frequent traveller scheme which effectively increased prices for those small minority
making more than 5 trips in a year by up to 20%. It was claimed that special offer fares effectively replaced this scheme. Whilst the scheme certainly pre-dated special offers, the two ran together for a number o f years so for regular travellers this represented a real and substantial increase in travel costs. Fare have been demonstrated to have been substantially reduced year on year.eg £15 footloose fare is cheaper than £23 cheapest fare available in 3 995! Suggestions of a replacement scheme have not materialised. Developing reward scheme, but keeping low attractive fares. Still have to provide uneconomic winter/out o f season services required by User Agreement.
4.2 The ratio o f special offer fares available at different price levels can be changed without apparent scrutiny. The lack o f transparency in special offer pricing (see 3.2 above) means we are unable to determine to what extent (if any) this may have been done. User Agreement stipulate minimum number. Around 600,000 offer seats are available at the lowest offer price.
4.3 The five classes o f standard fare (see para 2.1) are regulated by the User Agreement but the number o f sailings to be offered at each fare level is not. It would be quite possible therefore to increase the number o f sailings at higher tariff rates (and reduce the number at the lower bands). Examination of the 2006 and 2007 timetables suggests that this has not been done but there appear to be no safeguards provided for passengers in this respect. DoT will confirm this is incorrect. User Agreement measures sales at Standard tariffs.
4.4 When the on-line booking system was introduced for the 2006 season a discount of 2% was offered on standard fares. Special Offer fares were then quoted at approximately the same levels as 2005 but this now included a discount o f £5 per foot passenger (single or return) and £10 on return car offers - i.e those unable to book on line suffered a £5 / £10 increase. In 2007 the on-line net prices remained unaltered but this included a higher discount for booking on-line (£ 6 / £ 1 2 ) i.e those who booked on-line paid the same as the previous year but those booking by traditional means paid £1 / £ 2 more than the previous year. It seems perverse that what the company claims as an increased discount for on-line booking leaves prices unchanged for everyone except those unable to benefit from them. Travelwatch aware that price of offers available have been held for years. Travel watch meeting with Company in May 2007 representatives stated fares were reasonable and drew analogy with airlines.
It should however be noted that best prices across the travel industry are often only available to those who book on-line. In a competitive environment this is acceptable but the Select Committee might wish to consider whether this is acceptable on monopoly life-line routes. Web automation savings allow Company to pass on savings. !OM would become less competitive if web discounts were removed and costs therefore increased. Company has to compete with airlines and alternative destinations. Web discounts are standard practice throughout the world.
TravelWatch ISLE OF MAN
4.5.1 There are a number o f other charges which have been introduced - no doubt in line with industry practice - in recent years which will have been beneficial to the company’s revenue. Individually the charges are small but the cumulative revenue from them may be significant. Typically charges are less than airline norms. The Company does not charge debit card fees, nor luggage fees whereas airlines
charge a hefty premium. Some Company additional charges have been held for many years eg overnight cabin £59 is same price as a decade ago . in other words around 40% cheaper in real terms.
4.5.1 There is a £3 surcharge per transaction for payment by credit card. The 2007 brochure indicates “there is currently no charge for debit card payments”. I f such a charge were to be introduced the company would no doubt benefit Most ferry companies make similar charges. Airline comparisons are much more expensive eg Airline £15.92 credit card fee for family 4 return, Steam Packet £3.
4.5.2 An amendment fee o f £5 per person is charged for changing special offer tickets. This is in line with industry practice for tickets on special offers. Incorrect - it is less than local travel industry norms. Eg Airlines have charged £25 pp per sector change, a very significant amendment fee for a family of four changing a return booking.. There is some feeling that as the “Island Lifeline” there should be some discretion shown where changes have to be made because o f illness or bereavement. There is discretion for special circumstances, but change fees are very low compared to travel industry norms, and Company is more flexible than some carriers who do not allow amendments at all to some cheaper bookings. (Change fees are required as a passenger cancelling a reservation held for them -possibly at short notice- means the carrier has lost the opportunity to re-sell the space reserved)
4.5.3 A fuel surcharge was introduced during 2005. It is currently £2.50 per single passenger journey. The company state on their website: “This will be constantly monitored by the Steam Packet Company and may be adjusted in the future at our discretion.” The company have however indicated to Travel Watch Isle o f Man that a formula has been agreed with the Department o f Transport which allows them no discretion in this regard. This is apparently confirmed by the statement made by Mark Woodward in his “blog” on the company website dated 23 July in which he stated: “These charges are regulated by the Department of Transport by direct reference to the cost o f marine fuels. When the cost decreases below a certain range, the surcharge will also decrease. The system ensures that the consumer is only charged what is fair and equitable”. We have not found specific reference to Fuel Surcharges in the documentation lodged in the Tynwald Library, nor discovered the relationship between fuel costs and the surcharge applied by the Company. We suggest that the Select Committee may wish to probe this further in the interests o f transparency, particularly in the light o f the recent MEA statement that they do nor foresee any need for a Fuel Cost Adjustment over the next 12 months.
The application o f Fuel Surcharges across the feny industry is inconsistent - probably showing the tension between competition/market forces and bunker costs. The Select Committee may wish to probe further into this area to determine whether the current arrangements are equitable. There are few industries in a position to automatically recover additional costs o f any sort from their customers. Whilst we recognise both that fuel costs have risen substantially over the last couple o f years and that the Company will wish to offset those additional costs through increasing prices, we do not believe that a surcharge mechanism is the appropriate way o f dealing with this on and on-going basis. Appendix 2 gives details o f current ferry industiy applications o f fuel surcharges DOT will confirm arrangement makes Company absorb much o f increased cost and only then allows Company to pass on additional costs as incurred in a fair and equitable manner.
4.5.4 For those booking by phone the company provides an 0871 (national rate) telephone number. This is common travel industry practice and a proportion o f the cost of each call is paid to the company. Although the local number 01624 661661 still works it seems no longer to be advertised.This means that Island callers are being encouraged to use a higher rate number for the company’s benefit when a local call would suffice. Those callers, whether on or off Island, who have inclusive telephone tariffs usually only have geographical dialling codes included in their free calls so would be able to call the 01624 number free but would have to pay for calls to the 0871 number. The Select Committee might therefore recommend that the company advertise its 01624 booking numbers. All adverts locally advertise the local number.
5. Consider the standard of service offered to both passengers and freight users by the Company and the extent to which it is in accordance with the Company’s agreements with the government
Overview:
• The service requirements contained in the User Agreement relate mainly to the number and frequency o f sailings, ports to be served and capacity (both freight and passenger) to be provided. We have seen no evidence to suggest that the company is not fully compliant in this respect. DOT checks Company is fully compliant in every respect..
• There is a need for service standards to be agreed across a number of areas not covered in the User Agreements). Company far exceeds its obligations in every respect.
• Performance against these standards should be reported and a remedy process established in the event o f non-performance. Company reports timekeeping on website, and publishes reliability statistics on a regular basis. Ben-my-Chree has operated at 100% reliability some years, usually 99%. Fast craft offer 97% reliability over many years. All Fast Craft worldwide are susceptible to increased weather disruption.
Comments:
5.1 It appears that the User Agreement was drawn up by the Dept o f Transport and the Company without any form of independent market research or consultation with passengers to ascertain their service requirements. This shortcoming was identified by the Select Committee which reported in 1999 but it appears not to have been given any consideration when the User Agreement was subsequently extended. A review o f the report and recommendations made by that Select Committee, insofar as they impinge on the terms of reference o f the current committee is included as Appendix 6 . User Agreement is a negotiated settlement, with terms and obligations that stretch service provision to ensure uneconomic services are provided throughout the year. Company receives and encourages constant feedback on its service provision.
5.2 In view of the effective monopoly which the company holds, the lack o f any agreed service standards and reported performance monitoring in the following areas needs addressing:
5.2.1 Cancellations and timekeeping - targets should be set and performance reported. User Agreement obligation to comply with slot requirements. DOT aware o f Companys timekeeping performance. Reliability statistics published regularly.
5.2.2 Complaint reporting procedures, response times and resolution targets. Company does respond promptly to all complaints and reviews procedures/policies accordingly. An analysis of the type o f complaints received, particularly in respect o f fares would be desirable. Standards should be set against which progress can be monitored.5.2.3 What passengers can expect from the company in the event o f cancellations:
5.2.3.1 method(s) o f notification.Our experience here is very variable. It has been reported that passengers who have supplied their mobile phone numbers have not received any notification o f cancellations or delays. Our own enquires reveal that passengers are unlikely to be contacted if delays are anticipated to be less than 3 hours. Other passengers report excellent service. Passengers need to know what to expect. Not all passengers keep their mobiles switched on when travelling and this can lead to difficulties on occasion. Some passengers do not leave their contact details. System automatically contacts all.5.2.3.2 Assistance the company will provide in the event o f cancellations. Cancellations extremely rare overall In the event o f a Liverpool sailing being cancelled transport is usually provided for foot passengers to/from Hey sham. At one time petrol vouchers were provided for affected motorists but this no longer appears to be the case.. Recompense is still made in certain circumstances but not all petrol stations want the administration o f dealing with vouchers.5.2.3.3 During the TT passengers switched between ports appear to have been offered no such assistance - despite the absence o f any connecting public transport for foot passengers at Hey sham for passengers diverted from Liverpool. This can involve passengers in considerable extra expense. Buses were provided..
5.2.3.4 Passengers with connecting travel arrangements / hotels can face considerable extra cost if sailing arrangements are changed. What is the company’s position over this? Company complies with Standard industry practices5.2.3.5 A mother travelling to the Island with young children from SE England found on arrival at the port that her sailing from Liverpool had been cancelled due to bad weather. Rather than travel on the 02.15 from Hey sham she elected to stay in a hotel (at her own expense) and travel the next day. She was initially told that as she had not accepted the offered alterative sailing she would have to pay an amendment charge - although this was later retracted. Unrepresentative anecdote.
APPENDIX G
Hansard Proceedings
Friday 23 November 2007
Statement by Mr J Callin on behalf the Isle of ManSteam Packet Co Ltd
Evidence of Mr J R Clague and Mr B O’Friel,TravelWatch Isle of Man
EARLY PUBLICATION (9.45 p.m., 27.11.07)
SELECT COMMITTEE PROCEEDINGS
EPSPC231107
11.03 a.m. - 1.05 p.m.
Douglas, Friday, 23rd November 2007
Select Committee on the Isle of Man Steam Packet Company
The Committee sat in public at 11.00 a.m.. in the Millennium Conference Room,
Legislative Buildings, Douglas
[MR SPEAKER in the Chair)
Procedural
The Chairman (The Speaker of the House of Keys, the Hon. S C Rodan): Good morning, ladies and gentlemen.
Can I welcome everyone to this meeting, which is a public sitting of a Select Committee of Tynwald - the Select Committee on the Isle of Man Steam Packet Company.
This Committee was established in June this year by Tynwald with the following remit, which I shall just read out for the public record:
‘ ... to exam ine the Isle o f M an S team Packet C o m p an y ’s fare structures over the past 12 m onths and increases to fares in that period and the reasons w hy; to m ake a com parison o f prices when booking on and o ff the Island; to consider w hether the prices charged throughout this period are fa ir and equ itab le and represent best value for m oney fo r Isle o f M an custom ers and off- Island custom ers; and to exam ine w hether any excessive charging has taken p lace .’
That was the original remit in June.At the July 2007 sitting, Tynwald approved amendments to that remit, which appointed two additional
Members to serve on the Committee, but also to extend the remit, with the words:
‘... to consider the standard o f serv ice offered to both passengers and freight users by the C om pany and the extent to w hich it is in accordance w ith the C o m p a n y 's agreem ents w ith the G overnm ent.’
So that is what this Committee is all about
I shall now introduce my colleagues on the Committee: at the end of the table, Mr Graham Cregeen, Member of the House of Keys for Malew and Santon; Mr Bill Malarkey, Member of the House of Keys for South Douglas; Mr Juan Turner, who is a Member of the Legislative Council, as is my colleague on
my right, Mr George Waft. At the end of the table is Mr Les Crellin, who is the Clerk to this Committee, and vve have Mr Clive Alford, who is the H a n s a r d editor responsible for recording today’s proceedings. At this point, I would ask everyone to make sure that mobile phones are switched off to avoid any interference with Mr Alford’s recording.
The other gentleman at the table... We also have with us today Prof. Alf Baird, who is the Head of the Maritime Transport Research Group at Napier University in Edinburgh. Prof. Baird has a vast amount of experience in the maritime transport field. He has acted as a specialist adviser to parliamentary committees in the United Kingdom and we are delighted that he has agreed to act as adviser to this Committee. We welcome him here today.
Ladies and gentlemen, vve had invited representatives of the Isle of Man Steam Packet here today to give oral evidence to the Committee. However, I understand that Mr Jeremy Callin, of the Company’s advocates, Quinn Kneale, is to appear to present a statement on the Company’s behalf, so may I, at this point, ask Mr Callin to please step forward.
Thank you, sir. Good morning to you. I invite you to make the statement on behalf of the Steam Packet Company to the Committee, please.
Statement by Mr Jeremy Callin on behalf of the Isle of Man Steam Packet Company
Mr Callin: Thank you, Chairman. Thank you, members of the Committee.As the Chairman indicated, I am the advocate representing the Isle of Man Steam Packet Company
Ltd.I would like to say, in opening, that it is the intention of the Steam Packet, its directors, executives and
officers, to co-operate fully with this Select Committee, and I believe it is the case that this has occurred so far and will continue in the future.
That having been said, the Steam Packet is now a party to proceedings which have recently been commenced before the Chanccry Division of the High Court of Justice of the Isle of Man. Those High Court proceedings are in their infancy and were commenced after this Select Committee was established by Tynwald.
At this early stage of the High Court proceedings, it is the Steam Packet’s concern that it might - and I stress ‘might’ - constitute contempt of the High Court to answer questions which are directly or indirectly relevant to the High Court proceedings. In short, the subject matter of the Select Committee inquiry may now be s u b j u d i c e , as far as the High Court is concerned.
As the High Court proceedings are only in their early stages, it has not been possible for the Steam Packet, or indeed - and without wishing to speak for him - the Clerk of Tynwald or the Committee to fully consider the question of s u b j u d i c e with the benefit of all the relevant documents and evidence.
In the circumstances, therefore, the Steam Packet proposes to respectfully request an adjournment of the oral evidence of the Steam Packet into the new year, by which time both the Steam Packet and the Select Committee should be in a better position to appreciate the potential impact of the High Court proceedings.
I understand 30th January 2008 has been proposed for the Steam Packct to provide oral evidence and by then it should have been possible to more accurately assess the relationship between the scope of the Committee’s inquiry and the High Court proceedings.
It is, hopefully, clear from this statement - and as I said in opening - that the Steam Packet looks forward to continuing to co-operate with the Select Committee in relation to this inquiry.
Thank you, Mr Chairman.
The Chairman: Thank you, Mr Callin.The Committee hear what you have had to say - of which your colleague, Mr Wild, had indeed given
notice - and are pleased - 1 am sure I speak on behalf of colleagues - to note that your clients are anxious to assist our investigation to whatever extent they can.
It would not be right that the Committee’s investigation should put the Steam Packct Company’s witnesses in the position of being, as you say, in contempt of the High Court in the proceedings to which you refer, and we will certainly take care that there is no conflict between the proceedings of this Committee and those of the Court.
That said, however, it will be neccssary for us, as a Committee, to be quite satisfied that these impediments do exist, and vve will expect, on 30th January, either that your clients will be in a position to give oral evidence to the Committee, or that we will have been very fully acquainted with any reasons or circumstances which prevent such a course.
T o that end, we would request that your clients make application to the H igh Court, i f they have not already done so, for leave to d isclose to the C lerk o f Tynw ald any pleadings or affidavits which bear upon the matter o f your clients giving ora! evidence to the Com m ittee, so that he can advise us appropriately. It ccrtainly would not be satisfactory - either for the Com m ittee or for Tynw ald Court, to whom we must report - to find that the C om m ittee had been impeded from discharging its rem it, unless it becam e clear, beyond doubt, that there had been no other course.
I am sure you w ill take these com m ents back to those instructing you, and em phasise to them the very considerable im portance the C om m ittee attaches to com pleting its inquiry without delay and as thoroughly as possible.
go thank you, Mr Callin.
M r C a llin : C crtainly, Chairm an, I will take on board all your words. 1 am very grateful to you for that, and 1 am sure m atters can proceed sm oothly in due course. .
11 5 T h e C h a irm a n : T han k you, sir. P lease step down.
M r C a llin : Thank you very much.
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T h e C h a irm a n : M ay I now ask M r Clague and M r O ’Friel to step forw ard, please, on behalf o f the TravelW atch organisation, and can I bid you gentlem en good m orning. T hank you for com ing to give
1 2 5 evidence in public before the C om m ittee. W e are grateful to you.Perhaps I could ask you, first, to set the scene by introducing yourselves individually and then, if one
or other could give an overview o f T rav elW atch as an organisation - how it is organised, its purpose and its rem it, when it w as form ed - that would be very helpful, and then, perhaps, to go on to give your views on the matters identified in the Tynw ald remit. It might be particularly helpful i f you were to give an
1 ^ 0 outline or a summary o f the w ritten evid ence you have already given to the C om m ittee - for w hich we arcm ost grateful - very detailed evidence. It has a helpful executive sum m ary and som e recom m endations that perhaps you would ju s t like to cover for the public record.
But before we start, could I ask you to bear in mind, as I indicated, that the proceedings are being recorded by Hansard and it is quite important to avoid speaking over each other, so that there is no
1 ^ 5 interference and it is quite c lear in the recording who is actually speaking at any particular time. I thinkthe Com m ittee is aware the sam e applies to us.
S o perhaps M r Clague, or M r O ’F rie l, would you like to start?
E v id en ce o f M r J R C lag u e an d M r B O ’F r ie l
M r O ’F r ie l : Thank you, Chairm an, and thank you for the invitation to talk to you about our evidence and about TravelW atch.
1 4 5 My name is Brendan O ’Friel. I am Chairm an o f TravelW atch. M y background is that I have aboutnine years' experience o f w orking with passenger representative organisations in the U K . I was Chairman o f the Northwest Rail P assengers’ C om m ittee. I was also Chairman o f T ravelW atch N orthw est. So I bring to the table som e useful experience, w hich I believe is helpful to the Island.
1 5 0 ^ colleague, D ick C lague, will speak for him self, but he is our specialist in seagoing matters.
M r C lag u e : Good m orning, C hairm an, and thank you for the opportunity, again, to be here.I spent m ost o f my business life in IC I, the last 10 or 12 years o f which w ere involved in organising
the com pany’s exports all round the w orld, so I had a lot to do with the shipping industry, particularly at the time when quality assurance w as being brought in, so vve did a lot o f negotiating o f service standards,
1 al bei t in the freight area.I have also had a long-term interest in the ferry business, partly as a passenger since I was knee-high
to a grasshopper, com ing backw ards and forw ards to the Island, and probably ov er about the last 12 years I have been writing fairly extensively for a number o f journals on the ferry industry.
I first becam e involved in T rav elW atch in Liverpool when I was asked to give them a presentation on Jo U the joined-up - or lack o f jo in cd -u p - transport opportunities from the northw est o f England to various
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Irish Sea destinations.
The Chairman: Thank you.
Mr O’Friel: Chairman, if I could then take you to TravclWatch itself and our origins and background. I wrote an article in the periodica] M a n x T a i l s a year or so ago, outlining the case for having a passenger watchdog on the Island. That was followed up by a public meeting in Douglas in January this year, attended by at least 70 people, which unanimously decided that such a watchdog would be a valuable thing to proceed with. From then on, we have been busy trying to deliver some benefit for Manx passengers.
We have got, at the moment, about 60 registered supporters. I say ‘about’ because we had a public meeting, as some of you will know, last Saturday, and it is clear that we have acquired a number of others. We have not got round to identifying and tabulating everybody yet, but we have at least 60 registered supporters. We have an inner core of activists of something between 10 and 15 people, and a wider core who give us other sorts of support, and over the last period we have managed to have about a dozen meetings with operators and authorities, largely introductory meetings, at which we have been taking forward the cause of passengers.
That is primarily what we are about. You will notice, in the evidence that we have given in appendix1, we have set many of these things out. Of course, we have set out in particular that we are representing and promoting the interests of Isle of Man passengers, and we have given a number of key objectives. I do not think I need to go through those, because I think they are probably well known to the Committee. That is the business that we are in.
The Chairman: Thank you very much.
Mr OTriel: I wondered whether it would be helpful, Chairman, if I just said a word or two about our views on the previous Committee, which we covered in appendix 2 to our report, the 1999 Select Committee -
The Chairman: Yes, the previous Select Committee on the Steam Packet
Mr O’Friel: - because there is a certain logic in looking at those points first, before I ask my colleague to look at the specifics for this morning.
I think what we would say about the 1999 Select Committee - which is appendix 6 , for the benefit ofthose of you who have got the evidence in front of you - what is, in a sense, disappointing is that quite a number of issues that were identified, and recommendations that were made, do not appear to have been taken forward. We would stress, in particular, the transparency of information..
A very good example is passenger surveys. There is no doubt about it that that was recommended. There is also no doubt, about it that the Steam Packet have, I think, moved in that direction - as I think other transport operators are doing - but what we are not seeing is the publication of the results of that, sothat the public can see what are the results of such surveys.
There was a specific recommendation about setting up a Manx transport users’ consultative committee, which was partly based upon the then Scottish model, because a Scottish committee which dealt with both the railways and the ferries in Scotland seemed to some of us who gave written evidence to that Committee to be something worth at least considering for the Island. It was recommended that something was done about that. Nothing that I am aware of happened, so we got on with it and the present state of play is that TravelWatch is trying to fill that gap to some degree, but on a completely non- statutory basis and, as I said in the evidence, with very limited resources.
So I think that takes us over some of the ground of the 1999 Committee, and we can now turn, perhaps, to the matters really that you are concerned with at the present time.
The Chairman: Thank you, Mr O’Friel.
Mr Clague: If I could cover the various aspects involving fares and charges. First of all - and this is paragraph (a) of our executive summary - we have looked at the User Agreement in some detail and we have looked at the pricing policies pursued by the Company, and we cannot see that in any way there could be a suggestion that the Company have actually breached the Agreement in their pricing policies.
We have discussed this, since we made our submission, with the Steam Packet in some detail and they were a little concerned that our definition of the User Agreement was not completely clear, or the formula in it over pricing. In paragraph 3.1 that sets it out fairly clearly, the formula we understand to be linked to
hi/ fr Vi a Pniiri T i
M anx RPI less 0 .5 per cent currently. S o the reference in section 1, ‘O verview ’ , w here it says, ‘ in line with inflation’ seem s to have been slightly m isleading to som e, although w e understood what we meant.
The second thing is the question o f the transparency o f the pricing policies. W e have spent a great deal o f time, both talking to the Steam P ack et Com pany in a m eeting and a lso in som e subsequent
2 2 5 conversation, on trying to understand the model o f pricing for special offers which they are working on.L et us say we, who perhaps might be expected to have a slightly better understanding than the general public, have taken som e tim e to understand it. So I think our com m ent that there is confusion about it is still very valid.
However, even this w eek the Steam P ack et are in the process o f putting a new page onto their website 2 3 0 which does explain to people how to get b est fares, and we w elcom e that. I do not think it is going to
answer all the problem s, but it is definitely a step forw ard, which w e would recognise.On the question o f standard fares, again there has been a little confusion ,W hich I would like to clarify.
W e have never suggested that standard fares should be highlighted or promoted. W hat we have suggested is that they should be made readily available, and it is good to see that, for next year, they are already on
2 3 5 the steam P ack et’s w ebsite. S o that is certainly progress. W hat w e do think is that people need to beaware o f the m axim um fare that they m ight have to pay.
W e also think that there would be m ileage som etim es in pointing out to people the wonderful discounts that special o ffer fares actually show , and that way, perhaps, people would not feel as aggrieved when they have to pay the fu ll fare, because quite clearly , if som ebody has to pay a full fare, they are
2 4 0 going to feel unhappy about it.Point (c ) o f the executive summ ary: w hat this means is that, at the m om ent, the people who are unable
to benefit from the special o ffe r fares are the ones w ho are actually feeling aggrieved. T hose are people who will have to travel at peak tim es; m aybe at short notice, and they have not got any real alternative. If you are an Island resident who has to go across, and because you are w orking you can only go at a
2 4 5 weekend and you have go t a problem w ith, perhaps, a sick relative, there is a very real problem then, withpeople who can only book at short notice having to pay what do seem to be very high fares. Statistically , this is probably a relatively sm all number, but nevertheless it is a vulnerable part o f the com m unity, and I think one o f the things that w e would ask you, as a S e lec t C om m ittee, is to d iscuss this further with the Steam Packet Com pany.
2 5 0 ] jhjnk p rofessor B aird has som e fairly wide experience o f d ifferent pricing m odels and he will beaware, for exam ple, that it is very com m on fo r there to be preferential rates available to residents o f islands, and that is not restricted m erely to when services are subsidised, although obviously it does happen in those circu m stan ces as well. Residents o f the Isle o f W ight, where there are no subsidies, for exam ple, do benefit from residents’ fares.
2 5 5 There are other approaches as w ell, such as carnet-type system s, where people could buy a number o ftickets, perhaps not at the very low est rate, but by purchasing in advance they could buy perhaps five tickets, w hich they would be able to use on any sailing, providing there was physically space, at a known rate. O bviously, that com plicates their pricing model, but I think really if we are going to get public confidence, that is one o f the sort o f areas we would suggest that you pursue with the Company further.
Z6U T he other point w e would m ake is that the form ula for fares w hich w’as established in 1995 probablycannot be appropriate for a long-term agreem ent. T h e Steam Packet have told us in no uncertain terms that that form ula is actually one o f the key attractions o f the User A greem ent to them. It does have to be said, though, o f course, that this is only talking in terms o f the top-line, standard fares, and it does not really apply at all to the sp ecial o ffer fares which, if you can get them, in our view would actually
2 6 5 represent good value fo r m oney on a com parative basis.W hen it com es to the question o f booking on and o ff the Island, the rem it appears to assume that fares
should, in fact, be the sam e and, as I have mentioned, in other p laces, that assum ption is not necessarily the starting point, and again we would invite you perhaps to discuss that with Professor Baird to get a better view on that one.
2 7 0 Our experience o f looking at the model, as we have illustrated in our subm ission, is that it is as much afunction o f when you book and the traffic flow at the time, so that if you book early enough, yes, you stand a very good chance o f getting the best fare, but obviously in one direction or the other the demand may be such that it is easier to get a better fare on one sailing on the same day in either direction. That is primarily a function o f demand, but it is also - and again, this is som ething you may wish to explore
^ '•> further with the Com pany - a m atter o f how they manage the system .I think we have a better appreciation o f that than w hen w e made our subm ission, but there is quite a
degree o f m anagem ent input into the system on a flex ib le basis to decide how many cheap fares will be made available on any given sailing, and that can be adjusted after booking has opened.
T he Steam P acket have indicated to us that they did not like the particular exam ples we quoted in exam ple 2.4. T hese w ere the cost o f booking - this is page 7 in our report - when we actually made some
trial bookings on 29th Ju ly , w hich w ere only about a w eek ahead. A t the tim e w e m ade the subm ission, w e w ere unable to find out, i f we had booked three months earlier, what the figures would have been, but in appendix 3 we have tried to put in som e com parative figures, w hich perhaps give a better indication, both in terms o f com parison with other operators on other routes, and a lso the e ffects o f booking further
2 8 5 ahead. But the fa c t is, o f course, that there are people who do stiil have to pay these rates, particularly at the T T tim e, so yes, we b elieve that those exam ples are valid, but do please read both, not ju s t take the one on its ow n.
Is there anything on that so far you would like to question?
2 9 0 j h e C h a ir m a n : No, carry on.
M r C la g u e ; In terms o f the question about is there any excessiv e charging, we have addressed that in section 4 o f our report and, as 1 indicated in my pream ble, we have found no exam ples o f charges w hich are in excess o f those allow ed by the U ser A greem ent.
2 9 5 o f course, life is not alw ays quite as sim ple as that. It is a m atter o f how you m ight define excessiv echarging, and that again m ust be a function o f the profitability o f the operation, and even the U ser A greem ent does have certain caveats. I f the S team Packet can dem onstrate that its profitability has dropped, certain safeguard clauses com e in, and w e believe that, although probably the public would not be expected to see these figures, you, as a S e le c t C om m ittee, m ight w ell w ish, under privilege and
3 0 0 confidentiality , to take a view on w hether the profit levels are reasonable or ex cessiv e . T h a t is som ething we cannot make a ju dgem ent on.
I think there are a num ber o f other sp in -o ff issues, and again we have discussed this at som e length with the Com pany now , about the bottom -line rates on a life lin e service only being available to those who book on line.
3 0 5 There are various ways round this, o f course, because you can actually go into the sea term inal, or theLiverpool term inal, and I think H eysham as w ell, and actually use the term inal provided, rather than going to the counter but, o f course, not everybody is com puter literate.
Therefore there may be people w ho still need to go to the counter because they actually need assistance, and to find that they are actually penalised fo r th at... obviously, if everybody then goes to the
3 1 0 counter and says they w ant the bottom rate, there would be a problem , becau se quite clearly there is a costsaving in on-line booking which carriers all round the world have recognised - not ju s t sea carriers, air carriers and everybody else - so w hether there could be som e sort o f com prom ise fo r those who g en u in ely ... w hether we are talking about pensioners, the disabled, a category o f people that u'ay who could be treated m ore sym pathetically than they are by the system s now , again we would ask you perhaps
3 1 5 io pursue that further with the Com pany.T he other question w hich concerns us is the m atter o f fuel surcharges. W e all know , o f cou rsc, that the
cost o f fuel is extrem ely high. It has been mitigated to som e extent by the fact that fuel is norm ally bought in U S dollars and, o f course, currency exchange rates have mitigated that to som e extent.
T he question , I think, is how far a fuel surcharge should be regarded as a tem porary surcharge or, if We are actually in a regim e o f perm anent high prices, w hether they should actually be considered in the pricing form ula.
T h e d ifficu lty we have at the m om ent is that there is actually, again, no transparency in this issue. W e understand that this is m onitored by the D o T and if the form ula w ere published and, i f there w ere anychange, a notice in the paper w as posted to say this had been looked at, I think people would feel rather
3 2 5 m ore reassured.
S o , again, there do seem to be a lo t o f things in this area w hich the D o T are m onitoring to an extent that we have not appreciated. W c have not appreciated it, o f course, bccause it is all done behind closed doors, and if there is going to be confid ence in that m onitoring process, we b elieve that that ought to be brought out into the open.
3 3 0 T here are one or two other things, as w ell, w hich have charge im plications.M ark W oodw ard, on his latest blog - and I would com m end him for that, because I think it is actually
putting a m ore friendly face to the public, although I think som e o f the more substantial issues probably cannot be dealt with in that manner - one o f the things that he has indicated is that there will be morereserved seating provided next year. A t the m om ent, the Steam Packet charge a quite sm all fee , but if youlook at it as a co st for a fam ily , it is adding to the cost o f transport and travel. I f the num ber o f reserved seats on the ships is going to be increased, if there is actually no beneficial seating, like it is more com fortable or anything like that, w hich, o f course, the first-class provision provides, I think we would really question w hether reserved seating ought to b e charged fo r at all.
O f course, you can find airlines w ho arc doing this, but interestingly enough, the rail com panies in the 3 4 0 U K dropped charging for reserved seats many years ago.
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So I think at this stage that is what I would like to say to you.
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T h e C h a irm a n : T han k you very much indeed,Mr O ’Friel, have you anything to add at this point?
M r O ’F r ie l : I was going to have a word about the standards o f service, because that is obviously another part o f what we have to say, but my colleague mentioned the fact that w e had had quite a detailed follow -up m eeting with the Steam P ack et after they had had a chance to look at our evidence.
I think it would be worth saying to the C om m ittee that it w as'heartening - although we disagreed 3 5 0 about a number o f things - the extent to w hich the Steam Packet are show ing signs o f engaging with us. I
believe the Steam P acket are recognising that there are som e areas at least w here im provem ents can be made, and the fact that they have published the tim etable in very good time for next year is a good sign, and the fact that they are putting on line som e assistance to those o f us w ho are trying to find a low fare on lin e ... they are putting a d evice on, w hich should help people do so.
3 5 5 jt is moves like this - we are talking about standard o f service - w here I believ e T ravclW atch can bequite helpful to, not ju s t the Steam Packet, but to other travel operators by bringing to their attention som e o f the issues, w hich are not alw ays big issues in them selves, but they are often big issues for passengers. I would like the C om m ittee to know that I am m ildly encouraged by the approach o f the Steam Packet although, as you would expect, they do not lik e us, perhaps, not treating them as kindly as they m ight
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So if we could ju s t m ove to standards o f serv ice, we have really said tw o things. O ne is that there were shortcom ings in standards o f service identified, as I previously said, in the 1 9 9 9 C om m ittee, and it is a m atter o f concern to us that, as the U ser A greem ent does not really cov er standards o f service to the degree that we would have expected, we hope that there will be, in due course, a m ove towards agreed
3 6 5 an(j published service standards. W ithout w ishing to bore the Com m ittee with too much detail, if I couldtake two very sim ple exam ples, and we are not ju s t saying this to the Steam P ack ct, but to other operators...
The first one is statistics about punctuality and reliability . It is very helpful if, periodically, statistics on punctuality and reliability are published so that the public can see these, so that they are readily
3 7 0 available. It is good practice and that currently is not done in a tim ely way which is obvious to the public.T h e second one is com plaints. W e hear, inevitably, o f a number o f people who are dissatisfied with
the way they are treated by operators, and in som e cases by the Steam Packet. It is important that the com plaints procedure fo r any operator - and particularly at the Steam Packet, as a m ajor operator - it is c lear what the com plaints procedure is, so that people know how to com plain and what is likely to happen
3 7 5 when they com plain.It is also im portant that the statistics about com plaints are published from tim e to tim e - I would have
said at least once a year - so that again the public can look and see what are the sub jects that people com plain about; w ere there many com plaints? T h at at least gives them som e idea o f what is going on.
S o we have item ised a w hole series o f other things, o f w hich the only other one I will mention is the 3 8 0 neecj for inform ation fo r through journeys, and we believe that providing m ore inform ation about the
onward journey is a duty o f both operators and, to som e extent, the authorities, and not enough o f this is done.
On our way to this m eeting, we have ju s t dropped o ff at the sea term inal a num ber o f copies o f the buses that operate from the Pier Head at L iverpool into the city and it seem s to be very strange that
3 8 5 T ravelW atch Isle o f M an should be delivering these to the Travel Shop, that the Steam Packct are notdoing that them selves. But, fine , if they will learn from this and hopefully do it even better than we aretrying to do, that will be for the benefit o f passengers.
So in these ways we believe Lhat identifying and improving the standard o f service should be taken forw ard and we hope the Com m ittee will look at that carefully and hopefully will recommend that
3 -^ 0 im provem ent should be made in this area.
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T h e C h a irm a n : Thank you both very much indeed.Just to be absolutely clear, as an organisation, TravelW atch is concerned with prom oting the interests
o f passengers. T h e freight side o f the C om pany’s operation is not som ething that you get involved with. That is fine.
M r O ’F r ie l: W e have enough to do with passengers.
T h e C h a irm a n : Y es, indeed. Thank you very much for your presentation, and also for the detailed written evidence that you gave us. It was very substantial and we found it very helpful in the way it was
set out in a num ber o f areas and you have covered the broad areas within that written evidence.I f I could start by perhaps setting the scene m ore generally. O ver the last 10-12 years, o f course, we
have operated in the environm ent o f a form al U ser Agreem ent. O f course, during that tim e there have been - and it is very plain that there have been - substantial increases both in the frequency o f sailing and
4 0 5 service capacity, to the extent that it is now tw ice as high as 10 years ago, or 12 years ago, a timewhen ali passengers paid standard fares - no special offers to be discussed, they w ere all standard fares. Y ou accept that scen ario ?
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M r O ’F r ie l : Indeed.
The Chairman: Y e s , and this is, o f course, at a time when, by contrast, volum es and capacity have been declin ing generally in the ferry m ark et W e understand U K and Ireland and cross-Channel ferry services have seen substantial declines in volum e. W e understand over the last 10 years or so the Channel Islands have decreased fro m 500,000 to about 300,000 in that period. W e would also note that, by marked
4 1 5 contrast with other ferry serv ices, the Isle o f Man Steam P ack et operates without taxpayer subsidy, nodirect subvention from the public purse. T h erefore , do you accep t this broad backdrop to the more detailed com m ents that w e want to m ake about fare structures and pricing p olicies?
Mr O ’F r ie l : I think w e certainly recognise that, over the last 10 years and m ore, there have been huge 4 2 0 changes to the serv ices and the frequency and the num ber o f sailings, o f course, has gone up a great deal.
T hose o f us with long histories o f the Steam P acket would, o f course, also say that, because o f the reduction in the num ber o f vessels, it is no longer possible to cope from within the flee t with the sort o f peaks that we used to see 10, 20 or 30 years ago at weekends and so forth.
So there are changes, and a lot o f those changes are beneficial to passengers, but there will be som e4 2 5 that certainly som e passengers will not regard quite so favourably, but overall the num ber o f sailings that
are currently operated, particularly in the w inter, is a huge im provem ent on what there were years ago.
The Chairman: Y e s , indeed, and as I say, in contrast to what has happened elsew here over the period where there has been a decline in volum es, in the fa ce o f airline com petition as much as anything else.
Mr O’Friel: I am glad you m entioned that, Chairm an, because I think w e have got to be very careful when looking at a scenario like that, at the total m arket and w hether or not the relative success o f the Steam P acket ow es som ething to the pricing policies o f airlines on the Island and may also be a fa c to r I ju s t do not know , but the fa c t o f the matter is you would have to look at the total travel m arket before
4 3 5 being too enthusiastic about it.T h e Steam P ack et m ay have exploited an opportunity - and well done, them , because that is the
com m ercial world - but part o f the reason they m ay have been able to do that was because they did not face the sort o f com petition that there is across the Irish S e a from Ireland to England, for exam ple, with easy Jet, Ryanair and operators o f that sort.
The Chairman: T o that extent, having a U ser A greem ent with the Isle o f M an G overnm ent, w hich w as seen as mutually beneficial from the point o f Governm ent for the strategic interests o f the Island, and from the Com pany having an ab ility , a protection, in a w ay, from com m ercial com petition that m ight have otherw ise thw arted o r hindered investm ent proposals, it has been a mutually beneficial situation. W ould that be fa ir?
Mr C la g u e : I have reservations about that scenario , having been involved in a business w hich never had any protection and know ing that if you did not invest, you actually ended up going into obliv ion over a period o f time. So I think that, given the fact that the M anx econom y has done pretty well over the period o f the U ser A greem ent, the Com pany would have found, even if it did not have a U ser A greem ent, that it was necessary to invest.
O bviously, they have had an environm ent w hich has made it easier for them to invest, easier to attract people to invest through them and in them, but 1 would question the exact am ount o f benefit that the U ser A greem ent has in investm ent term s. C learly , in term s o f currcnt ow nership - change o f ow nership o f the Com pany - the U ser A greem ent has been absolutely invaluable to them , because it is talking about guaranteeing forw ard cashflow s.
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The Chairman: Y e s . 1 would em phasise it is not within the rem it o f this C om m ittee to sp ecifica lly exam in e the U ser A greem ent. H ow ever, as it sets the fram ew ork for charging and everything else, we must have regard to it.
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I would propose to go on to the sp ecifics o f the rem it, but I would like to ask if any colleagues - on the more general points that we have discussed at the m om ent, the history, the last 10 years, the U ser Agreem ent and so on - have any particular points?
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M r W a ft: Just to point out that many years ago they used to have 11 vessels, at least, going backwards and forw ards, and there was a need at that time, and the passenger figures w ere tremendous. O ver the years, there w as a steady decline, until we cam e to the years when the Is le o f Man Governm ent thought that they m ust have som e agreem ent to get the necessary sailings on a daily basis, and that is where the User A greem ent started to com e into being.
T he practicalities are that now w e have increased certainly the am ount o f freight com ing onto the Island and the number o f passengers. N evertheless, there has to be an equilibrium o f adjusting that U ser Agreem ent to accom m odate the present situation.
W hether you are happy with the changes that have taken place is academ ic, to a degree, because the Department o f Transport have the A greem ent with the Isle o f M an Steam P acket, by w hich there is an understanding on the charging, and you said yourselves there is no overcharging by way o f the Agreem ent.
So that was the situation we arrived at over a num ber o f years.
T h e C h a irm a n : And the response, M r Clague, is?
M r C lag u e: I think the problem is th at... O bviously what you are saying is correct, in terras o f the background to it all, but at the end o f it, the public clearly are not satisfied with what is the case. How far they are ju stified in that may be another m atter but, year after year, these m atters flare up. I f this Select Com m ittee is going to do anything to benefit the Island, if it can com e up with w hat perhaps is a voluntary agreem ent, which does not co n flic t w ith the existing A greem ent but fills in som e o f the gaps in that A greem ent, that might w ell be taking things a long way forward.
T h e C h a irm a n : T h an k you very much.M r Cregecn.
M r C reg een : W ould you consider the growth in the Isle o f M an econom y may have driven down the prices as well as the steady increase that the A greem ent brought in? W ith the growth o f passengers and freight, would you have thought it would have driven down an d ...
M r C lag u e: I cannot com m ent on freight, but from what I hear on the grapevine, I do not think that is happening at all.
Clearly, the fa c t that the special o ffer prices have not gone up to the sam e extent that the standard brochure prices have, so that in real term s they have gone d ow n... B ut again, this is a matter o f com m ercial judgem ent for the Com pany, because clearly i f they put all the prices up, the number o f people travelling would go down, so their revenue would go down: there is alw ays a balance here.
T h e C h a irm a n : Thank you.Can I ju st ask a final question on this broad front: do you believe there is a relationship between ferry
prices and the high price that was paid to acquirc the Steam Packet Com pany?
M r C lag u e: I understand that M acqu arie 's investm ent ob jectiv e , in the particular fund through which they acquired the Steam Packet, w as to look for infrastructure projects with guaranteed cashflow looking forward. S o , to that extent, that was why a long A greem ent was attractive. I do not think that it actually had a bearing on the day-to-day rates that are actually being charged. W hether that will becom e a pressure over time rem ains to be seen.
T h e C h a irm a n : O kay, thank you very much.
M r O ’F r ie l : I think. Chairm an, it m ight ju s t be worth saying that, from T rav eiW atch ’s general perspective, certain ly the guidance that I have been giving to colleagues is that som e o f these very large strategic issues are ones on w hich w e have probably all got our individual view s. T h ey tend to be very largely, though, these big issues, in the political and econ om ic sphere, rather than T rav eiW atch ’s sphere.
W e are much m ore interested, I think, in focusing on the m ore detailed areas w here what is going on impacts directly on passengers, and where we see ways in which the Com pany, or an operator o f any sort,
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is able to make life a little better for passengers, often without a great deal of expense.
T h e C h a ir m a n : Thank you very much.Turning, then, to the sp ecifics o f our rem it, if I could start with the fares structure o v er the past 12
5 2 5 m onths, o f course this will include changes to previous tim etables w hich identified discounted fares and the availability o f discounted fares: you touched on that in your presentation.
In your written evidence - and you referred to it under the section on pricing and paragraph (v) - yousay:
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‘A fo rm ula fo r fares w hich w as estab lished in 1995 can hardly be expected to be appropriate until 2 0 26 .'
As I referred to, in 1995, everyone was travelling on standard fares, but since 2005 there has been an obligation under the Agreement and negotiation with the Department of Transport, to make a guaranteed number of special offer fares available. I understand the great majority of fares sold - some 80 per cent -
5 3 5 are special offer fares now, and there is a requirement to offer a minimum number under the Agreementand the figures that we have had from the Company, for example, show in 2007 the minimum requirement was 290,000 seats, but the Company has offered 226,000 foot passenger fares, to which is added 143,000 special vehicle and occupant fares.
So, indeed, the minimum is being very comfortably exceeded and only a minority of customers now540 pay (he standard fares. Would this not indicate that... your statement... the fare formula of 1995 maybe in
broad terms is still there, but in practice many more people are getting cheaper, discounted fares than they were in 1995?
M r C la g u e : That is undoubtedly the case but, of course, what we have to address is people’s 5 4 5 perception of what they have to pay now and the service they get now. Frankly, they are not that
interested in history, although, yes, I happen to be, and you happen to be, perhaps, but in the end, the issue is what does today’s customer feel is right and fair. There is a proportion of people who, quite clearly, are unhappy with the situation. If you can get the lowest level of fare, which obviously a large number of people can... They are not the ones who are concerned.
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T h e C h a ir m a n : Is it that people have forgotten just how high fares used to be? They have got used to a certain pattern of fares in this age of lower airline tickets against which to judge and -
M r C la g u e : 1 think we all have selective memories of history, yes.
T h e C h a ir m a n : Yes, that is fine, and therefore, when you advocate, as you do quite strongly, that the brochures should indicate... not promote, bccause I think you were accused by the Company of advocating the higher fares would be promoted, but it is simply to give a frame of reference to the passenger to judge for themselves the value of a particular decision to travel on that particular crossing.
M r C la g u e ; Yes, and it is particularly helpful to people, for example, who are booking for the TT next year to know that the likely fare is going to be that, and they can make the decision accordingly. 1 am not suggesting that they would like that fare.
5 6 5 Mr W a ft : We have not got a set of accounts, of course, but I just wondered if you had done anycomparison with regard to the salaries from any time previous and to the salaries nowadays, compared to the fare structure at that time and now.
M r C la g u e : In one word: no.
T h e C h a ir m a n : Just sticking with the question of the special offer fares and fare increases over the last 12 months and discounts and so on, Mr Turner.
Mr Turner: Yes, for Mr Clague or Mr O’Friel: what is your definition of a special offer? Could it be 575 £5 0ff the standard fare, 20 per cent off, 50 per cent off?
Mr O’Friel: I think, it is for the Company to define what they mean by special offers. It is something I do not think we have ever discussed, actually.
5 8 0 C la g u e : I believe there is a definition actually tucked away somewhere in the User Agreement
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that it is... I think the word ‘promotional’ is used in it, but I do not think it actually defines the level. What is apparent, and was not apparent to us at the time when we wrote this, is that there does seem to be a lot more detailed agreement with the Department of Transport in setting these fares. So again, I come back to the thing that we need the transparency about this.
Mr Turner: An add-on from that, then: would you say it is fair to say that, when booking, you actually do not know what you are going to get? It is not clear at all. In your experience of testing these, which you have done in your submission, once you have put your travel dates in, you do not actually know what that fare is going to be. It could be the top fare, or it could be a special offer. There is no clear
5 9 0 indication at the time of booking.
Mr Clague: If you go to make a booking, in advance of making that booking you probably have not got... You have a hope, of course, that you will get the lowest fare. You may not have much idea, but the moment you actually put in your dates of travel on the screen, the range of options available for when you
595 want travel is displayed.It can give you wonderful things, like you can do a day trip to Heysham in the morning and go back
three hours later from Liverpool without any means of getting there, but that sort of information is there, yes.
But, of course, you may not always get what you are hoping for, and I think that is where people get 60 0 unhappy.
The Chairman: Mr Malarkey.
Mr Malarkey: A point of clarity on the brochures I have got, the 2006 and the 2007. From my own 605 point of view, prior to the 2007, if I wanted to travel, I opened to a page like this, and I knew, depending
on which boat I picked, whether I was going to be on an A sailing, B sailing, D sailing. So you knew you were going to pay less money going down through the scales. From my point of view, in the brochure they have put out this year, there is no way in the brochure that you would know, unless you go on line or go into the office, which particular sailing... So you are totally reliant upon them, or on line, to find out.
6 1 0 What is your view on the clarity of this year's brochure?
Mr Clague: We much prefer the 2006 brochure, but it would have to be said that if you look at whether a sailing is A, B, C, D or E, that is not going to tell you anything about the availability of special offers, but it does indicate to you what the highest might be. In the timetable that has this week gone onto
615 the Steam Packet website, it does actually give you the information of what those grades are for thesailings. I have no idea whether the Steam Packet are going to put it into their printed brochure for next year, We would hope and recommend that they would and they would go back to something like that one.
Mr Malarkey: Yes, because you knew well in advance here - whether it was A, B, C or D - what your price schedule was going to be, and unfortunately, this year’s brochure, which I think caused an awful lot of the problem, does not make that clear.
Mr Clague: Yes, correct
6 2 5 O’Friel: Our impression is that quite a lot of passengers - quite a lot of the travelling public -were very concerned that this information was not in the 2007 brochure. That is why we are hoping that the Steam Packet will return to something more like the 2006 brochure, because I think, by not doing so, they have slightly shot themselves in the foot.
63 0 Malarkey: It was extremely late this year coming out, as well, which really did not help thesituation, I think.
The Chairman: If I could just add to that, the Company have said that it is common with the usual trade practice not to highlight standard fares in the 2007 brochure. What is your understanding of what usual trade practice would be?
Mr O’Friel: I am glad that you mentioned the word ‘highlight’ then because, highlight and underline, the Company seems to have really got this from somewhere. We have nowhere said ‘highlight’ or ‘underline’. We just want the fare published so that people can see what it is.
6 4 0 I think, on the wider point of how this compares with what goes on and how other operators display
fares, there is a sense in w hich the Steam P ack ct cannot have it both w ays. I f the S team P ack et is the only ferry com pany in the U K - or one o f the only ones - that actually is grow ing the m arket and appears to be doing it relatively su ccessfu lly , then perhaps they have to recognise that they are in a d ifferent situation from som e o f the other com panies and they may have to operate in a d ifferent way.
6 4 5 A lso , everybody says the Steam P acket is in a very unique situation with the Island, with its particularsize and population, the length o f the sea voyage, all this sort o f thing. I think w e have got to be a bit careful about people saying, ‘T h is is what they do across the C hannel’ or w hatever. W e have got to look at what works for the M anx. I suspect publishing the 2 0 0 6 -s ty le brochure for the M anx, including standard fares, is much more what Isle o f M an passengers want.
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T h e C h a irm a n : T hank you very m uch. M r Cregeen.
M r C re g e e n : I think M r M alarkey covered a few o f the areas: i was going to touch on the publicising o f the lower fares. D o you think when they publish future program m es o f fare-pricing, they should
6 5 5 identify m ore clearly that there could be a low er fare for a sailing which is not as busy as the eight o ’c lo ck o r the six o ’c lo ck in the evening - it would be advisable to do som ething lik e that?
M r C la g u e : I think they could do som ething in the short term - perhaps even in their advertising - to say that, on particular sailings, there is availability o f cheap fares at a fairly late stage.
P & O , for exam ple, w ere advertising across the Channel at the beginning o f A ugust that, even in A ugust, cheap fares w ere availab le , i f you got up early enough in the m orning or you travelled late enough at night.
S o 1 think there is a m arketing angle there that could be explored.
6 6 5 T h e C h a ir m a n : Thank you. M r Turner.
M r T u r n e r : Y e s , in one o f your recom m endations, you say the S team P ack et w ebsite literature should be required to show the standard fares as well as special o ffers, as in previous years. T h e Steam P ack et’s response to that was: this is against the interests o f the Isle o f M an. W hy do you think that is?
M r O ’F r ie l : I think you have got to ask the Steam P acket why they think it is . . . (Interjection by Mr Turner) W e do not!
W e have had quite a lengthy discussion with them about this, and I think it is for the Steam P acket to m ake their own points.
6 7 5 w e ^ sim ply saying that, in term s o f transparency, i f they will get out o f their heads that we haveneither said ‘ underline’ nor ‘h igh ligh t’ , but sim p ly ‘m ake the inform ation a v a ila b le ’ , certain ly our view is that is actually what the passengers want. Our rem it is to convey to you and to the Steam P ackct w hat wc understand passengers want.
6 8 0 C h a ir m a n : T h e Com pany has said that their ow n custom er feedback show s that approach isconfusing to custom ers.
M r O ’ F r ie l : W ell, I would be delighted if they would publish their feed back from passengers: that is what we would love.
T h e C h a irm a n : S in ce so few actually have to pay that - the vast m ajority pay the special offers - mentioning it will serve to confuse the situation. T h a t is w hat they say was the reason for dropping it.
M r C la g u e : C learly, M r Chairm an, i f they w ere to promote the headline fares , I guess what they are really saying is that would actually deter people from even thinking o f com ing to the Isle o f M an.
T h e corollary o f that is that people thought that they could get to the Isle o f M an a lot cheaper than they did. Som etim es they might be deterred, if they find that they actually have to pay it.
It is how to get a balance there, so that people appreciate the environm ent in w hich they are making a booking. Quite clearly , there are a huge num ber o f people who travel in the I T period, for exam ple, and q Uite a [arge num ber in peak sum m er w eekends, and perhaps even over C hristm as, N ew Y ear and Easter, who do have to pay these high fares. A ll we are saying is that people ought to know that is a possibility .
T h e C h a irm a n : M r W a ft
7 0 0 W a ft : Y ou did mention the position with regard to people on low fixed incom es and the disabled
etc. D o you think there should be particular discounts for them ?
Mr O’Friel: I think we have said we wanted to identify that there w ere vulnerable groups: the people who cannot use the on-lin e booking system . W e have got still, regrettably, a sign ificant number o f people
7 0 5 whose literacy levels are very low and have not got com puter skills. Part o f our jo b , certainly w hile I am Chairman o f T ravelW atch , will be to try and protect the vulnerable, and certainly to bring to your attention the need to protect the vulnerable.
W e have then got these groups o f people: people who have to travel at short notice for medical appointments across. I have certainly heard a number o f cases w hich have been very difficu lt for people
7 1 0 ¡n ^ a t respect - not ju s t involving the Steam Packet, I have to say, but also the airlines. O f course, thereare people who have to go for dom estic distress or whatever - relatives ill or w ho have died or som ething across. It is these short-notice jou rneys, that often have to be made w ith no ability to be flex ib le , which people then get caught by.
I think we are sim ply saying to the S e le c t Com m ittee that there is a problem there. Y ou are probably 7 1 5 aware o f it, as politicians, because people talk to you about it. W hat w e are looking for is any way that the
Company possibly can have to, in any w ay, alleviate that problem , because there is a genuine problem there.
It is not easy. W e are not saying there is an easy answer - they should all be given the cheapest fares or anything - but there m ay be ways in w hich the Company can be a little m ore flex ib le . It is som ething
7 2 0 0 f that sort that we are looking for the S e le c t Com m ittee perhaps to suggest to the operator.
Mr Waft: Did you say it is in com m on with a lot o f other com panies that the on-line ticketing or pricing is often reduced, if you are prepared to go on-line?
7 2 5 O’Friel and Mr Clague: Oh yes, indeed.
Mr Waft: Did you say it is com m on practice? It is not particular to -
Mr O ’Friel: A bsolutely . T h is is com m on across the w hole travel experience but the arrival o f the on- 7 3 0 |jne booking has left a new vulnerable group. That is very often not recognised. It is w orse than that,
because when people get into trouble, they arc very often the people who cannot com plain because they cannot write, frankly. So much o f our com plaints system s depend upon people writing. T h at, frankly, is a real problem for our society and m uch broader than ju st the Steam P a ck et
7 3 5 Mr Waft: D o you think that the changes could be made within a legally binding A greem ent that we have, to accom m odatc the concerns that you have in that d irection?
Mr O ’F rie l: W e have suggested that there is no reason at all why service standards could not be agreed, why there could not be involvem ent o f TravelW atch with the Com pany, and indeed other
7 4 0 operators, to try and im prove service standards - first o f a ll, to make them clear and, i f necessary, so that there is som e enforcem ent m echanism . That might be for the Departm ent o f T ran sp o rt
It is not rocket scien ce, a lo t o f this stuff, but it could m ake quite a d ifference to passengers.
7 4 5T he C h a irm a n : Thank you.
M r C la g u e : Could I add som ething there? I think that within the con tcx t o f the A greem ent, there are obviously a num ber o f w orking practices, should we say, which are agreed through the Departm ent o f Transport - for exam ple, the sw itch from Liverpool to Birkenhead this winter. I would have thought that sort o f thing could be agreed at that sort o f level and not be a fundam ental breach o f the A greem ent or
/ j U anything like th a t I am sure in that sort o f liaison m eeting, these issues could com e up and a solution could be suggested.
T h e C h a irm a n : M r Turner.
7 5 5 T u r n e r : An observation. W e keep hearing about things that are com m on in the travel industry. O fcourse, we must bear in mind that where this is slightly d ifferent is that there is a form o f protection and exclu sive arrangem ent here which is not com m on in the travel industry. I think we have to make sure we look at the w hole issue here, with regard to som e o f these matters.
7 6 0 T h e C h a irm a n : M r C regeen.
Mr Cregeen: I think most people will be aware that, in the past, you used to be able to, across the travel industry, turn up on the day and you would get a very low price because they would be taking the last availability. Are you aware whether this still happens across the industry or is it the position now that
7 6 5 jt is the highest pricc, if you turn up?
Mr O’Friel: That is an interesting question. I know that the train companies - and I am trying remember which one, but some of the... Virgin in fact, I am sure it was Virgin - were starting to cut prices for last-minute bookings to fill seats, but that is a relatively recent development.
7 7 0 y ou are quite right: years ago, there w ere sort o f standby-style tickets, when you could get on variousoperators at quite low cost.
Of course, generally it is ‘book ahead’: book ahead and you can get good tickets. The corollary of that is, of course, it does hurt the people who cannot book ahead for perfectly valid and good reasons.
7 7 5 T h e C h a ir m a n : Right, thank you. Just developing this a bit more, you made reference to on-linebooking and Mr Waft made reference: part of our remit is to compare prices when booking on and off the Island.
Mr Turner, you have, I think, some points you wish to make.
7 8 0 Turner: Y e s , in your investigations, part o f what w e are looking at is on-lin e internet booking andbooking at the S ea T erm inal. Y o u have covered quite a few o f my questions, actually , in your initial opening remarks.
Do you think it is acceptable that passengers have to pay a higher price for going into the ticket office in this day and age, when effectively it may be their only form of transport? There is not the competition
' element, which could be argued with the airlines.
Mr O’Friel: I think I come back to the point I made earlier that we have got some people who are in a vulnerable position as a result of that. I do not think it is reasonable to suggest that they should automatically get the lowest possible fare, but I do think there is a middle position where, in certain circumstances - and the Company would have to make judgements about this - they could be treated in a rather more favourable way than they currently are.
I think a bit more flexibility there would create a great deal of goodwill that the Steam Packet would benefit from - and, indeed, other operators who did the same thing. I think perhaps you might try and encourage them in that direction.
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Mr Turner: Much play has been put on being competitive, but competitive with whom? Not all of these passengers will say the airlines are competitor because sea travel may be their only option: car drivers.
Mr O’Friel: Yes, indeed.
Mr Cregeen: Y ou touched earlier on, as w ell, on the fuel surcharge and the seat reservation. From observations, w hat can happen is that you can reserve a seat and then go and sit som ew here else. D o you think that is an accep table situation?OAC r
A lso, would you say that the fuel surcharge and the seat reservation is another increase in fares?
Mr O’Friel: I think w e have said very clearly that when people are m aking d ecisions about journeys they tend to be interested in ‘W hat is the total co st o f getting from my front door to w herever I am going to ? ’. C learly, things like fuel charges, insurance, extra costs o f seats, getting to the boat - all these are
8 1 0 things that people will recognise as being part o f the total cost.My view is that the Com pany should be a bit careful about charging fo r reserved seats, unless those
reserved seats, as my colleague said earlier on, are in an area w here there is a higher standard, a better service - in other words, they are getting som ething for their m oney.
O therw ise, I do not really understand why people have to pay fo r reserving a seat.8 1 5
Mr Cregeen: T he other thing is: in the fare structure that they do have, it is RPI m inus 0.5 per cent. On the fuel surcharge, in Ju ly 2007 fuel prices actually fe ll by 3.5 per cent. Did you note any decrease in the fuel surcharges from the introduction?
8 2 0 C la g u e : B asica lly , it is done over an average over a period, so a one-m onth downward glitch
would not be reflected in anything other than the average for the review for the next period. I think I am right in saying they are doing it on a six-m onth period?
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M r O ’F r ie l : S ix m onths, yes. T w ice a year.
M r M a la rk e y : In their own subm ission book, on the final page, over the last 12 m onths’ charges, when they are item ising everything from food, at the bottom o f the page, by their own adm ission, fuel during that period cam e down 3 .5 per cent, and yet wc still seem to have the fuel surcharge.
M r C lag u e: I think you are going to have to ask them the details o f how it is calculated. W e would d early ... W e understand in general, but the sp ecific calculation we have not seen. W e believe it would be helpful if it was in the public area, so that people, ju st as you have expressed, are actually reassured that it is a genuine reflection o f the level.
8 3 5 T he C h a irm a n : Y o u say in your evidence that the way the fuel surcharge is applied across theindustry is inconsistent.
M r C lag u e: Y es. O ne o f the d ifficu lties, o f course, in the industry is m ost o f them are involved in an organisation called the E U , w hich gets very excited if they start talking to each other about how to levy it.
8 4 0 Indeed, som e operators do it and som e do not.O bviously, the cost o f fuel as a proportion o f a particular operator's costs will vary. It is alw ays a
substantial one, but it w ill vary a little bit —
T he C h a irm a n : And you accep t that the D epartm ent o f Transport require the Com pany to absorb8 4 5 m ost o f the co st and only then pass on any extra costs to the passenger?
M r C lag u e : W e are told this, M r Chairm an, but we have not actually seen any form ula and I think it would be helpful to everybod y’s understanding, i f it was a b it m ore open.
8 5 0 T h e C h a irm a n : T han k you. M r Turner.
M r T u r n e r : Can I com e back to the su b ject o f reserved seating. I was quite concerned to hear that there is planned to be m ore reserved seating. T h e experience I have had on board the vessel is that when you have a b lock o f reserved seating, there is less seating for passengers. T herefore , i f you increase that, it
8 5 5 only means that as there is less seating, people feel inclined that they are going to have to have a reservedseat. The problem M r Cregeen pointed out - and I have seen this on board m y self - is that people have their reserved seat, but then go and sit in the bar and the cafeteria for an hour. T herefore , the passengers who have not got reserved seating have few er places to sit.
D o you feel that m ore reserved seating actually may be ju s t another way o f charging more money, because passengers are then going to feel inclined that they have to reserve a seat, otherw ise their party is going to be scattered all over the vessel?
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M r O ’F r ie l : That is exactly , I think, the point we were m aking. W e understand entirely charging for abetter standard o f service, like first class; but to charge fo r a reserved seat in the body o f the craft does
SCO seem to us a bit much. B u t you must ask the Com pany. T hey may have som e very good reasons for doingit.
I think it is one that we certainly would w ant to watch. W e have only ju s t p icked this up from Mark W oodw ard's blog, so w e have not certainly discussed it with the Com pany or anything. W e are ju st
^ putting u p ... T h is does n ot look in passengers’ interests!
T h e C h a ir m a n : Ju st on that point, do you think it is unreasonable to include, in the sailing capacity, occupancy o f the restaurant and bar areas in the number o f seats available? T hat is the point we are m aking.
8 7 5 C lag u e : M r Chairm an, my understanding is that a ship is certified according to the number o fseats that there are, so that if there are 1 ,000 seats, including the ones in the restaurant and everything e ls e .. . O bviously, if people are m oving for a very good reason, to go and sit in the bar, the ship is never going to be com fortable, if it is full. I think that is true with any operator anyw here.
8 8 0 T h e C h a irm a n : T h o se that want to consum e m eals, I think this is the point, can often not find a table
because they are occupied by people who are sitting there for the whole voyage.
8 9 0
Mr Clague: Yes, but I think one of the problems the Company have actually had is: since they have got into a position that, effectively, they have a three-class system on board - because they have a Blue
885 Riband Lounge, they have a First Class Lounge and they have the rest of the passenger area, whichincludes the reserved seating - actually, if only 25 people out of 100 seats in First Class are full and only half the seats in Blue Riband are full, and yet the ship has got 1,000 passengers wanting to travel on it, they have to start moving people round into premium areas - at which point, you say, ‘Well, why did I pay a premium?’
1 think they need to have ways in their booking system, whereby you can say, ‘Sorry, all the tourist seats have gone’, as you might on an aeroplane - ‘The only way you book on this particular sailing is you can either go on a different sailing or we can offer you a First Class seat, which would have a premium but would be a better seat.'
895 Mr Turner: By effectively booking a reserved seat, a great number of passengers are taking up twoseats: that is the experience I have found, because they are, as Mr Chairman said, sitting in the cafeteria and bar areas and then, once they have finished there, drifting slowly back to their reserved seating, knowing it is available. I would consider that as an unfair situation. What would you think?
9 0 0 Mr O’Friel: I would not disagree with you at all; but I think it is a technical problem that the Company has got to grapple with, and I do not envy them in that)
Mr Malarkey: On that point, because I was going to come to it on standards of service, would you say that the B e n m y C h r e e is suited for purpose, in the way the seats are laid out? There is a marked
905 difference between the fast craft, where you are sitting in aircraft-style seats, and the B e n , which has now got First Class areas; Blue Riband areas; a bar area; a cafeteria area; and the seats, for the passengers they carry» are scattered round all of that area.
So, as TravelWatch, do you consider that the vessel is... I will not say fit for purpose, but certainly, designed in a way that is helpful when the vessel is travelling with a full payload?
Mr O’Friel: I think we can say that the 1999 Committee which, of course, really came into existence because of considerable disquiet about the B e n , and the difference between the B e n and the craft that had been available previously, the improvements that the Company have made over the years to the B e n have made her a better vessel from the point of view of the passenger experience.
9^5 I Would say that as a sort of preliminary, but Dick might care to comment on -
Mr Clague: My understanding is that all the reserved seating on the Ben is in the quiet lounge aft and the seating in there is probably better than in some of the other parts of the ship.
Now, I am not com pletely up-to-date: there m ight have been changes. I have not travelled on her since 9 2 0 (1 summ er and I w ill be on her tonight.
The Chairman: Mr Malarkey, finish your point.
Mr Malarkey: Taking you up on that point: when the vessel was first put into service, yes, it was a 925 great advantage; but by their own success story and the amount of passengers they are now carrying, do
you consider that the vessel is now designed in a way to take the extra passengers, basically?
Mr Clague: Well, they have increased the amount of accommodation on the ship. The fact is that on any ship when it is full, you can never get people sitting comfortably in every seat, because people want
9^0 to sjt together. So you will have people sitting on the floor, people who actually want to steep willactually try and stretch out somewhere, whether there is a facility to do it or not.
Mr Malarkey: What I am doing... 1 think you are missing the point. My comparison is with the fast craft, where you have the individual seat, you are sitting like this... on the B e n in the lounge area, you
935 have seats that go round in very unusual shapes and lounge-style seats. As you say, when people dolounge over or whatever, it is taking up an awful lot of the seating. At least, on a fast craft you have a seat like on an aircraft, you know where you are sitting, end of story...
Mr Clague: Yes, on conventional ferries, it is quite usual to have the sort of mix of seating types that940 you have actually got on the B e n . On fast craft, there is much more tendency towards individual-style
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seats.
Mr Cregeen: You mentioned three virtual classes of passengers. Would you not consider there to be a fourth, with the cabins being involved on the vessels, as well, and that on a particularly busy day, where the main lounge areas are very full, the advertising of cabins, First Class and Blue Riband are actually an increase in fares for the travelling public, again on top of the standard fare that they have already paid, because they have actually increased the First Class and the Blue Riband, taking out areas for the general fare-paying...?
Mr Clague: I would suspect that with cabins, particularly on night sailings, the demand exceeds the supply. Obviously, if the ship were full and you had only got one person in a cabin which could take four, that is effectively reducing the capacity. But I think that has been the case for a long time.
The Chairman: Okay. Just reverting back to the issue of price comparisons when booking on and off-Island, because we have gone on to standards of service now. Mr Turner.
Mr Turner: Forward booking - TT 2008 - I know we have had considerable submissions from interested parties that have tried to book. One of the complaints we have heard - it would be interesting to know whether you as a travel group have had the same - is that passengers do not know quite when they are going to travel; they have to pay a deposit; they are not quite sure what they are going to pay; it is very unclear. Is this common through your experiences that this happens?
Mr O’Friel: We certainly heard exactly those points being made in various conversations and meetings that we have had with people. It is always difficult with this to know how far it is a major problem and how far it is a limited number of people - 1 do not honestly think we have got a feel for that. But we can confirm that we, too, have heard just those points.
Mr Turner: But the concern from the people who have been travelling is that they know that they are effectively tied to this, because if they do not travel, somebody else will because of the demand at the time of TT. Do you think it is fair that the deposits are non-refundable on that basis? It is almost like having your cake and eating it - ‘we will take your money, but we will not tell you how much.’
Mr Clague: I think the difficulty with the whole logistics of the TT is that it is a totally unique Isle of Man experience. I do not think any other shipping company has to actually deal with such a surge in demand over a relatively short period. It is unique in that way. It has always... sorry -
Mr Turner: But the format of the TT is well-known.
Mr Clague: Oh yes, yes.
Mr Turner: It has been around...
Mr Clague: Now quite clearly, when the Company had a much bigger fleet, 20 years ago or 30 years ago, it was easier to manage because the ships just went backwards and forwards rather more. The whole question of knowing what other vessels can be obtained is a key challenge to the management of the Company.
I think a lot of the information about this in the last TT came out far too late. If people had been better informed about the whole procedure and the challenges... The statements were made ultimately, but they were made really far too late. I think one could have made a statement at the beginning of the year, for example, that ‘From our experience, we know that actually getting these ships is going to be a problem', but it was only very much at the last moment that was stated, and it all stemmed from there.
The alternative of course is to say, ‘We have got an outline schedule, which we are sure we can honour. Yes, you will all pay A-tariff rates. Do you wish to book on that basis?’ Even then, it is not as simple as that, because if you are then actually trying to bring extra tonnage in, there are physical limitations on which port a particular ship you can get can be handled at and how. You do not even know the size of the ship to actually apply the booking system.
So, I think there is a huge communication challenge, which does need to be looked at much more. I think you need to ask the Company why they feel the need to take a deposit. I have got a pretty good idea of why they will tell you, but I think it is for them to tell you that.
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Mr Turner: But these people are paying the premium rates for getting here, and there is no certainty that they are going to get here on the day they are booking. The argument could be that if you are paying the premium, you should have better service. If it was a cheap ticket, you should be able to, fair enough, turn up at the docks and not know whether you are going to go at five o’clock or at midnight But these people are paying for a premium ticket
Mr Clague: I think there is possibly an argument that says you set out a standard of service which you know you can meet. You take bookings for that at known prices and they are firm bookings - okay, plus or minus the odd hour, perhaps, as adjustments do need to be made - and hopefully they would be made with rather more notice than previously. Other people whose bookings are taken on a fluid basis are perhaps told, Three months in advance, we will be able to tell you more precisely what the position is\ and maybe at that point their deposit either is confirmed or refundable, if they do not go on with it.
Mr Turner: The knock-on effect, of course, is that these people cannot then confirm their accommodation, so this affects hoteliers, car hire or whatever - hoteliers in particular. (Mr Clague: Absolutely.) That is one of the complaints, because they could have no-shows, because the sailing could have been on a different day.
Mr Clague: I think variations of that are happening already. Certainly, it is something which you, as a Select Committee, could perhaps explore further with the company.
The Chairman: Let us move on. Mr Cregeen.
Mr Cregeen: Just one thing on the TT. Would you think it would be practical for the Company to have a basic sailing timetable for the TT and be able to fill that, and then anybody after the filling of the basic service could then be put onto another system?
Mr O’Friel: I think you would have to ask the Company that, because that is an operational matter.Our concern would be, as my colleague said, that the more you can give passengers certainty about
when they are going to travel and what price - the more transparency there can be about that - the better. But we do recognise that the TT is a unique event and the transport challenges are substantial.
Mr Clague; But the communication challenge arising out of that is also huge. I think that perhaps the Company have underestimated that, in the sense that the time to communicate, if there has been has been a change... really, it is almost impossible to communicate in less then two weeks. Some people, of course, yes, but other people will be locked into other arrangements; they will be on their way. So, in the TT, that is a real difficulty.
The Chairman: Can I just ask you to make a comment on the issue of price differentials, depending whether you book on-Island or off-Island for the same journey? Do you get much comment from your members or passengers about this?
Mr Clague: There has been quite a lot of comment over quite a long period about this. I do not think we have picked up a huge amount, but it is there.
As I say, the tariffs are the same from both ends, whether it is the top price or the special offers. It is the number of them that are available and the relative demand which affects it, so that on a particular day, it will be cheaper to pick up a ticket two weeks in advance in one direction than in the other. But the situation can be either way round.
The Chairman: What would you think about somebody who inadvertently makes a booking - they are an Isle of Man resident - as if they are a resident of Liverpool, travelling; immediately realises the mistake and rebooks, only to find that there is quite a considerable difference in the fare?
Mr Clague: My wife had that particular problem when she booked on-line on one of the airlines actually.
One would hope that it will be dealt with sympathetically and that people would not be asked for amendment charges and everything else. There probably needs to be a better procedure for dealing with issues like that.
What, of course, is completely unpredictable is that was the fare that they booked at actually available in the direction that they booked it at the time? Now, if they got a £35 fare and they found going the other
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way was a £100 fare, when they realised their mistake, if there was not a £35 fare available in the direction they meant to go, well, to some extent, I do not think they should benefit by their mistake. But, again, it is how people see the system is handling them justly.
The Chairman: Okay, that is helpful. Thank you very much. I would like to move to Mr Waft now.
Mr Waft: Would you agree that an island such as the Isle of Man has to have a reliable daily service to the United Kingdom?
Mr OTriei: Yes.
Mr Waft: Inasmuch as competition and the introduction of a vessel, perhaps with no ties whatsoever, they would tend to go for, perhaps, the busy times of the year; or do you think they would have to have a daily basis as well? How would you go about...? You are thinking about competition, when you introduce that.
Mr O’Friel: Sorry, I think I should deal with this one. We are trying to avoid, and I think quite properly... I do not think it is TravelWatch’s brief to discuss competition where it does not currently exist, because those of us who have been around for a while remember the whole Manx Line/Steam Packet saga and a fairly sorry tale that was in many ways.
Our job is to represent the interests of passengers. The sort of question that you have asked there would require a great deal of examination. It would be, at any rate, an issue which would largely be determined, I am sure, by the commercial operators and by the Government, the politicians.
TravelWatch’s concern would be, if any changes of that sort were being even considered, what impact would it have on passengers? Would there be any benefits; would there be disbenefits?
We are certainly not in a position to say anything about that, because we would need to consult very widely.
Mr Waft: You would still, perhaps, think that there would need to be some form of agreement with regard to the scrvice to the Isle of Man?
Mr O’Friel: With respect, I think you are trying to pull me into a position of discussing the possibility of two operators. I am not prepared to do so on behalf of TravelWatch.
What we are saying is that whatever arrangements are made for passengers, they must not be disadvantaged: If a new situation were to be proposed or to be considered, then our job would be to ask lots of questions about what the impact of such new arrangements would be on passengers.
Mr Waft: We have talked around the pricing aspect: how the increases work out; how the discounts work out; the fuel charges and all the rest. There must be a basic idea that you might have with regard to a basic charge for a foot passenger and a basic charge for, perhaps, a car with two passengers. Have you had any thoughts on that matter at all?
Mr O’Friel: I do not think so, because that again is a commercial decision for the Company.From our perspective, what we are-looking at is that passengers have got... You comc back to the
basics of passenger representation. What passengers are concerned with, with fares, is affordability. Is it affordable? What we have tried to push in the evidence that we have put before you is that, while there are lots of affordable fares - we give full credit to the Steam Packet for that and lots of people say to us, ‘We have got a very good fare with the Steam Packet’ - nonetheless, there are still problems with some groups who are unable to take advantage and are pushed to the very high fares.
That is exactly what people say: ‘These fares seem very high.’ I have heard that from numbers of people.
Mr Waft: You have no thoughts on a basic fare, then?
Mr O’Friel: No.
The Chairman: So, if you were to be asked, what would be a reasonable fare for a car and two passengers to cross to Heysham or to Liverpool, would you venture what might be reasonable?
Mr O’Friel: I certainly would not know.
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Mr Clague: I think a lot of this is a political decision. For example, you are no doubt aware that there is an excrcise going on in Scotland at the moment on whether the islands should benefit from what is called a ‘road equivalent tariff. Now, if that produces what you might describe as a fair fare, it will require subsidy but, of course, the particular services that are being looked at are already subsidised services.
If you say the basis for a reasonable... is that the operator must be able to make a living out of operating the service, in any environment, that has to be the case. We saw in the case of Northlink that, under their original contract, they could not actually make money out of it and it all had to be renegotiated.
There has to be a balance of interests and appropriate arrangements.
The Chairman: Thank you. Just moving, finally, to the standard of service aspect of our remit, Mr Malarkey might have some questions, but I wonder, Mr Malarkcy, if I could just, perhaps, ask a question to Mr Clague, so I can let you have free rein?
As a shipping writer, Mr Clague, you frequently contribute to magazines and trade articles and so on. What would be your comment as to the present level of fleet technology used by the Steam Packet? Could it be improved, in terms of the sorts of vessels that they use: monohull vessels, catamaran-type vessels? How do you see, if at all, the Steam Packet improving in the sort of ship technology that it is using?
Mr Clague: Well, we would obviously like to see a more modern, all-weather suitable vessel coming into the fleet to replace the current fast craft. Hopefully, that would give, because of its size and technology, a more comfortable ride.
There are still problems with fast craft because of the wave height stipulations which are imposed by the Marine and Coastguard Agencies. So, I do not think you are going to get one which will go out in more than 3.5 metres, significant wave height - which does not mean you may not meet waves that are a bit bigger, but it is an average figure. We would very much like to see progress on that.
I think part of the difficulty we have got is that, at the time the User Agreement was extended, there was an expectation, mentioned by the then Minister of Transport in Tynwald, that there would be an early replacement by an improved vessel to cover both the S e a C a t I s l e o f M a n and the L a d y o f M a n n . That investment has not happened.
The Company tell us the money is available. The market for fast craft at the moment is fairly tight, but there have been craft available which have gone to other operators.
You would have to ask the Company for more detail on that.
The Chairman: Is the issue not moving on to the next generation of craft: catamaran type?
Mr Clague: When I say fast craft, I think monohulls have almost disappeared, in terms of current building. Virtually everything that is being built now is catamarans. There have been some attempts to build trimarans. There is one operating out in the Canaries, which would be far too big for this particular route.
I think we do need to be into the next stage of technology. We are in mark 1 generation fast craft here at the moment. Virtually all the other routes are further forward than that.
The Chairman: That is a helpful comment. Mr Malarkey.
Mr Malarkey: Before I go onto the standard of service, I am beginning to wonder, from some of the answers we have had, whether we might be moving outside your brief. Our remit, as a Committee: we have taken standard of service from the stage from when we book, to we turn up, actually get on the vessel, to the quality of the food, drinks, etc, pricing on the vessel, to the standard and cleanliness of the vessel. Do you find all this to be a little bit outside...?
I say this because of the comments you have made. Nowhere in your comments have your referred to onboard services. You have said, by your own standards, that you have not actually been on the vessels for a while. You are on tonight, or something?
Mr Clagoe; 1 am on tonight I travel at least a dozen times a year. I feel like a yo-yo at times. 1 cannot remember which side of the Irish Sea I am on, and I find I am in the middle!
Basically, 1 have been on virtually all the Irish Sea operators. I think, in terms of fast craft, the fast craft operated by everybody else on the Irish Sea are of a better standard than the ones thè Steam Packet have got. Some arc significantly better, others not a huge difference.
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The feedback I get is that onboard food on the Steam Packet now is actually quite a lot better than on some of the other operators.
You have a mix, of course, of operators now who are heavily involved in freight. If you go on Norfolk Line, for example, from Birkenhead to Belfast or Dublin, you are actually travelling on a freight ship and the whole running of the ship is dictated round that. If you go on the P & O conventional ships between Larne and Cairnryan, they really are an excellent standard of ship and a pleasure to sail on. The B e n m y
C h r e e comes a little behind those, I would say. 1 am not implying that as a criticism. I think that is just a fact.
The Irish Ferries fleet - particularly now they have just invested in a new one for the southern Irish Sea, which is to be called O s c a r W i l d e - that operation is very good in terms of onboard standards.
Mr Malarkey: Thank you. How do you view the port facilities at both Heysham and Liverpool, which are obviously the first thing we greet when we come to the vessels?
Mr Clague: Well, Heysham has improved immensely in the last 12 months and the work that has been done there. There is still more work that needs to be done: for example, round the railway station area and the acccss that way; questions about cost of car parking, that sort of thing.
Liverpool, of course, has been a building site in the last couple of years, and we cannot in any way blame the Steam Packet for that. I would say that I believe the Steam Packet’s intentions to improve things at Liverpool go back at least ten years. They have been extremely frustrated by planning considerations, by various protest groups who have held things up. Of course, now work is underway and I understand there is a hope that there will be a new terminal on the landing stage and the new facilities there will be operating by some time next summer, should we say.
Again, do please ask the Steam Packet for more detail on that
Mr Malarkey: Yes. Do you consider the standard of cleanliness, etc, out of Liverpool being a very good impression for the Isle of Man?
Mr Clague: No, but I do not think the Steam Packet would believe it, cither. While all this is going on, it is very difficult to see what the point is in investing too much money in what are agreed to be inferior facilities.
Mr Malarkey: Are we aware what facilities there are now with the Birkenhead side of the landing, with the winter timetable?
Mr Claguc: The passenger terminal is quite modern and pleasant. It is not really designed for large numbers of foot passengers, because most of their passenger traffic is car borne.
If it were going to be used on a permanent basis, I would say probably you would need rather bigger but, for the winter, at the moment, I think that terminal probably illustrates something rather better, although, again, there are access problems to it.
Mr Malarkey: Well, that is the next question, because, obviously, you do not just deal with boats or planes; you are concerned about trains and buses. Do you consider there are enough facilities in the Birkenhead area to allow foot passengers to get to where they want to go: to the trains or to the other side of the Mersey, etc?
Mr Clague: The Steam Packet are running coaches from Twelve Quays when the B e n arrives, both to the Pier Head - their own terminal there - and also up to Lime Street Station.
We would like to see them offer a facility whereby people could drop off onto the Mersey Rail network at Hamilton Square in Birkenhead, which does not really seem to be a major diversion, which would facilitate people picking up the public transport network either by buses at Woodside or the Mersey Rail network, right across the Wirral and onto Chester.
I did ask them about this and they said not many people have asked for it. I do not know whether it would be right to suggest that, perhaps, if the question was asked the other way round, they might find that there is some demand, because that would be a convenience.
The Chairman: Just following up, the new winter timetable this year has given rise to a lot of public concern. Do you see that as being the inevitable consequence of not having the L a d y o f M a n n on that particular route and the uncertainty of having a fast craft in the winter? Is it something we simply have to put up with, until the Company gets a replacement vessel?
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Mr O’Friel: I think our initial reaction to the decisions that were taken about going to Birkenhead were that at least there will be a service to Merseyside that should run without the reliability problems that were experienced last year, because of the weather and because of the accident to S e a E x p r e s s . Of course, it is a reduced service and it has eliminated, virtually, the possibility of what i would define as a day trip. Although I think the Steam Packet are trying to look creatively at ways of improving things, they have got, in my view, quite a bit to do.
One of the difficulties we have got about all this is that we are back to our old friend, transparency. We have actually asked the Steam Packet if we could have the figures for the day-trip passengers to Liverpool over the last 10 years. Last year, quite clearly, there were very few because the fast craft was cancelled a lot of the time and then it ran into some difficulties with another vessel. Last year’s figures are neither here nor there. We really need to look at them over 10 years.
I think wc have then got to ask the question that, even if there is an established demand for people wanting to go to Merseyside, it is quite difficult for the Steam Packct to actually meet that with the current fleet and with the problems of fast craft in the winter weather.
We have not got any clever ideas about that, particularly, as my colleague said, it does not look as if new fast craft will be able to operate above the 3.5-metre average. So, it is a very real problem.
At the end of the day, the Steam Packet are the operators and it is for them to try and solve it.
The Chairman: Thank you for that.
Mr Turner: Much talk has been about ‘fast craft’ services and there seems to be this expectation, yet so often we hear people saying, ‘Bring back the L a d y o f M a n n ' - which we know is not going to happen. Do you think passengers would prefer a cheaper, slower service than a more expensive, fast craft service which may or may not go?
Mr Clague: I think if we are talking about winter-
Mr Turner: I am talking about: they have not yet invested in a new vessel and, maybe now is the time for your passengers, passengers in general, to make representations of what they actually want out of the service. It may be that they do not necessarily want a fast craft.
Mr Clague: Well, the User Agreement, as I understand it, requires the Company to operate a fast craft. The Company, I think, would wish to operate a fast craft because they take the view that the fast craft equals reduced journey times and that has actually been an important element in the gross that they have achieved.
It is also equally true to say that the Orkneys’ and Shetlands’ carrier, since they invested in rather nice new ships, with dubious economics, have also experienced a growth in their travel trade.
Mr Turner: What kind of ships?
Mr Clague: These are ships which were built in Finland. They carry freight. They are much more ‘passenger’ than something like the B e n m y C h r e e , but they have an ability to carry freight as well.
Mr Turner: Fast craft or...?
Mr Clague: No, soiry. They are conventional ships, but they will run up to about 25 knots, I think, albeit at a cost with fuel. They are about 125 metres long, so they would actually fit into Douglas harbour. The economics of their carrying, because they are relatively narrow ships, means that the amount of freight they can carry would not be very helpful.
We have seen a number of faster conventional ferries, which are nicely fitted out, which have enabled operators to attract more business. If psychologically the message that gets over is: ‘We are getting rid of fast craft; ¡t is going to take longer to get to the Isle of Man', there is a very clear marketing problem. One or two people have actually said, ‘Well, yes, it’s fine going to Birkenhead, but it don’t half take a long time!’
So, if they could have a ship that would do 25 knots or something of that ilk, which would do Liverpool in three hours and it was a nice enough travel experience while you were at it, 1 actually think that is a marketable proposition. But it would have to be done carefully.
The Steam Packet, I think, would take a different view and they would see a significant loss of passengers.
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Mr Turner: Surely it is better to have a three-hour trip than no trip!
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Mr Clague: Yes.
The Chairman: Thank you. I will ask colleagues if there are any final points. Then I want to ask Prof. Baird, perhaps, if he has any.
Mr Clague: Might I just say one more thing, Mr Chairman.As people will have heard on the radio this morning, one of our politicians has now looked at the new
timetable, which has just appeared, and seen that the timetable for November and December next year is showing the same sailing times as this year, but it is actually showing to Liverpool. Now, obviously, if the Steam Packet are able to take the ship to Liverpool landing stage, that gives them some flexibility over time slots.
The other constraint, which I understand now occur but did not at the time the L a d y o f M a n n was in operation, is that the rest hours regulation has changed, so that to operate that same sort of schedule might be difficult
I actually think this is a challenge which we would hope the management might rise to. They might have to put some extra crew on board to maintain within the Regulations, but, of course, they are saving some money in not having a second craft, fully crewed up and in commission.
We think that, perhaps, they could invest some more back and, maybe, next winter, if they have the flexibility of using the landing stage, they could work out. some rather more satisfactory timings and actually bring back proper day trips. We would hope they might do that, but we have not had an opportunity to discuss that in any detail with them yet
The Chairman: Thank you for that comment, Mr Clague.
Mr Cregeen: You said earlier that it is part of the User Agreement to supply a new fast craft. What would be the definition of a fast craft, speed-wise, compared with other vessels?
Mr Clague: May I correct your assumption. The requirement is for further investment up to certain amounts of money. The statement that they have made is that they intend to provide a newer fast craft.The only requirement is that they have a fast craft within the fleet, currently.
1 suspect, if they came along with a good enough alternative proposition, that could be renegotiated. If you would like a definition of a fast craft, can I suggest you ask Prof. Baird that point because 1 think that is one of his pet subjects.
The Chairman: We will come onto that. I am sorry, but I have to move on. One question, Mr Malarkey.
Mr Malarkey: At your TravelWatch meeting on Saturday, if 1 am not mistaken, you did refer... Do you have another meeting coming up with the Steam Packet Company in the near future? Did I hear that right?
Mr O’Friel: We certainly hope to, because there are other things we want to talk about. We have had two meetings with the Steam Packet Company already, including the one I referred to where, I thought, although in some respects it was quite a robust exchange, nonetheless we are engaging with them; theyare engaging with us and that can only be for the benefit of passengers.
Mr Clague: That was a few days before the public meeting.
The Chairman: No further questions? No. Prof. Baird, a final word, sir.
Prof. Baird: Thank you, Mr Chairman.With regard to the question on fast craft, 1 think there is still a lot of doubt, even amongst navel
architects, when trying to define fast craft, but they usually use the term ‘Froude number’ to consider the displacement and, as I am an economist, I really cannot elaborate further! ( L a u g h t e r ) The F a s t F e r r y
magazine usually talks about 24 knots and above.It does seem, though, there is a new family of ships coming into service now called medium-speed
catamarans. This a function of the very high fuel costs, the problems that fast craft have with the wave
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height restrictions and the ability of catamarans, of course, to carry much bigger payload than monohulls for a given length.
I have one question, Mr Chairman, that is to do with... well, I have three actually, but I can condense it into one!
It is to do with timetables and, also, mainland UK ports. Historically, my understanding is that Isle of Man Steam Packet services predominantly went to Liverpool. The change to Heysham has been relatively recent I am wondering, looking at route analysis and so on, as I do, whether in future these issues, in your view, need to be considered from the passenger aspect, to do with integration and also market hinterland and so on - whether or not the optimal solution is to split a route like this into two mainland United Kingdom ports and the implications that has for critical mass, for route economics, for pricing.
It all comes back to pricing. That kind of fragmentation: in your view, could it be adjusted in future, and in what ways might that take place, with the aim to improve frequency and, also, to reduce pricing and so on? Is that an issue that the Committee should, perhaps, consider in terms of ports and timetabling?
Mr O’Friel; I think access to the ports is crucial from the passenger point of view. We have emphasised all along, it is the joined-up journey. I think part of the test, if there was a suggestion of centralising to one UK port, we would want to look very carefully at facilities. We have already described how difficult it has been at Liverpool recently.
Liverpool, of course, offers on the whole, a greater selection of joined-up journeys beyond Liverpool, once you get through this building site on the Pier Head. That would obviously be one of the tests.
We would look at it, all the way, as what advantages would there be for passengers? Of course, there would be some disadvantages: there is no doubt about it. We have been approached by people we did not really know existed who were very put out, I think, at the fact that the B e n was not going to Heysham at weekends, because there obviously is at least a small market there.
So, that is a few thoughts from me.
Mr Clague: Yes, if I could come in. The problem with the Mersey is that neither the right vessel nor the right facilities are available ashore to run a Ro-Pax operation. There are slots which are being occupied by the B e n m y C h r e e on the Norfolk Line terminal at certain times of day, but the Company would need its own terminal.
There are possibilities still that further facilities may be built on the river. They would be further away from the city centre, so there would be a transport access question to be raised; not insuperable, I do not think.
The other major problem is that the speed of the B e n m y C h r e e is such that, if she had a full load of freight on, it does take her longer to get to the Mersey. It would take her longer to turn round than she does at the moment So I do not think she could sensibly do two round trips a day to the Mersey on an ongoing basis. If you had a sliding timetable, you might be able to fit it in.
So, the answer is you would not start from here; but if you started with a blank piece of paper, because of access, larger number of passengers and everything else, it would suggest that running a Ro-Pax operation... which, again, you could not do from the Pier Head because of access for vehicles. There is no marshalling areas. The planners would never allow it.
As a long-term strategy, I would hope that the Company might like to have a look at that.
The Chairman: Thank you. Have you any follow-up, Prof. Baird?No? Well, it just remains, then, to thank you, Mr Clague and Mr O’Friel, very much for your
attendance this morning and for giving evidence to the Committee. We have certainly found it, I think, an extremely useful exercise. It may well be that we will correspond further with you, if we require clarification. With that, thank you very much indeed.
Ladies and gentleman, that brings to an end this session of the Select Committee on the Steam Packet in public session. I, therefore, declare the meeting closed.
Thank you.
T h e C o m m i t t e e s a t i n p r i v a t e a t 1 . 0 5 p . m .
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APPENDIX H
Hansard Proceedings
Wednesday 30 January 2008
Evidence of the Isle of Man Steam Packet Co LtdMr M Woodward Mr J Watt
EARLY PUBLICATION (4.15 p.m., I February 2008)
SELECT COMMITTEE PROCEEDINGS
EPSPC300108
10.35 a.m. -1.08 p.m.
Douglas, Wednesday, 30th January 2008
Tynwald Select Committee on the
Isle of Man Steam Packet Company
The Committee sat in public at ]0.35 a.m. in the Millennium Conference Room,
Legislative Buildings, Douglas
[MR SPEAKER in the Chair]
Procedural
The C hairm an (The Speaker of the House of Keys, the Hon. S C Rodan): Good morning, everyone. Can 1 welcome everyone to this public meeting of the Select Committee of Tynwald on the Isle of Man Steam Packet Company. We are here this morning to take evidence in open session.
The Committee was established by Tynwald in June last year, with the following remit: (1) to examine the Isle o f Man Steam Packet Company's fare structures over the past 12 months, any increases to fares in that period, and the reasons why; (2) to make a comparison of prices when booking on and off the Island; (3) to consider whether the prices charged throughout this period are fair and equitable and represent best value for money for Isle of Man customers and off-Island customers; (4) to examine whether any excessive charging has taken place; and (5) to consider the standard of service offered to both passengers and freight users by the Company, and the extent to which it is in accordance with the Company’s agreements with the Government.
At this point, I would introduce my colleagues on the Committee: on my right, Mr Waft MLC; Mr Turner MLC; Mr Malarkey MHK; Mr Cregeen MHK.
The Clerk of Tynwald, Mr Malachy Cornwell-Kelly is joining us this moming. Mr Les Crellin is the Clerk to the Committee. Prof. Alf Baird is technical adviser to the Committee: he is the Head of the Maritime Transport Research Group at Napier University in Edinburgh.
The proceedings this morning are being recorded and will be published in Hansard, and the recording staff - Mrs Ellen Callister and Mrs Deborah Pilkington - will be recording the proceedings. At this point,
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could I make sure that everyone has mobile phones turned off, as they are likely to interfere with the recording. Thank you very much.
At the last meeting of this Select Committee, on 23rd November, we had called, to present evidence, representatives of the Isle of Man Steam Packet Company, Mr Juan Kelly, Mr Robert Quayle, Mr Mark Woodward and Mr John Watt. We had a statement given to us by Mr Callin, of Quinn Kneale, the legal adviser to the Steam Packet Company, seeking an adjournment of the oral evidence of the Company to 30th January - that is today’s date - on the basis that High Court proceedings had been instituted, and it was considered necessary to take time to consider the extent to which those proceedings might overlap with this Committee’s inquiry. So I shall be inviting the Steam Packet representatives this morning to make comment and give us the position on that particular situation.
So we are pleased to have with us today Mr Mark Woodward and Mr John Watt from the Isle of Man Steam Packet Company. The gentleman accompanying is - ?
M r W oodward: This is Jonathan Wild, of Quinn Kneale.
The C hairm an: Jonathan Wild, of Quinn Kneale, Thank you very much.W e do not have with us this morning either Mr Kelly or Mr Quayle, and I will invite you to outline the
reasons for that to us, because it was certainly our expectation that Mr Kelly and Mr Quayle would be joining us this morning.
I would further invite you gentlemen to make an opening statement to us, and the basis is we would wish to ask questions thereafter, relating to the passenger policies - in terms of fares and timetables - of the Company, the levels of services in ports and on board.
We would wish also to be.looking at - which is within our remit - the standards of service to freight customers, and also to be looking at the policies o f the Company for the acquisition of new vessels, in accordance with the requirements of the Steam Packet Agreement.
1 think it would be very helpful, also if, Mr Woodward, you were to explain your particular role in the Company, and indeed the structure of the board and the Company. It is very- important that we appreciate exactly where the decision-making of the Company lies.
We are aware, as I indicated earlier, that proceedings are currently under way conccming a challenge to the validity of the User Agreement to which the Company is a party. I would say that this Committee is concerned only with the remit of Tynwald, which requires us to consider the standard of service offered to both passengers and freight users by the Company and the extent to which it is in accordance with the Company’s agreements with the Government.
I would stress that this Committee is not concerned with the validity of any such Agreement, but is concerned with the process by which agreement with Government is reached on certain key issues contained within the Agreement. No doubt your legal adviser will advise as to matters that may be straying into areas that currently sit before the High Court
EVIDENCE OF MR M W OODW ARD AND M R J W ATT
The C hairm an: With that introduction, if I could start by asking if you would kindly introduce yourselves, your position with the Company and your respective areas of responsibility, and then to make your opening statement along the lines I have indicated.
Mr Woodward.
M r W oodw ard: Chairman, Committee members, good morning,1 have prepared a statement, which I will get into shortly, but in light of the comments that Mr Rodan
has just made, I will explain the structure of the Steam Packet Company and its current board.My colleague, John Watt, myself, a finance director, a human resources director, and a director of
marketing are all locally based and are all part of what we call the executive committee, which is the locally-based decision-making engine of the Steam Packet Company.
Additionally, at those meetings, we usually have two directors present from Macquarie Bank, who are part and parcel of that process. So it is very clearly a decision-making body, which is constituted here on the Island and the majority of those members are Island based.
The C hairm an: Who is the chairman of the board of the Company? The Steam Packet is an Isle of Man registered Company?
M r W oodw ard: It is.
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M r W oodward: The chairman of board meetings is usually now myself, as Chief Executive.
The C hairm an: And the role of Mr Kelly, who was the Chairman of the Steam Packet Company - and it was on that basis that he had originally been invited - could you just explain what his role is?
M r W oodward: Yes. If I could explain: at the time Macquarie purchased the Steam Packet Company from Montague, in October 2005, the existing non-executive directors at that time - of which Mr Kelly and Mr Quayle were two - stepped down and became members of what we called a supervisory board. The supervisory board is a board which has an overview function of decisions and processes within the Company, but is not actively involved in day-to-day management decisions.
The C hairm an: Thank you very much.The areas of competence that we are interested in - particularly relating to future investment decisions
of craft under the User Agreement - then, it would be in order to ask you this morning about those decisions?
M r W oodward: That would be correct.
The C hairm an: That is fine.Can I just ask, Mr Cornwell-Kelly, if you have any points at this stage?
The Clerk of Tynwald: I wonder, Mr Speaker, if 1 may seek a degree of clarification on that.Mr Woodward has said that there is what he has described as an executive committee in the Isle of
Man. Is that, in fact, the board of the Isle of Man Steam Packet Company?
M r W oodward: It comprises some members of the board of the Isle of Man Steam Packet, but notail.
The Clerk of Tynwald: And the supervisory board to which you have referred: is that part of the Isle of Man Steam Packet Company’s institutions, or is that some sort of body that is imposed by the parents of the Company?
M r W oodward: It is part of the Isle of Man Steam Packct Company institutions. It is a board which has a specific purpose of overviewing what happens to the Steam Packet and its environment, i.e. local relations with the Isle of Man, and services and so on that we provide here on the Isle of Man. So it is entirely limited to Steam Packet specific matters.
The Clerk of Tynwald: What, in terms of Isle of Man company law, is the status of the supervisory board?
M r W oodward: They are not legally directors of the Company,.as such. Whether or not there is any alternate director type arrangement there, in terms of law, I am not sure. I would need to take advice on that.
M r Wild: I do not think 1 am in a position to answer that directly now in relation to the legal position, Obviously, that is the records of the Company in terms o f the directorships o f the Steam Packet Company.
M r W oodward: I think the important point to note is that the Company is obviously properly constituted within Isle of Man law and has a majority of Isle of Man directors on the board.
The Clerk of Tynwald: Surely. I have no doubt that is the case.I think the Committee may be just a little bit uncertain by the use of the term 'supervisory board’,
which is clearly within the continental context, but it is a fairly novel concept, I think, in terms of Isle of Man law. We are trying to establish precisely who is who, and who is actually the controlling body, and the information you have given this morning I think helps, but it does not finally give us the ccrtainty that we need as to who the controlling body of the Isle of Man Steam Packet Company is in the Isle of Man.
M r W oodward: I would view the controlling body as being the Steam Packct executive committee, which is, as I said, five local-based senior executives and two Macquarie Bank directors.
The C h airm an : W ho chairs the board meetings?
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M r W oodw ard: That is the board of directors.
The Clerk of Tynwald: Yes. Thank you very much.
The C hairm an: Just for the record, could you indicate to us then who the five executive directors are?
M r W oodw ard: The five executives are: myself, as Chief Executive; John Watt, as Commercial Director; the Director of Marketing is Rupert Trevelyan; the Finance Director is Douglas Grant; and Stuart Garrett is Human Resources Director. They are all locally based here on the Island, and have been for some time.
The C hairm an: Thank you very much.
M r Wild: Perhaps, Mr Chairman, if I could just say if there is any requirement for any further detail, we can obviously supply that off line. W e have not been specifically asked this question before. We can do that, if required.
The C hairm an: Fine. We may revert to you if we require that clarified further. Thank you.Continue, Mr Woodward.
M r W oodw ard: On behalf of the Steam Packet Company, can I say that we are pleased to appear before this Committee. The Company has previously made a detailed written submission to this Committee and, in support of that submission, we now each - that is John Watt and I - propose to make a short opening statement.
My name is Mark Woodward, and I am the Chief Executive of the Steam Packet Company. I have been employed by the Company for 18 years in a variety of roles covering finance, customer services, general and marine operations. Ï was appointed to the role of Chief Executive in July 2007.
The Steam Packet Company welcomes the opportunity to supply cvidencc to the Select Committee. The Company sees the Committee as helpful in highlighting how much has been achieved for the Isle of Man under the User Agreement, and believes the Committee’s findings will assist in dispelling some erroneous perceptions about the Company.
The Department of Transport has acknowledged that the Steam Packct Company is fully compliant with all the pricing and service obligations of the User Agreement, and in most areas substantially exceeds these requirements.
Since the commencement of the User Agreement in 1995, the Company has dramatically improved the level of service offered to both passengers and freight customers, with frequency of sailings and service capacity substantially increasing during this period. The User Agreement has, importantly, provided the Company with a stable base for investment in its vessel fleet and has also enabled the development of additional services.
For example, we now have more than 1,000 extra passenger sailings annually, compared with 1996. In - stark contrast to this, many UK ferry services have suffered a decline during the same period.
By way of background, the 1980s were a difficult period in shipping terms, with falling traffic levels, strike disruptions and real concerns regarding the maintenance o f the Island’s lifeline. Open competition proved impossible to sustain, and competing operators faced financial ruin. Eventually, both operators were forced to merge. There were concerted efforts by the Isle of Man Government to ensure future stability of lifeline services, which ultimately led to the introduction of the User Agreement in 1995,
Since this time, the Company has invested more than £60 million in maintaining and upgrading its fleet and facilities, most recently providing a second fast craft to allow an expanded summer service to Ireland and Liverpool. The Company is also actively investigating replacement fast craft investment options, funds for which have already been allocated.
The Steam Packet Company is proud of its long tradition of service to the Isle of Man and remains totally committed to maintaining and continuing to improve services for the long-term benefit of both the Manx community and visitors to the Island. The Company is also committed to fulfilling its obligation to provide a reliable year-round service, without the taxpayer subsidies received by many other UK island operators.
My colleague, John Watt, is the Steam Packet Company’s Commercial Director. With the Committee’s permission, he would now like to follow with a short précis of the key aspects of the Company’s fares and services.
The C hairm an: Yes, thank you.
The C lerk o f T ynw ald : And that is the board of directors?
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Before Mr Watt does that, could you, just from the outset, as I asked, give us an indication whether the period of adjournment to today, which was to enable an accurate assessment to be made between the scopc of this Committee's inquiry and the High Court proceedings... Could you give us the latest position on that, please.
M r W oodward: Could I ask our advocate to make reply on that?
The Chairm an: Yes.
M r Wild: Thank you, Chairman.Unfortunately, 1 was unable to attend the first sitting, on 23rd November, due to illness, but at that
time there was, on foot, as I think you are aware, a petition lodged by Seaside Shipping Ltd.Unfortunately, the evidence that was going to be lodged by them in support of the application was not
due to be filed until around exactly the same time as the 23rd November sitting was listed. Eventually, the revised version of the affidavit was lodged - actually, at the beginning of December - and, having had the opportunity to consider that, and comparing it with the remit of the Select Committee, we are hopeful that there should not be an overlap between the High Court proceedings and the proceedings before the Select Committee. We have had, obviously, the opportunity to consider the evidence that has been lodged.
So we are hopeful of that, but obviously we do not know precisely what areas necessarily might be covered, and therefore I have to bear that in mind when listening to the deliberations today. But I can certainly say positively that we are hopeful that matters should be able to proceed without too much of a crossover between that and the High Court proceedings currently afoot.
The C hairm an: Thanks for that. I think that - just for the record - indicates that we are happy to proceed on that basis, then.
Mr Wild: Yes, and if, Mr Chairman, you are happy that if an eventuality comes up... We are in a slightly difficult position, because obviously we have seen the petition and the affidavit, and you have not, and that seems to be the position that we are forced to be in. But as I hav.e indicated, we are hopeful that we can simply proceed today without too much further ado.
The C hairm an: Thank you very much.Also, just to clear up this point then: Mr Kelly and Mr Quayle delegated to you - because of their non
availability - representing the Steam Packet, and any questions or any points they would have wished to make, you will make on their behalf.
M r W oodward: May I first apologise, Chairman, on their behalf. I understand there was some confusion because the original date of 30th January, which they had committed to and indicated they were available... Subsequently, they were both, I understand, involved with an off-Island meeting which they could not avoid, and latterly, the date of that was then moved to the 30th from the original dates, unfortunately, was something they could not latterly change.
So they did ask me to extend their apologies, and I can confirm that 1 am able to answer fully any questions that the Committee may wish to ask. Indeed, if we are required to come back for a second sitting to follow that up, with or without them present... If they are available, then we are very happy to do that.
The C hairm an: Wc will certainly reserve the right to recall those two gentlemen, with yourself, following today. Thank you very much.
Mr Watt.
M r W att: Good morning, Chairman, Committee members,I have been a senior manager at the Steam Packet Company since 1995, latterly as Commercial
Director. My responsibilities include scheduling, pricing and monthly liaison with the Isle of Man Government about User Agreement compliance and any other issues.
Further to M ark’s introduction, I would briefly highlight that, since 1996, we have pursued a policy to stimulate growth with additional services and lower fares, and that policy remains unchanged today. Service improvements and lower fares since 1996 have contributed to more than a 40-per-cent increase in passenger traffic and 120-per-ccnt increase in vehicle traffic.
In contrast, English Channel, Irish and Channel Islands ferry passenger traffic has declined 18 to 36 per cent, and many other UK passenger ferry services have been cut, and other UK island services have acquired lens of millions of increased taxpayer subsidies.
In contrast, since 1996, the Steam Packet Company has pursued a strategy to promote additional traffic and has been very successful in developing services and lowering fares for the benefit of the Isle of
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Man, and exceeding all User Agreement requirements.We have invested over £60 million and the DoT will confirm, in terms of services, that in 1996 the
Heysham route usually had one passenger service per day, and today it is obviously usually twice daily. Liverpool usually had four services per week in the summer of 1996; now we have 14 fast craft services, which has more than trebled service provision, and reduced passage times.
Winter passenger service frequency has more than doubled in the same period. Freight capacity required was 2,600 metres per week; we now provide up to 2,400 metres per day. Modern fast craft have replaced aged conventional vessels.
295 with regard to fares, our pricing policy has been very successful in stimulating growth of resident andvisitor traffic throughout the year. Prior to 1996, there were no special offers for the general public; standard fares only. Since 1996, standard passenger and freight fares have reduced by over 'A per cent, in real terms, every year for 12 consecutive years, as per the User Agreement limit. In addition to that, around 80 per cent of passengers now benefit from heavily discounted special offer fares: discounts worth around £10 million per annum to our customers, compared with the standard fares.
The cheapest foot passenger fare brochured in 1996 was £23; in 2004 it was £19; and today fares start at only £17.50 per adult. Foot passenger fares have reduced 23 per cent since 1996. General inflation in the Island has increased by 40 per cent, and Manx wages have gone up by nearly 70 per cent. These fiires have halved, in real terms.
305 Our car-and-two fares in 1996 started from £73; they are now at £54, again around half the price, inreal terms.
There have been no changes in pricing policy over the past two years, but we are pleased to confirm that we have increased the number of offers available. In 2007, an extra 90,000 offer seats were made available. Indeed, over 900,000 offer seats are bookable in 2008: extremely generous allocations,
3 1 0 genuinely available.Carryings increased every month in 2007 - around 60,000 extra passengers - whereas competing air
services declined by 25,000.You will also be aware that studies have confirmed that our prices are competitive with alternative
destinations. For example, our prices are very substantially less than those in the Channel Islands and, in315 reality, are highly competitive with alternative services such as Holyhead-Dublin, despite the very
different economics of scale.Five thousand, three hundred and sixty customers completed our market research in the summer and
autumn of 2007 and the results are now published on our website, and we have provided the Committee with a copy of these results. The vast majority of those passengers confirmed satisfaction with the value
3 2 0 for m0ney of their trip.We have provided you with a substantia! amount o f evidence to assist the Committee.Our commitment to service improvement, iow fares and growth, remains.Thank you.
325 The C hairm an: Thank you very much for your presentation and also for the written evidence that wehad some months ago.
You refer to meetings with the Department of Transport. Could you just indicate to us how often you do meet with them to discuss timetables and fare increases, and who attends those meetings?
330 M r W oodw ard: I can confirm that we meet on a scheduled monthly basis with the Department ofTransport. From the Steam Packet side, it is usually myself and John Watt - both of us, if we are available, and at least one of us if the other is not - and, from the Department of Transport side, it is usually the Director of Harbours, Capt. Brew, and Rodney Christopher, also of the Department of Transport.
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The C hairm an ; At those meetings, you discuss general questions of standards of service?
M r W oodw ard: The agenda is usually an amalgam of points that we wish to raise with the Department and the points they wish to raise with us, and covers all issues relating to the User Agreement, the service level, fares and any other matters pertinent.
The C hairm an: On fares and timetables - and thank you for what you have told us -
M r M alarkey: Chair, could you ask whether they are actually minuted?
The C hairm an : Mr Malarkey.
M r M alarkey: Could I ask whether any minutes are taken of these meetings at all? Are they minuted by DoT or yourselves?
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M r W att: They are not minuted; however, they are so regular that we have very strong awareness of what each other’s issues or questions are at any time.
M r M alarkey: There is no documentation that coutd be looked at to find out what was discussed at the meetings?
M r W att: Certainly we do not have any, unless the Department keep separate records.
M r W oodward: I should add that it is not just monthly meetings. We do have more regular conversations, usually via the telephone. So it certainly is not a case of just one point of contact each month.
M r W att: I would say we talk every week.
The C hairm an: Thank you.What is the agreed basis for fare increases, then, and can you just explain the extent to which you are
required to agree any proposed increases in standard fares with the DoT?
M r W oodward: There is a mechanism called schedule 6 of the User Agreement, which is, to all intents and purposes, the basket of fares, which is widely quoted as essentially the engine which drives the fare increases within the User Agreement, and that is the mechanism which also applies the RPl-Iess- '/i-pcr-cent formula. Essentially, it is a weighted average basket of all standard fare types - both passenger and freight - weighted by revenue, and the different increases that we propose to put are inserted within that model. The RPJ in the given month, which is usually July, August, September - around mid-late summer of the previous year - is inserted. We then work out what the difference is. The fare minus lA per cent is the maximum upper limit
Once we have a model that we think is suitable, and we think is one we arc happy to go with, we submit that to the Department of Transport for scrutiny. They will then usually comc back to us and discuss certain issues with us, and ask us perhaps to modify certain fare types or, if they wish us to perhaps encourage a particular type of traffic, they will say so at that point.
Within that process, eventually a position is agreed where they are happy that we are within the limits of the User Agreement schedule 6 arrangement, and at that point they give confirmation. Until that point is given, we are not able to finalise timetables or publish fares for future years.
The C hairm an: Is that on the basis of an average across the board of revenue raised from fares?
M r W att: A weighted average.
M r W oodward: It is a weighted average.
The C hairm an: A weighted average.
M r W oodw ard: Yes.
M r W att: So therefore it automatically caters for any differences in a number of tariffs ctc.
The C hairm an: So it takes into account both the discounts and the TT period, when we have heard evidence that prices, fares, arc raised, for a short period, quite substantially.
M r W oodward: TT fares are entirely within the schedule 6 mechanism, because they are all the typically standard fares.
The C hairm an: Where can passengers find a list of standard fares?
M r W att: Published on our website, and available on request.
The C hairm an: Available on request.
M r W att: And on our website.
The C hairm an: What would you say about claims that we have had from members of the public that, at TT period, fares are raised and price increases are quite excessive?
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M r W att: There is absolutely no basis whatsoever to substantiate that. They are governed by the terms of the User Agreement and therefore must only increase by RPI minus Vi per cent.
M r W oodw ard: In real terms, in fact, the passenger prices have tended to increase at less than RPI minus Vi per cent.
The C hairm an: Are we talking about specifically the TT period?
M r W oodw ard: We are talking about tariff A sailings which, essentially, most of the TT peak inbound and outbound sailings are. They are fully regulated within the schedule 6. So there is no question that we are able to, in any way, flex the pricing in advance to suit ourselves. We have to apply the pricing model to the TT period, as indeed to all other regular scheduled sailings.
The C hairm an: So the benchmark, by which you refute the claim that price increases are excessive, is the general tariff. The public, would you not accept, are looking at discounted fares when they look at the increases?
M r W oodw ard: I think it is perception. What is important to understand is that there is a set amount of standard fares. Those standard fares are the ones which are regulated under the User Agreement and represent the maximum fares we are able to charge under any given scenario. So that essentially sets an upper limit.
Special offer fares, by their nature, are fares which we have choscn to introduce at times of less than peak demand, to encourage people to travel, and therefore often are substantially cheaper. But that does not mean, in any way, that peak tariff fares are being raised at more than the level we are allowed to, or are in any way profiteering.
The C hairm an: Thank you.We perhaps can come on to the question of discounts and the availability of fares. I am very happy to
open the general questions to members of the Committee.Mr Turner.
M r T urner: Can I just have confirmation? You say you chose to introduce discounted fares. Could you confirm it is actually a Department of Transport stipulation that you introduce discounted fares?
. M r W oodw ard: Latterly it became a Department of Transport stipulation, but they were first introduced by us in an attempt to grow the levels of people using our services.
M r T urner: When did they introduce this?
M r W att: In 2005, whereas we introduced them in 1996.
The C hairm an: Mr Cregeen.
M r Cregeen: When you say that you get agreement from the Department of Transport on the levels of increase, and it is structured to schedule 6, do you ever have it below that? Do you ever go to them and say, ‘Well, we don’t really need to do RPI minus half,’ or do you always have it up at the top limit?
M r W oodw ard: It is very rare - if in fact ever - that it has been right at the absolute maximum allowed. It has usually been below the RPI-less-a-half limit.
M r Cregeen: Do you have any records at all?
M r W oodw ard: Yes, that is something we can produce to the Committee, if necessary.
The C hairm an: Mr Malarkey.
M r M alarkey: Yes. A bone of contention to a lot of complaints we have had is your brochures.1 have got the 2006, 2007 and 2008 brochures here. It is very clear-in 2006. You can tell what your top
fare structure is. You have got your maximum and you have got different fare bands, so anybody looking at this brochure would know immediately which sailing to get for what price and most convenience.
Why was this style of brochure dropped from both the 2007 and 2008...? There is no sign of what the maximum fare should be, there is no indication of what is a good deal or what is a bad deal. Unless you
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actually pick up the phone and ask, or even go on the net - which is very confusing for some people -you cannot really tell, without a lot of enquiries, what is the best deal to take.
Is there any reason why this was dropped out of the two brochures?
M r W att: The percentage of people who pay the standard fare today is extremely small. The vastmajority of customers do benefit from the special offer fares. Outside of the TT period, for instance, it is probably over 90 per cent of passengers.
1 think you also previously asked for details on a particular sailing in September, for instance, where I think there were 580 customers travelling, and I think less than 20customers paid the standard fare. That shows you the sort of numbers of people who pay the standard fares.
Numbers of customers have said that by highlighting the standard fare within our brochure, it was actually off-putting, whereas the reality is they were actually obtaining special offers when they enquired about travel. But some people were not enquiring about travel, because they were confused by the standard fares highlighted.
M r M alarkey: I would say it is quite the opposite, because it confuses me when I do not know what price I am likely to be charged, whereas I can open a brochure here and know specifically that, if I go on that sailing, I am going on C band and that is the maximum I am going to pay, If there is another offer on top, I do not have a problem with that. But initially you would know, by which sailing you take, or what time of year - if you are planning next year’s holiday, for instance - what fare you are going to do, rather than take a little bit of a gamble on the telephone, or on the internet
M r W att: Well, 90 per cent of customers are getting a much cheaper fare,I do not think there is any ferry company in the UK - I may be wrong, but as far as I am aware, any
commercially operated unsubsidised operator... They all publish their special offer fares and their prices to promote increased travel.
M r M alarkey: I am not disputing whether they are getting a better deal, from the new brochurc. I am just going down the line of clarity to the customer. We have had many complaints regarding there being no clarity in the brochurc as to what fare they are expecting.
When the Chair asked you, you said they could find it on the website, what your maximum fareS are. Not everybody has the facility of the website. These brochures are delivered to every home in the Isle of Man. 1 would have thought this is where the clarity comes into it, when it is delivered, that people can tell at a glance what your highest fare is and the fact you also have special offers on, because you do it in a different brochure for the offers.
But this is your main one, and I would have thought, from a clarity point of view, this is what people want to see.
M r W att: I can understand that point of view; but likewise, we have had many customers who have said that they have been put off by the standard fares and have thought that was the fare they would end up paying. The reality is they are not.
M r T urner: Mr Chairman, just to answer that: I think this is the common problem that we have had from many of the submissions, that people have not actually a clue what they are going to be paying with the Steam Packet. It is a complete lottery of going on the website, and when you go on the website it can be different from when somebody else goes on the website.
1 think the point is that there is nowhere published what your standard rate card is, and this is what is confusing. I do not think - and maybe the Clerk could correct me here, if I am wrong - we have had anybody suggesting that publishing the standard fares is confusing. We have actually had quite the Opposite: that the fact you do not publish your standard fares is potentially misleading them into not knowing what the fares are.
M r W oodward: I think you should be careful using the word ‘misleading’, because there is certainly no intent on our part to mislead.
The fare structure you see in the brochure is driven by a need to portray the fact that the Isle of Man is a good place to visit and is not an expensive place to visit, and the fact that special offers, as John has said, are available to over 80 percent of our customers, on average.
M r T urner: Maybe so, but the perception is that the Isle of Man is an expensive place to visit, Mr Woodward.
M r W oodward: Well, that perception is one of the ones'that we would like to dispel as being erroneous. I believe that the evidence we have provided to the Committee makes a good case to dispel
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that specific rumour.
The C hairm an: Would you agree that the public believe there appears to be no consistency in the availability of discounted fares, depending on when they make the booking?
The Company - 1 think it is a matter of policy - very strongly advises the public to book early to get a better fare, but that is not always the case, is it? Good fares can be obtained later, and even, in some circumstances, more cheaply than somebody who has previously purchased their ticket.
M r W oodward: I think the overwhelming majority of special offers arc available on an early-booking basis. There are times - and there will continue to be times, I am sure - where, if we are looking at how we best fill sailings, and we decide, perhaps late in the day, that a sailing is very quiet and it needs to be more populated with passengers, that we may well look at doing something at a very late stage to encourage demand, but that is not the norm. The norm is allowing special offers to be available and bookable early, rather than late.
The C hairm an: So discounted fares, special offers, do not apply to each sailing. Is that correct?
M r W oodward: I do not think you can categorise that. I am sure it is the case that every single sailing we operate - apart from the peak tariff sailings - has special offer availability on it, to a greater or lesser degree. My colleague will -
M r W att: No, that is absolutely right. There are special offers available on all sailings, with the exception of some peak sailings atTT and Grand Prix.
The C hairm an: Just to clarify, then: the peak-time sailings would be TT -r-
M r W att: And Grand Prix,
The C hairm an: Grand Prix. Christmas period?
M r W att: There would be special offers available on every sailing.
The C hairm an: Beginning and end of school terms?
M r W att: Special offers on every sailing.
The C hairm an: Special... and bank holidays?
M r W att: Yes, same again.
The C hairm an: How does the travelling public know whether they will get discounted fares at those peak times?
M r W att: It is the same system that applies, really, throughout the travel industry worldwide nowadays. If you go into an airline website, you will not know beforehand what the price will be. It is the same in the rail industry nowadays.
All travel companies have the problem where they know they can fill certain flights or ferry services or trains at peak times, but they are trying to boost traffic at the off-peak periods. Special offers arc designed to encourage additional traffic during those off-peak periods. It is therefore a variable pricing related to the level of demand.
The C hairm an: If the demand on a particular sailing is low, do you discount fares to increase the traffic?
M r W att: Yes.
The C hairm an: Okay. Mr Malarkey.
M r M alarkey: I hate to keep coming back onto the brochure here, but you have mentioned discount fares and people paying more at the last minute - book early to get it cheaper - but with this type of outlet here on your brochure, if I wanted to book fare band D, whether I booked it last Christmas or I book it next May, at least 1 knew exactly what I was going to pay. So the clarity is there, no matter what period of time.
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You are saying you are superseding this now to encourage people to book early?
M r W att: The vast majority of customers obtain a much cheaper fare than that, and by booking earlier, in general, you will get an even cheaper price.
M r M alarkey: But it is not made clear, if I book late, what I am going to pay. It is in this brochure; itis not in ... This is where 1 am going back to. In this brochure -
M r W att: I think this was the point we were trying to avoid. Customers got confused that that was the fixed price. The reality is that most people were paying substantially less. People got the brochure from another ferry operator to Ireland, for instance, and they looked at the standard fares to the Isle of Man, and said, ‘Oh, I'm not going there, it is so much cheaper to Ireland.’ The reality was there was a wide availability of offers that are just as cheap as going to Ireland.
M r M alarkey: I would like to disagree, because looking at this, I know the maximum I am likely to pay; not whether I get a deal on that, because you have got fewer bookings. This shows you the maximum.
At the moment, this brochure here does not give any indication of what the maximum... It could be right up to your top rate. It is the clarity’ between this brochure and this other brochure which seems to be the main complaint we have had in from an awful lot of people.
M r W oodward: I fully understand your point, but I think it is important to understand the position we are in, because we also have a healthy tourist industry here. Those in tourism and leisure are telling us, quite openly, that from their perception, it is far better for us to advertise special offers and not try and putpeople off with the cost o f travelling at standard fares, if there is any view that that is a fare they are likelyto pay.
Clearly, there is no right and wrong answer here. What 1 would say is that if this is something which is causing concern and comas very clearly out of the Select Committee, then it is something we will have to very seriously look at.
The C hairm an: Mr Cregccn.
M r Cregeen: You were saying that you offer discounts to try and encourage traffic. By not offering discounts during TT and Manx Grand Prix, are you saying that you do not want to encourage traffic during those periods?
M r W oodward: W e are saying that the demand at those periods is such that there is no commercial incentive to do that. Indeed, the costs of providing the facilities which guarantee those abnormally high levels of traffic for such a short period mean that it is the practical way in which we can ensure that we are able to provide those services,
M r Cregeen: It is just like a disincentive to keep your assets as they are, rather than have to increase.
M r W oodward: I would not use the word ‘disincentive’, because of course, at that time of year, we are not using our assets, as such. We are forced to bring in, from third parties, a high degree of tonnage which we do not possess ourselves and which we could not justify keeping ourselves.
That usually comes- at a very high price, because of the short-term nature of the use of those assets, and the only way we are able to ensure that that makes sense for us, and for the Island, and for the number of people who travel, is to ensure that the fares there are standard fares, rather than discounted fares.
M r Cregeen: Is there any reason why, when we have this very busy period on the Isle of Man with people coming in here, you increase the cost for people who are leaving? You said there are no special offers going to and from. Surely, if you had been offered the special offers going out -
M r W oodward: No, in the contraflow direction, there are offers available.So, for example, if somebody were coming into the Isle of Man at the beginning of Race Week, he
would almost certainly be paying a tariff A standard fare, whereas somebody leaving the Isle of Man in racc week may well get a special offer fare. That is purely because of the fact that all of the boats coming in are full, whereas most of the boats going out - because there are so many of them at that time - are empty.
M r Cregeen: Thank you.
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The C hairm an: Your pricing system clearly favours those who book well in advance of travel. We often get the comment that this is a lifeline service, but what about those residents of the Island who must make travel arrangements at short notice, because they have distressed travel, attendance at hospital appointments, or funerals and so on? They are really at the mercy of whatever the prevailing fare is, aren’t they?
M r W oodw ard: I think, as a general rule, yes, that is right.Of course, we can, and often do, get representations from people in just such scenarios as you have
described, where we would, frankly, make a special effort to provide something at a cheaper fare for them. So we are not saying that these things are set in stone. We do, and continually are approached to, and recognise our responsibility as part of this community. At times like that, where there are genuine reasons where people must travel at short notice, for example, we have in that past, and will continue in the future, to do our best to make sure those people are accommodated.
The C hairm an: When you say ‘accommodated’...?
M r W oodw ard: That may be something as simple as overriding a standard fare and allowing them to take a special offer fare, if there is a particular reason for doing it. What I am saying is that it is not set in stone. We are not totally insensitive to unusual circumstances, shall I say.
M r W att: Having said that, special offers are generally available right up until very late. At some very peak periods, they may well sell out much earlier than that, but generally speaking, they are available until really quite late.
The C hairm an: So you are saying, despite the special offer, discounts should still be available even at very short notice.
M r W oodw ard: Some certainly are. The fact that over 80 per cent of our passengers on an annual basis benefit from a special offer illustrates the degree of availability, because certainly not 80 per cent of our passengers choose to book as early as we perhaps might like.
The C hairm an: We have had evidence, as well, from people who are sorry that you do not any longer offer a frequent traveller scheme. That has been suggested particularly for those resident on Island who are relying on this lifeline service. Is there nothing you can do about that?
M r W oodw ard: I think it is important to look at where we were, in regard to the Sail and Save Scheme, which is what you are referring to.
The Sail and Save Scheme first came about as a frequent traveller discount scheme, at a time when there were no special offers, when standard fares were the only fares that were available. So they did reward people genuinely who were travelling on a more regular basis.
Since special offers have come in, the amount of discount provided, on average - which we have illustrated in terms of what the average fares are now, compared with where they were 10 years ago - have, by many times, outnumbered the discounts the Sail and Save Scheme generated for certain people, and I think it is important to realise that.
In terms of visitors to the Isle of Man and Manx residents, we are the major carrier of visitors to the Isle of Man. We bring in more tourists than any other carrier, and if we were to introduce a scheme which offered residents, that in turn would probably mean higher fares for visitors to the Island, which we are told, and understand, are important for the economy and important for the tourism and leisure industry here on the Island.
So there is a bit of a Catch-22 situation here as well, and it is not, certainly, as straightforward as simply being able to offer a discount and then everyone would be happy, because that would not be the case.
The C hairm an: So it is still pot luck, to some extent, whether a passenger gets discount when they make a booking.
M r W oodw ard: ‘Pot luck’ sounds quite emotive, but essentially, I guess it is a fair description.
The C hairm an: What about variation in fares? We have talked about the discounts, and Mr Malarkey has highlighted the timetable not indicating the fare that the passenger will necessarily get; it is the discount fare that is headlined. What about variation in fares, depending on whether people make the booking on or off Island? Equally, variation in fares when people book online or offline, but just for the first one - booking on or off Island - there is a different policy in operation, is there not?
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M r W att: There is no difference in the pricing to or from the Isle of Man. It is exactly the same.
The C hairm an: Depending on where the booking is made?
M r W att: Yes. If they are booking from the UK, it is the same price on a particular individual sailing as if they booked from the Isle of Man. There is no difference there.
The C hairm an: We have heard evidence from individuals who have booked, for the reason that they had made an erroneous booking online, as if they were a resident of Liverpool, and got an entirelydifferent fare quoted than when they went back online two minutes later to book as an Isle of Manresident.
M r W oodward: That can only be a function of time and availability of the system in real time, working through the tiers of discounts available.
The C hairm an: But they were only minutes apart.
M r W oodward: That can often be the case. There is absolutely no policy within the Steam Packct - we need to be quite clear o r this - that people booking from one location pay a different fare to people booking in another location.
M r M alarkcy: Could it be the fact of the actual vessel going from Liverpool to the Isle of Man has got a lot of passengers on it, so you have lost all the special fares going in one direction?
M r W oodward: But that is not the question that was asked. Yes, that couid well be a scenario, but that is not the question that was asked.
M r W att: If they chose a different sailing, then the price would be different.
The C hairm an: But if they were choosing the same sailing -
M r W att: If they chose exactly the same sailing, the price would be the same.
M r W oodward: If a person in Liverpool and a person in the Isle of Man were booking onto the identical sailing at the same time, they would get the same fare.
The C hairm an: At the exact minute.
M r W oodward: If they were contemporaneous, they would get the same fare. If they were not, there may well be a difference, because the person booking in the Isle of Man may have got the last special offer fare at a certain tier, whereas the next person booking in Liverpool may have then defaulted to the next higher tier of special offers.
But if you could make a simultaneous booking, with the space being infinitely available, they would get exactly the'same fare.
The C hairm an: Thank you, that is clear.Mr Cregeen.
M r Cregeen: On booking online, where you have your return sailing prices, it has been a comment that if you book two singles, it can actually be cheaper than booking a return. I understand that you have got possibly the different flexibility, but surely it should be the lowest available price and not that if you booked it as a one-way ticket, instead of the return... The price should be the same, shouldn’t it?
M r W att: There will be, from time to time, some pricing anomalies. Those are extremely rare. When you are booking online, it is an automated process, and therefore the system is automatically generating the cheapest fare for the specific request that you have asked for.
So it may, in very isolated examples, show you a cheaper single fare on a foot passenger ticket - this will never apply on cars, by the way - rather than booking a return at that particular time, but it is a very isolated example.
The C hairm an: It would be a fair comment, would it not, that getting discounts for booking online is pcrfectiy okay if you are in a competitive travel environment, but where you have effectively a monopoly
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situation, is it still reasonable?
M r "Watt: We compete with the local airlines, we compcte with other destinations. When a UK resident is deciding where they want to go on holiday, we want to be as competitive as possible. Online
7 9 5 bookings save us considerable costs, and those are passed on to the consumer.That is the same throughout the travel industry. In the last 10 years, those savings have allowed fares
to come down. If you do not have that automated process, eventually the cost goes up and the price goes up.
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The C hairm an: Thank you.
M r M aiarkey: Do you still operate Magic Holidays?
M r W oodw ard: Yes. It is now called Steam Packet Holidays, but we do operate it.
M r M aiarkey: Steam Packet Holidays, because I could not see it in your new brochure. They are allocated so many passengers, cars etc on every sailing. Am I right?
M r W oodw ard: No.
M r M aiarkey: To a degree? I have used Magic Holidays several times over the years for one specific reason: that, on the old brochure prices, if I wanted to try and book and it was last minute, or whatever, and the boat was full, I always seemed to manage to get on if I went through Magic Holidays.
Secondly, if 1 booked late, when I went to book, I had to get quoted full price. I think on one occasion 8 1 5 it was about £220 for the car and two return, and yet when I went through Magic Holidays, for £168 I got
a hotel overnight as well. I think, by going through Magic Holidays... Going direct to the Company, I am being charged far more.
M r W oodw ard: John can perhaps give more detail on this, but the general principle is that Steam 820 Packet Holidays is a package holiday subsidiary and is given an allocation of fares at a certain rate. So
they are able to avail themselves of those fares, as long as they are part of a general package.We give exactly the same deal to other travel operators on the Island who may also wish to put a
package'together for visiting the Island, or visiting the UK, using the Steam Packet as their means of travel. There is no difference between what we do internally for our own holiday operator, compared with a company like, for example, Travel Services, who would externally package up that holiday. It may well be that, because they have a special-rate deal with the Steam Packet, they are able to get access to a fare which has been allocated when other offers have run o u t That may, on occasion, be the case.
I think that is fair, John?
830 M r W att: Yes, that is right. Tour operators, such as Magic Holidays, but mostly tour operatorsbringing people to the Isle of Man, are given a discounted rate on selected sailings to make the overall package... because if you are booking a week’s accommodation, it would be fairly expensive in the Isle of Man. So, to try and increase the number of visitors - but also for Magic Holiday customers with a package going away from the Island - there are cheap packagc deals available, where effectively the ferry price has been discounted to promote extra travel.
M r M aiarkey: But surely die fact that they have got these discounted ones is taking away the discounted ones from the general public, because you are classing, in your 80 per cent of cheap fares... A lot of these are going out to travel companies, and are not available to the public.
cent.M r W att: The discount given to Magic Holidays, or any other tour operator, is included in. that 80 per
M r M aiarkey: But they are not available to the public, because they are only specially for... What I am saying is it is a bit of a false figure, the 80 per cent, because maybe 20 per cent of them are not readily available to the public because they are given to travel companies.
M r W a tt: They are still available.
850 jyjr W oodw ard: The proportion is small.
M r W att: The same system applies across, the board.
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M r M aiarkey: Why then, if I ring up and try and book tomorrow on the Steam Packet and I am quoted £100, and I can go to Magic Holidays, or somebody else, and get quoted £60 because they have still got the special reserved...?
M r W att: No, they do not. They have the same system availability, It depends on the actual price of the individual ticket.
M r M aiarkey: I have done it on several occasions. I have been quoted by the Steam Packet one price, and I have actually been quoted by Magic Holidays, including hotel accommodation, a cheaper price, on the same day, within minutes of the telephone call. I put the phone down and I...
I do it automatically now! My daughter, going to university, booked a return on the boat with her car. She ended up paying £40 more, without the accommodation, than I paid, booking a day after her, through Magic Holidays.
M r W att: Magic Holidays are benefiting from a discounted rate.
M r M aiarkey: What I am saying is: because they have the discounted rates, they are occupying some of that 80 per cent, to one side. They are not being readily made available to the public. I am only querying -
M r W oodward: They are, but as part of a package holiday selling arrangement.
M r W att: Yes, they are still available to the public. Magic Holidays have an even cheaper deal than is available to the general,public.
M r M alarkcy: What 1 am trying to work out is why I can get it cheaper from a travel company than I can from the Steam Packet, if we are all using the same discounted package.
M r W att: The special offer is available to the general public at the brochured rate in there, whether it is £17.50, or whatever. Magic Holidays may well have a cheaper rate available only for a package rate. So if a customer wants a week in a hotel, or whatever, then they may well benefit from a chcaper rate than the £17.50, but only as part of that inclusive packagc.
M r Cregeen: Can I just put a supplementary to that, please?If you say 80 per cent of your fares are discounted, if you put 10 or 15 per cent off to package
holidays - something like that - is all that... It is a small -
M r W att: It is a tiny per cent; actually, probably 1 per cent. I do not know the figure, but that is the sort of scale of it.
M r Cregeen: So, coming closer to the date, would you put that discounted area back to the general public, or do you still leave it available to -
M r W att: When it is available -
M r W oodward: It is never taken away from the general public.
M r Cregeen: So it will go back to the general public if -
M r W oodward: Look at it this way: from a Steam Packet Holidays point of view, if they are trying to book a package holiday, in terms of the sea leg of that package, they are treated as any other customer if they are booking at a certain time. So if there is a fare available, they will get it from the pot of fares available. If there is not, they will not.
The C hairm an: Mr Turner.
M r T urner: When pricing, what do you class as a commercial vehicle?
M r W oodward: Do you mean a freight vehicle?
M r T urner: If 1 was to try and book a transit van, I believe I could not use your website. Is that correct?
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M r W o o d w ard : Correct,
M r T urner: Why is that?920
M r W oodw ard: Because you are transporting goods for commercial purposes.
M r T u rner: Can you define ‘commercial’ for me?
92 5 M r W oodw ard: You are carrying goods or tools for commercial gain. In other words, you areoperating a business, rather than travelling as a private passenger on private business.
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M r T u rn e r: But a businessman coming in his Lexus is also commercial. He is also coming as commercial, so why do you differentiate between a man coming in a van and a businessman coming in a car?
M r W oodw ard: Because we are obliged to maintain a fair and level playing field for our freight customers, because they are paying, clearly, higher than elsewhere rates for the freight melreage, and it would be unfair to them if we were to allow small operators to simply load up transits and so on with
935 goods and thereby pay a private rate for that vehicle, which is far less per metre than they are forced to pay under the commercial rates.
M r T u rner: But I could load up a people carrier with the same tools.
940 W oodw ard: You could load up a people carrier with the same tools, but you would be subject tocheck and, if found, then you may be surcharged.
M r T urner: They could be private tools,
9 4 5 IVIi* W oodw ard: They could be private tools: we are (Interjection by Mr Turner) always open to that.What you must be clear on here is that we are trying to maintain a level playing field so that people
who are in the business of transporting goods to and from the Island are paying the same rate and that passengers who are travelling for private purposes are paying a different rate.
950 ]yfr T u rner: It just seems there is a clear discrimination between certain types of businesses that youare classing as commercial and other types of businesses are not commercial, if you sec my analogy.
M r W oodw ard: Well, there has to be - 1 see your analogy - a discrimination at some point. You may argue we have got that in the wrong place, but it is a very difficult one to set.
M r T u rn e r: How does that policy affect TT when mechanics are coming?
M r W oodw ard: We have a competitor rate at TT.
M r T urner: Competitor rate.
M r M aiarkey: Could I just ask you when you introduced that policy?
M r W oodward: The commercial charge?
M r M aiarkey: Commercial about vans and what you are allowed to ...
M r W oodw ard: To my knowledge, and I would have to check this, it has certainly been in force since 1 joined the company in 1989.
M r M aiarkey: There was never objection if anyone was moving house or bringing themselves furniture over. As long as you could prove that it was for yourself -
M r W oodw ard: And that remains the case.
M r M aiarkey: - there was never an objection,
M r W oodw ard: That remains the case. We do issue something called a private exemption certificate, which, if somebody is travelling with their van with goods for their own purposes, simply applies to our
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M r M aiarkey: Still available?
M r W oodward: Absolutely, yes
M r M aiarkey: Good. Do you advertise the fact that it is still available? I mean, that is the first I knew about it.
M r W oodward: I think, I am pretty sure that wc do advertise it actually, yes; I would have to check that. Certainly, there is a form of words, which explains the situation with regard to what is private and what is commercial and how you can ensure that if you are travelling for private purposes you are not charged commercial rates.
M r M aiarkey: It only seems to the forefront recently, with some of the letters we have had over this. I mean, 1 know personally, for like 20 odd years I have been taking my van backwards and forwards and bringing items back. I would vciy, very, very rarely ever be queried, but it seems to be like constantly people are saying now they are stopped, checked... they are told that they cannot do it.
M r W oodward: No, we certainly do police it and we do do spot checks to ensure, as I say, that people are not unfairly prejudicing the genuine freight customers to the Isle of Man, but if people are genuinely travelling on private business they will be charged private rates. If they were wrongly charged for freight rate for that business we would happily refund that and restore the position as it should have been.
M r W aft: You mentioned a higher freight metreagc elsewhere. What did you mean by that?
M r W oodward: Well, the freight metreage we charge to the Isle of Man and, indeed, the Channel Islands is higher than you might find, for example, on the Dublin/Holyhead route, which is commonly understood in terms of the economies of scale of the operation and also the fact that, on the Island, the freight rates are used in part to subsidise loss-making passenger services that otherwise would not be provided.
The C hairm an: We will come back to freight issues.I just want to ask you about the fuel surcharge. Can you confirm you still operate a fuel surcharge?
M r W oodward: We do still operate a fuel surcharge. It is a model that was agreed separately to the User Agreement with the Department of Transport some years ago now, because of the worrying - at the time - trend of rising fuel prices.
Obviously, from our perspective fuel prices are an enormous part of our operating cost base and have become a much bigger part of our operating cost base. There are some fairly sort of horrific statistics in terms of fuel which do not make for easy reading, but we have chosen to absorb the vast majority of those costs within the standard fares. Only when it got to a stage where it really was getting very difficult to continue to do that, did we seek to agree a mode! for fuel surcharges with the Department of Transport and that model means that the fuel surcharge is shown separately to the standard or special offer fare on the basis that, if the fuel price were to decrease, then that would certainly go down in the same way that, if it increases, it would go up. So, in other words, it is meant to be a transparent addition and, by virtue of the fact that it is a surcharge, a non-permanent addition.
The C hairm an: What is the life of a particular surcharge. How often are they reviewed?
M r W oodward: They arc reviewed every six months and they look at a six-month period in arrears. Wc agree then with the Department of Transport what the fuel cost was during that period and that then feeds into a model, which has different bands of pricing.
The C hairm an: What is the current surcharge and how long has it been in place?
M r W att: It is £2.50 per passenger and £1.50 per freight metre. It has been in place now for quite a long time, although the price has fluctuated in the meantime. The model that the DOT monitor automatically calculatcs the weighted average price over the six-month period to determine the level which should apply in the following six months.
The C hairm an: Is the Department of Transport’s agreement required, then, for any increase in the
freight office, we will then book a fare at a passenger rale for them.
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M r W att: Yes.
The C hairm an: Thank you.Reductions of fuel surcharges; we have had comments from the public that the fuel surcharge did not
reflect decreases in fuel prices, which was the case a little while ago now - prices went up but not went down.
M r W att: It will automatically reflect fluctuations, so if the price has come down over a sustained period it will automatically come down. It is a weighted average for the period, which accurately reflects the costs incurred.
The C hairm an: How do you explain that the charge remained the same during an extended period of falling fuel prices? That is what the public are asking.
M r W oodward: It is because the model works in arrears so, for example, if fuel priccs had fluctuated or had fallen during a particular six-month period then that would not be reflected until the next review period. Now, similarly, if prices were increasing during a six-month period we would not be able to increase a fuel surcharge until the following six-month review period.
So, there is always a time lag between the actual real impact of fuel prices and our ability to then change the fuel surcharge.
The C hairm an: I appreciate what you are saying about it being determined in arrears, but the public did not see any reduction, albeit relating to a previous period of arrears.
M r W oodw ard: Well, I suspect what actually happened was that when the fuel surcharge model first came in we were in a certain band. The fuel surcharge subsequendy increased and we were entitled to put that surcharge up to a higher level in the following band. We chose not to do that and when the fuel price model then came back down for a sustained period we actually were back in the band we had been in originally.
We had not put our price up and therefore had not brought the price back down again to reflect the price increase in the interim period. I think that is the...
The C hairm an: So, it is not true to say, then, that any prolonged decrease in fuel prices will automatically see a fall in the fuel surcharge? It depends whether or not you choose to put the surcharge up subsequently.
M r W oodward: Yes, we have no ability to raise the fuel surcharge without the agreement of the Department of Transport. Of course, we are free to reduce the fuel surcharge if wc volunteer to do that, but we have no ability to raise it without their agreement and their agreement would be based on the preagreed model, which has specific bands of fuel prices.
So, as long as the average fuel price during a particular period is within a certain band there is a clear limit on which we are allowed to increase our fuel prices. If it were to fall from one band to another band, wc would be obliged at the next review to reduce our fuel surcharges for that next six-month period.
The C hairm an: Right. So, in essence, falling fuel prices will not see a reduction in the fuel surcharge and will be used to offset a subsequent period of higher fuel costs that you choose not to implement.
M r W oodw ard: That may be the practical result of the six-month time lag, but that is not the policy behind how the fuel surcharge model is designed to work.
The C hairm an: Mr Cregeen.
M r Cregeen: When you are looking ahead for last year, when you' were looking to this year’s brochure, were you looking at the cost of fuel before you went forward with your pricing structure for this year?
M r W oodw ard: We will be looking at the cost of fuel.
M r Cregeen: As an overall cost of the business, you will have been looking at the cost of running the business, your profit margin. When you come forward with your pricing structure for this year you will be looking ahead.
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M r W oodward: Yes, I mean we are obviously aware of what the fuel price is doing,I mean, for example, the fuel price, from our perspective, has gone from something like, I think, 10
per cent of our cost base to more than 20 per cent of our cost base, which is a significant increase. Now the fuel hedge that we are talking about, the fuel charge agreement, gives us a little bit of that back, but only a tiny proportion of it back. The vast majority is still absorbed by the Company.
M r Cregeen: But won’t that be included in part of the RPI that you have with inflation coming up; fuel will be part of that.
M r W oodward: Well, no.
M r Cregeen: So you have got an increase in fuel included in your brochure price and then you have got the security that you can charge extra on top of it, because it is like people feel like they are being charged twice.
Everybody goes to the petrol station, they buy fuel; it has gone up, You will be looking ahead, so you put your prices at the cost of fuel now. Now, I could understand part of the thing, in six months' time, if fuel goes up again, saying, ‘Well, we had allowed a certain amount of money for this period for fuel and now there is a surcharge,’ but what you are saying is that we are charging extra money from the time that we have given you this brochure. Isn’t there a part of your pricing structure which includes the price of fuel?
M r W oodward: Only to the extent that it is inflated by the cost of RPI, which clearly is not the case when we have...
I think the statistics John quoted earlier for RPI over the last 10-year period are something like RPI has gone up by 40 per cent. The cost of fuel has gone up by 800 per cent over the same period! Now, clearly, the two are not compatible.
M r W att: And our special offers are cheaper now than they were 10 years ago.
M r W oodward: And yet our average fares have halved.
M r Cregeen: When you compare your prices to 10 years ago it could be said that, maybe, your prices were too high 10 years ago. So, you have just brought them down to a more manageable level, rather than actually being at a fairer price .10 years ago.
M r W att: The single fare to the Channel Islands, for instance, I think, if you look on their website, it is difficult to get a fare under £39, whereas it is very widely available on the Isle of Man for £17 and it is not a dissimilar type of service.
M r Cregeen: But is their traffic volume exactly the same as yours and your running costs ...
M r W att: Their traffic volumes used to be the same as ours. We have increased by 40 per cent in the last 10 years, they have decreased by about 40 per cent.
M r Cregeen: But is that not part of the growth of the Isle of Man, because the Isle of Man, as a whole, has grown and the economy has done very well? It could be said that it is the Isle of Man economy that has grown your business.
M r W att: Well, it is not just the Isle of Man economy. I mean, essentially one of the drivers of our business is population level because that is essentially a driver of all sorts of spending. Now the Channel Island’s population is twice that of the Isle of Man.
M r Cregeen: But on the freight wise you have probably had a sustained area of growth over here, where people have come over and you have had extensive building works.
M r W oodward: There has been additional traffic, certainly, with the high level of capital programmes that the Government has implemented over the last few years. That has tailed away dramatically at the moment and, obviously, from our point of the view the freight volumes we are seeing now are somewhat, in fact, substantially reduced .from what we have seen in the last... For the last two years now they have been declining, but, certainly, since the last seven or eight years they arc substantially less now in terms of growth than we have had previously, so that reflects the fact that we are not doing as much within the Isle of Man in terms of capital projects and building projects that we have
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The C hairm an: We are straying onto other territory.1 just want to have a word about TT. The Company obviously encourages TT fans to book for the
following TT. Are deposits taken and are these refundable if people change their plans?
M r W att: The deposit system has been in existence as long as 1 can remember - J suspect 20 years or more - and it evolved because customers want to secure their accommodation, perhaps a year in advance, when they are here and they want to be able to book their passage, as well as booking their accommodation. Now, at that particular time we take only a deposit because we want to highlight the fact that sailing timetables are provisional and may be subject to alteration: a year in advance we do not have the port slots. We have not had the prices agreed with Government and therefore do not know the final fare, although we can advise the approximate fare.
So the provisional booking system has evolved to try and allow customers to make a booking, secure their ferry passage to the Isle of Man and also sccure in the knowledge that the Steam Packet Company will honour that booking in a reasonable manner. If we are not able to honour it, then we would obviously refund the deposit.
The C hairm an: Okay. .Are fans able to book early to get discounted fares, like other people?
M r W att: The deposit system only applies on the peak TT period and therefore the standard fares generally apply.
The C hairm an: So, there is no paying a deposit a year in advance... does not constitute an early booking for getting any sort of discount.
M r W att: No, it secures you the best choice of sailings. Everybody, unfortunately... they all want to come on the Friday before Race Week and they all want to go on the following Friday.
M r W aft: Do they know what it is going to cost them when they do that - provisional booking?
M r W att: Yes, our staff will advise them that it will be based on this year’s price plus RPI minus a half per cent and that is also stated on our website and in the terms and conditions.
M r W oodw ard: And on the booking form that they book.
The C hairm an: Mr Turner.
M r T urner: The committee received an e-mail, which was copied to the Steam Packct, which slightly contradicts what you are saying. It says here - this is from a hotelier - that they have taken a call from a customer looking to make a booking for TT 2008 and was advised that, although she can reserve a space for ferry travel by paying a non-refundable deposit, the Steam Packet Company are not releasing timetables or taking confirmed bookings until November.
Now, it means, basically, that the customer is unable to book their hotel, as they do not know when they are going to be arriving on the Island. So, how can that be offering people security when they do not know when they are going to arrive here?
M r W att: They are sccure in the knowledge of the day they have provisionally booked. The Steam Packet will honour that booking as close as possible.
If we only offered ‘guaranteed times’, then the capacity that we could actually guarantee would probably be about half that we actually provide in the event, so the provisional system, therefore, actually allows a substantial growth in TT visitors, which would benefit the accommodation provider.
M r T u rner: But we also had cases where people were turning up for sailings and were not able to get on them; they were transferred to different sailings. Therefore, they cannot guarantee to the hotel they are booking when they are going to arrive and, therefore, they could, in effect, be classed as a 'no show’ and loose a night’s accommodation.
Now, the hotel would argue, ‘It is your problem how you get here. It is not our fault that you are late, you should have arranged your travel arrangements better’. This is the problem people seem to be facing. Equally, die hotel have lost out on this booking, because the person could not, or would not, book the hotel on the basis they could not book a sailing.
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M r W att: Now this last TT was exceptional - over twice as many visitors as normal. Even in normal TT there is a huge increase in demand compared to normal, so this is quite an exceptional level of increase of traffic that we have to try to cater for.
Last TT, for instance, we had as many vehicles during the TT - in the short TT period - as were carried in the whole of the first 20 weeks of 2007. Now we try to increase the number of sailings, increase the capacity, charter additional ships and we do not know in advance all of the final details of that, so we therefore operate a provisional system with reasonably modest changes required. That does increase the number of visitors that can come to the Isle of Man.
If we were only offering the guaranteed times, say the Ben My Chrce, then the numbers bookable would be much smaller and the number of fans would be less and the hotels would also loose.
M r Turner: Maybe so, but the individual trying to book their holiday here does not really have regard to what your operating problems may be. All they want to be able to do is to secure a booking to come to. the Isle of Man on a date and, hopefully, get here when they expect to get here.
I understand weather and force majeure situations can change that, but generally, under norma! operating circumstances, they should be able to book, They were told it was a non-refundable deposit so you can see where their uncertainty is coming in. They have got to put the money up, but they are not quite sure when they are going to get here.
M r W att: That has existed for 20 years or more. We will... nine times out of ten we will changc the booking.
M r Turner: Except for this year.
M r W att: Yes, okay,
The C hairm an: Okay.Mr Maiarkey.
M r M aiarkey: On the refund side of it, keeping the thread the same: as everybody that comes in TT week obviously pays the top whack, if they cannot, for some reason, arc they all entitled to a complete, refund, because they are paying the maximum price for a ticket? Now, if I travel with British Airways, if I pay the full price or I pay the economy one, the economy one you cannot change and you cannot get your money back. When I pay the full price, if I cannot go I am entitled to ...
M r W att: Standard fares are economy.
M r M aiarkey: So everybody in TT Week who cannot for some reason because you have changed sailings or times or certain...
M r W att: If we change the sailing they are entitled to a full refund.
M r M aiarkey: And even if they suddenly decided they cannot get the time off, are they still entitledto a full refund, because they are paying full price?
M r W att: There are cancellation charges that apply on all standard bookings and there are cancellation charges for the TT period as well. So they do apply.
M r M aiarkey: Are they different for the TT period - cancellation charges - in comparison to the rest of the year, and if they are, what is the difference?
M r W att: Compared to standard fares that apply the rest of the year they are slightly different.The difficulty for the Isle of Man is we have very limited accommodation availability and, of course,
there is a finite capacity on the ferry. Our whole purpose is to try and obtain the bookings for those who are genuinely wanting to come to the Isle of Man. If somebody cancels very late on, that is basically lost business for the Isle of Man, not just the Steam Packet Company.
M r M aJarkey: But if I pay you a deposit for TT and I do not know what sailings are available, how much it is going to be and you do not come back to me until four months before and then I go looking for accommodation but 1 cannot get any because it is all gone, are you going to give me my deposit back, firstly, for my deposit, or if I have paid the full fare are you going to give me my full fare back?
M r W att: We would not refund the deposit in that instance.
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M r M aia rk ey : You would..
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M r W att: If we were lo take bookings from all comers, as it were, you would end up with a situation whereby you would get a very large number o f cancellations from people who were not as com m itted as the genuine fan, as it were, and then the Isle of M an would loose out, because there would not be the opportunity for the hoteliers and the Steam Packet Company to re-sell that space.
M r M aia rk ey : Could I ask you how much you charge deposit for the TT period?
13 0 5 jyir W att: It has been fixed at £20 for as long as I can remember.
M r M aia rk ey : Per person?
M r W att: Yes.
T he C h a irm an : Thank you.
M r C regeen : If I was a passenger booking from Germany and I said I wanted to travel with the Steam Packet on the Friday of Practice W eek and I put my deposit down, will I be guaranteed a passage on the
1 3 1 5 Friday of Practice Week?
M r W att: Yes, basically. I f we were not able to guarantee that, if we could not for som e exceptional reasons and I cannot think of when we have not been able to, then you would obviously get a refund, full o f the deposit, as well.
M r C regeen: Because it has been a concern that people, when they book so far in advance, not only do they have to book the hotel in the Isle o f M an, but they would have to book alternative travel from their country o f origin. Now, at that time if I book for the Friday at the end o f last year’s TT, 1 would probably want to book my transfers all the way through.
M r W att: Yes.
M r C regeen: And one of the concerns was that, yes, I can get my provisional booking so I book all my transfers all the way through and then it could com e Novem ber and I get confirmation: ‘Oh, by the
1J JU way) we can onjy boQk y0U on the Thursday.’
M r W att: I cannot think o f any circum stances w here wc have ever done that. However, if that were to happen, then w e would give a full refund.
1 3 3 5 Mr- C regeen: And would you com pensate him for the loss o f their other one, because that is what youhave actually done. You have lost tha t...
M r W att: I honestly cannot recall a single instance in 10 years. I really cannot.
1 3 4 0 M r W oodw ard : As a matter o f policy, we would not compensate them for non Steam Packct relatedlegs.
T he C h a irm a n : Can I move on?
1 _)45 ^ r W aft: Could I just ask, Mr C hairm an...
T he C h a irm a n : Is this on prices?
M r W aft: Yes.1 3 5 0
T he C h a irm a n : Yes.
M r W aft: How often do you update your softw are with regard to prices?
1 3 5 5 IVIr W att: Prices are reviewed on a daily basis.
M r W aft: B ut is your software reviewed?
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M r W att: The system is ...
M r W aft: I am talking about the customer friendliness of the software.
M r W att: The software is reviewed on a regular basis: it is not a once a quarter, or whatever it is all the time. We have software releases probably every week.
M r W oodward: It is a living system, which means that not only can we find ways of improving things but also things that are pointed out to us, which we have genuinely missed or like, with any computer system, needs correcting, then that is done as a matter of routine maintenance.
Equally, where we want to add service improvements or ways of making the site more friendly or more flexible, then we do apply those upgrades, as well, when we can.
The Chairm an: Just to move on, then, from pricing and fares, moving on perhaps to facilities on the vessels and at the ports, and standards of service more generally.
Just to wind up that issue of pricing, then. You would maintain that the policies being pursued are in accordance with the agreements with the Department of Transport under the User Agreement, that they make no complaint about that and, secondly, you, I think, highlighted at the start that your fares on the Irish Sea are extremely competitive, compared with other vessels and other companies. Is that correct?
M r W att: That would be a fair assumption, Chairman, yes.
The Chairm an: Yes, thank you. -Would you agree that it is intense competition from the airlines that have kept that situation, kept that
competitiveness?
M r W att: Yes.
The C hairm an: Okay.Would it, therefore, be fair to say that, whereas there is no concern about the general level of fares and
you have explained the discount policy, what there is a concern about on the part of the public is the level of transparency on how those prices and fare structures are communicated. We spent a little bit of lime over the timetables and the information contained within them. We talked about the cancellation policy and so on. Would that be fair comment?
M r W oodward: 1 think we need to be careful in terms of transparency, because we are in a dynamic competitive market with the airlines and we do not want to, frankly, reveal our position.
We want to make sure we are able to compete effectively and, obviously, provide the service that our customers want, but if by transparency you mean - as Mr Malarkcy has said - that we should in some way demonstrate what the maximum fare i.e. the standard fare that the customer is likely to pay, then I think that is something we will have to look at how we address.
The C hairm an: You would maintain that the organisation Travel Watch has made that one of their key issues. Can you confirm that you have discussed that issue with them and is the Company going to take the comments both from Travel Watch and what you have heard this morning on board?
M r W oodward: We are a listening company and we will certainly take all comments we have heard and properly consider those. I can assure you that that will be the case and if there are benefits to our customers that we can implement as a result of these discussions we will, of course, look very bard at how we achieve that.
The C hairm an: Okay, thank you.Turning to facilities on vessels. Can you just tell us the seating capacity of Ben My Chree, please?
M r W oodward: She has a passenger certificate of 660.
The C hairm an: And what would be the average occupancy?
M r W oodward: Typically probably around the 300/350 as an average load in sort of summer season. She has been higher than that in the past historically, particularly when we have been operating a fast craft in the winter, where we have been forced to consolidate passengers between two ships. Equally, when she has performed that role for other reasons she has had a higher PC (Passenger Capacity). During
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the TT period she would typically operate at or around the 630 level.
The C hairm an: Does buying a ticket guarantee you a seat?
M r W oodward: Yes, absolutely. That is a marine requirement.
The C hairm an: Why do so many passengers, then, complain that they cannot find a seat?
M r W oodward: 1 think the problem with al! these things is, as you get near to a ship’s capacity, the issue of contiguous seating is difficult to achieve, because people are not in uniform groups that exacdy match the seat configuration. People tend to reserve seats with their bags and so on, or try and arrange for buffer spaces around them and they are, perhaps, not as fail as they might otherwise be. That is the job of our crew, then, to make sure that people do move bags, do move if necessary and allow others to sit down, but there are certainly seats for everyone on board.
The C hairm an: What about the cafeteria and the eating facilities around the tables. Passengers can and do occupy those for the duration of the journey. What about passengers, can you confirm that that, therefore, is included within the seating capacity?
M r W oodward: Those areas are included within the seating capacity, but obviously, as on all of our ships now, it is very much a service. There are tables in most areas, either seatback or fixed, and wc do offer an ‘at seat’ or ‘in cafeteria service’, if that is what people want.
The C hairm an: And the same for the bar, the seating in the bar?
M r W oodward: There is a limited amount of seating included in the PC, not all of it. Some of it is casual seating, if you like.
The C hairm an: Yes, so anybody who wants to eat are advised to go in and grab a table pretty early on, or they won’t get a scat, will they?
M r W oodw ard: It depends which ship we are on, because obviously there is only the Ben My Chree which has a fixed cafeteria area. The others have, typically, seatback tables, which are throughout the ship, but 1 must emphasise that this is not something which is specific to Steam Packet: this is quite standard throughout the marine industry.
The C hairm an: Yes, so whereas buying a ticket guarantees you a seat, that seat might well be in the bar or the cafeteria.
M r W oodw ard: That is a possibility, certainly.
The C hairm an: And, of course, if that is so and that is your seat for the voyage you arc denying that seat to somebody else who has bought a ticket, sits in the lounge and wants to go and sit at a table for the purposes of eating...
M r W oodward: That is why we offer...
The C hairm an: That is normal for the ferry industry, is it?
M r W oodw ard: That is normal for the ferry industry and that is why we offer an ‘at seat’ service for those people who either do not want to sit at a certain defined area or are unable to for some other reason
M r W att: Could I just clarify one thing: that is 670 seats or slightly more, I believe, and 95 per cent of the sailings o f the Ben My Chree we only take bookings up to 500, because the demand is not there.
The C hairm an: Thank you.Mr Turner.
M r T urner: I think Mr Maiarkey is going to come onto the point I was going to raise.
M r M aiarkey: Several points. You will be aware that the Committee, on 21st September, did a trip to Heysham and back from Liverpool to test the system, if you like; to find out whether,., to monitor a lot of the complaints that we had actually had. As a result of that trip, we wrote to the Steam Packet, asking for
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some details.If I could just relay some things from this. On this particular day we asked how many passengers were
carried on the Ben and it was 436 passengers. Now, this was on a vessel which is licensed to carry 630 passengers. At 8.50 am when Mr Turner, Mr Cregeen and myself went into the seating area, the lounge area, there was nowhere on the vessel where a family of four could have actually sat together and this vessel was not full.
Now, on the breakdown that you have kindly given us for the Ben, it has got 670 seats. Of these, 108 of them are in the cabins, so are not accessible to the passengers. Another 59 of'them arc in First Class, which are not accessible to the passengers unless you pay extra and 24 of them are in Blue Riband. So, when you actually deduct the 191 seats which are not accessible without either paying extra or becoming a member of the Blue Riband or paying for a lounge, you then fall well short of the 436 passengers that were on the vessel.
M r Woodward: Are you then saying that there are no passengers in cabins or the First lounge or Blue Riband?
M r Maiarkey*, I have no idea. I cannot actually confirm, because we were privileged to go into First Class and the Blue Riband: both of these lounges were almost empty.
M r W oodward: Right. I do not think I have got details of that particular sailing to hand, so 1 -
M r M aiarkey: The point I am getting at here is, if a passenger is paying the full rate, without having to pay any premiums on top, they are entitled to a seat. If you were to sail and there was no Blue Riband, no First Class and no cabin people on'the boat on any particular day, you do not have enough seating for the top rate standard fare of going on the boat, without paying an additional'cost, which I think is contrary to the User Agreement.
M r W att: If the number of cabin occupancy was very low, we would, of course, rcduce the overall booking capacity of the vessel. Most of the time, however, we are only booking up to 500. So, there are effectively 170 seats over and above. Even if you take the cabins out - and there arc always people booking cabins - that is a calculation that we will always look at to rcduce the capacity or the bookings to reflect actual cabin occupancy.
M r M aiarkey: What it comes back to: you have only actually got 379 seats, including the bar, the cafeteria area, which are up in -
M r W oodward: Let me be clear. Are you saying that you counted the passengers in the main areas and the seats and that there were too many passengers for seats?
M r M aiarkey: No, what I am saying is there was not enough room for a family of four at 8.50 am, as the vessel set sail. Had they been late coming on the boat, they could not have sat together and I did not consider the boat... certainly on the car deck, it was not an exceptionally busy day. There were 438 passengers on the boat. Of them, there were a lot of pensioners, etc. They were all going back to Heysham, having spent -
M r W oodward: No. I understand the point and, of course, it is always preferable for people to sit together in families and, where that can be achieved, it is right that that is the case,
I have to say that I have recently flown on an airline, paid a very much higher fare than I would have paid on the Steam Packet, and managed to get seats where my family of four... two of us were sat in an entirely different area to the other two. Now, unfortunately, that was the luck of the draw and the fact that I was late onto the aircraft.
M r M aiarkey: That obviously does happen, but the point I am trying to make h c re -
M r W oodward: That is the point I am trying to make.
M r M aiarkey: This was not a full passenger... This was only 436 of the 600 you are likely to take in TT Week. Where are these passengers expected to sit? This is the complaint we get time and time again, keep coming back-, that there is insufficient seating.
M r W oodward: Well, this is one reason why we have addressed the issue in terms of reservable seating because we have had, from our own customer feedback, a number of people who have made comment that they would like the ability to be able to book and reserve seating in certain areas so that
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they know, when they get onto the ship, it docs not matter whether they board early or late bu t they have a pre-existing scat, as you can do on many airlines, which they can identify in advance, which will allow them to sit together.
M r M a ia rk ey : For which they have to pay an additional cost.
M r W oodw ard : I f they choose to. This is an issue of choice. Customer choice is som ething that our custom ers very clearly tell us they want. Now, if that means they want to choose to have a meal on board,
15 5 5 they want to choose to book in advance, seats together, that is something which they have clearly told usthey want.
I understand you may have feedback from customers who say they do not w ant that, but we have market research, which John referred to earlier, which equally says that customers do w ant these facilities on board, so w e have to respond in som e measure to those.
1 5 6 0M r T u rn e r : Could I come onto the subject of reserved seating? Thank you, Mr Chairman.I would suggest that the reserved seating is possibly the cause o f the reason why nobody can get a seat
because, as I mentioned in the last public session that we had, passengers are reserving seats and then wandering o ff and sitting in other seals in the cafeteria and bar. Therefore, they are taking up two seats,
1 5 6 5 which is reducing the capacity fo r people who arc getting onto the vessel and are unable to find anyw hereto sit. This problem has been highlighted.
Now, I travelled on your vessel in August and witnessed a vast number o f the reserved seats with nobody sitting in them, but they all had the stickers on. It was some hour out to sea before the bulk o f those seats were sat in by people. W ould you not consider that the fact that so many people cannot find a
1 5 7 0 seat js because o f reserved seating?
M r W o o d w ard : No. I would not agree at all. I do not know what the specifics of that case you refer to are and I would suggest that it is not for us to tell people that, having reserved a seat, they must sit in that scat.
1 5 7 5 ] would suspect that people, having chosen to pay the money, would then sit in the seats they havechosen to book. If they do not do that, then it is very difficult for the Steam Packet or, indeed, any other travel operator, to enforce that. I am certainly not aware of any pow ers that we would have to make that the case.
1 5 8 0 C h a irm a n : Is it not likely that those people have gone on board in the know ledge they have got areserved seat; they then go to the cafeteria; sit there for breakfast, a coffee. Those seats that have been allocated are part of those for non-reserved passengers and that is contributing to the issue?
M r W oodw ard : That is certainly a possibility but this is not a problem that we have been made aware 1 ) o j 0 f directly in any scale whatsoever, so this is really -
T he C h a irm a n : This is the first time you have heard this?
M r W o o d w ard : N ot the first time, certainly; there have been occasional instances, but not a comm on 1 j y u theme. It is certainly not something that we have com e across on a regular basts.
M r T u rn e r : Can I suggest that I did bring this to the attention o f your on-board Custom er Service M anager about this very issue and I relayed my observations as to what was happening.
N ow, the result was that myself, my partner and our baby were crammed into the com er o f the quiet J j y j lounge on w hat could only be described as a sm all bench when there were seats available. The point is,
should, maybe, you not look at a system where, if people have reserved seats, they sit in them until the vessel is loaded, otherwise, if they are not in them when people are still getting on board, they will just lose the seat because it is grossly unfair for them to take up two seats when other passengers are left with no seats.
M r W o odw ard : I agree entirely with that. I am just not entirely sure how we would police such a system . 1 am not saying that it is not som ething that is achievable, but I am not entirely sure how we would police it or enforce it.
T he C h a irm an : Can I just ask a related question? You have First Class seating available, clearly, for which people pay a supplement. Do you make unallocated First Class seating available to other passengers?
M r W o o d w ard : Yes.
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M r W oodward: If we are in a situation where we have clearly an imbalance or have had .an imbalance of passengers between normal and reserved seating, or Blue Riband, or First and normal seating, then wc have voluntarily upgraded people to the First area, if that is the case, so that there are enough scats for people in those other areas. That has happened on very, very few occasions.
M r Turner: Do you get any feedback from passengers who have paid First Class prices that they are finding that people, in order to accommodate everyone, are being put in at the last minute?
M r Woodward: I suspect we may have had one or two comments on that front. Generally, we would try and do it in a discreet and subtle manner so that others were not aware that was the case.
As I say, it is certainly something we have looked at internally and, for this year, we have more closely tailored the seating arrangements so that we are able to make sure that is less of an issue.
The Chairm an: Is there any other question about facilities on vessels? Mr Cregeen.
M r Cregeen: Could it not be considered that this seating problem with the reserved and the cafeteria is actually creating what could be seen as an extra revenue stream for you, because people have seen the difficulty of getting a seat together and they are now being forced into the situation where they have to pay this additional sum to get a seat?
It could be seen that it is an advantageous position for the company to be charging somebody for a seat which they have already paid for. I feel that when we went on there it was. a case of people going, ‘Well, wc cannot get a seat together. Next time we are going to have to try and reserve one' - when they have already paid for that seat and you are generating money! Do you consider that inside the User Agreement?
M r W oodward: I consider that that is a facility which our customers have asked for and,increasingly, it is one which is widespread within the travel industry, where people want to availthemselves of services other than the basic service which they have already paid as part of the ticket price.
I further consider that it is money which is'then usefully used, which allows the general level of fare prices to be further subsidised in terms of costs, which is part and parcel of why our fare prices are maintainable at RPI less than half per cent year on year.
M r Crcgeen: But you are comparing yourself to competitive companies, not to other companies which have got this Agreement.
M r W oodward: We should not be under an illusion that because we have the User Agreement we are not a competitive company, We compete very directly with the airlines for a substantial portion of our passengers. That is the case.
M r Crcgeen: But they do not charge you any extra for the seat coming to the Isle of Man.
M r W oodward: But you book into a fixed seat as part of that price,
The Chairm an: The point has been made. Mr Maiarkey.
M r M aiarkey: Carrying on about the vessel, I can say, on behalf of the Committee, on the day that wc did travel, the cleanliness of both vessels we travelled on was relatively good, for which we did not have any major comments to make.
A curious point was, when we arrived in Hcysham, the second we docked there a team of cleaners came on the boat. Obviously they blitzed the vessel before it did the return journey. Having talked to the Steward on the fast craft, the staff were expected... There is no cleaning people put on in Liverpool. I found that a little bit strange. The vessel, certainly in busy times, I would have thought that could not be good for the staff having to clean it. That was something I personally just found a bit strange.
M r W oodward: I can explain that fairly simply. In terms of the turnaround, the Ben, obviously, is physically a much bigger ship. The turnaround times in terms of crew, because she has a longer passage time and we have restrictions on crew hours to a 12 hour period, whereas a fast craft, which typically turns round in something like 8 hours, means there is a much greater slack so the crew do have time to genuinely clean the fast craft, whereas on the Ben my Chree they do not within their normal working hours.
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The M aiarkey: Well, the fast craft was coming in at something like 6 pm and going back out at 7 pm. So, it was being turned around quite quick.
M r W oodward: It is not the turnaround per se, it is the shift cycle. It is how long the crew arephysically on board the ship or allowed to be on board the ship.
M r M aiarkey: And being sad as I am, every hour, virtually on the hour, on each voyage, I checkedthe toilets, because many complaints came from smell. A lot of people thought that this is where you get alot of bad reputation: smelling.
Whai was noted was that any mess in the toilets was not cleaned up at any time during the voyage. Now, I would have thought, from a company point of view - this is a suggestion coming forward - that best practice would be to have a board on the wall like you Find in virtually every public toilet in the Isle of Man where somebody comes in, ticks and say, ‘I have checked these toilets.’
M r W oodward: There is one on the Ben my Chree, to my knowledge.
M r M aiarkey: Well, there certainly was not one in the gents toilets on the Ben that we were... I frequented quite a few of them on the voyage.
M r W oodward: Certainly, the last time I travelled there was one and, as far as I am aware, there is a system in place. However, having said that, I think I made reference on my blog recently, that one of the things I am concerned about in terms of raising the level o f passenger service is cleanliness in general and, obviously, toilets are an integral part of that.
The C hairm an: I want to move on. Mr Turner.
M r T urner: Just a very brief point. To go back to your analogy with the airlines about families being split up: I cannot accept that analogy as, if you are split up from children on an aircraft, they are strapped into a seat in a confined area. Splitting a family up on a vessel such as the Ben my Chree with outside decks really is unacceptable and I do not think wc should be drawing those analogies. I think it is a totally different situation if a family is split up on an aircraft, where there is quite a considerable difference in the space that a child could roam about. I would hope that, maybe, the stewards on board would try to accommodate families to get them together for safety reasons.
M r W oodward: Well, I think I alluded to the fact that is their instruction. Obviously, they are instructed to do that and will make announcements and, if necessary will try and reorganise things.
Ultimately, we are dependent on the goodwill and the nature of the people being asked to move to comply with that. We have no powers to force them to do so.
M r W aft: Just on the facility of the lift on the Ben my Chree for the disabled people was absolutely, fundamentally essential and I am glad to see it operating. The problem that I find - even the able bodied people - there is a difficulty getting out of the car once it has been parked, especially on the small craft, because of the size and how they are packed. It is sometimes extremely difficult to get out of the car.
M r W oodward: I accept that point totally and I agree it is something which, fundamentally, is almost impossible to do something other than to allow for thé fact that people may need a little more time and may need to let their passenger out before they get into their final parking position and so on. Again, that is something that our crews are being told to make sure is the case when they do load these ships in very tight and confined spaces.
Ultimately, it is a veiy difficult space sometimes and they aie confined, compared to, for example, the Ben my Chree which typically has more space around the passenger, but they arc very different vessels. Certainiy, our intention is not to cause distress and, also, to allow people to egress and access their car as easily as we are able. If there are any concerns, the crew members are aware that, if asked, they are to make every effort to assist those passengers.
M r Waft: Just on the toilet facilities, as has been mentioned, there has been an upgrade fairly recently on the toilets, which were appalling, but I do take the point that they need to be facilitated during the trip to make sure that the quality is there and the standard is there for everyone.
M r W oodward: I absolutely accept that point. Certainly, as far as I am concerned, it is a key part of the level of customer service going forward.
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The C hairm an : Thank you.Now, I want to just touch on service to ports. Can we just confirm that the company is obliged to
provide particular sen 'ices to particular ports and is required to undertake an agreed number of sailings?
1 7 4 0 W oodw ard: There are clear restrictions within the User Agreement which oblige us to sail both tothe ports in the north west of England and also to Ireland. The level o f frequency which we are obliged to offer at different times of the year are also closely controlled within the User Agreement.
17 4 5The C hairm an : What contingency is available if the Ben my Chree is down for some reason?
M r W oodw ard: Typically, it depends if it is a planned downtime, then we will usually arrange at a time which is convenient when other ships are available, either a short term charter vessel, if that is what is needed, or when we have our own fast craft operating and can provide a reliable level of service.
In terms of unforeseen problems, that is obviously a much more difficult problem. We have made it 1 7 5 0 q Uite cjear that we are a small company. We cannot afford to have a fleet of ships sitting mothballed
waiting for any potential scenario to reveal itself, so what we have and are trying to do is strike alliances with other operators on the Irish Sea who would be able to provide us facilities in those scenarios. The fact that we have two fast ferries of our own now does give us a degree o f redundancy if we were to have a problem peak season with either of the fast ferries. The Ben, obviously, is something that does not, per
17 5 5 S€f have a back up becausc she is primarily, overnight, a freight carrier. Now, there are other operators,such as Sea Truck, based in Heysham, who we have chartered ships from before and who we will, in all probability, charter ships from again, but we would also like to forge alliances with these people which give us some surety in terms of a guarantee that a ship would be released at short notice if that were possible,
1 7 6 0 FThe C hairm an : I think we will touch on this later, if we have time.Facilities at ports: arc you satisfied that they are of an acceptable standard? I am thinking particularly
o f Heysham and Liverpool.
1 7 6 5 W oodw ard: I think Heysham is a port, obviousiyi that the Steam Packet have served since themerger with M anxLinc. It does have problems, both tidally in terms of dredging, and other approach issues which have caused some timetable issues recently where we have had to be very careful about low water. But we have spent a significant amount of money in upgrading terminal facilities in Heysham which, I think, certainly from a toilets point of view, were poor in the past. These are not facilities that are
1 7 7 0 owned by us; they are leased by us from Heysham Port. As I say, we have spent money upgrading thosefacilities.
In Liverpool, we are well aware that the facilities sve have had there for a number o f years now are not ideal and we have been in lengthy, protracted negotiations with the Mersey Docks and H arbour Company and, indeed, Liverpool City Council to try and improve those facilities. I think, post TT this year, we
1775 should finally be in a position to operate with a new shore car marshalling facility with a direct link to thelanding stage, which avoids the need that we currently have to cross a public roadway to and from the landing stage. Also we should have a new terminal building built on the south end of the Liverpool landing stage. So those will be substantial steps forward in terms of facilities there.
1 7 8 0 C hairm an : So you obviously agree that is a major improvement in what currently exists?
M r W oodw ard: Yes. From our perspective, it is a major improvement, a major step forward from what we currently have in Liverpool.
1 7 8 5 T he C h a irm an : W hat you currently have: the marshalling yard at the Liverpool Pier Head, whoseresponsibility is the upkeep and maintenance o f that area?
M r W oodward: It is an area which we have been allowed to use by the Mersey Docks and Harbour Company until such tim e as they choose to develop it. We arc responsible for the upkeep of the terminal,
1 7 9 0 which is not owned by us but part of it is given to us by Mersey Docks and Harbour Company again. Butwe have entered a long term contract with Mersey Docks and Harbour Company which has allowed these new facilities to be built, which we are paying for over a prolonged period of time.
T he C h a irm an : So, if that yard was in a situation where there were overflowing bins and rubbish and1 V -5 weeds, whose responsibility is it to deal with that?
M r W oodward: The bins, as far as I am aware, would be the responsibility of the Steam Packet. If itwere infrastructure in terms o f the concrete or the ground, then that would be something Mersey Docks
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and Harbour Company would be asked to come and attend to for us. However, I have to say, obviously, from their perspective, they have been loath to spend significant amounts of money on that site, knowing that we are moving to a new one relatively soon.
The Chairm an: Would you acccpt that we wrote to you last year and we had a response from Mr Watt that said that the upkeep and maintenance of these facilities in Liverpool was the responsibility of the Mersey Docks and Harbour Company.
M r W oodward: I think, as John was saying, that is true. Equally, I have to temper that with the fact that they are aware that we are moving to a new site and that site is, literally, a building plot and will be developed after our vacation.
The C hairm an: The response we had from the Mersey Docks and Harbour Company Chief Executive was that the responsibility for the upkeep and maintenance of the facility fell clearly with the Isle of Man Steam Packet Company.
M r W att: For the building, we would accept that was the case.
The C hairm an: For the building? What about the yard and weeds?
M r W att: As I say, we would dispute that. W e would say that the Mersey Docks and Harbour Company were responsible for the yard area.
The C hairm an: Does that situation, difference of opinion, perhaps, account for the truly appalling state that is to be found in that marshalling yard?
M r W oodward: I think what is more likely is the fact that both parties know that we are surely to move to a new site and that obviously we arc in a winter period now where there was intended to be no usage of that site whatsoever because of the situation with the Ben my Chree sailing to the Birkenhead terminal.
The C hairm an: If I could show you these photographs - 1 will just pass them - which were taken on 22nd September, when the Committee visited Liverpool. Ironically, it was the day the Ocean Cruise Terminal was being officially opened by a member of the Royal family. These photos were taken late in the afternoon as we were waiting to board the vessel at the 6.30 pm sailing. It was very evident to us that there were skips overflowing with rubbish; wheelbarrows which had once held tar on their side; weeds growing up, knee length, along the perimeter fencing.
M r W oodw ard: I think I would make it clear. These are not Steam Packet property. These are related to the contractors who are working next door on the British Waterways Canal extension, which is why they are delineated by the railings.
The C hairm an: Yes, but there is a photograph in there inside which is clearly in your yard.I am standing next to a wheelbarrow on its side that has been there for months and there is weeds all
growing up all through it all. This is where people are walking about and in the background is the Royal Liver Building and all the iconic landmarks of Liverpool, which, of course, in the Liverpool Year of Culture is increasingly important - and the gateway to the Isle of Man with your name on it shows a place like a scrap yard!
M r W oodward: J accept that the area is less than ideal. As I say, that is because -
The C hairm an: We brought it to your attention last year and were told that it was the Harbour Board Liverpool's company and they replied and told us it was your responsibility.
M r W oodward: We have made representations to the Mersey Docks and Harbour Company, asking them to tidy that area up and the response we got at the time was very clearly that they felt that because we were moving, there was no real -
The C hairm an: Is it still like that, as far as you are aware?
M r W oodward: Some of those skips have now gone, because they were removed by the contractors working on the British Waterways Board, but that area is not used by the public now because of the Birkenhead scenario at the moment.
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M r W att: The new marshalling area is now complete.
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M r W oodward: The car marshalling area.
M r W att: Which will replace this whole area. This is why there has been a lack of investment in the old area, because Mersey Docks were completing the new area.
The Chairm an: Do you think it is acceptable that the travelling public to the Isle of Man are faced with that scenario before they are waiting to board the vessel?
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M r W att: No, of course not.
The Chairm an: Has it been dependent on these new facilities coming along to remove the disquiet that exists about that?
M r W oodward: No, because some of those, as I say, are not Steam Packet nor Mersey Docks and Harbour Company rubbish, for want of a better description. There are contractors working in that area, immediately adjacent to our terminal for this British Waterways Canal scheme and they are generating a degree of building rubble and general disarray as a result of that. We are, obviously, having to work alongside that.
The Chairm an: Thank you. Mr Turner. .
M r T urner: I am just confused as to what area your lease actually...?
M r W oodward: We do not have a lease. That is a clear situation; We have not had a lease for someperiod now because of the result of Mersey Docks and Harbour Company -
M r T urner: Is there normally a lease for that site?
M r W oodward: There was a lease, I think, five years ago now.
M r T urner: What did that cover? What area?
M r W oodward: That covered the area which was within the black railings at the time.
M r M aiarkey: You say it is building rubbish. You can clearly see from the picture that we clearlywitnessed, that this was bags' of what I would class as domestic or household, or that style of rubbish. It certainly was not building materials. It was either bags that had been brought off the vessel and tied up, or brought from somebody’s house because it had tin cans, bottles, all sorts of things in these skips here.
M r W oodward: 1 appreciate that. It is unfortunate that any sort of skip which is readily accessible in that area was filled with rubbish from all sorts of sources.
M r Cregeen: Would you not say that those bins are within the black railing area and, as you can see on there, it does have ‘Steam Packet.com’ on it, so it gives the impression to anybody arriving there that that whole compound is under your control.
If it would have been mine, I would have been making the utmost representation to the people to get these removed because it shows very badly on your building. Also, some of the photos that we had of the seating in the area that was ripped and tom; you had a television in there on which there was more snow than on the peaks of Everest! Do you think that is acceptable for your main entry to the Isle of Man?
M r W oodward: I do not know what-was there on the day. Obviously, 1 have seen those photos now.There is no instruction that they are not to replace or repair .damage that occurs and, unfortunately,
damage does occur from the travelling public from time to time, so whether that was there for a long time, I cannot say. Certainly, I can say that there is an instruction to ensure that facilities are maintained within the terminal building.
M r Cregeen: I would have said that the state of that terminal had been very poor for a long time. It does not look like somebody has just gone and ripped a piece of material off the seating. It looks like it has been there for a long time and there is very little good housekeeping in there.
For the public to be seeing that as they are going on holiday is not a very good advert for either your
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M r W oodw ard : I agree and that is why we have fought so hard to get better facilities in Liverpool, which we are now within sight of achieving.
The C h a irm an : Okay. I think we really must m ove on now,I just want to turn to the question of freight. Freight rates, like passenger fares, are presum ably agreed
with the D epartm ent o f Transport?
M r W oodw ard : They are part of the schedule 6 model.
T he C h a irm an : How do those rates com pare with other Irish Sea operators?
M r W oodw ard : W ell, they are higher than other Irish Sea operators because o f the reasons w e discussed earlier, but they compare favourably w ith other operators in a similar scenario such as the Channel Islands where, in fact, our freight rates arc typically lower, or substantially lower, than the Channel Island freight rates. I do not know if John has got any specifics.
M r W a tt: They arc around 20 per cent - and you need to bear in mind that the Channel Is land’s population is tw ice as high as the Isle o f Man.
T he C h a irm a n : Up until the acquisition of the Ben my Chree, the Peveril carried much o f the freight between the U K and the Isle o f Man and passengers and cars on other vessels. W hen, essentially, the Ben my Chree cam e in, a new ship to replace two older ships, would you accept that there were economies o f scale, lower unit costs, as a result o f that?
M r W oodw ard : N ot necessarily, because wc w ent from single trip in two ships to double trip in one ship. So there were some economies in som e areas: crew costs, for example, but there were not the savings that you might imagine.
T he C h a irm an : Okay, but there was a net freight capacity increase at that time?
M r W oodw ard : There was not a net freight increase as a result o f the Ben-, the demand was there already, it was just staggered more. In terms o f overall growth, it was not because of the Ben my Chree. There has been a steady progression and the Ben was necessary to meet that continuing growth, but it did not per se generate that growth, if that is the question you are asking.
T he C h a irm a n : W ere there efficiency gains at the time o f obtaining the Ben my Chree as the main freight carrier?
M r W o o dw ard : I think it is fair to say that, generally, where you would replace two with one, you would expect efficiency gains.
T he C h a irm a n : And did those result in a corresponding reduction in freight rates to custom ers in the Isle o f Man?
M r W o o d w ard : There was no specific linkage betw een freight rates and the freight service.W hat we said very strongly, at the time, was that what this m eant was that the freight service was very
much enhanced, from a situation where freight custom ers, at times, w ere waiting two or three days, in order to get trailers to the Isle of Man, because o f the capacity o f the vessel, they were now able to get those trailers to the Isle of Man on the night of their choosing. Th6re was no allocation system which previously existed, which meant that operators essentially had to prioritise their traffic, to ensure they got the m ost urgent traffic when they needed it.
T h e C h a irm a n : W e have heard evidence from a num ber o f your customers that whereas they were quite com plim entary about the quality o f service, without exception they do complain about the high freight prices.
M r W o o d w ard : W ell, I think that is understandable and I have heard that, obviously, dircct from many o f our customers themselves.
W hat I would add is that the customers here are paying higher than average fares, but our fares are still a small percentage of their overall running costs. So we are an elem ent in the fact that they have higher costs, but only one element, not a substantial element.
company or for the Isle of Man.
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The Chairm an: In your own submission to us on freight pricing - this was contained in page 9 of your submission dated 31st August - you say that freight charges provide the bedrock of revenues throughout the year, which helps support the full range of Island services as required under the terms of the User Agreement. So is that correct?
M r W oodward: That was an integral part of the schedule 6 pricing strategy.
The Chairm an: So can you tell us what percentage proportion of revenue is from freight, relative topassengers and cars?
M r W att: Forty per cent.
The C hairm an: About 40 per cent: so correspondingly the majority of the Company’s profits are obtained from freight?
M r W oodward: It depends how you choose to break down the costs, because obviously, there are overhead costs of running the business generally; there are vessel-specific costs. The Ben my Chree is, by a large margin, the majority freight carrier, but also has a significant amount of our passengers.
The C hairm an: Okay, in terms of Irish Sea crossings, do you accept then that the cost of shipping a trailer across the Irish Sea between, say, Fishguard and Rosslare is considerably less than a comparable journey to the Isle of Man?
M r W oodward: Yes, I do not think there is any way that we would disagree with that.
The C hairm an: And why are Steam Packet freight rates so high then?
M r W oodward: I think, historically, because of the vessels that we use to transport freight. I am obviously going back long before my time at the Steam Packet, but at the time of the User Agreement, the freight rates were well understood and were obviously part and parcel of the Agreement that was reached. That fundamentally accepted the principle that freight fares were used, in part, to provide winter loss- making passenger services that, in arty other scenario, would simply not be provided. So the long-term oroverall benefit for the Isle of Man was a positive, rather than a negative.
The Chairm an: So, in other words,.the profits from your freight side of the business are subsidising considerably the passengers.
M r W oodward: Certainly, without the freight services, the passenger business would look entirely different frofri what it looks like today. That would be driven by simple market economics here on the Isle of Man, in terms of the number of passengers that we attract annually.
The C hairm an: We have had, I think you would agree, a substantial increase in freight carryings over the life of the User Agreement over the last 10 years or so. Would you agree that, from over 25,000 trailers carried in 1997, in 2006 that has gone up 50 per cent to 38,000?
M r W oodward: Yes.
The Chairm an: Would you see a 50-per-cent increase? Do you envisage that over the next 10 years?
M r W oodward: No, I think the view at the moment is, certainly, we are seeing a year-on-year reduction now in the level of growth of freight traffic. I do not see that the rate of increase will be anything like as high in the coming years as it has been in the last 10 years.
M r W att: It has actually declined a little bit in the last few years.
The C hairm an: It has declined a little bit. The evidence that we have had is that there have been substantial increases in freight costs, over the 10 years, to a level where it is way above comparable transport costs by other companies in the Irish Sea.
Now, by your own submission, passenger traffic has grown, but it has now peaked. If passenger and car fares have not increased substantially and passenger prices are, I think we have agreed, have general customer satisfaction, then where is the Company achieving its profitability? Is it from freight?
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M r W oodward: I do not think you can say that because, clearly, there are summer passenger services which are well used and which, by most measures, would be deemed profitable, as well as year-round freight services which you could deem profitable. Equally, there are shoulder and winter passenger services which are dearly unprofitable. So it is not easy to package it up into neat categories like that, unfortunately.
The C hairm an: Thank you. Mr Turner? Mr Malarkey.
M r M alarkey: You agreed with the Chairman that, between Fishguard and Rosslare, you would expect it to be a bit more expensive. The figures that have been put to us regarding some livestock carriage here are: between Fishguard and Rosslare, it works out at £15 per metre; but the Isle of Man Steam Packet from the UK to the Isle of Man is £50 per metre.
I can understand we would be twice the price; but this is coming nearly four times the price for a similar distance. Can you explain that to us?
M r W oodward: I cannot objectively explain how the fundamental economics work because they are partly a product of history, at the time of the User Agreement and the rates that existed then.
What I can say is that those rates, however high they are, are specifically the things that have allowed, for example, the figures I referred to earlier - 1,000 extra passenger sailings a year; halving, in real terms, of passenger fares and so on - which have benefited the Isle of Man in lots of other ways.
I think it is very dangerous to start trying to cherry-pick certain aspects of the fares and say we would like... Of course, we would all like lower freight fares and lower passenger fares. The reality is we would have a very different level of scrvice, if that were the case, from what we have today, and these should be very much viewed as a package of services, not a simple freight or passenger service.
M r M alarkey: I am quite sure it would also relate to the fact that the Company will have increased its profits over die years as well, in relation to that
Although you are growing, you arc saying you are doing more sailings, the growth in the Isle of Man over the last 10 or 15 years has been remarkable. We have had some incredible growth. You have mentioned major investment by the Government in the construction industry, where it has obviously helped your freight side to grow as w ell-
M r W oodward: Historically, that is absolutely right; but those things are now coming to an end, so the core level of freight -
M r M alarkey: Let us not look for the future; let us look at what has happened in the last five or ten years, where you have been growing, where growth has been there. We have not seen the freight going down.
You are telling us now to be cautious o f the future, because it is slowing down. But we have seen major growth, in the last 10 years, not only of the population of the Island, but the economy of the Island, the building boom on the Island. So, obviously, from a Company point of view, you have obviously been transporting far more freight - let us leave the passenger side out of it, at the moment - but we have not seen any reduction in freight prices offset by the fact that your Company has been doing so well, as the Island boomed.
You are just warning us now that it has now slowed down, so you have to be cautious in the future -
M r W oodward: I do not quite understand the point, because we have been constrained by a commercial agreement, which obliges us not to increase our basket of fares by more than RPI less a half per cent for a period of 10 years.
In real terms, costs have come down.
M r M alarkey: Well, it does not... Nowhere in the Agreement does it say that you cannot reduce your costs. It says you cannot increase them by more than -
M r W oodward: What it docs say in the Agreement is we cannot reduce our services. In fact, we are obliged to increase our services each time there have been negotiations regarding the User Agreement, and that is because the general view has been that those services are of benefit to the Isle of Man, much more so in the round than simply taking one aspect, i.e. freight faxes.
M r M alarkey: Have you increased your profits for the Company?
M r W oodward: I am not sure the profitability of the Company is in issue here. What is in issue is do we provide value for money and a level of servicc. We are very clear that we do.
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M r M alarkey: Value for money will come out of the profit being made, as to where volume of traffic has increased in the last 10 years.
M r W oodward: There are many measures of value for money: it is not simply about profitability; it is about providing a service that otherwise would not be provided. I think there arc many instances where the Steam Packet does do that.
The C hairm an: Would it be fair to say that passenger fares which...? Passenger volumes have been flat over the last three or four years, in contrast to freight, which has shown a very healthy 50 per cent increase. Passenger fares, while not subject to direct competition, are certainly subjcct to competition from airlines, as you have agreed with us, and are subject to discounting of prices.
By contrast, the freight situation is not open to competition and you are free to... You do not have spccial offer discounts on freight. That is subject to price increases and, therefore, the majority of your profits represent.., Your revenue is 40 per cent from freight, but the majority of your profit must inevitably be coming from freight. Is that correct?
M r W oodward: Again, 1 am not sure you can make that broad assumption, because it depends entirely on how you choose to allocate certain costs, whether they are split between freight and passengers. If so, if they are split in a certain proportion, then you would get very different paper results, if you were to pursue each of those different exercises.
This is why we are firmly of the view that you cannot view these services as separate services. This is a package which, on the whole and in the round, is beneficial to the Isle of Man and has proven that to be the case with the amount of traffic that we have'grown, from a passenger perspective, in the 10 years since the User Agreement came into being - and the fact that prices have decreased in real terms and the fact that services have improved in number, in real terms.
The C hairm an: Would it be unfair, then, to say that the cost of maintaining competitive and low passenger prices is a fourfold, by comparison, increase in freight charges, per metre per mile crossed, of the Irish Sea; that the freight is contributing disproportionately to offsetting the market prices, the market conditions for passenger travel?
M r W atl: There is a huge difference in scale. The Irish population is 40 times bigger than the Isle of Man. There is a massive difference in the scale of operation in terms of the number of freight units going from the UK to Ireland, and that will have a massive impact on the costs.
The Chairm an: But you sec, the Manx NFU, for example, would point out to us that the freight rate for shipping livestock between Scotland and Ireland of £15 a metre, £204 a trailer, compares with £680 a trailer between the UK and the Isle of Man. Is that fourfold differential just a fact of economies of scale, in your view?
M r W oodward: Yes, on that market, ccrtainly I think that would be our view, yes. You are talkingabout major conurbation populations there, between Scotland and Ireland, which clearly do not existbetween the Isle of Man.
The C hairm an: So the Isle of Man economy is certainly suffering adversely, in terms of the freight c-osts that suppliers and manufacturers have to bear, compared with our neighbours?
M r W oodw ard: I would not accept that was the case at all, because you cannot simply take the fact that freight fares are higher as being an indicator that the economy is suffering.
The economy clearly is not suffering. There is more capacity than we currently are being asked to provide already in the system. Nothing we are aware of that wants to come to the Island is not able to come to the Island, and the fact that wc have that security of the freight providing or underwriting a passenger service year round, for the benefit of both Islanders and businesses has allowed, as I say, the level of services here to become very much higher than would otherwise have been the case.
So I think, in terms of the benefit to the Isle of Man per se, it is a win-win situation.
The C hairm an: So the healthy economy can comfortably absorb these fourfold increases in freight costs?
M r W oodward: Well, they have not been fourfold increases.
The Chairm an: Well, a fourfold differential - sorry, not increase, but differential.
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M r W oodw ard : There is a fourfold differential, “But that is historic. The infrastructure o f the Isle o f Man and the way in which we are set up has been that way for a very long period o f time. Obviously, the economy is geared to that level of charging, just as different.econom ies in different parts of the world have different models for how they operate, in terms of input pricing for raw materials and so on and labour. They have to find their place, as have we found our place.
The fact is that the A greem ent that was struck here provides a level o f services that otherwise would not be achieved, w ithout significant taxpayer subsidies.
T he C h a irm an : W hat is the Com pany going to do, then, about trying to keep its freight charges competitive? Is the fact that there is.not competition there, the question does not arise?
M r W att: T he U ser A greem ent ensures that freight prices are part o f that basket o f fares and the fares have reduced, in real terms, year on year, for 12 consecutive years. I f you look at individual freight rates, they are also significantly cheaper than they were 10 years ago.
1 do not think the exam ple o f a four times differential is actually representative of the overall market. 1 think you also need to bear in mind that the UK wholesaler and retailer often absorbs the costs o f the freight to the Isle of Man, So if you go into Tesco or wherever, you will find the goods on the shelves there are similarly priced to they are in Liverpool. W e have done a study and it has confirmed that. The exception to that is largely the Manx produced goods.
M r W aft: Could I pick up on that M r Chairm an?I have actually had the Office o f Fair Trading looking into that, because of some o f the advertising
they were doing and they were including the Isle o f Man. By their own admission, our prices are different from stores in the UK over here on quite a lot o f the items. They have been told to actually stop using some o f the... They have to now put in the Isle of Man as a disclaim er, because it has been proved that the consumer on the Island is paying for a lot of the transportation.
That is just a point of clarification.
T he C h a irm an : I am just conscious o f the time and I think issues o f freight we will want to revert back to you.
Could 1 just ask you just to say a quick word about your proposals and future investment - it is a matter of public agreem ent, o f public record, that you have an Agreement with Government to comm it to certain levels of investm ent by 2012 and 2018 - what those proposals currently are and whether you have, in recent years, sought to make the necessary investment?
M r W oodw ard : I can confirm that we are intending to replace the Viking, formerly the SuperSeaCat2 with a new, to us, fast ferry, which will offer a significant step forward in terms of com fort facilities and capacity. The search for such a vessel is currently happening.
We are looking at certain opportunities, but what we m ust make very clear is that we cannot afford, as a company, to get the wrong ship to replace what we have already. We must get som ething which is clearly a step forward and does deliver the service benefits to our customers that we know need to be delivered.
For that reason, it is som ething we have to take very seriously and investigate exhaustively. We*are certainly doing that. That is a process which is ongoing. W e are obliged, under the U ser Agreement, to invest significant sums o f money, as part o f the Agreement. W e have m ade this a matter of record, that we have every intention o f adhering to that and, of course, that will be the case.
T he C h a irm an : So you are going to purchase a new ship?
M r W aft: New to you?
M r W oodw ard : W e will be purchasing a replacement fast ferry for the Viking, as soon as we find one that fits the brief and does what we need it to do.
There are vessels around. There is a class o f vessels that we have identified and we have been close, on a number of occasions, in the last couple o f years, where we have been pretty keen on certain vessels, but there have been a variety of reasons why we have not pursued those.
M r W aft: Are you saying it is new to you, or leased? W hat is the situation? In fact, how many vessels do you actually own? Is it just the Ben my Chree and you lease the rest?
M r W oodw ard : No, we own the Ben my Chree and Snaefell, formerly Sea Express I, SeaCat Isle o f Man.
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M r W aft: Are you looking to lease the vessel, then?
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M r W oodward: Well, in practical terms, we own the vessel on a temporary basis, if you like: the SuperSeaCat is on a long-term charter, so she is ours until September 2010.
The Chairm an: So to be clear, that investment may be a purchase cost or it may be a leasing cost?
M r W oodward: Whichever is the preferable option or whichever is on the table, but yes, potentially, • it could be either. What it will mean is that there will be a long-term commitment to a replacement vessel.
The Chairm an: The current vessel that you own: what would be the current value of that, the Ben my Chreel
M r W oodward: It is difficult to say, but I would have thought a baU-park figure would be in the region of £15 million to £18 million.
The C hairm an: The value of the Company, of course, and the value of its assets are two entirely different things. It is a matter of fact, is it not, that the Steam Packet Company was purchased by Macquarie’s for £225 million: why so high a price, when the assets are so minimal?
M r W oodward: Well, companies like Macquarie do not simply look at assets; they look at the longterm potential to generate a steady and stable return, because of the type of infrastructure business they are in. So we were attractive, as are many other infrastructure assets such as roads, rail networks etc, because we provide a degree of stability which matches their needs, in terms of generating a return on a steady basis. That is simply a factor which is imputed by them, in terms of the value they are prepared to pay for any given company.
The C hairm an: If one was to suggest that the value of the Company rests in the value of the User Agreement that is in place for the next 16 to 18 years, would that be fair: that that is the most valuable asset and that reflects the value of the Company?
M r W oodward: 1 do not think it would be fair, because! think you would have to take for example, rhe Channel Islands, where a very similar price is likely to be paid - and indeed, was paid last time for the company when it was sold - and that has no such agreement.
The C hairm an: Okay, thank you. Can I ask my colleagues if there are any final questions.
M r Cregeen: On the £16 million investment that you have said that you have spent on the business, can you clarify exactly or give us some sort of breakdown of what the investment was?
M r W att: I think we will do that separately, if that is alright.
M r Cregeen: The only other issue was you were saying about the reduced times: that these craft that you brought in, say, from Liverpool to the Isle of Man, have brought in reduced times. I think most people will be well aware^ over the last year, that the SuperSeaCat 2 performed very poorly - most of the time down on three engines. So do you consider the time that it took from Liverpool to the Isle of Man as an increased service?
M r W oodward: Well, I would dispute the fact that she performed poorly; in fact, she did not. SuperSeaCat 2 had a very successful season last year. She had a more than 90-per-cent reliability. The much vaunted three-engine running certainly has been a problem on occasions. It is not just one engine; it is endemic, unfortunately, on this type of fast craft. The key is that they are quickly repaired - which ours are, and made ready as soon as we are able.
But certainly three-engine running is not the norm, and I do take issue with people who bandy this about, because that simply is not the case. Our fast craft are among the most reliable fast craft operating anywhere in the world.
The C hairm an: Mr Malaxkey.
M r M alarkey: I would just like to go back on the Chair’s last point over the price of the Company. I am surprised by you denying that the User Agreement makes up a large part of the Company.
The Company was originally, in 2003, bought for £142 million. There was a new User Agreement put
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in place within 10 months, and then it was sold for £225 million - which would indicate to me that it was the very fact that there was an increase in the timescale of the User Agreement from 2012 to 2026 that accounted for the nearly £80 million increase in (he value of the Company.
1 would personally feel that the biggest asset that the Company does have is the User Agreement, which has been used as a commodity.
M r W oodward: Well, 1 do not agree with that. I think the biggest asset the Island has is the User Agreement, frankly.
M r M alarkey: Would you not agree that the User Agreement was put in, in 1994, when the economy of the Isle of Man was at rock bottom, and it could not sustain two shipping companies?
I know you would like to take praise that the reason that we have got so many people in the Isle of Man now is because they have all come through the Steam Packet; but as I keep going back, we have had an incredible amount of growth in this Island in 10 years which indicates... Our figures and passenger figures show that we have almost doubled.
M r W oodward: We are absolutely convinced that, had wc not implemented the programme we did of bringing in fast ferries, of dramatically improving service provision for passengers during the peak periods, we would not have had the growth in passenger numbers or visitors to the Island that we have had.
I accept that the resident travel situation would have naturally improved with the level of population generally; but wc have been instrumental in generating new business visitors to the Isle of Man, and wc are very clear about that.
M r M alarkey: I do not dispute that, but my point is: if there was another company working alongside you, you would have had to work even twice as hard -
M r W oodward: I fundamentally disagree with that assertion. If there were another company working alongside ns, the Isle of Man would be the poorer for it, because we would be left in a situation very much like we were in the 1980s.
The C hairm an: Thank you. We understand the point very well.Mr Turner.
M r T urner: Yes, you compared the Steam Packet with the operation in the Channel Islands. Are you then saying even without the User Agreement, the Company would have been sold for £225 million?
M r W oodw ard: I am saying that a company with a very similar profile to the Steam Packet was sold for that amount, that did not have a user agreement.
M r T urner: In terms of investment, obviously the Agreement says that you are to carry out investment by certain dates. Would that include plans to replace the ageing ManxLine link span? Do you have any plans to renew that at any stage?
M r W oodw ard: There are plans going forward to replace all sorts of infrastructure assets within the Company and that is something which would have a natural life and obviously would have to be replaced at some point.
M r T urner: Is that your link span or is that the Department of Transport?
M r W oodw ard: That is our link span, although I think there was at one point - I may be wrong here, John - the Government were latterly intending to own both link spans eventually?
M r W att: The Department of Transport has long-term plans, where it has made provision for possible link span investments to replace that facility.
The C hairm an: Final point.
M r T urner: What would be the impact of the Department of Transport taking ownership of that link span?
M r W oodward: We would simply pay, I expect, a fee for use of that, in addition to what we pay currently,
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M r Turner: And if the ownership transferred, would the User Agreement also transfer from the DoT link span to the new link span on the Victoria Pier?
M r Wild: I think, if 1 can jump in, it is very difficult to answer hypothetical questions about what might happen in the future, legally, in terms of a.., I do not want to interrupt the flow, b u t-
M r Turner: Can I clarify, Mr Chairman, does the User Agreement solely relate to the Department of Transport’s link span on the Edward Pier?
M r W oodward: There is a licence which runs alongside the User Agreement to site our own link span, like the one you are talking about at Victoria Pier. So, the two are linked in that sense.
The Chairm an: Thank you. Final point, Mr Waft? (M r W aft; No.)Prof. Baird, I will just give you the opportunity at this stage.
Prof. Baird: Thank you, Mr Chairman.Just one question I have: I have been able to access some reference to the Company’s accounts
through our university database. It would appear that profits have increased quite substantially, from £4 million in 2000 to £17.5 million in 2006.
Now, that is a profit margin going from 10 per cent to 36 per cent, resulting also in very substantial dividends being paid. Profits do seem to have increased substantially, but at the same time, revenues do not seem to have increased.
I wonder if you could perhaps explain why you think profits have increased so substantially; and also whether, under your new ownership through the financial institutions, there are, 1 assume, sustained pressure to deliver significant profits.
M r W oodward: I am not sure 1 can or should answer those questions, at this stage.
M r Wild: The difficulty with this is wc have not had any questions in advance for the last... The Committee was set up in June 2007: there have not been any questions in relation to analysis of accounts or production of a commentary. I think it -
Prof. Baird: It does relate to pricing. My question does relate to pricing, which is under the remit, because all of these financial aspects do eventually relate to pricing policy, whether it is for freight or passengers.
The C hairm an: Are you saying the profitability of the Company and the profits it might be making do not have an impact on pricing?
M r Wild: No, I am just indicating that I think it would be fair to allow the Company the opportunity to consider what has just been said, in the context of responding on the profits. It affects a lot of other people, not just the two people sitting in front of you. I think it would be helpful to give us time - especially as both people have been sat here since 10.30 - a little bit of an opportunity.
The Chairm an: Right, well, what we will do, in that case, is we will put some more detailed questions in writing to you, prior to having you back in public session. That would be the best way forward.
Prof. Baird, do you concur with that? (Prof. Baird: Yes.) Malachy, any final points from yourself?
The Clerk: No, Mr Speaker, no.
The C hairm an: In that case, I would just like to thank you gentleman very much for coming in. You have been most helpful, this morning, in answering our questions. I think we have had a very full discussion. Certainly, the Committee is the better for having had your input. As.I say, we will be in written communication again, and look forward to seeing you on another occasion, hopefully 3rd March. Thank you very much.
That brings the public session to an end. I thank members of the public for their attendance, and the press. Thank you.
The Committee sat in private at 1.08 p.m.
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2430C o rrig en d a :At line 1267 for ‘Standard fares are economy’, read ‘Standard fares are refundable’. At line 1815 for ‘Mr W att', read ‘Mr Woodward’.At line 1819 for 'M r W att’, read ‘Mr Woodward’.At line 2198 for ‘Mr W aft’, read ‘Mr Malarkey’.
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APPENDIX I
Hansard Proceedings
Monday 3 March 2008
Evidence of the Department of TransportCaptain M Brew Mr R Christopher
Evidence of the Isle of Man Steam Packet Co LtdMr M Woodward Mr J Watt Mr D Grant
EARLY PUBLICATION (2,05 p.m., 6 March 2008)
SELECT COMMITTEE PROCEEDINGS
EPSPC030308
10.33 a.m. -12.57 p.m.
Douglas, Monday, 3rd March 2008
Tynwald Select Committee on the
Isle of Man Steam Packet Company
The Committee sat in public at 10.33 a.m. in the Millennium Conference Room,
Legislative Buildings, Douglas
[MR SPEAKER « the Chair]
Procedural
T he C h a irm an (T he S p eak e r o f the H ouse o f Keys, H on. S C R odan): Good morning, everyone. Can I welcome you all to this meeting o f the Select Committee o f Tynwald on the Isle o f Man Steam Packet Company.
W c are meeting this m orning in a further session to take oral evidence.I would like to introduce my fellow m em bers of the Committee: Mr George W aft, M LC; Mr Juan
Turner; Mr Bill M alarkey, M HK; and Mr Cregeen, Member for Malew and Santon. Mr Cornwell-Kelly is the Comm ittee’s legal adviser; ou r C lerk is Les Crellin; and Prof. A lf Baird, who is the Head o f the M aritime Transport Research G roup at N apier U niversity, in Edinburgh, is the technical adviser to the Committee.
M r Clive A lford is our H ansard Editor, and he is recording this m orning’s proceedings. At this point if I could ask everyone to kindly ensure mobile phones are turned off, because they do interfere with the recording equipment.
Could I also ask those who are giving evidence to speak individually and not to talk across each other'j because it can sometimes be difficult to pick up through the microphones.
Capt. Brew and Mr Christopher were called at 10.35 a.m.
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EV ID EN CE O F CAPT. M BREW AND M R R CH R ISTO PH ER
The C hairm an: I would like to welcome, this morning, the officers representing the Department of Transport to the Committee, and if I could begin by asking you to please introduce yourselves and your own individual roles within the Department
Capt. Brew.
Capt. Brew: Good morning. Thank you, Chairman.Michael Brew, Director of Harbours.
M r C hristopher: Rodney Christopher, Director of Properties.
M r H arding: Thank you, Mr Chairman.I am Stephen Harding, the Government Advocate, legal adviser for the Department.
The C hairm an: Thank you very much.If I could ask, Capt. Brew, if you could just explain your role within the Department, and that of Mr
Christopher, and then invite you to explain the background to the User Agreement, who the parties are to it, and if you could summarise for us the main requirements of the User Agreement.
C apt. Brew: Yes, Chairman. Thank you.As Director of Harbours, I head the Harbours Division and therefore am responsible for the operation,
the maintenance and the development of all our harbours.I also have a role with respect to management of the territorial sea, and it is through the ongoing
operations of the Division that my contact with the Steam Packet occurs.Usually, it is operational, and my colleague, Mr Christopher, deals with some of the more legalistic
and contractual issues.
The C hairm an: Thank you.As far as the User Agreement is concerned then, can you tell us the main requirements?
Capt. Brew: Thank you, Chairman.I have got a statement here, which I will read, if I may.The background to the User Agreement goes back quite some years. The User Agreement came about
as a direct result of the situation experienced by the Island during a series of strikes by the Company’s seagoing staff in 1986, 1987 and 1988. In total, there was a period of about 10 weeks when the Island was without any sea passenger or freight service, with the longest single period being about six weeks. Also, because both linkspans in Douglas harbour were owned by the Steam Packet Company, no other ro-ro vessels could operate replacement services to the Island.
During the strikes, all passenger movement was by air, and freight was mainly transported by container in small cargo ships that did not have a roll-on/roll-off capability. This latter service provided a means to get essential food and materials to the Island, but even when this service was operating at its best, it could only transport less than 50 per cent of what capacity would normally have been required.
Once the dispute had been settled and the Company staff returned to work, a normal freight and sea passenger service resumed. However, Government recognised that the strikes had very nearly caused severe damage to the Island and there was a determination not to place the Island at similar risk in the future. A number of options were investigated and debated and, in the end, it was concluded that Government needed to own a linkspan in order to ensure that, in the event of a similar situation occurring in the future, an alternative sea service could be instigated using a Government-owned Hnkspan.
When the Government could not agree with the Steam Packet Company to purchase either of its linkspans, Government decided to build one for itself. This resulted in the Department of Transport completing the construction in 1995 o f the Edward Pier linkspan; that is the one presently used by Ben my Chree today.
The proposals and construction of the new linkspan created the environment in which the Steam Packet Company entered into meaningful discussions with the Department with respect to concluding the User Agreement.
Now I have got some comments regarding the main items of the User Agreement.The Agreement confers preferential use of the Edward Pier linkspan to the Steam Packet Company,
linked to, amongst other obligations, a guaranteed minimum passenger and freight service. The level of minimum service was initially determined as being the service provided by the Company in 1993: that is the last full year of service before the User Agreement negotiations began. This level o f service was deemed the minimum that the Island would require in order to maintain an acceptable level of normal
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business and social activity.The Agreement also benchmarked standard fares and charges at 1995 levels and created a mechanism
by which these fares and charges could be increased by a percentage that could not exceed the Retail Price index minus xh. per cent, on a weighted basis. The Agreement provides Government with a mechanism to limit and influence the level of fare increases and the schedule has to be approved on an annual basis. Such a mechanism to influence the Steam Packet had never existed before.
By concluding this Agreement, the Government was able to limit the likelihood of the Island being cut off again, as a failure to deliver the minimum guaranteed service would place the Company in default and would enable the Government to step in with, or arrange, a replacement service.
The Company has gained long-term certainty and stability from the Agreement, and also been left free to use its commercial knowledge and experience. The Company could, and has, used this freedom to provide an enhanced service for both freight and passengers to generate a commercial return for the Company.
The Company’s obligations under the 1995 Agreement required it to invest £20 million in fleet replacement, and this resulted in the construction of the Ben my Chree in 1998.
It also requires the Company to pay the capital and revenue costs of the Edward Pier linkspan.The Company is also required to operate to and from defined port ranges in the UK and Ireland in
order to ensure that the customary ports continue to be served.The original 1995 Agreement contained an option under which the Company could request a five-year
extension. The Company exercised this option in 2002, and although the Department of Transport did not have the ability to refuse the five-year extension, it secured increases in the minimum guaranteed services required by the Agreem ent The increase in the minimum service reflected the greater passenger and freight capacity that the Company had by then provided. Importantly, special-offer fares for passengers became a requirement, rather than optional.
In 2004, there was a further extension. This extension secured further increases in the minimum level of service and put in place a framework for future investment by the Company that requires it to invest £26 million by 2012. The extension is for a further 10 years from 2010, i.e. the end of the period agreed under the 2002 extension.
There is, finally, an option to extend for a further six years, taking it to 2026, if all the options are exercised.
With respect to the minimum service level, under the 2004 extension, the following minimum service levels are required: inbound freight capacity, 7,800 lane metres per week; service to north-west UK ports,936 return sailings per year; summer-period frequency to the Liverpool port range, a daily service from April to the third week in October; services to the east coast of Ireland, 63 return sailings per year. The Company’s published schedule exceeds all of the above requirements,
There is also a mechanism in the Agreement that requires the Steam Packet Company to provide 12^ per cent additional freight on a fortnightly basis in excess of actual carryings. This means, for example, that the actual freight capacity provided in 2008 must be \2XA per cent greater than the actual total lane metreage carried in the same fortnight in 2007. On a similar basis, fastcraft passenger capacity must be 15 per cent more than the previous year’s actual carrying.
Special-offer fares have been a requirement since the 2002 extension and, under the 2004 extension, the number provided must be a minimum of 50 per cent of the previous year’s total passengers carried. The level at which offer fares are set is not prescribed, but they must be fares that generate extra traffic.
Thank you.
The C hairm an: Thank you very much, Capt. Brew.You referred to the Agreement requiring an annual settlement How often does the Department meet
with the Company during the course of a year?
Capt. Brew: There are monthly meetings at officer level. Principally, that is Mr Christopher and myself with the Steam Packet’s Managing Director and other directors, as necessary.
Other than that, there are meetings at political and Chief Executive level, as determined by events.
The C hairm an: Thank you.The reviews of the User Agreement in 2002 and 2005: can you just confirm that these reviews are
provided for in the Agreement, but could you explain to us why they were so close together, these two particular reviews?
Capt. Brew: The 2002 extension, I think, is what you are talking about. That was simply the Company exercising the option that existed in the 1995 Agreement.
The second extension came about following discussions between the Company and the Department.
The C hairm an: Would you not have expected the second review to have, perhaps, taken place in
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2002, when the extension was being discussed?
Capt. Brew: I think it was the operating circumstances at the time. There was, and still is, ongoing discussion with the Company with respect to investing in additional fastcraft, and it was primarily that issue which was part of the discussion between the Company and the Department in 2004, that led to the second extension. So it was a change in operating circumstances.
The C hairm an: You made reference to the obligation, under the User Agreement, for the Company to invest in new vessels: £26 million by December 2015, provided that £18 million of that sum is invested by December 2012. That is provided for in the extended Agreement. What is your understanding of whether that investment in craft should take the form of purchase or lease, or is there anything in the Agreement that determines how the investment is to take place?
Capt. Brew: Yes, the Agreement does not specify how that money is to be invested; simply that it must be invested. The Department does not take a view, one way or the other, about owning or leasing.
The C hairm an: So you would not expect that to be the subject of discussion with the Company. It would be merely a matter o f the Department being informed as to what form the investment would take.
C apt. Brew: There is no requirement for them to advise us, but, given the level of our monthly meetings with them, I would be surprised if we did not get that information.
The C hairm an: The approval of fare increases and sailing schedules that takes place annually: how is that done? Who approves these? Is it the Department, or is it a recommendation from officers to the Department?
M r C hristopher: I will take that one, if I can, Mr Chairman.The Steam Packet submit their schedule 6 proposals, which is the formula laid down within the User
Agreement, The Department can deem that to be excessive if it is greater than the increase in the Manx Retail Price Index (MRPI) minus Vt per cent. If it is not greater than MRPI minus lA per cent, then the Department cannot deem it to be excessive.
As part of the Department’s internal process, there is a paper submitted to the Minister after the Steam Packet have submitted their information and we have checked all the calculations, which just signs that increase off and then the Steam Packet get confirmation back in writing.
With regard to the schedules, the Steam Packet submit their schedules. They are copied round the Department's operational staff, just to make sure that there are no operational issues from Douglas port end. In recent years, there has been very limited changc in schedules, so there is very limited impact, but if there was any impact with port operations - two vessels being too close together, or issues - they will then be discussed with the Steam Packet and an appropriate arrangement agreed to deal with that.
The C hairm an: So the monitoring of the proposed fare increases and the pricing structure, as far as you are concerned, relates to how that complies with the User Agreement in terms of the lA per cent.
M r C hristopher: There is a detailed spreadsheet which is used. The Steam Packet submit their version, we add the information into our version independently, and that confirms their calculation.
The C hairm an: And you can confirm that, in all respects, for passenger fare pricing, the Company has complied within the terms o f the User Agreement at all times?
M r C hristopher: Yes. All the fares covered by the schedule 6, yes.
The C hairm an: From that point o f view, the Department is entirely satisfied that the Company is doing what it is obligated to do under the User Agreement?
M r C hristopher: Yes, that is correct, Mr Chairman.
The C hairm an: Thank you.Do you have sight of the Company’s accounts?
M r C hristopher: We do not specifically get access to the Company’s accounts. It is not a requirement under the terms of the User Agreement.
The C hairm an: Notwithstanding it is not a requirement, would you see it as part of the regulatory
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function of the Department to monitor the accounts in any way?
M r C hristopher: It is not specifically allowed, or covered by the User Agreement, so it is not something that we would have the power to do, under the terms of that Agreement.
The C hairm an: Can I ask you, given that the User Agreement gives the Company the ability to generate profits within an effective operating monopoly situation, and also sets out the mechanism for price increases, do you agree that the Agreement gives significant financial advantage to the Company? Should the Department, therefore, not be monitoring the financial consequences of the User Agreement through the accounts, as a matter of practice and priority?
M r C hristopher: I would say it is not something we have the power to do under the User Agreement. So, as far as administering the User Agreement, it is not something that we would be involved in.
The C hairm an: So would the Department be aware of recent trends, in any way, in the Steam Packet Company’s accounts in relation to the Company’s fast-rising profitability, and would the Department have a view on that trend?
M r Christopher: Again, my role is relating to the User Agreement, so it is not an issue whether the Company is profitable or not; it is the obligations on the Company within the User Agreement that we enforce on them.
The C hairm an: In that case, the Department presumably does not have a view on what is an acceptable level o f profit for the Company as a commercial entity providing essential ferry services.
M r C hristopher: It is not a requirement on the Department under the terms of the User Agreement.
The C hairm an: So the bottom line would be that the Steam Packet Company can be as profitable as it likes, or as profitable as the User Agreement and price increase mechanism permits.
M r C hristopher: Providing the Steam Packet comply with the obligations within the User Agreement, that is the role of the Department. Whether the Steam Packet makes profits or losses, their obligation is to provide the services as laid out by the Agreement.
The C hairm an: Would you accept that the level of profit is a product of, obviously, freight and volumes and passenger volumes, and there is a direct correlation between the two that the Department ought to be interested in?
M r C hristopher: I do not think that is a question I car comment on specifically.
The C hairm an: Capt. Brew, do you have a view on that?
Capt. Brew: No, sir.
The C hairm an; Thank you.Mr Turner, a question?
M r Turner: Yes, it is linked to your liaison with the Steam Packet, When the subject of fuel surcharges comes up, who is the approach made to at the Department of Transport for approval of such extra charges? How is the approach made?
Capt. Brew: It is made through the monthly meeting between the senior officers of the Department, in accordance with the Agreement that the Company has with the Department specifically related to fuel surcharges.
M r T urner: Who would make the decision as to whether the Department was going to agree to the fuel surcharge, or not?
C apt. Brew: First of all, the Agreement has steps within it which govern how the surcharge is applied, depending on the fuel price. It is subject to a six-monthly review, and any changes in the surcharge require a paper to the Department for approval.
M r T urner: W hat justification criteria does the Company have to make to the Department to justify a
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fuel surcharge, certainly given the level of profits which have been released lately?
Capt. Brew: They have to demonstrate to us the actual cost of the fuel to them and its usage. So if, as has happened, a fastcraft is or is not used, then the fuel consumption will vary, and that is part of the weighted application that they make.
M r Cregeen: On your presentation to us on 7th September, part of your presentation... Have you got it? On page 50, you state percentage-link agreement, annual review and open book on turnover, so wouldn’t you have been aware of the turnover of the Company and the profitability?
M r C hristopher: The percentage-link agreement is a separate agreement which covers the payment of harbour dues, on which the Steam Packet pay a percentage of their passenger and passenger-related vehicle income as harbour dues. So we are aware o f their passenger income as part of that, and that is audited and checked by their accountants; but that is their turnover, not their profitability.
M r Cregeen: So you do not have any idea of their freight turnover.
M r C hristopher: As freight harbour dues are not covercd by a percentage-link agreement, n o . ,
The C hairm an: Mr Malarkey.
M r M alarkey: Just coming back to the fuel surcharging, I would have thought the MRPI already takes fuel surcharges into account, so are we not giving them two bites of the cherry here? If the fuelsurcharge is already incorporated in your annual inflation figures, why are they allowed to come back andhave a separate fuel surcharge on top of the initial MRPI?
C apt. Brew: The fuel surcharge agreement deals specifically with marine fuels, as used by the Steam Packet, whereas RPI does not necessarily take that specific item into account.
M r M alarkey: Are you saying that the marine fuel is going to be increasing at a different rate to say petrol etc, which the MRPI is -
C apt. Brew: I think fuels vary, depending on a number of factors, but certainly the marine fuels have been subject to a very large increase of late.
M r M alarkey: Can I go back to the three stages of the User Agreement: 1995, when it was first set up, owned by Sea Containers; the next review was in 2002; then I believe Sea Containers sold the Company - is that right? - in 2003, straight after that renewal period for - ?
C apt. Brew: I do not recall the exact year, I am afraid.
M r M alarkey: Well, the figures I have is that in June 2003, after the February 2002 amendment to the User Agreement, the Company was sold for £67 million.
There was then a review of the User Agreement in December 2004, which went through Tynwald, and within seven months o f that Agreement, the Company was then sold for £225 million. In your view, does that not make the User Agreement a commodity on the stock exchange?
C apt. Brew: The Department does not have a view, and I personally do not have a view, on that particular issue.
M r M alarkey: Can I go to the monitoring of quality of service on the vessel. Obviously, your Department... Can I carry on? The monitoring of the service on the vessels themselves, quality of service etc, which is before this Committee’s remit...
We have figures from the Steam Packet saying that the vessel, the Ben my Chree is licensed to take 670 passengers. What has come to the Committee’s eye is 191 of these seats are not available on the standard-price tickets. In fact, 108 of them are included within cabins, for which you have to pay extra; 59 o f them are within the First Class lounge; and 24 are in the Blue Riband lounge. If you want to reserve a seat, you have to pay an additional price on top of your standard price. Does your Department consider this to be good practice?
C apt. Brew: Again, that is not an issue with respect to the User Agreement. The Department’s sole role is to administer the User Agreement as it exists.
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M r M alarkey: But within the pricing bracket, if they are selling 500 seats on board at a standard price, and they have not got 500 seats at a standard price on board, surely that is a pricing issue?
M r C hristopher: Certainly, as far as I am aware, if the Steam Packet sell somebody a ticket, they have to provide that person with a seat. So, therefore, if they have a large number of passengers on, they have to ensure that people have scats on board the boat.
M r M alarkey: Without charging them any extra fo r...
M r Christopher: Without charging them any extra: they have to provide them with a seat. I think that is a maritime safety requirement, as well.
The C hairm an: Thank you.Mr Turner, a further question?
M r T urner: Yes, it is to do with, 1 suppose, Mr Christopher, in your role with Properties. What is the deal with regard to the Victoria Pier linkspan and the relationship between the Steam Packet and the Department?
M r Christopher: There is a siting licence for the Victoria Pier linkspan in which the Steam Packet pay us a siting licence fee.
M r T urner: W hat is the period of that licence?
M r C hristopher: The licence runs concurrently with the User Agreement,
M r T urner: So, if the Agreement is extended, the Victoria Pier would also be extended with it.
M r C hristopher: Yes, and if the Agreement were determined, then both would determine.
M r M alarkey: Can I ask, on the same line there, through the Chair, the length of the Victoria Pier, how much of that is actually allocated? It is a very long pier, so do they have the full length of the pier to go with the...?
M r C hristopher: The liccnce covers solely the number 1 linkspan; it does not relate to any other berths on the pier. Those berths are common-user berths under the Harbours Act.
M r M alarkey: So there is nothing stopping us putting another linkspan directly in front of it. Would that be contrary to the User Agreement?
M r C hristopher: If we obstructed access to the linkspan, that would be contrary to the licence; but if you wanted to erect - or the Department, or Government, wished to erect - a linkspan somewhere else, then that is outside o f the User Agreement. The User Agreement relates to the berth 5 linkspan and the licence relates to the berth 1.
M r M alarkey: I am trying to get down to whether there is a length thing here. If we were to givethem six feet, they are not going to get much in there, are they?
M r C hristopher: It would have to allow sufficient space to berth the vessels they berth there, which is real use in a modem berth.
The Chairm an: I want to move on.Mr Waft.
M r W aft: I am going back, Mr Christopher, with regard to the meetings that the officers have withthe Isle of Man Steam Packet Company. You said they meet on a two-monthly basis, is it?
M r C hristopher: It is a monthly basis.
M r W aft: A monthly basis. Are those minutes minuted by any particular person, and who has sight of the minutes?
Capt. Brew: The meetings have an agenda, but they are informal and they are not minuted.
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Can I ask - turning to freight - are freight rates a matter that the Company agrees annually with the Department?
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M r C hristopher: Freight rates are part of the schedule 6 calculation.
The C hairm an: Fine, and is there any mechanism within the Agreement to reduce fares, or rates, for freight, to take account of industry standards?
M r C hristopher: The Steam Packet can apply to reduce any of their fares and charges. The 4 2 5 Agreement does not require them to put their charges up each year. That is a choice they have to make,
and as part of the weighted index they can increase fares by more than inflation,'in the same way they can reduce fares. Providing the weighted average comes out at less than MRPI minus lA per cent, they are in compliance,
4 3 0 The C h airm an : Does the Department keep a watching brief on industry standards and competitors’freight rates across the Irish Sea?
Capt. B rew : Not directly. We are aware of them because that is our job, but there is not a specific sampling in order to compare with the Steam Packet.
T he C h a irm a n : And the comparison with other rates, that is not something the Department would routinely concern itself with?
Cap t. B re w : No.
T h e C h a irm a n : Okay. Is the Department aware... W e certainly, as a Committee, noted that the freight traffic levels have increased by some 50 per cent over the past 10 years, at a time when there has not been an increase in vessel freight capacity over the same period. As the User Agreement allows for year-on-year price increases in the freight market, do you accept that it is inevitable that Steam Packet
44 5 Company profits must rise inexorably as a result of these factors? Fast rising freight traffic, rising freight prices and static ship capacity, therefore no capital cost,
Capt. B rew : I think I would disagree there has been no extra capacity put on because when Ben my Chree arrived in 1998, it replaced Peveril, which was a considerably smaller vessel. So in the period of
- 4 5 0 u ser Agreement, there has been an increase in freight capacity.
T he C h a irm a n : Yes, 1 am talking about the last 10 years, when the Ben has been operating.
Cap t. Brew : The vessel size... was sized to take account of a growing market.
T h e C h airm an : And within the last 10 years, freight volumes have gone up 50 per cent.
Cap t. B rew : Yes.
T h e C h airm an : If the trend in profits continue, then they may well exceed the 50 per cent of turnover. Is that something...?
Cap t. Brew: Profitability or otherwise of the Company is not an issue for the Department within the User Agreement.
T h e C h airm an : And yet the Committee has heard evidence that freight routes to the Isle of Man are perhaps three or four times higher than other Irish Sea routes - yet the economies of scale are not so different. Is the Department powerless to acknowledge what might be seen to be excessive profit levels being achieved by the Company?
Capt, Brew: I think the comparison with the routes to the Isle of Man in respect of freight with other freight sea routes do not bear comparison. That would be comparing the Holyhead-Dublin route, Stranraer to Lame, and they are significantly greater... There are significantly greater volumes and significantly larger ships on those routes, so I think to make a direct comparison between routes to the Isle
4 ^ 5 0f jyjjm ancj other routes in the Irish Sea, I do not consider to be -
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Capt. Brew: No.
The Chairm an: Thank you very much.Can I ask my colleagues if they have any points.
M r Cregeen: If you do not think it is worth comparison, would you not think the profit levels of these other routes would be higher, if it is an economy of scale? And if it is not part o f the User Agreement, do you not think it should be, at any future negotiations?
Capt. Brew: I do not think, Mr Chairman, that is an issue I can deal with.
The C hairm an: Right, thank you. Mr Waft.
M r W aft: Just getting back to the meetings you have with the Steam Packet Company at officer level, monthly meetings that are not minuted, how often do you think a politician would need to be involved in those meetings, or are they involved at all?
C a p t Brew: In our monthly meetings, no politicians are involved. It is simply a meeting at officer level to discuss matters of mutual interest.
M r W aft: So there is no independent person there to put a view, other than yourselves?
Capt. Brew: That is correct.
M r W aft: So you report back those meetings to the Department.
Capt. Brew: Not directly, but if there are issues that crop up during those meetings then, yes, we do use those to inform the Department, to ensure that the Department is up to date.
M r W aft: You are solely limited to that 1 Vi per cent above and below RPI and that sort of thing... you just zeroed in on that area of responsibility?
Capt. Brew: I am sorry I do not understand your question.
M r W aft: With regard to the increases in prices etc, you have to find out... as long as you are happy with the User Agreement and they have not varied in any shape or form outside that, it does not come within your radar.
Capt. Brew: We can only operate within the terms of the User Agreement, and if there is any doubt as to that, then the Department is briefed. But in any case, when it comes to price increases, they are actually confirmed by the Department, following a formal submission of a paper making a recommendation.
M r W aft: Does the Department have any view on other things than the User Agreement, when they have meetings with the Isle of Man Steam Packet Company?
Capt. Brew: Yes, very much so. The officer level meetings that we have on a monthly basis are used to range over a large number of issues, and they are not strictly confined at all to the User Agreement.
M r W aft: So do you then, perhaps, reflect the view of the population with regard to the system, when you have your meetings with the Steam Packet Company?
Capt. Brew: Yes, and our own personal experiences.
M r M alarkey: So I just want to get this clear in my own mind, that all you see yourself doing is enforcing what the User Agreement says. So in your Department’s view, if turnover and profit went up to 75 per cent next year, that would be outside your scope and there is nothing you could do about it. You would not be looking at that, just making sure that they were not going up more than the retail sector. Would you be making any recommendations to them to bring their prices down, o r .. .?
I am just trying to clear this in my own mind. You seem to be thinking you administer the User Agreement, end of story.
The C h a irm an : You do not believe that is a fair comparison.
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C apt. Brew: That is correct, Mr Chairman. The User Agreement is what we administer.
M r M alarkey: So you would not take any consideration for fuel increases into the profit that the Company was making. That, to me, is an argument in one... If you have got the Company making 36 per cent of its turnover, why is it asking for fuel increases and running costs, which you are allowing?
Could you not step in at that stage? Do you not have that power?
Capt. Brew: The User Agreement does not deal with fuel costs directly. There is a separate agreement that does exist between the Department and the Company.
M r M alarlfty : That is outside the User Agreement?
Capt. Brew: Yes.
M r M alarkey: Is it mentioned in the User Agreement at any...?
Capt. Brew: Fuel prices?
M r M alarkey: Fuel prices.
C apt. Brew: No.
M r M alarkey: No, I could not find it in the User Agreement. So who signed this separate agreement on fuel surcharges?
C apt. Brew: The Department and the Company.
M r M alarkey: And how long does this agreement run for?
C apt. Brew: How long is it going to run for?
M r M alarkey: Yes, indefinitely, as long as there is a fuel increase, they can carry on putting it up?
C apt. Brew: No, I am not aware that the fuel surcharge agreement has an end date; but it has a mechanism by which the fuel surcharge would come down, if fuel prices come down.
M r M alarkey: And was this introduced at the same period when the User Agreement was introduced?
C apt. Brew: We arc not quite sure, but the fuel surcharge agreement probably dates from 2006.
M r M alarkey: I find it very hard to believe that, if you have got no control over what the User Agreement says about pricing, and you are not going to be looking at the Company’s profit, how can you justify their justification for putting fuel surcharges up, if the Company is already making exorbitant profits?
Capt. Brew: The mechanism for controlling prices... There is a mechanism for controlling prices with increases within the User Agreement and, as we have said previously, the Department does not take a view, or is not required to take a view, on the Company’s profitability.
M r M alarkey: But you-said you took the public’s view into consideration at these meetings, and the public view is - certainly from the letters that we have had - that the fuel increases are quite astronomical, when you compare what prices we are having to pay on the actual initial User Agreement.
C apt. Brew: The amount of money collected by the Company from the fuel surcharge is only a small proportion of what its total fuel - its extra fuel - costs actually are.
M r M alarkey: So you have just ratified the latest fuel increases with them, have you?
C apt. Brew: It is due for review this month.
The C hairm an: Thank you.
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Just following on from that, you have made it very clear that the Department does not concern itself with the Company’s financial performance as a company or the levels of profit that it is making, and the User Agreement does not cover that area at all. Therefore I do not expect you to comment on that, but would it be possible to amend the User Agreement to include a degree of statutory monitoring by the Department in respect of the Company’s financial results, and thereby the Department, in monitoring the Company’s performance, could reach a view when it is approached annually, with any proposals for variation in freight or passenger fares?
Capt. Brew: The Agreement contains a provision for both parties to agree an amendment, but there is not a provision for one party to impose an additional requirement on the other.
The C hairm an: Okay, so it would be possible to open discussion with the Company about such a matter but, clearly, it would require both parties to agree.
Capt. Brew: That is correct.
The Chairm an: Yes, thank you very much.Mr Cregeen.
M r Cregeen: You say that the User Agreement is there to keep a fixed price on the fares as they go up, minus your RPI, is it half a per cent? Do you not consider that the reservation of a seat and the fuel surcharge is actually an addition to what the RPI is? Is there any restriction on the number of reserved seats? If they go and put the majority of the seats over to being reserved, you have now got an additional charge on top of the standard. Do you think that is acceptable?
Capt. Brew: It is not an issue that we have considered to date.
M r Christopher: Because the User Agreement puts a limit on the fare, if they sold all the tickets available and they did not have enough scats because of reserved seats, they would have to allocate reserved seats to people free of charge, and I understand that is what they do. The reserved seating aspect came in as part of the 2004 extension, and that was a provision just to help the parties to be able to sit together if they wished,
M r Cregeen: But one of the concerns that comes over to us is that people are becoming aware that it is difficult to get seating, that the only way they are going to get seated together is to have a reserved scat. So in fact they are actually being charged extra, just to be able to sit together. It is virtually becoming a standard: if you want to sit together, to ensure that, you have to pay the additional fee. It should be something that you should be concerned with, because of the nature of it.
M r Christopher: Certainly, as far as I am aware, the allocation of reserved seating on the boat is limited at present, and therefore, if people book on and there are more people booked on than there are unreserved seats, then the Company would allocate the reserved seats or upgrade people to the First Class lounge, as they have done in the past.
I am also aware that, certainly when I have travelled with the Company, if a part of a party... the crew are very good at trying to get people to sit together and make space, and encourage people to remove the extra bag that has been put on a seat or something.
M r Cregeen: But the perception outside is people are thinking, ‘I am going to have to pay’, so surely it should be something that you are putting out that you are not happy with, becausc people -
The Chairm an: I think what you are saying is this is a matter that you have discussion on a periodic basis in your regular meetings, but it is not contained within the User Agreement.
M r Christopher: It would not be. If the Steam Packet allocated every seat on the boat and said anybody who wanted a seat... then that is an issue that we would take up with them. But they have not; they have only allocated a small number of seats, to give passengers the choice.
The C hairm an: The time is pushing against us. Mr Turner.
/ There was a technical fault with the recording equipment.]
The H ansard E ditor: Mr Chairman, I have to interrupt: we seem to have lost the sound. 1 do not know why: it has just suddenly faded away.
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The H ansard E d ito r: I do not know whether it is my fault,., Can you just try once more - would you speak now?
The C hairm an: Is that better? Can you hear us now?
The H ansard E ditor: It has gone fainter. If everyone speaks up, we might be alright.
The C hairm an: Right, we will shout, shall we? (Laughter)Mr Turner.
M r T urner: Is there a requirement for the Steam Packet to publish their standard fare rate card?
M r C hristopher: Not specifically. There is a requirement, I think, that they have to publish a brochure which is similar to other companies of a similar standard.
T he C h a irm a n : Shall w e take an adjournm ent?
M r T urner: Does the Department have a view that maybe these standard fares should be made6 8 5 available to the public, as this is the whole structure that the User Agreement is based on, and therefore
these fares should be published?
M r C hristopher: Certainly, as far as I am aware, their standard fares are available on their website. I know they are no longer displayed in their brochure, and I am aware of the arguments both for and
6 9 0 against that.One of the problems, if you do show the standard fares and charges and your competitors do not, then
there is a risk of misleading comparisons, I think it is an issue for the Steam Packet: certainly, it is available on their website, so the information is available to the public,
69 5 Thc C hairm an: Okay, can I just ask Clive, is the sound okay now?
The H ansard E ditor: It has come back. It was a faulty bit o f tape; I am sorry about that.
The C hairm an: Thank you.7 0 0
M r T urner: Just to pick up on that, you stated about the Steam Packet’s competitors: I assume youare referring to low cost airlines there, are you? In fact, if you want to travel on the boat, you only havethe Steam Packet.
7 0 5 C hristopher: I think you compare both low cost airlines and ferry companies in the UK.Obviously, the Steam Packet is in a competitive market trying to attract business into the Island from the UK, so that somebody thinking of travelling on a ferry may well be looking at their prices in comparison with Stena Line, Irish Ferries or any of the other operators.
7 1 0 m ,. T u rner: So by not publishing them, you are almost saying that they are expensive.
Capt. Brew: I think it is industry practice, to some extent, but the standard fare is available on the Company’s website.
7 ^5 The C hairm an: Thank you. Mr Cornwell-Kelly.
The C lerk of Tynwald: Capt. Brew, are you aware that Tynwald resolved in 2003 that all meetings between the administration and external parties should be minuted?
7 2 0 Capt. Brew: No, sir, I am not.
The C lerk of Tynw ald: Do the monthly meetings concern matters of any significance or importance?
C ap t. Brew: I think that is a very difficult question to answer. Yes is the obvious answ er, otherwise 7 2 5 we wou}d n0( 5e meeting.
The C lerk of Tynwald: Then how do you follow up whether appropriate action has been taken on the matters discussed?
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Capt. Brew: We agree action points between ourselves, which we would follow up at future meetings.
The H ansard E ditor: Sorry, Mr Chairman, the sound has gone again...
[There was a short pause in the proceedings, due to technical difficulties.}
The C hairm an: Can I ask, Capt. Brew, just coming back again to the fuel surcharge agreement, the Committee does not seem to have a copy of that agreement. Could I ask if you would kindly let us have a copy of that (Capt. Brew: Certainly.) from its inception and a copy of the proposed amended agreement that I think you indicated was coming into effect this month?
Capt. Brew: March is the six-monthly period in which we review it, so it will be the subject of a paper to the Department some time towards the end of the month.
The C hairm an: Yes, thank you very much. If we could get the agreement proper, please.Mr Malarkey.
M r M alarkey: Can I just clear that point up. You are saying you have not actually done the review for the next fuel increase, but I thought I saw a press release that there was going to be a fuel increase already. So are you telling me that this press release by Steam Packet has been done before it has consulted with your Department?
There has certainly been a press release saying there is a fuel surcharge going up this coming month, and I think it actually quoted 50p a metre or something for the freight.
Capt. Brew: I am aware that there has been a letter to freight customers, but the six-monthly review will be carried out now.
M r M alarkey: So has the Steam Packet sent out a letter saying they are putting up the fuel surcharge before actually getting the okay from your Department? That is quite an important issue.
C apt. Brew: I would have to check on that, Mr Chairman. I am afraid I do not have the details.
The C hairm an: As far as the Department is concerned, it is yet to give approval to any increase after the six-monthly review to fuel charges?
C apt. Brew: Certainly, we will be considering with the Company in March -
The C hairm an: So as far as you are concerned, it is yet to be considered in March and approved by the Department?
Capt. Brew: Yes, that is correct.
The C hairm an: Yes. Thank you.Can I ask Prof. Baird: we are running out of time but, Prof. Baird, if you have any questions.
Prof. B aird: Just one, Chairman.On the issue to do with economies of scale, which are a function partly of market size, but primarily
of ship size, the size o f the ship serving the Isle of Man is by no means the smallest freight ship on the Irish Sea, yet freight weights are, we found, from the evidence, three or four times greater. Economies of scale in ship size should reduce unit costs, providing of course the vessel is reasonably full. Our evidence suggests that the market has grown substantially in the freight market, over the last 10 years.
I am wondering if... You mentioned that the issue of economies of scale kind of explain the reason why freight rates are higher in this market, but to my mind economies of scale of the vessel serving this market should actually bring levels of freight rates down, as has been evidenced throughout the Irish Sea over the past 10 years; whereas the User Agreement mechanism actually provides for freight rate increases every year, year on year. Is that, in the Department’s view, an acceptablc situation?
Capt. Brew:, I am aware that there are smaller freight only vessels that operate on the Irish Sea but they are part of a larger company, and the economies of scale would apply, I think, to the whole of a particular company’s operation.
It is certainly the smallest ro-pax vessel -
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Prof. B aird: Smaller than the Stranraer-Belfast, 800 lane metres?
7 9 5 C apt. Brew: But that is part o f a bigger company’s total provision.
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Prof. B aird : But the unit costs of the ship are the same if it is full, if it is being filled up, irrespective of the market size.
Capt. Brew: I do not think that is an issue I am particularly an expert on and I would not wish to comment on it, except -
Prof. B aird: The only point 1 was making was that freight rates on the Irish Sea have reduced over the past 10 years, but the price mechanism within the User Agreement forces the price up, or allows the price to go up year on year, in the freight market. That goes against -
Capt. Brew: I think the word I would rather use is ‘allow’, rather than ‘force'. The Company do not have to put their prices up.
8 1 0 Prof. B aird : I know, but you said that the Company never reduced the prices of the freight markets inthe tariff, but -
Capt. Brew: That is not the Department’s choice.
815 The C hairm an: Thank you very much. I think the clock has beaten us, so I would like to thank you,gentlemen, very much for coming and giving your evidence this morning.
Is there any final point you would, perhaps, wish to make to us? Mr Harding.
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Capt. Brew: Yes, M r Chairman, if I could ask Mr Harding to say something.
M r H ard ing : Yes, thank you, Mr Chairman.There is only one point and that is really by way of background.It is just to really ensure that the Committee has sight of all the relevant Tynwald debates which led up
to the conclusion of the User Agreement. Essentially, the relevant references, first of all, are the Hansard 8 2 5 debates on the Steam Packet Linkspan User Agreement between the.., well, I have copies of all the
debates on the Agreement between 19th January 1988 and 13th November 2007 - references - if the Committee wishes to look at those.
However, there are a series of crucial debates, which the Committee should read and consider in full, in my considered opinion. They are, firstly, the Tynwald debate of Tuesday, 11th July 1995, which
8 3 0 commenced at T798 of the relevant Hansard, and which concerned a motion before the Tynwald Court which was moved by the then Chief Minister, Mr Walker.
That was essentially in respcct of Tynwald approval o f the Department of Transport entering into the licence agreement with the Isle of Man Steam Packet Company Limited in respect of the use of the Department’s link bridge in Douglas Harbour, such agreement to be in the material form of the draft licence agreement dated 25th May 1995. Obviously, that motion was debated and voted upon in full and the motion was carried.
Also, it is important to read the Tynwald Hansard report of 12th July 1995, which is the day after, at T839, in which the Douglas Harbour Facilities Order 1995 was approved.
The next most important Hansard to consider would be in respect of the Statement by the Minister for Transport, Mr Shimmin, to Tynwald on Tuesday, 19th February 2002, in respect o f the exercise of the option contained in the 1995 Agreement, to extend the initial Agreement for a further period o f five years and the increase in enhanced minimum service levels. This conclusion meant that the User Agreement ran up until 18th September 2010.
However, as the Committee is aware, there is another important debate in Tynwald Court on 14th December 2004, at T122, being a motion by the Minister for Transport which Tynwald approved of the Department o f Transport entering into an agreement with the Isle of Man Steam Packet Company Limited to extend the term of the licence agreement in respect of the use of the Department’s link bridge in Douglas Harbour. Again, that motion was carried.
So I think those debates are important for the Committee to consider in full, in understanding the background and the reasons for the conclusion of the agreements.
Thank you.
The C hairm an: Thank you very much. We are of course fully aware that everything we have talked about, the User Agreement and the two extensions, were subject to full Tynwald approval, and wc are not
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suggesting otherwise. But certainly, thank you very much, and wc will refresh our memories on the background to those particular decisions by Tynwald.
So, gentlemen, thank you very much for your evidence, and I would invite you to stand down.
Mr Woodward, Mr Watt and Mr Grant were called at 11.33 a.m.
EVIDENCE OF M R M W OODW ARD, MR J WATT AND M R D GRANT
The Chairm an: Could I now ask Mr Woodward, Mr Grant and Mr Watt from the Isle of Man Steam Packet Company to come forward, please.
Good morning, gentlemen. I would like to welcome you to this resumed hearing of the Tynwald Select Committee to take oral evidence from yourselves. Could I begin by asking Mr Woodward if you could introduce yourself and your colleagues to the Committee.
M r W oodward: Yes, thank you, Mr Chairman.On my left is Jonathan Wild, the Company’s legal representative from Quinn Kneale. On my far right
is John Watt, our Commercial Director. Next to me is Douglas Grant, our Chief Financial Officer.
The C hairm an: Thank you very much indeed.We have submitted to you a list of questions of a financial nature, which we did a couple of weeks
ago, and we will move on to those just in a moment. I do want to give you the opportunity, if you wish to make any representations you care to, following the evidence that you gave last time round. I know you have been in touch with the Committee subsequently.
Mr Woodward.
M r W oodward: Yes, thank you, Mr Chairman.I propose to go through a few opening comments and we will then go to the questions themselves. I
am not sure how you want to structure those questions, but we can, perhaps, have some guidance from you as we approach those.
The C hairm an: Yes, I certainly will do so.
M r W oodward: Chairman, Committee members, good morning.Further to the hearing on 30th January 2008, we would like to provide the Committee with
clarification and indeed corrections on a number of points raised and recorded in Hansard, as a result of the last hearing attended by Mr Watt and myself.
Firstly, a number of pricing questions were put to us and we wish to correct one point raised regarding the date the special offers became a User Agreement obligation.
The original 1995 User Agreement was introduced when all passengers paid standard fares and there were no special offers. Many people today forget that all fares used to be standard fares. In 1996, the Company began a strategy to lower fares, to dramatically increase service provision and to invest in modern tonnage. The intention was to arrest and then reverse the decline in sea traffic at that time.
A range of special offer fares was introduced to boost carryings for off-peak periods in particular. As a result wc have, since 1996, seen a level of growth in traffic to the Isle of Man.
Over the same period, the UK ferry industry has seen significant decline in UK sea passenger traffic, with numbers falling by around 30 per cent, despite general UK economic growth, whereas Isle of Man traffic has increased by around 40 per cent.
The 2002 User Agreement extension introduced a new obligation to safeguard the availability of discounted fares. As a result, the Company had to guarantee a minimum of 250,000 special offer seats annually from that date. With cffect from 2005, this obligation was further enhanced, and the Company has since been obliged to offer at least 50 per cent of the previous year’s total sales at discounted offer prices.
As stated previously, the Company has already supplied evidence confirming full compliance with all User Agreement pricing obligations. It should be noted that special offer fares have effectively become the norm for the vast majority of passengers. This year over 900,000 special offer fares have been made available.
With regard to the Hansard entry on the number of changes required to TT provisional bookings, Mr Watt in fact stated that nine times out of ten we will not change provisional bookings. In fact, it is more like 99 times out of 100. The number of provisional bookings actually requiring change over the years has been extremely limited, and in most years, no changes at all have been made.
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We would add that che TT advance booking system has been instrumental, in our view, in developing the number of TT visitors to the Island, with well over half a million customers using it since its introduction. Despite the Committee’s apparent criticism of this policy, the simple fact is that if it were not in place the number of visitors to the event - and hence the benefit to the Isle of Man - would be much reduced.
On reading the Hansard record of the discussion of fuel surcharges, it would appear there has been some misunderstanding. The system monitored by the Department of Transport ensures that the Company has had to absorb the majority share of the extraordinary 800 per cent marine fuel price increase seen over recent years. The surcharge allowance automatically applies increases or decreases, by reference to the actual cost incurred over the previous six months: thus both increases and decreases are applied in a fair and equitable manner.
From time to time, the Company has not applied this increased entitlement. This means that there may be no reduction in the surcharge on a subsequent decrease in costs, but only because the Company had previously waived this entitlement to increase.
To summarise, all decreases are applied, but not all increases have been and the Department of Transport ensures the agreed mechanism is operated fairly.
We would also like the Committee to note that our passenger fuel surcharge is still only £2.50 per passenger. The website of Condor Ferries, probably the most comparable operator to the Steam Packet Company, confirms that they now apply a surcharge of £8.50 per passenger in the Channel Islands for a similar distance.
On the question of brochure pricing raised by Mr Malarkey, we have obtained brochures from many UK ferry operators to various destinations. In common with the Steam Packet Company and standard travel industry practice, every single one of them promotes their cheapest fares.
Where special offers are available, not one of them highlights their maximum fares, as Mr Malarkey suggested should be the case.
North Link, with a £31 million annual Government subsidy, is the only exception. They have no special offers available in their brochure and only offer a fixed price per sailing.
Regarding investment, Hansard states that Mr Cregeen asked a question about the breakdown of the £16 million investment. For the record, we have previously confirmed that, in fact, we have spent in excess of £60 million on our fleet and facilities, not £16 million. W e will provide a breakdown of that amount to the Committee.
With regard to service, we outlined on 30th January how much service frequency and choice has increased over the past decade. The number of passenger sailings to Heysham has almost doubled and the number of services to Liverpool has more than trebled since 1996. This is an extraordinary increase in service provision.
The Committee also raised some specific service quality issues. We recognise that there arc service issues that need to be addressed and are already being addressed. However, these should be put into context.
We have over 600,000 passenger journeys per annum and the Company has had very few complaints regarding, for example, seating availability. We note that the Committee has only attracted around 100 submissions which, as a proportion o f 600,000 passenger journeys, cannot in any way be deemed a significant percentage o f the travelling public.
We have already supplied the Committee with market research data from 5,360 passengers surveyed in depth last year. This indicates that the cleaning, seating or other service issues raised by the Committee would not appear to be common issues. Indeed, our own much larger survey of customers indicates that the vast majority are satisfied with the value for money of our fares, and our comfort and cleanliness ratings are good. This market research is also published on our website.
Nevertheless, we rccognise the need to take note of these issues and we have reiterated to our staff the need to assist customers with seating and to maintain cleaning schedules.
Again, we would point out that all ferries inevitably have restricted seating availability from time to time, but we have supplied occupancy data, demonstrating that for the vast majority o f sailings, this is not an issue.
The Committee will have noted recent announcements and initiatives by the Company, which make clear the priority we place on the service we provide to our passengers.
The Committee introduced into the previous hearing some photographs of waste bins in Liverpool. The Company would like the Committee to note its disappointment that these photographs were not made available to us in advance, together with confirmation of the date they were taken, so that we could investigate the particular circumstances, rather than simply being presented on the day of the hearing. We believe this action led to unnecessary, untrue and adverse criticism of the Company in the Isle o f Man press.
For the record, therefore, we wish it to be noted that the Committee chose to travel on the day which saw both the official opening of the cruise liner terminal in Liverpool and the visit of the QE2 cruise
* vessel to this new facility. After travelling, the Committee wrote to the Company, enquiring about the
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9 8 0 upkeep of land around the Liverpool terminal, Neither in this letter nor at any point prior to the hearing on30th January did the Committee reveal that it was actually largely referring to concerns about waste,wrongly believed to belong to the Steam Packet Company.
I would now like to make clear the true situation. In order to cater for waste removal from the visiting QE2, additional waste bins were placed on land adjacent to that used by the Steam Packet Company, This
9 8 5 ianij is neither owned nor controlled by the Steam Packet Company. The photographs introduced at theprevious hearing depicted these temporary additional waste bins. This was not Steam Packet Company waste and while, obviously, we would prefer cruise liners not to dispose of their waste in this manner, in practical terms they have little choice, as there are no other facilities currently available.
The Committee have also raised questions about the level of freight charges. For the sake of clarity, 9 9 0 we wjsh t0 make clear a number of points. Freight charges are included in the basket of fares, and have
been reduced in real terms every year for 13 years. The Committee states it has had commendations about service quality, but criticism on freight fares. It is, of course, in the commercial interest of these companies to try to obtain lower fares, so to some extent that is to be expected.
However, we understand that the Committee has received response from less than 10 of our freight9 9 5 customers, a very small proportion of our 231 direct freight customers and many more indirect freight
customers.Freight charges today are linked to historical rates, when ro-ro competition existed in the Island. Since
1985, our regular trailer charges, which account for 90 per cent of our traffic, have in fact reduced in price by 60 per cent in real terms. There is no factual basis to suggest that freight prices are high because of a lack of competition. In fact they are, in real terms, very significantly lower today than when there was ro- ro competition.
The Committee also seemed to imply that the Company does not face freight competition. In fact, we compete with both Mezeron and Ramsey Steamship Company for freight shipments. In 1995, the Steam Packet Company had around 70 per cent of market share by weight, and our competitors had 30 per cent
10 0 5 0f the market. If we were not competitive on price, our market share would be decreasing: in reality, ourmarket share has increased to 80 per cent and our competitors have also chosen to ship some of their business, using our services.
All small island routes suffer from poor economies of scale. The Channel Islands’ population and GDP are very considerably larger than those of the Isle of Man. However, Channel Islands’ freight fares
1 010 arg much higher. For instance, livestock rates are as high as £75 per metre. This is substantially more thanour own livestock rate.
Other small volume island services are subsidised by the taxpayer. An annual subsidy of £31 million is, we understand, necessary for North Link to provide Shetland and Orkney services. There is a similar taxpayer subsidy in the Western Isles.
1015 In the Isle of Man, there are no taxpayers’ subsidies and, indeed, the Steam Packet Companycontributes to the economy by payments o f multi-million-pound Government port dues. In practice, of course, Steam Packet freight rates are largely absorbed by UK wholesalers or retailers, and not by Island consumers.
At the last hearing, the Committee also asked about the level of discounts applied, compared to RPI, 1U2U since 1995. We have already supplied evidence demonstrating the substantial decreases in passenger
fares, with many around half price in real terms. There have also been significant reductions in freight rates and, if requested, we can provide definitive proof of this.
For instance, self-propelled standard freight rates have decreased in real terms by 21 per cent since 1995. Self-propelled livestock rates have decreased by 31 per cent and standard trailer-rates have
J UZD decreased by 17 per cent.Flat-deck rates for 12.4-metre vehicles have decreased by 22 per cent in real terms. Commodity rates
have decreased by 22 per cent and hazardous cargo rates have decreased by almost 90 per cen tThe Department of Transport also has a record of these prices and can no doubt independently
i rt'in substantiate these historical price reductions since 1995, if the Committee requires further analysis.IU j U Our regular freight trailer rates have declined by a substantial 60 per cent in real terms since 1995,
when we had ro-ro competition. As stated, we still face competition today and our rates are cheaper than those of the Channel Islands.
That concludes those matters from the last hearing. I would like to continue now with the further questions asked by the Committee subsequent to the last hearing and relating to the Steam Packet
1U3j Company.
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The C hairm an: Before you do, Mr Woodward, can I just ask colleagues if they have any follow-up questions, relating to what you have just told us.
Mr Cregeen?
M r Cregeen: You were saying about the yard at Liverpool and, on our visit, it was a coincidence that the cruise berth was opening the same day as we were turning up. We have a letter here from Prince’s
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‘The majority o f Plot 7 at Prince’s Dock is currently utilised by the Isle of Man Steam Packet Company for traffic marshallingand baggage handling facility. The responsibility o f the upkeep and maintenance o f this facility falls clearly on the Isle o f ManSteam Packct Company and not that o f Peel H oldings' M ersey Docks and Harbour C om pany.’
From the photos that we had, you had the bins outside, you had the wheelbarrow but also there was the state of your facility there, the Portakabins. Surely that was not a spin off from the cruise liner opening: the dilapidated state had been there for some time, surely? So some of that had been there, It is your responsibility and did not any of your officers relay to you the condition of the site?
M r W oodw ard: We are well aware of the site and I am not taking issue with that I am taking issue of the waste bins, which is what you chose to produce photographs to the press and to the public about. (Interjection by Mr Malarkey)
M r Cregeen: No, there was the chair, there was the inside, the security desk.
M r W oodw ard: I think we have made quite clear that we are investing, shortly, a sum of several million pounds in new facilities in Liverpool, and that is what we are focusing our intention on.
We accept fully the facilities were less than ideal in that interim period, until we moved to those new facilities.
The C hairm an: Whose responsibility is the marshalling-yard area? Is it yours or the Mersey Harbour Board?
M r W oodw ard: Mr Cregeen just read out a letter from the Mersey Docks and Harbour Company which we would disagree with, because we have no rights, as we have said previously, to be on that area.
The C hairm an: So there is disagreement between you and the Mersey Dock Harbour Board over the maintenance and upkeep of the area that is used every day?
M r W oodw ard: I think ‘disagreement’ is perhaps the wrong word, in the sense that we have asked them to maintain that area, and they have said they are not prepared to maintain that area, because it is only now a very short-term tenure that we have.
The C hairm an: It is inevitable then, M r Woodward, that difficulties such as this will arise due to that lack of clarity, as to who is responsible for clearing up?
Who is responsible for giving permission for skips to be put there in the first place?
M r W oodw ard: I think the skips were not placed on an area of land that we control and that is the point I made in my submission earlier.
The C hairm an: The high weeds that are growing within the perimeter fence: is that something that would concern you?
M r W oodw ard: I believe they are also adjacent to that same area which we do not control.
The C hairm an: Thank you.
M r M alarkey: Can I just get clarification on what part you do control? That was that inside the reception... the compound area is actually gated off.
M r W oodw ard: ‘Control' is probably the wrong word. We occupy part of it and are allowed to use part of it.
M r Cregeen: Do you pay any money for the use of it?
M r W oodw ard: None.
M r Cregeen: And the Portakabins or your booking area?
M r M alarkey: Do you own them?
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M r W oodward: Do we own the Portakabins?
M r Cregeen: Yes.
M r W oodward: We own one of them.
M r Cregeen: So you are responsible for the condition inside the...?
M r W oodward: Yes, I do not think we denied that.
M r Cregeen: Just for clarity, because you were saying it was -
M r W oodw ard:'N o, no, we own one of the Portakabins. One of them is... I think Mersey Docks «id Harbour Company provides that for us.
M r M alarkey; Not wanting to harp on that, but would you not consider that if is the gateway to the Isle of Man, probably the first thing - ?
M r W oodward: I would fully agree and I think we are labouring a point. We understand that fully, and we have been making strenuous efforts for many years to improve facilities in Liverpool.
M r M alarkey: Surely a Company of your size could have been doing something just to brighten the place up a little bit in the past?
M r W oodward: We have improved that area considerably over what was there previously: for example, there was no tarmac surface at all there, previously. These are very substantial costs which are involved in a building which we have been moving from since 2 004 .1 think we were originally due to leave that area.
Because of delays in various projects relating to the Pier Head, we have not been able to proceed as quickly as we would like - through no fault of our own.
The C hairm an: So the situation is as frustrating for you as a Company, is the message I get?
M r W oodward: Well, I hope the tone of my voice conveys that clearly, Chairman, because, absolutely, it is frustrating!
The C hairm an: And therefore the image that is presented to your passengers coming to the Isle of Man is not one you would endorse at all?
M r W oodward: It is not one we endorse, nor are happy with, and we hope that very soon we will have much better facilities and be able to present a much better shop window for the Isle of Man.
The C hairm an: We would certainly share your hope in that regard.Before I allow you to move on, a final point, Mr Cregeen.
M r Cregeen: Can you confirm who carried out your research on the vessels?
M r W oodward: Mr Watt, I think, can give details of that.
M r W ait: We employed a company who has come up with a system that passengers are given a handheld device, and they can fill in their own responses to all the various questions. This is extremely beneficial,.in that-we-can interview customers on a daily basis, and it means that we are now able to interview perhaps 20,000 passengers per annum, whereas before we used to have a smaller snapshot. So it allows huge numbers o f responses, which is very useful.
The Chairm an: Now I must move on.Mr Woodward, we submitted to the Company some 15 questions, which break down into three
categories: ownership and investment being one; accounts and traffic volumes being the second; and freight being the third group of questions.
I am very happy for you to go through these systematically, and equally happy to pose for the record those questions to you and invite your response. Would you like me to do the latter?
M r C regeen: Do you own (hem?
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Mr Woodward: I think, Chairman, it would be perhaps more beneficial if we were on the record with what the questions were. And if I could further add that we would probably deal with the first three questions as one answer, as we see those linked.
But could I first make a very general statement about our answers, in general?
The C hairm an: Yes, by all means, you can.
Mr Woodward: As we have stated previously, the Steam Packet Company is committed to cooperating with the Select Committee and therefore wishes to respond as fully as possible to the questions asked during this sitting.
However, as previously advised, management must take care when providing answers which may be sub judice in relation to the legal challenge by Seaside Shipping Limited. It is hoped that the Committee will therefore understand that the Company may necessarily respond to some questions only in broad terms.
The C hairm an: Thank you.If I put the first three questions to you and then, as you suggest, you can give us a composite answer.From the evidence submitted, the Committee notes that the Company was purchased in 2003 for what
is claimed to be a high price, given that its main asset at the time, Ben my Chree, had a book value of less than £20 million. We would ask: what is your response?
It was stated in the Maritime Press, at the time of the 2003 acquisition, that Sea Containers achieved a profit of US$100 million, £67 million, on the sale of the Company. Would you agree that the real value of the Company rests in the User Agreement, which gives the Company an exclusive position within the ferry market and therefore more or less guaranteed income, the latter enhanced even further through provision for price increases?
And, lastly, the Company was subsequently sold in 2005 for a reported £225 million. It has been suggested to the Committee that purchasers were apparently paying a very substantial premium to acquire the Company on the back of the User Agreement, which guarantees an essential service. Would that be correct?
M r G rant: The Steam Packet Company is not in a position to comment on prices paid or valuation methods used by previous owners. How an individual purchaser chooses to value a company is a matter which is dependent upon individual companies’ financial internal appraisal methods and is therefore unique to each prospective purchaser.
In those cases mentioned in the question, the management team were not party to the decision-making process. However, to put the sales into context, the relationship between price paid and net asset value for those transactions involving the Steam Packet Company were consistent with both the Red Funnel and Condor transactions.
Red Funnel operates to the Isle o f Wight from the UK mainland in competition with WIGHTlink. It was purchased in June 2007 for approximately £220 million, and their 2006 accounts show the main assets - vessels - to be around £30 million.
Condor primarily operates between the UK mainland and the Channel Islands. It was purchased in 2004 for approximately £240 million, with tangible assets understood to have been £60 million. Both purchase and net asset values are very much in line with those o f Steam Packet Company.
It should be noted that Red Funnel does not have a user agreement or similar arrangement in place. Condor does not have any long-term exclusive arrangements, but has a simple service level agreement with the Channel Islands Government, which does not include any RPI-linked price controls.
The Steam Packet Company is a business that has a lengthy investment cycle. Assets are purchased, depreciated, revalued and sold over a long period of time. Therefore the reported value of assets is constantly changing and is not likely to be a key consideration when valuing the Company.
The User Agreement was negotiated with the Government in 1995 to provide a guaranteed year-round service, as the Island could not sustain two competing ferry operators. Competition between the Company and ManxLine proved unsustainable and led to a forced merger of the two Companies.
Although the User Agreement grants near-exclusive access to the Government’s linkspan, it also creates obligations to provide a number of loss-making services and restricts the ability to increase prices, as well as requiring future investment.
Freight demand alone could be satisfied with six return sailings per week. The Company operates at a level of frequency well in excess of this, typically with between 14 and 35 return sailings each week, depending on the time of year.
In relation to passenger services, many of these services under the User Agreement are uneconomic on a stand-alone basis.
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The C hairm an: Thank you. Prof. Baird, is there any follow-up you would wish the Committee to make?
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Prof. Baird: I think we would probably have to take some review...
The C hairm an: Yes.Thank you very much, I appreciate that Can I now ask you - this is in respect of acquiring new
vessels - neither recent purchaser has made any investments in acquiring new vessels. Does the User Agreement require the Company to invest in replacement vessels and what is the timescale?
What steps have been taken by the owners to comply with the requirements of the User Agreement to acquire a new fastcraft which can operate reliably in winter? This is in respect of: from 1999 till the sale of the Company in 2003; from 2003 until the sale of the Company in 2005; and sincc 2005. What steps are to be taken by the current owners to acquire such a fastcraft?
M r W att: Gentlemen, before answering, we wish to clarify certain statements within the question itself, which are fundamentally incorrect.
Firstly, the User Agreement does not require the Company to invest in a new fastcraft that specifically can operate reliably in the winter. All fastcraft that can currently operate into Douglas have a significant weight-height restriction of up to a maximum of 3.5 metres. Operating such a fastcraft in the winter will result in a number o f cancelled sailings.
This winter we have operated the Ben my Chree, which is not restricted in terms of weight-height operating capability. As a result, not only did we operate with greater reliability, we also increased passenger numbers.
Secondly, in relation to the question of neither purchaser having made any investments in acquiring new vessels, Montagu did in fact enter into a long-term lease-purchase arrangement in relation to SuperSeaCat 2 in 2003.
The User Agreement required the Company to invest £20 million by 2005. The 2004 extension of the User Agreement requires the Company to invest a further £26 million by 31st December 2015: £18 million of that amount is to be invested by the end of 2012.
The User Agreement has provided the Company with a stable base for investment in its vessel fleet and has enabled the Company to invest in the development of additional services. Since 1995, the Company has been fully compliant with its obligations for investment under the User Agreement and has invested more than £60 million in maintaining and upgrading its fleet and facilities.
In 2007, we invested in a second fastcraft to provide an expanded summer service to Ireland and Liverpool. The Company is also actively investigating replacement fastcraft investment options around the world.
At the Select Committee hearing on 13th January, we confirmed we have invested more than £60 million in the business and, as offered, we can provide the following detail: SeaCat Isle o f Man, renamed Snaefell, valued £13 million in 1997; Ben my Chree, £24 million, 1998; SuperSeaCat 2, renamed Viking, lease-purchased 2003, worth ca. £18 million; Ben my Chree, £2 million extension, 2004; new maritime reservation system, £1 million investment, 2005; new Liverpool terminal project, ca. £2.8 million, 2007 and 2008.
We have also invested heavily in non-capital items, such as the dramatic increase in the number of scheduled passenger sailings.
The Company has funds allocated, with board approval, for the purchase of a suitable fastcraft replacement, and will continue to invest any necessary time and resources to investigate suitable options worldwide.
Thank you.
The C hairm an: Thank you very much.Prof. Baird.
Prof. Baird: If I may, I would like to go back to the first three questions, just very briefly, and the comparatives with Red Funnel and their conduct.
My understanding is that Condor have five ships in the fleet, Red Funnel has three conventional ferries, plus four high-speed craft, and both companies have extensive intermodal and logistics investment. They are not necessarily that comparable with the Steam Packet Company.
I think the question the Committee was trying to address was how do you see the Company valued at £225 million when it essentially has one ship, at the time, within the Manx fleet, with a book value of maybe around about £15 million? That is the question, and I am not so sure these two companies - Red Funnel and Condor - are comparable.
M r G ra n t: The Steam Packet Company, the operating Company, actually owns three ships, not one
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ship: it owns the Ben my Chree', it uses the Viking, which is on a lease purchase; and it uses Snaefell. What you have got to remember is the style of the Company has changed since 2000. Snaefell is now held within another wholly-owned subsidiary within the group. So, it owns three ships; that is my first point.
The second point, as well... You start talking about the net asset base. What we clearly demonstrate in this answer is that the relationship between sales value and net asset base is not there. It is not a great link. It is not the way companies these days are valued. If you take your example, you said Red Funnel was purchased in June 2007. It has got an asset base of £30 million. How many ships did you say, Prof. Baird, Red Funnel had?
Prof. Baird: It was three conventional and four high-speed craft.
Mr Grant: Seven ships at £30 million.Then we look at the Channel Islands: five ships, asset base roughly £60 million.You have also got to remember that we are talking about financial accounts here. It can be how
aggressive, or not aggressive, the depreciation policy is that can actually determine the net asset base. It could be how realistic, or not, their asset valuation is, that can determine it.
There are a lot of things in play here, and I would stress I do not think there is a true connection between the asset base and the sales value. What we have demonstrated is that the net asset base that we have got is in line with these other companies, and the value paid for them is in line with these other companies, as well. 1 am trying to put some context into it all.
Mr Woodward: You are obviously an adviser to the Committee. In your view, are the Red Funnel ships comparable to the type of ships the Steam Packet Company operates, in terms of their ability to carry passengers, vehicles or freight?
. Prof. Baird: I do not think you are right they are not necessarily comparable, different types of vessels.
Mr Woodward: I think it is a key comparison that somebody has chosen to leave out, and I think the point needs to be made very clearly that the fleets are not comparable.
Prof. Baird: Yes, but the Condor fleet is.
Mr Woodward: The Condor fleet is a much larger fleet, and that is reflected in the higher net asset value.
Prof. Baird: Yes, but not in the sale price.
Mr Woodward: The sale price was more than the Steam Packet Company, and it is up for sale again and, no doubt, will be higher still -
Prof. Baird: Yes.
Mr Woodward: - but the point we are trying to make very clearly is that there is a link there which is not based directly to the net asset value of the Company, nor the type of fleet it operates.
Prof. Baird: I think the Committee would agree with you there is no link between the assets and the sale value, because the assets, in all cases, are relatively modest, but the sale value is inflated over time. The question the Committee is trying to understand is why is that sale value so high, and of such interest to financial institutions like pension funds.
Mr Woodward: I think that is a question we are not qualified to answer, and would have difficulty answering, because it depends on individual companies and how they value companies, using their own models. Each of them has a very different set of criteria, I am sure, which makes particular companies attractive at particular prices.
Prof. Baird: I think the other issue is how often are these shipping companies going to be sold on, because Condor is now, I think, through the third owner in six years.
Mr Woodward: I think that is right, and I think that is something we have not touched on, in terms of the Steam Packet, because we have owners now who perhaps pioneered the infrastructure asset concept and have made it very clear that they intend to be long-term owners of the Steam Packet Company. That can only be a good thing, as far as we are concerned.
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M r G rant: The current owners of the Steam Packet Company are three pension funds and a subsidiary of Macquarie themselves.
The C hairm an: Then, based in Australia?
M r G rant: The shareholders are Australian based. I would need to check as to the location of the Macquarie shareholding.
The C hairm an: Thank you.The Company group structure has changed recently, specifically in terms of the New Manx Vehicle,
the new Companies Act 2006. Can you confirm that the Steam Packet has changed its structure to have its statutory basis under the New Manx Vehicle, under the new companies legislation?
M r G rant: That was not the reason for i t We were actually in die process of tidying up the structure. We have had some dormant subsidiaries which, as you will note, we took out o f the organisation structure. We have now got three legacy holding companies from previous purchases which form the... They have no real holding going forward; they have outlived their usefulness. The New Manx Vehicle was just an option that we could go down.
The C hairm an: So it is nothing to do with the change of ownership?
M r G rant: It is not an ownership... It is probably a personal bee I had in my bonnet about having to produce accounts for no function.
The C hairm an: Yes, I see. So the accounts, under the new system, you have to confirm that they have been produced.
M r G rant: We are in the middle of a process of restructuring the Company. I think the New Manx Vehicles for the ones you are talking about were dated 31st December, so we are still in that, we are still going through.
The C hairm an: Thank you.Mr Turner.
M r T u rner: The question I had was why did you decide to convert to a New Manx Vehicle, and I think you have already answered that, so I have nothing.
The C hairm an: Mr Malarkey.
M r M alarkey: Yes, when quoting what you have spent through the Company already, the December 2004 - the last - User Agreement clearly states that you must invest £18 million in a vessel. You were quoting spending £1.8 million on landing stages, or something, at Liverpool.
Since 2004 ,1 have picked up on £3.8 million, which is nothing to do with the vessels, really, What are your Company’s future investments likely to be? W e are now in 2008. By 2012, you have to have invested £18 million - and it clearly does say in a vessel or vessels - no later than 31st December 2012.
M r W att: We do have funds allocated specifically to comply with User Agreement obligation and will, of course, comply with the obligation.
M r M alarkey: You have got funds set aside?
M r W att: We have funds allocated and board approval.
The C hairm an: The financing, is that then to be undertaken out of reserves that have been built up?
M r W oodw ard: Chairman, we do touch on this in an answer to a question later on, if you could defer it until that point.
The C hairm an: Alright, we will leave that point until that. We will just press on then with our questions.
T he C h a irm an : Can you tell us who are the current owners o f the Steam Packet Company?
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According to the data that we have obtained from Company accounts for the period 1998 to 2006, the Company’s profit before tax has quadrupled over the period 2000-06, rising from £4.1 million to £17.5 million, whereas turnover over the same period increased by only 22 per cent. Very substantial profits were also achieved, in 2004, of £12.5 million and, in 2005, £15.3 million. The profit margin has therefore effectively more than trebled between 2000 and 2006, rising from 10.4 per cent to 36 per cent.
Can you explain the main reasons behind this significant increase in the Company’s profitability, Mr Grant?
M r G rant: Thank you.We cannot answer this question in specific terms without raising issues of sub judice, as questions
relating to the profitability are relevant to the Seaside Shipping Ltd petition before the High Court. We do believe, however, that a more general answer provides sufficient information to explain the Select Committee observations regarding apparent increases in profitability.
Steam Packct Company profitability is in line with equivalent ferry operators and reflects both the capital-intensive nature of the business, operator risk and where, in particular, at any given time, the business may be within its natural investment cycle.
The two periods in question are not comparable as they contain certain non-cash financial accounting adjustments. Once normalised, the increase in profits is driven by revenue.
The same financial accounting entries generate misleading swings in margin. Underlying margin for the period under review did not materially increase. As the Steam Packet Company is a relatively fixed- cost business, increases in volumes, and hence revenue, contribute to an increase in margin. Over recent years, traffic volumes have increased, due to the Steam Packet’s improvements in reliability, frequency of service, pricc reduction in real terms, and market share gain from competitors. Similarly, in times of increased competition, such as when Emerald Airlines operated Government-subsidised services, profitability may be substantially reduced.
Thank you.
The C hairm an: Thank you.Mr Cregeen.
M r Crcgcen: You have said across the business your profit margins are in line with other businesses. Which businesses have you compared that with?
M r G rant: We are taking that from a Condor, in particular, perspective.
M r Cregeen: What was their level of profit?
M r Wild: Just a second, John.
M r G ran t: Their accounts are published, so I am sure you would be able to get them from them, Mr Cregeen.
M r Cregeen: But you have just quoted Condor, and you said that it is comparable with other industries, so surely you must have the figures there to say that you are comparable with,
M r Wild: I think we have to answer this question in general terms. As we have said, we are attempting to co-operate within the bounds of the -
The C hairm an: We appreciate that. It is just that when you have given a specific reference like this, I think we are entitled to ask what that specific information is.
M r W ild: We think it is broadly comparable to Condor, and that is the answer that... 1 think it is as far as we can drill it down at the moment.
The C hairm an : We will make our own enquiries. That is fine; no difficulty there.Mr Comwell-Kelly.
The C lerk of Tynwald: Chairman, I just wonder if the matter could be put into the context of the representations that have been made on behalf of the Steam Packet Company before by their legal advisers, that there was, in fact, on further consideration, no conflict between the matters which the Committee was investigating and the matters which are the subject of the legal proceedings, and for that reason there was no necessity for any further exploration of the degree of overlap or conflict to take place. That representation was clearly made to me and to the Committee some two months ago. It would seem
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M r Wild: No. Two months ago, when we made that representation, it was in the context of the questions that were being posed then. The Committee was set up in June 2007, and it was only two weeks ago that we received the questions in relation to profitability, and two weeks before that, on 30th January 2008, when the question of profitability was raised, largely in the last question at the end of the hearing.
We dealt with it as we could at the end of last year and on 30th January 2008, and we are trying to address these questions in general terms within the context of High Court proceedings. We consider that the answers that we can give you and provide you with enable you, in the context of this Select Committee, to consider our response and move on from there. If you consider you are not in a position to do that, then I am sorry, that is the position that the Steam Packet faces.
The Chairm an: It is just that, until the hearing this morning, having sent you the questions in advance, and not having heard to the contrary that there was any indication of sub judice matters within those questions, we thought they would be fully accounted for this morning.
M r Wild: I apologise if you thought along those lines, but you will appreciate that we only received those questions 11 working days ago. It is not a straightforward answer to prepare a detailed response to all these questions and consider them in the context of a separate set of proceedings, and it has taken us tíme to consider a response.
As I have indicated, I would hope that you would accept that the responses we have given - or my client has given - in general terms answer the question. Your question actually ends with ‘Can you explain the main reasons?’ and that is what we have given. If you want to go down into actual detail of economics, we consider that is sub judice.
The Clerk of Tynwald: Mr Chairman, if I could, just simply for the record, record that when the question of the possible conflict between the proceedings and these investigations was first raised, it was clearly indicated to the Steam Packet Company that we would need to be satisfied as to the reasons why there would be a conflict. At that point, it was indicated that we would have a sight of the pleadings in the law suit, which would enable us to rcach a clear conclusion on that matter. That was put in abeyance because, as I said before, we were told that, on further reflection, there appeared to be no conflict.
The Committee is now being denied information which is sought without our having revisited the basic premise on which we proceeded.
M r Wild: Mr Chairman, I am sure we can revisit that basic premise off line, but you will appreciate, from our perspective, it was only 11 working days ago that we had these questions to decide our point
The C hairm an: Was the problem a lack of notice, then?
M r Wild: If it is an ongoing problem, I am not sure that not being able to answer one question on the specifics is...
The C hairm an: I think what we will do, in that case, is we will carry on and we will reflect on the answers that have been given and, if we require, as a Committee, more detail, we will certainly expect you to provide that detail.
M r Wild: Perhaps if I could just reiterate, Mr Chairman... Sorry to interrupt, but it has been the Steam Packet’s position to try and co-operate, as Mr Woodward has indicated, and, in responding to these questions, we have attempted to respond in general terms. We would hope that is enough, and suitable for the Committee, without needing to go any further in relation to the sub judice point. If not, then, yes, we can consider that afterwards.
The C hairm an: We will take this under further advice, once we have concluded.If I could move now to the next question, the significant rise in profits over the period contrasted with
a large reduction in tangible fixed assets, which one would expect to mostly relate to vessels. Tangible fixed assets fell from £43 million in 1998 to £20.5 million in 2006. Can you explain the reason for the fall in tangible fixed assets?
M r G rant: Thank you, Mr Chairman.The Steam Packet Company operates a combination of owned and leased vessels. There is a natural
cycle in investment such that, at various times, assets are purchased, revalued, sold and depreciated. Also, the value of chartered vessels is not included on the balance sheet. The tangible fixed asset base can therefore vary considerably from year to year. Also, the Steam Packet’s vessel configuration has changed
that we are now being told that there is.
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over the years to accommodate the changing levels of passenger, vehicle and freight demand.
The C hairm an: Thank you.A substantial dividend of £15.1 million was paid to shareholders in 2002, and further dividends of £6
million and £19.6 million were paid in 2005 and 2006 respectively. Do such substantial dividend payments limit the Company’s ability to make investments?
M r W oodw ard: Mr Chairman, if I could just confirm that the Steam Packet Company has both a vessel acquisition facility and a major maintenance reserve. As a result, dividend decisions are made independent to investment considerations, and are made without prejudice to our ability to meet our investment obligations under the User Agreement.
In short, the dividend payments do not in any way limit the Company’s ability to make investment as required under the User Agreement.
The C hairm an: Thank you.The Company’s total reserves increased from £10.3 million in 1998 to £68.1 million in 2006. Can you
tell us how these reserves are made up, why have the reserves increased to this level, and what benefit has this increase for shareholders and for customers?
M r G rant: Thank you, Mr Chairman.The significant movement in Steam Packet Company reserves relates to the accounting treatment for
the repayment of the securidsation debt created by Sea Containers in 2003, and is therefore neither cash or profit related. This transaction created a share premium reserve of £44.2 million. The rest of the movement related to the profit and loss and revaluation reserves. As the majority of this increase relates to the creation o f a share premium reserve, whose use is very restricted, it has no real benefit, or indeed disbenefit, for either shareholders or customers.
The C hairm an: Thank you.Would you say that the current financial strength of the Company should allow die Company to make
investments in new vessels, i.e. to purchase without too much difficulty?
M r W oodward: Chairman, as previously mentioned, the current debt facilities of the Steam Packet Company do include a vessel acquisition facility. The Company, therefore, already has funds allocated and approved for investment As soon as a suitable investment opportunity is identified, the Company is also able to react with any necessary speed to secure that opportunity.
The C hairm an: Thank you.Any follow up at this stage, Mr Turner?
M r T urner: Yes. •Would you agree that chartering vessels does not qualify as an investment, in terms of the User
Agreement?
M r W oodward: Absolutely not.
M r T u rn e r: You do not agree? Because the indication from the Department of Transport earlier - you heard their evidence - was that you had to purchase a new vessel, but how you paid for it was not their concern.
M r W oodward: I think, in terms of the Steam Packet investment, whether we lease-purchase, or whether we buy outright, really does not matter, and it makes no difference to the substance of the asset that we are acquiring. There are arguments for and against both types of methods. 1 would suggest that, obviously, ownership may be preferable in some cases. Equally, in some cases, it may be preferable to lease-purchase something and then have the ability, if necessary... If market conditions change or vessel improvements come along, you could actually then, perhaps, move to another opportunity at shorter notice than might otherwise be the case.
The T urner: But in lease-purchase, am I right in thinking the vessel would effectively be owned by the Steam Packet at the end of that term?
M r W oodw ard: That is a possibility, but it is not always the case.
M r T u rner: But a long-term charter, it belongs to somebody else.
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M r T urner: Therefore ~
M r W oodward: But the reality is, in terms of investment, that does not matter. The investment is about the Steam Packet Company spending money, laying out cash, to actually acquire assets so that you can use those assets in the business. Whether we do that in terms of a purchase or a lease charter, I do not think is either (a) within the terms of the User Agreement, or (b) makes any real difference in the real world, because at the end of the day, we are entitled to use an asset for which we are paying.
M r M alarkey: The User Agreement clearly says you must invest in a vessel or vessels £18 million.
M r W oodward: What is your definition of ‘invest’?
M r M alarkey: Purchase; certainly not leasing one!
M r W oodward: What is the User Agreement definition of ‘invest’?
M r M alarkey: This is why I am asking you.
M r W att: It is covered in the 1995 -
M r W oodward: I thought we had made that point clear already.
The C hairm an; Mr Wild.
M r Wild: Mr Chairman, I am not sure legal arguments over what constitutes investment or not is really going to take matters further. We are indicating that there are funds made available, in our view, in accordance with the User Agreement. If this is a separate issue, then no doubt we can address that off line. I do not think we are going to get challenged further.
The C hairm an: So we understand, your definition of ‘investment’ includes outright purchase and lease?
M r W oodward: Yes.
The C hairm an: That is fine; that is clear enough. That is clear evidence.
M r T urner: Yes. I was trying to get the difference between chartering a vessel from another owner, as opposed to owning the vessel yourselves.
M r W oodw ard: But there may be no difference, A long-term charter might also include an option to purchase at the end, so in that sense, they may be no different at all. There are many different ways of structuring it. I think the broad definition in the User Agreement allows us the flexibility to make sure that we get the best asset that we can.
The C hairm an: Can I ask, what recent attempts have been made to acquire new vessels, new assets, over the last two or three years?
M r W oodward: Chairman, I am happy to confirm we have been close, on several occasions, to new vessels, and I am afraid, for a variety of reasons, on each occasion we have not been able to conclude those potential purchases.
Most recently, you may have read of a vessel called the Spirit o f Ontario, which was available in North America: unfortunately, that proved to be unattainable for a variety of reasons. Equally, we negotiated for a large Incat vessel at one point, but again, because of a variety of reasons - some, I have to say, of matters here on the Isle of Man - made that decision, at the time, impossible to continue with.
Obviously, from our perspective, one of the key benefits of the User Agreement is stability, to allow us to invest, and I have to say that processes such as this one do cast very grave doubts on the stability that we ail take as part of that User Agreement process, and may, in some way, also affect our investment speed going forward, because there are obviously very important matters which need to be considered here.
M r W oodw ard : That is usually the case -
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M r T urner: But you are still bound by the User Agreement, regardless of what is going on here.
M r W oodw ard: Absolutely, but we may choose to defer that investment decision until there is more certainty over some of the issues raised. For example, early this morning, when Mr Malarkey said that you might choose to place a Government linkspan 10 metres, I think it was, from our own, which would clearly make the fact that we have a licence to site our own... User Agreement there worthless in practical terms.
M r T urner: But you would still have to invest, regardless of where we put a linkspan.
M r W oodw ard: We would certainly have to invest, but we might choose to defer that until we had resolved the issue that there was a linksparf about to sited 10 metres from our own.
M r M alarkey: This is really leading to where we are coming from: the fact that this 2004 Agreement tells us that you have to invest £18 million by 2012. We are now one-third of the way through this particular Agreement for that investment and we are now down to... After the SeaCat crashed at the end of last summer, you have been running all winter with one vessel.
M r W oodw ard: We have been running a reliable service, growing passenger numbers. Do you see that as a negative step?
M r M alarkey: You have also told us that chartering another vessel is not something you could do overnight. Luckily, the Ben has not broken down and you have not been without the vessel.
I am not seeing where your investment is coming here, when you are a third of the way through this Agreement and you are down, from what we had then, to one vessel now.
M r W oodw ard: I think we made reference earlier that investment cycles on the Isle of Man, and in this particular shipping service, are a long-term horizon. We are looking very carefully at what we do invest in, but what we do not want to do is to jump into something which is not suitable and proves to be nothing in terms of improvement for our services and for our customers.
We need to be very clear that, when we do find a vessel, it will represent a proper step forward and provide better services for our customers, and we need to be very clear that we do not simply invest because there is an intention or an expectation that we should invest sooner rather than later.
As I said previously, we have been close, on several occasions, to investing. For a variety of reasons, such as Emerald Airlines and so on, we have chosen to defer that investment.
M r M alarkey: But you found yourself in a situation this winter when you must have had to keep your fingers crossed that the Ben did not break down; otherwise there would have been no vessels on route.
M r W oodward: We would have brought one of the fast ferries out, if that were the case.
The C hairm an: I think what we are talking about must be clear, it is about investment in new vessels, replacement vessels for -
M r W oodw ard: Could I just make one ancillary point to that, which is that we are, of course, looking all the lime to make sure that we have any back-up arrangements in place, and indeed we hope to forge additional ones with other operators.
The big problem we have here on the Isle of Man is that the harbour size, in Douglas particularly, is of a size which means that there are very many vessels these days that simply will not fit, so increasingly we are forced to look further afield to secure suitable vessels, and that is something, obviously, that we intend to devote some attention to internally.
The C hairm an: You will understand the Committee is going down this route. We have had the recent announcement from your website that the biennial overhaul for the Ben my Chree has been deferred because of difficulty in finding a replacement vessel. It does beg the question, if the existing vessel broke down, what similar difficulty would you have with a replacement?
M r W oodw ard: I think the difficulty, in this particular instance, is because we are looking for a short-term replacement. If there were an incident with the Ben my Chree which was more serious than that, the reality is we would be out in the market looking for a much longer-term replacement and that is, frankly, easier to secure. The difficult is in getting very short-term charters.
The C hairm an: Thank you,
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Mr Waft.
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M r Waft: Given the constraints that you have with the search for a new vessel, Mr Woodward, would you say that financial position is not one of those constraints that you have?
M r W oodward: I would like to make it clear, Mr Waft, that the financial position is not a constraint on us.
M r Cregeen: You mentioned earlier the Spirit o f Ontario. Were you thinking of purchasing or leasing that vessel?
M r W oodward: We had funds available to purchase it, if we had chosen to do that. We had not got to that stage of deciding how it would be internally financed, but we could have done either.
M r Cregeen: It is just that it was stated that one of the three companies who were bidding for this vehicle wanted to charter, Could you confirm or deny whether it was yourselves?
M r W oodward: I am aware that one of the companies did, or could, only charter, That was not us, I do not think, no.
The C hairm an: As we move on to die next question, then, in conclusion, the additional £26 million by 2015, and £18 million by 2012, as required in the User Agreement, as a Company, you are still committed to this. The precise time you meet that obligation will be dictated by commercial circumstance. I think that is what I got from you.
M r W oodward: Yes. I would just like to make clear, from the Steam Packet Company’s perspective, the User Agreement is a contract, and it is a contract which has terms in it which we, as one party to the contract, are obliged to commit to and to uphold.That is, and remains, our intention, and has always been our intention. So I think any question that we would choose not to invest is, frankly, nonsense.
Mr Malarkey made reference to the fact that we have not invested yet. Well, until we are in brcach of the contract, which is the eleventh hour of 2012, then that remains the case but we would rather - and we said it publicly - replace the fastcraft sooner rather than later, but we must find the right one,
The C hairm an: I am only asking in relation to your earlier evidence, where you raise some doubt about the timing in relation to this enquiry.
M r W oodw ard: I was making the point that enquiries such as this and, indeed, other matters, which do affect the timing of investment decisions, are’ part and parcel of normal business life. However, notwithstanding that, I want to make it absolutely clear that we have a contract with Government to invest at a certain date and it is our intention to meet that in full.
The C hairm an: Okay. The Committee thanks you for that assurance and for reiterating that point.I must move On. The next question was in relation to turnover, which has fallen from £51 million in
2004 to £48.7 million in 2006. Over the same period, passenger and car traffic has also declined.In your submission to this Committee on 31st August last, you presented UK-IOM traffic statistics
indicating that passenger traffic peaked in 2003 but has since been in decline: 2006 passenger traffic fell to 556,000, which is the same volume carried in 2000. Car traffic peaked in 2004 at 184,000 vehicles but in 2006 had fallen to 166,000 vehicles, almost the same as in 2002.
(a) Can you suggest reasons for the fall in traffic and (b) how has the Company’s profit increased so markedly over the 2004-2006 period, whilst passenger and car volumes were falling?
M r G rant: Thank you, Mr Chairman.As in the case of question 5, we cannot answer this question in specific terms without raising issues of
suh judice. We do believe, however, that a more general answer provides sufficient information to explain apparent significant discrepancies. Before answering, we wish to clarify certain statements within the question. Unfortunately, both the Steam Packet Company and the Select Committee have relied upon an incorrect vehicle-volume figure for 2004, The correct number is 172,000 vehicles.
Volumes declined in 2004 and 2005 primarily due to Emerald Airlines entering the Liverpool to Isle of Man route with the aid of a Capacity Contribution Grant from the Manx Government - whilst the segment of the market 2005 gained considerable market share from the Steam Packet Company, but without any overall market growth. It will be some time before we may be able to win back those lost passengers.
However, in 2007 the Steam Packet Company grew passenger volumes every single month, which is
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in stark contrast to the airline passenger volumes.To accurately compare revenue in this period, turnover in 2004 needs to be adjusted to exclude
revenue from the loss-making Liverpool-Dublin route, which closed on 31st December 2004. After adjustment, comparable underlying revenues increased for the period under review. Profits for the two periods in question are not comparable, as there has been a structural change in the business, including the closure of the loss-making Liverpool-Dublin route and they both contain certain non-cash financial accounting entries. Once these adjustments are made, we believe the increase in profit simply reflects the increase in revenue over the period.
The C hairm an: Thank you very much.Just for the record, then, 184,000 figure for 2004, which was from your own figures to us, you say that
actually is 172,000-?
M r G ran t: That is correct, Mr Chairman.
The C hairm an: - which contrasts with 170,000 the previous year and 171,000 subsequent years, so it is less of a dramatic fall, then? (M r G rant: Yes.) Thank you for clarifying.
Moving now to freight questions, can I put it to you that, despite replacing two ships, i.e. the passenger ferry, King Orry, and the freighter Peveril, the Ben also represented a net freight capacity increase, yet freight rates have continued to increase. Can you explain why these ship-efficiency scale economy gains, which resulted in lower operating costs, have not brought about freight rate reductions for the Isle of Man?
M r W oodw ard: The requirements under the User Agreement, which restricts the increase in the basket o f fares to RPI minus a half percent, necessarily includes the Company’s freight charges. In contrast, rises of fuel and other costs associated with the operation of the vessels are not restricted to RPI minus a half per cent. This has been the case since 1995.
The Company has been fully in compliance with the User Agreement pricing restriction on freight charges since its introduction in 1995. Isle of Man freight charges are lower today, in real terms, than when there was no User Agreement and an unregulated market for competing freight services.
The Steam Packet is not the only provider of freight services to the Isle of Man. Previously, competitors carried 30 per cent of goods by weight. Due to Steam Packet improvements in reliability, quality and frequency of services, this figure has been reduced to 20 per cent. This is a direct result of the Company’s competitive pricing and service policies. The Company's freight charges are as much as 20 per cent cheaper than the Channel Islands' ferry routes, despite the Channel Islands1 population being almost twice that of the Isle of Man, It must also be noted that the Channel Islands’ freight rates are high, despite there being no long-term agreement, such as the User Agreement.
The competitiveness of the Steam Packet’s freight charges is adversely affected by the relatively expensive cost o f Douglas harbour dues, which are as much as three to six times higher than UK port commercial norms. The Government charges an additional freight levy on all freight movements, which could be reduced selectively if there was concern over freight rates for specific goods. Further, it should be noted that, under the terms of the User Agreement, the Company pays for the full cost of both the construction and maintenance of the Government’s linkspan, in addition to those costs incurred on its own linkspan.
While the introduction of the Ben my Chree did lead to certain economies, the fact that it sails on a 364-day, 24-hour basis means that variable costs are very similar to operating two vessels less intensively, as was the case prior to the introduction of the Ben my Chree. However, we have chosen to invest any savings from those economies by increasing the number of passenger sailings by more than 1,000 per annum than in 1996. We have also recently introduced a second fastcraft in order to provide an even more frequent summer passenger service to Ireland and Liverpool.
The C hairm an: Thank you.If I just sweep up the last four questions to do with freight, you might be able to give a composite
answer: indeed, you have partly answered.Firstly, what is the percentage proportion of revenues and profit derived from freight, relative to
revenues and profit from passengers and cars? How do you see the proportion derived from freight developing over the next five to ten years? Are the Company's profits in the main derived from freight? And the last one, I think you have indicated in the previous answer, how do you explain the fact that the Company's freight rates are so high? You may wish to just to reiterate that one, please.
M r W oodw ard: Could I just say, in starting off, that freight rates are 60 per cent cheaper in real terms than in 1985.
At the Select Committee here on 30th January we confirmed that approximately 40 per cent of the
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Company’s revenues came from freight. It is difficult to categorise profit by source as operating costs, both fixed and variable, are calculated either by category or by vessel: for example, the Ben my Chree carries freight, vehicles and foot passengers on each sailing and so all her costs would need to be subjectively apportioned amongst these different revenue streams. Therefore, different methods adopted for calculating these shared costs and overheads could lead to materially different and, therefore, misleading results. However, what is clear is that, as stated at the last hearing, an integrated freight and passenger service reduces total costs and allows the Company to offer lowest possible prices.
Rccent experience would suggest that freight volumes are likely to decrease in 2008 and thereafter stabilise, unless Government capital expenditure is increased to levels seen in the earlier part of this decade. In relation to passengers, the Company spends £500,000 per annum in marketing outside the Isle of Man. Clearly, with six million people living within two hours of the Liverpool Pier Head, the greatest growth potential is in developing visitor numbers. The growth potential for Island resident travel is more finite. Having said that, the Liverpool to Isle of Man market will have additional airline competition from April 2008 and, as a result, we forecast a significant reduction in our passenger and vehicle volumes from then on.
In summary, with these markets forecast to shrink, we expect the proportions to remain fairly constant but the overall base to be reduced in the short to medium term. Over the longer term, we would expect volumes to slowly grow from this lower base, with the proportion remaining broadly constant.
It is a fundamental misconception that freight rates are high. Prior to the User Agreement freight charges were driven by a non-regulated market which reflected the small market size, its associated lack of economies of scale and the competitive environment between the Steam Packet Company and ManxLine. The base rates for freight traffic included within the 1995 User Agreement were, therefore, a direct product of these factors and reflected.commercially normal rates that the market could sustain at the time.
Since 1995, freight rates have been reduced in real terms by more than 20 per cent as a direct result of regulation under the User Agreement. Since 1985, freight rates, as I said earlier, have reduced by 60 per cent. Freight rates on Isle of Man routes cannot simply be compared to the vastly different economies of scale on other Irish Sea routes. Other similar island routes have either higher freight routes or are subsidised.
In conclusion, we believe that freight rates are fair and competitive within the market in which we operate, have reduced in real terms in the last 13 years and are attractive to customers, as evidenced by the increase in our market share of freight traffic. At least that addresses the main points of those questions.
The C hairm an: Thank you.Just to reiterate, you believe freight rates which govern, to a large extent, passenger fares, you believe
freight rates on the Irish Sea - the routes you operate - are competitive in real terms, cheaper than in the past and competitive compared with the Channel Islands and other Irish Sea competitors?
M r W oodward: Not necessarily Irish Sea competitors because of the different economies and market size but certainly within any comparable similar-volume operators that do not have subsidies, certainly.
The C hairm an: Could I ask my colleagues if they have any questions? Starting with Mr Cregeen.
M r Crcgeen: You state that the number o f cars will be reduced because of the new air-link: can you suggest why you think the number of cars will be reduced?
M r W oodw ard: Because that is what historical numbers show will be the case. When we had Emerald competing, the fact is that airline fares were reduced to norms which were typically within sea ticket territory: the result was that people chose to fly and hire cars, rather than take their own cars, so we saw both a drop in numbers - a substantial drop in numbers - and also a drop in number of vehicles shipped, as well.
M r M alarkey: Would you not then see that as either your fares are too high, competing with the hire companies’ cars, if they can see that type of choice?
M r W oodward: There is always a dynamic between deciding to lower your fares to a certain point or simply lowering your overall revenue. We were damaged very seriously by the airline fares offered by Emerald which simply abstracted people from our services to air services and which were then subsidised by the Government. It did not grow the market overall, as was intended to be the case, and indeed we warned in advance that we did not expect they would grow the overall market.
M r G rant: Can I just add...
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The C hairm an: Would you, therefore, say that Government had treated airlines more advantageously than sea passenger vessels such as your own?
M r W oodw ard: I am not sure -
The C hairm an: Unfairness o f treatment here somewhere?
M r W oodw ard: I am not sure we would say that, Chairman.I do not think that we would have a view on whether there was a fairness or unfairness. It was simply
a statement of fact that the action taken did, nevertheless, precipitate a substantial drop in the numbers of passengers we carried.
The C hairm an: And that had a detrimental effect on the Company, from which it has not fully recovered?
M r W oodw ard: Given the way that we state the relationship, in general terms, between turnover and profit, most turnover simply goes to the bottom line. I think we have made that clear, so that took us some time to recover from. Indeed, as I said earlier, I think we may face a very similar scenario from April of this year when there is increased airline competition once again, albeit without Government intervention.
M r G ran t: Sorry, my point was... whether it is sustainable at low fares. If you take Emerald, for example, they went into administration twelve months after coming in the market.
It is all one market - the air and sea market is one - there is not an air market and a sea market. With FlyBe coming in, then you may want to consider is the pricing done in such a way for competitive reasons vis-à-vis other airlines, or is it a level of price that they believe will be sustainable over the long term?
The C hairm an: Okay.
M r Cregeen: Just earlier on you stated that you compared port charges. Was it from comparable size ports throughout the UK, or was it large ports? What size of ports did you compare your... ?
M r W oodw ard: Mr Watt, I think, can answer you in specific detail on that point.
M r W att: We do not have the data from many UK ports: we have the data from ports that we use in the Irish Sea, so in comparison with the ports that we use elsewhere. All of those ports are much larger volume ports, so there is, of course, economies o f scale for the benefit of those ports that Douglas does not have.
M r Cregeen: And have you brought this up in discussions with the Department, about their charges?
M r W att: Yes and they, of course, have responded that they suffer from the economies o f scale.
The C hairm an: Okay.
M r M alarkcy: Keeping on the turnover from profits side of the discussion, when do you envisage your 2006-2007 accounts being voiced?
M r G rant: Sorry, is that the Select Committee’s request for the 2007 accounts? (Interjections)
M r W oodw ard: The 2006-07 year end accounts will be complete in... April...
M r G ran t: The 2007 accounts will be audited in three weeks’ time, I think, actually - so we get them signed off, May.
M r Cregeen: A few points. We quite often hear people can,., while on the subject of competition on sea routes is brought up comparing to the era of ManxLine. Of course, the cconomy was at rock bottom in the 1980s in the Isle of Man and there was very little investment going on in those days. The airlines - of course, there is an open skies policy at the Airport - but, given the profits which the Packet have made over the last few years that you are talking about, surely you are in a position to compete aggressively with the airlines and play them at their own game?
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M r W oodward: It is a view you may take. I think we prefer the view that there should be some stability in the market.
I think that the public will thank neither the Steam Packet nor the airlines if we were simply in a period of spiralling priccs, where we all slash prices and then, when somebody went to the wall, we all hike prices up. That is not what we are about. We give a level of certainty and consistency and we have, as I said earlier, lowered the average price of travel substantially and consistently in the period since the User Agreement has been in. I think that is what we are about.
M r Crcgeen: You also talk about your competitors and their volume of freight has decreased because of the high level of service that you can offer. But would you not agree that your competitors cannot use similar ships to what the Steam Packet have available to them and, therefore, they are restricted as to what cargo they can carry bccause of the types o f ships that can come into the ports i.e. they do not have the availability of ro-ro?
M r W oodward: I do not think we can, or should, comment on our competitor’s abilities.
M r Cregeen: But is it fair to say there is no other facility for them to unload a ro-ro vessel, therefore they are restricted as to what vessels they could use in Manx ports?
M r W oodward: There are two harbours and two ro-ro facilities in Douglas Harbour
M r Cregeen: Which are unavailable to other users.
M r W oodward: There is limited use of them.
M r M alarkey: You will be aware that the Ronaldsway Airport charges are also probably three times higher than other areas, so the airlines are under the same problems as what the Steam Packet are, for the same reasons of quantity o f travel, so they have to compete in an open market even like the Steam Packet does with higher port charges.
M r W oodw ard: It is an entirely different business in terms of capital-intensive nature. You charter an aircraft at short notice: if it does not work, you charter it out somewhere else. Ships do not work like that. We have to look to the long term.
The C hairm an: Mr Waft, a final question,
M r W aft: You said that the present Company owners were in for the long haul - and judging by their profit margin they probably are! - but have you any other indications to indicate that this Company is going to be here for a length of time?
M r W oodward: I think Macquaric have a history of asset-rctention, certainly to date. I think there is only one company I am aware of that has been disposed of and that was in fairly unusual circumstances. The type of business they operate is a business which only stacks up and makes sense if they are committed in the longer term bccause that is the type of business that their investors require. So I think, from a personal notion, we certainly have those assurances locally that they are here for the long term and want to make sure that this becomes, and remains, an important company in the Isle of Man.
The C hairm an: Prof. Baird.
Prof. B aird: I am not entirely sure you have answered the question explaining why profits have risen so high at the same time as passenger volumes have declined and the competition that existed in the passenger market... These increased profits must have come from somewhere and if it is not the passenger market, where could it have come from?
M r G rant: Is this the 2000 to 2006 period?
M r Baird: Well, actually, profits have risen from 2000 to 2006, yes.
M r G rant: I would refer you back to the previous answer which I am sure I will get from Hansard.If you wish me to summarise it, it is to do with a structural change in the business by the termination
of a loss-making route. It is to do with non-cash financial accounting entries. When you actually strip those out, the underlying profits have increased by revenues. There has been a revenue increase over that period.
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M r W oodw ard: Just for the sake of making it clear that the Liverpool-Dublin service, which was a loss-making service, had the double effect of both depressing profit - so, by taking that out, you automatically increase profit - but also of inflating revenues, because there was a revenue turnover element attached to the profit - or loss in this case - that it generated. So you have both taken off turnover by reducing the service, but also increased profit because you have reduced the loss element from those accounts - so that is part of the phenomenon you see.
M r G rant: Sorry, there was a third benefit: it actually allowed us to focus more on the Isle of Man routes and gave us greater frequency off- Island,
The C hairm an: Do you attribute that as the principle reason for the rise in profit, then?
M r G ran t: No, I am saying there is that plus revenue increases plus the non cash financial accounting entries.
M r W oodw ard: Can I just add, Chairman, there is also the cyclicality of investment, which is not being considered here.
We are towards the end of an investment cycle where, as Mr Malarkey made reference earlier, we are obliged to commit to invest before 2012. Once we get towards that period and that investment is made or, indeed, if that investment was made tomorrow, our returns would then take a big dive and that would be quite normal within the industry in which we operate and would then slowly build up over a period of time, all other things being equal, until we next had to invest.
The C hairm an: Thank you. Mr Cregeen.
M r Cregeen: You said earlier about Macquarie have a long-term strategy for keeping with companies. Can you confirm how much of the Company Macquarie purchased and how much they have now of the Company?
M r W oodw ard: Sorry, I am not sure I understand the question.
M r Cregeen: How much of the Company does Macquarie own, because you have said it belongs partly to pension funds?
M r W oodw ard: I think we would need to actually give you detailed information in terms of corporate structure because it is quite complex. I think what you are trying to get at is what Macquarie, on its own, in terms of its share of the Steam Packet Company.,, because there are different companies involved there. Is that something we can provide to the Committee?
M r M alarkey; We need to know whether it is more than 51 per ccnt or less than 51 per cen t
M r W oodw ard: Yes, I understand the question now. W e would need to actually provide that for you and we can do that via our advocates after the meeting.
The C lerk of Tynwald: Could you confirm that having transferred the Steam Packet Company into a New Manx Vehicle, the accounts will still be available at the UK Companies Registry?
M r G rant; I would need to take some legal advice on that as to whether or not there is still a filing requirement from a UK perspective.
The C lerk of Tynwald: That is in doubt?
M r W oodw ard: I do not think we know the answer to that.
M r G ran t: It is just that I need to take legal advice.
M r W oodw ard: What I can confirm is that we have not done it for reasons -
M r G ran t: So what you are saying is that wasn’t the purpose...
The C lerk of Tynw ald: Regardless of the effect?
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M r M alarkey: Would the Company be willing to let this Committee have a copy of last year’s accounts?
M r W oodward: W e have said that we would provide audited accounts per the request from the Committee and that we will provide those via our advocates.
The C hairm an: Thank you very much, gentlemen. We appreciate your time with us and the way you have answered the questions. It has been of great assistance to the Committee and we would like to thank you all very much for your attendance this morning. {Interjection by Mr Malarkey) I 'm sorry, I have brought this session to a close now. Further questions will be in writing.
Thank you very much.
The Committee adjourned at 12.57p.m.
M r W oodw ard : I do not know. That is speculation.
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APPENDIX J
Isle of Man Steam Packet Company
Group Structure
Company Structure
GROUP STRUCTURE
Macquarie International Investments PTYI
MIOM 2 Limited Co No 114788C
Macquarie European Cbus NSW State Public OfficesInvestments Pty Ltd Super Superannuation Fund
Steam Packet Group International Holdings Co No 110V. ISteam Packet Group Holdings Limited Co No 111V
IMIOM Limited Co No 114530C
MIOM1 Limited The Steam Packet Group LimitedCo No 114787C Co No 2091V
ISPC Limited Co No 2090V
IIsle of Man Steam Packet Holdings Limited Co No 2093V
IThe Isle of Man Steam Packet Company Limited Co No 2092V
Steam Packet Holidays Limited Co No 038487C
Manx Sea Transport Limited Co No 001899C
STEAM PACKET DECISION MAKING STRUCTURE
The Isie of Man Steam Packet Company Limited ("Steam Packet” or the “Company”) Is a localfy managed and
controlled, Isle of Man registered company. The decision making structure is made up of two main bodies, the Board
of Directors and an Executive Committee. A Supervisory Board provides, when requested, a supporting advisory role.
Board of DirectorsMark Woodward (CEO)
Oouglss Grant (CFO)
Simon Edssll (Macquarie)
Joe Bcyta (Macquarie)
Major décisions referred lor
Dpproval
Executive Committee / Supervisory BoardMartt Woodward (CEO) Juan Kelly
Douglas Grant (CFO) y Robert Quayie
Simon EdaaB (Macquarie) •4------------------- Hamlsh RosaAdvisory Role
Joe Boyte (Macquarie) J Dursley Stolt
Stuan GarrcU (HR Director) Waiter Gilbey
John Watt (Commercial Director)
The Steam Packet Board consists of four directors, the Steam Packet CEO and CFO, and two Macquarie appointed
directors. The directors are all also members of the Steam Packet Executive Committee ("£x Co") and are party to all
decisions made at that level under the functions delegated to the Ex Co by the Board. Meetings are held periodically
throughout the year and are responsible for ensuring adherence to appropriate statutory requirements, as well as
approval of all key company decisions and financial plans. As the Board consists of four directors who are also
members of Ex Co, Ex Co proposals and plans would normally be ratified and adopted by the Board, however,
ultimate control of the Steam Packet rests with the Board of Directors.
The Executive Committee
Ex Co is a decision-making body under its delegated functions. It consists of four, Is/e of Man based. Steam Packet
senior executives and two Macquarie representatives. A majority of the members are Isle of Man based. The
Committee meets bimonthly in Douglas, executes all the day-to-day operational decisions delegated to it and
develops all key financial and commercial plans of the Company for Board approval.
The Steam Packet Supervisory Board currently consists of five Isle of Man based, ex non-executive directors.
Meetings are held on an ad hoc basis in Douglas, and ore also attended by Ex Co members. The Supervisory Board
is not a governing “Board" according to the generally accepted financial definition, as members do not have
executive roles and act as advisors to the Company.
Company OverviewCompany Structure
Group Structure The isle of Man Steam Packet Company is the operating entity, with a majority of loM based directors
Debt is held in MIOM Limited, with SPGIH L the top-co responsible for ail “Board Reserved Matters”
Note: Holdings of all entities are 100% unless otherwise specified. Shareholdings as at 30 June 2008
STEAM PACKET DECISION MAKING STRUCTURE
The Isle of Man Steam Packet Company Limited ("Steam Packet” or the “Company”) is a locally managed, Isle of Man registered company. The decision making structure is made up of two main bodies, Ihe Board of Directors and the Executive Committee.
Board of DirectorsRobert Quayle (Chairman) —%
Mark Woodward {CEO)Kit Pemberton >
Dyson Bogg (Macquarie)Simon Edsall (Macquaric) J V
Major decisions referred for approval
Executive CommitteeMark Woodward (CEO)Simon Edsail (Macquarie)Dyson Bogg (Macquarie)Stuart Garrett (HR Director)John Watt (Commercial Director)David Findlay (Director of Marketing & Communications) J
Board of Directors
The Steam Packet Board consists of five directors, the Steam Packet CEO, two Non- Executive Island based Directors and two Non-Executive Macquarie appointed directors. Meetings arc held periodically throughout the year and are responsible for ensuring adherence to appropriate statutory requirements, as well as approval o f all key company decisions and financial plans. Executive Committee proposals and plans would normally be ratified and adopted by the Board, however, ultimate control of the Steam Packet rests with the Board of Directors.
Executive Committee
The Steam Packet Executive Committee is a decision-making body under its delegated functions. It consists o f four, Isle of Man based Steam Packet senior executives and two Macquarie representatives. A majority of the members are Isle of Man based. The Committee meets bimonthly in Douglas, executes all the day to day operational decisions delegated to it and develops all key financial and commercial plans of the Company for Bbard approval.
CommonMembers
WS: 1041277_ !
/
APPENDIX K
Submission by Prof A J Baird
Transport Research Institute
Napier University
TRANSPORT RESEARCH INSTITUTE
SELECT COMMITTEE ON THE ISLE OF MAN STEAM PACKET COMPANY
SUPPLEMENTARY COMMENT/REPORT
BY
PROFESSOR ALFRED BAIRD, ADVISOR TO THE COMMITTEE
Submitted: 26 August 2008
Transport Research Institute Napier University Edinburgh, UK EH10 5DTTel: +44 131 455 2809e-mail: [email protected] Web: www.tri-napier.ora
1. Introduction
Subsequent to its various Hearings, the Committee asked me as Advisor to comment independently on a number of the issues raised, particularly in relation to matters arising when the Steam Packet Company (SPC) and the Department of Transport (DoT) gave evidence.
The Committee's inquiry has raised a number of issues. Investigation and analysis of ferry services is inevitably complex, particularly as there are invariably many distinct factors associated with specific ferry markets, giving each market certain unique characteristics. Amongst other things it is these unique characteristics that need to be identified and explored.
What I have sought to do here in this Supplementary Comment/Report is to focus on specific issues that I consider to be of high-level strategic significance, also taking into account the Committee's remit.
The specific issues considered are as follows:
■ User Agreement■ Pricing■ Regulation■ Steam Packet Company Ownership
A short summary covering each of the four areas is shown in bold at the end of each section.
2. User Agreement (UA)
(a) Uniqueness of UA
The UA essentially provides for/licenses a monopoly over ferry service provision to/from the Isle of Man. However, what is immediately noticeable (in the Isle of Man context) is that there is no tender process to select a ferry service provider.
The use of tenders to select an operator is normal practice now throughout Europe, especially where essential services connecting islands are concerned. Even in the Channel Islands, an international tender is used to select the ferry operator, despite the fact there is no subsidy involved.
There are a number of benefits to be derived from competitive tendering, including:
■ State agencies can stipulate minimum service levels and various other conditions and requirements;
■ Regular re-tendering (e.g. every 6 years is now the norm) permits state agencies to select the best service provider amongst different bidders based on set criteria at a given point in time;
■ Tendering ensures that several service options might be considered and evaluated as opposed to only the current arrangement whereby SPC is perhaps assumed to offer the
• optimal service option, which may or may not be the case (but in any event this cannot readily be ascertained without some form of competitive test which a tendering process provides).
A weakness within the current UA is that it therefore ignores other potentially superior industry offers that might come forward from the (ferry) market. Superior offers could include, for example, different ships and/or other service innovations (e.g. frequency, scheduling, pricing/islander discounts, reliability, quality, flexibility, etc).
Only an open transparent tender process would be able to test whether or not the current service offering is indeed the best available. The present UA by contrast basically provides SPC, which is today a foreign-owned concern, preferential treatment by inviting it into a negotiated agreement, thereby giving SPC preferential treatment (in regard to the wider ferry service provider market) and its monopoly position (in return for set service levels and agreed specification).
A further unique factor relates to the particularly long term nature of the UA, which essentially protects the position of SPC over very lengthy time periods through giving it a high degree or certainty of income (more especially related to earnings from freight, as noted below). Associated with this, SPC has been motivated to regularly seek extensions to the UA, which in turn serves to further strengthen the Company's protected position in the market over the long term.
(b) UA Amendments and SPC Value
In recent years the timing of UA extensions appears to have occurred close to the time of subsequent resale(s) of the Company. The main purpose of amendments has been to secure an extension to the time period of the UA. Such extensions have the effect of further strengthening the monopoly provider's position in the market over the long term. In turn this practice tends to have the effect of inflating the value of the Company to a level many times greater than the value of its assets, thereby favouring the seller.
It would appear that, certainly over recent years, successive owners of SPC have been employing this strategy (i.e. regular UA amendments/extensions) to help ratchet up the Company's sale price. A Supplemental Agreement was finalised in February 2002 when the Company exercised its option to extend the Licence Period from 2005 to 2010. One year later, in 2003, Sea Containers sold SPC to Montagu Bank for £142 million. By further Agreement in December 2004, the Licence Period was further extended from 2010 for a period of ten years to 2020, with an option to extend for a further six years (i.e. until 2026). One year later, in 2005, Montagu sold SPC to Macquarie Bank of Australia for £225 million. So, in two consecutive instances the Company has been sold on just one year after agreed extension to the UA.
These two sales represented gains for their respective owners (i.e. first Sea Containers, then Montagu) of approximately £50 million and £83 million respectively. These very substantial financial gains have not occurred due to any major alteration in the company's asset base. The substantial increases in the re-sale value of SPC can only be due to one factor, that is the extended UA and hence longterm monopoly, which in turn guarantees to private equity funds/buyers what is considered to be a consistent, reliable, relatively risk-free income stream. In other words, the market value of SPC is to a very large extent dependent on the UA.
The User Agreement (UA), which functions as a guarantor of ferry service provision, appears to be unique to the Isle of Man. This may have been an appropriate mechanism in 1995, when SPC was still in part under local and UK ownership, and island ferry services were encountering some difficulty. But times have changed, as has the ownership of SPC, the company now being owned by an Australian bank.
Competitive tendering, which is now a standard approach to island ferry operator selection, could help bring about a more optimal solution in terms of overall ferry service provision, perhaps even resulting in more modern vessels being deployed as well as service enhancements. Conversely, the continuation of a single 'negotiated agreement' between the DoT and one foreign-owned ferry service provider may not be the most optimal solution. Competitive tendering could include safeguards for SPC employees, especially those based on the island, with employees transferring to any new operator (as was the case with the P&O Scottish Ferries/Northlink Ferries transfer in 2 0 02).
Extensions to the UA have tended to be closely followed by an early subsequent sale of SPC. Such extensions have had a materially significant impact on the re-sale value of SPC. This also implies that a great deal of the value of SPC (probably in excess of 50% , given the limited asset base) is due to the existence of the UA. This in turn implies that the UA, which is ultimately in the gift of the Isle of Man Government, has a current economic worth somewhere in excess of £100 million. This 'gift' or 'asset' perhaps deserves more careful consideration than it currently receives, particularly from the relevant authorities who are awarding it.
3. Pricing
(a) Passengers
Online analysis of passenger and accompanied car prices charged by SPC finds them to be broadly comparable with prices on several other Irish Sea routes and/or routes involving similar sea distances. This fits with the views of TravelWatch that overall pricing in the passenger market was not really an issue.
The pressure on SPC to maintain competitive pricing for passengers is a function of the competition with air transport, which has become more intense. Improved airline pricing added to questions over the reliability and quality of SPC's somewhat dated fast ferries is likely to be the main reasons why the passenger ferry market has remained rather static over recent years.
However, there is continued concern about passenger pricing during the TT period. At such times, vessels are running virtually full and SPC appears to apply its highest tariffs. Although this is well within the terms of the User Agreement, it still means that many people coming to the island at such times may feel rather discriminated against. For most of these travellers air transport is not an option so they represent a somewhat captive market. The issue for the Isle of Man relates to whether or not relatively high transport costs during TT period dissuades travellers from coming to the island, and what might be the longer term implications of that.
(b) Freight
The Committee has found evidence that SPC's profits over recent years have been significantly higher than what might be regarded as the 'norm' for the ferry sector in Europe. With the possible exception of TT periods, such high profits are unlikely to be derived from passenger traffic, considering the competition in that sector of the business from air transport, in addition to static passenger and car volumes. SPC's high profits over recent years can only therefore be due to earnings from freight.
Haulage firms together accounting for well over 50% of SPC's freight traffic complained to the Committee about high freight rates. The Committee has obtained evidence that SPC's freight rates per trailer are between three and perhaps as much as four times greater than freight rates on other Irish Sea ferry services. This outcome, the Committee has noted, is entirely the opposite from the situation in the competitive passenger market, where SPC's
pricing is broadly similar to that of other Irish Sea ferry services and over comparable sea distances.
The Committee may also care to note that SPCs freight rates (i.e. about £750+ per trailer) for a 70 mile sea crossing are higher than current freight rates for long-range North Sea crossings (e.g. typical rate is £450-650 per trailer on Tees-Zeebrugge and Rosyth- Zeebrugge), the latter involving far longer sea crossings of between 300-400 miles (i.e. 16-20 hours at sea).
The rather obvious conclusion from this is that SPC freight rates are high primarily because there is no competitive pressure in the freight market. Neither is there any regulatory mechanism in place that would enable freight rates to be reduced to more satisfactory levels. Indeed, the UA as it currently stands actually allows for freight rates to rise even further, year after year.
However there are also likely to be other influential factors that explain why SPC has been able to derive high levels of profit from the freight market. These include:
■ Benchmark freight prices were set in 1995 by the initial User Agreement at a time when overall ship operating costs were high and efficiency was poor (e.g. separate small and elderly passenger and freight vessels), and the freight market relatively static;
■ Introduction of Ben My Chree in 1998 provided far more freight capacity than the two/three vessels she replaced, and this single event will have transformed the SPC cost base. These (operating) cost savings/efficiencies have not been passed on to freight customers in the form of lower rates;
■ The freight market over the last 10 years has increased by more than 50%, a consequence of the rise in population, greater consumption, and an increase in building activity etc. Combined with high and rising freight rates and lower operating costs (compared to pre-Ben My Chree vessels), a substantial rise in traffic volumes will have therefore had a major positive effect on total freight revenue and net income from freight; and,
■ Rather than helping to facilitate freight rate reductions, reflecting the lower operating cost base thanks to improved ship efficiencies, the User Agreement mechanism has instead permitted SPC to continue to raise freight rate levels year on year (albeit in 'real terms' they may have actually reduced a little).
SPC freight rates are clearly excessive, a consequence of its monopoly position courtesy of the UA, aided by significant post-1998 ship efficiencies, and the absence of adequate pricing controls. Freight rates could probably be reduced substantially (i.e. perhaps even by as much as 5 0 % ), yet still leave the Company with higher than industry average profits.
4. Regulation
(a) Monitoring
There seems to be little if any monitoring of SPC financial accounts, the DoT stating that this is not considered a matter for government. Yet monitoring licensed 'lifeline' or essential ferry service operators' financial accounts would seem to be a fundamentally important matter, especially considering the significance of SPC services to the island's community and economy, in addition to the significant value the UA itself confers on the SPC and its owners.
The DoT does not appear to maintain minutes of meetings with SPC. This needs to be addressed, particularly where issues relate to the UA.
b) Price mechanism
The general condition that price increases are based on the annual increase in the Manx Retail Price Index less V2% ignores potential to achieve ferry service operating cost efficiencies (as highlighted above), and hence to bring about price reductions. Importantly, the UA provides no incentive or requirement for price reductions in the freight market. Conversely, an open competitive tender designed to select a ferry operator would be expected to generate commercial impetus towards more competitive pricing.
The Committee may consider that the DoT needs to improve its monitoring of SPC financial results, as well as maintaining a better record of official meetings with the Company, more especially where such meetings consider the UA.
In addition, the potential advantages and disadvantages of selecting a service operator via an international competitive tender, compared with the current UA arrangement, could be further explored by the DoT.
a) Equity fund strategy
SPC is owned by Macquarie Bank via its (private equity) European Infrastructure Fund II. With an unlisted fund like this Macquarie will raise its capital from institutional investors, then uses that money to shop for assets that fit the fund’s description. So it is basically using institutional investor's capital in order to buy established firms.
Historically, equity funds moving into ferry shipping have placed heavy emphasis on consolidation to help repay the investment. Very few newbuildings, if any, have been contracted. Very few routes, if any, have been established by these finance-focussed entities.
For each fund it creates, Macquarie is paid base fees for asset management plus a performance bonus. Macquarie is nicknamed "the millionaires factory" because of the very high bonuses it pays. Such funds to a very large extent therefore depend on high financial returns achieved either through an acquired company's profits, and/or through subsequently selling the acquired company on to another buyer at a considerable gain.
Generally the existing senior management of the acquired ferry company remain in place even after takeover by an equity fund, and this was more or less the case with SPC. Equity fund managers are just that, they are not ferry company managers and they therefore depend on the existing ferry company managers to continue to manage the actual business itself.
This raises another question, and that is, what added value do equity fund managers bring aside from buying and selling firms and extracting profit?
(b) Implications of equity fund ownership
Service users
The somewhat inflated value of SPC, reflecting the economic worth of the long-term UA, will in practice be least positive for service users. In the case of SPC this is more especially related to freight customers. Equity fund managers will insist on maintaining high profit as that is essential in order to cover the high initial cost of the acquisition. In the case of SPC, high profit levels can only really be maintained through high freight rates, this being possible in large part due to the absence of competition in the freight market.
5. Steam Packet Company Ownership
However, this alsot implies that the Isle of Man freight transport logistics sector is paying the price for the inflated SPC purchase price paid by Macquarie, and before that by Montagu. Of course, this also means that the real cost of the UA is being met by the Isle of Man economy, its producers and consumers.
Future investment
Once it has acquired a company, the private equity owner may be less than interested in making additional investments in expensive assets (e.g. ships, or port facilities). Its primary focus will be on recovering the already significant investment made in acquiring the company. Evidence the Committee has obtained in relation to SPC's somewhat problematic ship in vestment/replacement strategy seems to reflect this.
For instance, the failed attempt to acquire Spirit of Ontario, a nearly new high-speed ship that was available for purchase at around half the newbuild cost, appeared to fail due to the fact SPC would only offer to charter the vessel rather than buy it. This approach is likely to have been due to pressure at the time from the bank not to purchase the ship. Similarly, it is believed that fast craft builders have offered SPC new and attractive vessel options but SPC has been prevented from purchasing a more expensive newbuild because its owner, the bank, is forced to focus on maximising short and medium term returns.
Subsequently, instead of acquiring a new or nearly new fast craft, SPC received permission from the bank to acquire a second-hand 10-year old vessel and to upgrade it.
It is probable that a similar degree of pressure is placed on SPC by the bank not to invest in shoreside/terminal facilities.
Private equity fund ownership of ferry lines needs to be considered with a degree of caution, especially with respect to future investments in vessels. The imperative to maintain high and sustained profit levels, essential to repay investing institutions for the high/inflated upfront acquisition cost of SPC, in addition to management and bonus fees for Macquarie, implies considerable pressure will be placed on ensuring an absolute minimum of further capital investment is made (e.g. in ships).
This implies the bank may not be able or willing to consider long-term aspects commonly associated with investment in ships (e.g. ship depreciation over the operating lifetime of
the asset). This in turn helps to explain the strategic approach adopted by SFC with respect to its recent second- hand fast craft acquisition, the Company eschewing other potentially more attractive newbuild opportunities in the process.
Furthermore, as was also evident with former owners Montagu, with private equity ownership there is always going to be the possibility of a further sudden disposal of SPC. For example, should SPC profits fall below a certain level, or if the value of SPC were to rise (e.g. through further UA amendments), that could be the trigger for Macquarie to sell the Company on again.
A key question here relates to whether or not private equity fund model priorities are compatible with, and/or appropriate to, essential island ferry service operations like the kind maintained by SPC. The evidence presented to the Inquiry and the findings of the Committee rather suggests it may not be.
APPENDIX L
Consultation Responses
SELECT COMMITTEE COMMENTS TO COMPANY DRAFT REPORT RESPONSE
Reference
First page
2.22.63.43.63.73.113.12
55.25.35.66.56.6 77.28.38.68.79.49.59.79.9 10.210.310.910.1311 and 12 11.612.13 12.1613.314.114.215.1 a/b15.1 e/f15.1 h 15.1k15.215.315.4 15.8g15.9 16Appendix A Appendix B Appendix K
Action
bullet points relevant to purpose of User Agreement included at 2.1bullet points relevant to Company’s view o f benefits included at 14.2report amended to clarifynoted and report amendednoted and report amendednoted and report amendednotednotedreport clarified on meetingsreport already includes Company’s response to Travelwatch submissionnoted and further detail providedtext amended to take note o f commentsshould refer to 5.4 text amended to include Company’s commentsnoted and amendednoted and amended to clarifynotednoted and amended to include Company’s commentnotednotednotednoted and amended notednoted and amended noted and amendednoted and amended to include Company’s commentnotednotednoted and amendednotednotednoted and amendednoted and amended to clarifynoted and withdrawnnoted and amendednotednotednoted and amendednotednotednoted and amended notednoted and amended, updated Company structure appended at Appendix Jnoted and amended to include Company’s commentnotednoted and amended notedtravel dates confirmednotednoted
RESPONSE TO THE FIRST DRAFT REPORT OF TYNWALD SELECT COMMITTEE DATED
OCTOBER 2008
This note responds to the first draft report of the Select Committee on the Isle of Man Steam
Packet Company dated October 2008 ("Draft Report") and adopts the numbering in the Draft
Report for ease of reference. Certain of the responses are of a more substantive nature and for
ease of review these responses are highlighted in bold whereas points of a more typographical or
less substantive nature are in normal type.
Before addressing the detail of the Draft Report, IOMSPC request that consideration is given to
plainly setting out the benefits and ethos behind the User Agreement in the introductory section of
the report. Although reference is made to the presentation by the DoT (which appeared to deal
with this point) no real detail is provided in the Draft Report. It is considered important that the
reader is referred to the benefits not least;
• The secure lifeline for the Isle of Man
• Dependable year round service for both passengers and freight
• Commitment to utilisation of more expensive fast craft services
• Regulated fares and many special offer opportunities
• Service level commitments
• Investment commitments to infrastructure
• Avoidance of a cycle of "competition/ company failure/unregulated de facto monopoly"
which is a feature of the local airline services
• The number of passenger services has doubled since the User Agreement was introduced
• Commitment to expenditure in the community
• 2.2 We do not take issue with the substance of paragraph 2.2 as it correctly
characterises the fact that the Isle of Man Steam Packet Company Limited (IOMSPC)
only retains near exclusive use of the two linkspans in Douglas Harbour. We do
however consider that the use of the word "monopoly" as a heading could be highly
misleading. This could wrongly give the reader the impression that the User
Agreement itself creates a monopoly which is inaccurate. The User Agreement does
not provide IOMSPC with a monopoly for passenger and freight services, as
indicated in the text at paragraph 2.2, it oniy creates almost exclusive use of 2
Quinn Kneale Ref: JJW/IOOO 1*142Page 1 o f 26
linkspans. Equally the IOMSPC does not have a "monopoly situation" over the
linkspans. Monopoly can be defined in a number of ways but it can be legally
defined as follows:
a) a right granted by a government giving exclusive control over a specified
commercial activity to a single party; or
b) the abuse of free commerce by which one or more individuals procure the
advantage of selling alone all of a particular kind of product to the detriment of
the public.
The IOMSPC accepts that it has near exclusive use of the iinkspan but does not
accept that it is factually accurate to assert it has been granted a monopoly as a
result of the User Agreement. We therefore request that the heading is amended to
more accurately describe the effect of the User Agreement, namely to "Use of the
existing Douglas Harbour Linkspans".
It is also factually incorrect to state that "the effect of the User Agreement was to
create a monopoly situation for the IOMSPC"; again we request the wording is
replaced with "near exclusive use"
Finally, it would be more accurate to state that the User Agreement provides the
company with almost exclusive use of both linkspans as some alternative use is
permitted by the UA.
We consider that the resume of the statement by Mr Callin is inaccurate. As can be
seen from the transcript at line 60 EPSPC231107, Mr Callin advised the Committee
that proceedings had recently been commenced in the High Court of Justice but they
were in their infancy. The IOMSPC had a concern that there may be a contempt of
the High Court if questions relevant to the High Court proceedings were answered.
Some if not all of the Select Committee inquiry might be considered to be sub judice
as far as the High Court is concerned. In the circumstances we requested an
adjournment to allow time for both the IOMSPC and the Select Committee to
consider the potential impact of the High Court proceedings. We appreciate that
thereafter the Select Committee requested that IOMSPC made an application giving
Quinn Knealc Ref: JJW/10001-I42Page 2 o f 26
leave to disclose to the Cleric of Tynwald all pleadings or affidavits. This was not
however the requested purpose of the adjournment. The second sentence should
more accurately read "he requested an adjournment of proceedings until the 30th
January 2008 by which time it was anticipated that the question of sub judice could
more accurately be determined and the potential impact of the High Court and the
Select Committee process could be properly considered". There was never any
prospect that the High Court proceedings would "determine" any potential conflict in
advance of the 30th January.
3.4 IOMSPC note that a number of submissions from individuals and
organisations are referred to within this paragraph. To ensure that the
reader of the report is aware of the relative statistical value of 106
submissions from individuals and organisations, it is imperative to identify
at the outset the number of individuals and organisations who utilise the
IOMSPC services compared to the level of responses. We therefore
respectfully request that the numbers responding are set in the proper
factual context along the lines of:
"We received 106 submissions from individuals and organisations; this has to be seen in the context o f the figures provided by the IOMSPC that 600, OOO passenger journeys per annum are undertaken.
The Committee also received 8 submissions from organisations in the
freight industry this has to be seen in the context o f the figures provided
by the IOMSPC that there are 231 direct fre ight customers and many hundreds o f indirect freight customers such as Tesco and other large fre ight users*
IOMSPC consider it is extremely important that the reader of this report
recognises the fact a statistically unrepresentative number of persons
have responded, especially when it must be accepted that virtually every
resident individual and organisation utilises the IOMSPC services and
indeed many thousands of non-resident and non-resident organisations
also utilise its services.
Quinn Kneale Ref: JJW /I000M 42Page 3 o f 26
3.6 Whilst we note that the Select Committee are merely reciting the issues
raised by freight users, we believe that it is extremely important that it is
made clear within the context of this report that items a, b, d, e, are not
matters which are addressed in detail in this report as they are outwith
the remit of the Select Committee. It should also be made clear that the
IOMSPC does not accept any implied criticism from the issues raised by
freight users, but has not sought to respond directly to the issues raised as
IOMSPC were not questioned on these issues as they do not fall into the
Select Committee's remit.
It is stated that "all freight users consider there are very high freight
rates../'. In order that the reader is not misled by the comment, we
request that the words "w h o re sp o n d e d to th e S e le c t C o m m itte d ’ are
inserted.
We request the Committee considers the factual basis upon which it is
asserted that 8 freight responses represent over half of all freight traffic
carried by the company. As we have already indicated, there are 231
separate direct freight customers and many hundreds more indirect
freight customers and IOMSPC do not accept that the 8 who responded
can accurately be described as representing "half of all freight traffic". We
would be grateful if you could provide the evidence which was utilised to
support this comment
3.7 The first sentence indicates that the number of passenger responses is
"comparatively low..." With respect, we consider this is factually incorrect
as the number of passenger and freight responses are in the region of
0.01% for passengers and between 1 and 3.75% for freight users,
depending upon how the total number of freight users are calculated. By
any standards this constitutes an extremely low number of responses
compared to users. We therefore request that to avoid misleading the
reader the word "comparatively" should be replaced with the word "very"
or "extremely".
Quinn Kneale Ref: JJW /I000M 42Page 4 of 26
3.11
3.12
It is noted that the presentation referred to was made in private and we
have separately requested a note of the private meeting. IOMSPC's
position in any event is that the DoT do have an ability to exert influence
over the formula for special fare discounts but of course cannot say
whether this recital is an accurate reflection of the presentation as
documentary support is not available at this stage. If it is an accurate
reflection, then a note to the effect that the IOMSPC consider the DoT
have the ability to assert influence over the formula, should be added.
We have already commented upon the fact that private meetings were
arranged by the Select Committee with the Department of Transport and
separately with the small group of people calling themselves TravelWatch.
IOMSPC has requested an explanation of the reasons for meeting these
parties in private and a copy of the minutes recording the decision to meet
in private. IOMSPC were advised that the private meeting was to explain
the background and purpose of the TravelWatch and that "no questioning
was posed in pursuance of the remit of the Select Committee. With
respect, if the questions were not in pursuance of the remit of the
Committee why was TravelWatch even questioned if it is irrelevant to the
Select Committee's remit? The background and purpose of TravelWatch is
relevant, not least to the weight that might be appropriately given to their
submissions. IOMSPC are now not in a position to address or counter the
perceptions the Committee have formed about TravelWatch as there is no
public record of the meetings that took place and no ability to respond to,
for example, adverse statements that may have been made about IOMSPC
by TravelWatch. IOMSPC reiterate their request for a record of the
meetings - preferably a copy of the transcript so that they are fully aware
of the matters that have influenced the Select Committee in the
formulation of the Draft Report.
The final public comment from reference 13NI Resident provides no
analytical benefit for the Draft Report and is sensationalist in tone. It is
requested that this reference is removed, as its only possible value is to
unfairly undermine IOMSPC.
Quinn Kneale Ref: JJ W/IOOOM42Page 5 o f 26
As a general comment, IOMSPC are concerned that there appears to be a
misunderstanding regarding the information that was being portrayed in
the 2006 and earlier brochures. The brochures set out the timetable of
sailings and identified each sailing with a banding reference. For example,
at paragraph 5.1 it is stated "the brochure shows a defined fare
structure...", in reality however this was not a defined fare structure but
actually a maximum price for any sailing. As we have previously
indicated, this maximum price was generally only paid by a very small
percentage of paying customers and therefore provided an erroneous
impression of likely fares paid1. Indeed, virtually all other transport
businesses quote the price from the minimum price that would be charged
for the first few seats available. The travelling public are very familiar
with this approach and there is great concern that if maximum rates are
published, these will be wrongly compared with other destinations
thereby potentially substantially affecting the number of persons who may
choose to travel to the Isle of Man as opposed to any other destination.
5.2 The final paragraph states "The examples show that the structure makes
dear to passengers the band for particular sailings and provides the
opportunity to select sailings according to convenience and price". This is
factually incorrect as the banding does not allow customers to select
according to convenience or price as they will only be able to assess the
maximum price that might apply to a small majority of travellers.
Customers reading the brochure will also be able to take note of potential
special offer fares but a brochure will not tell customers what a particular
sailing will cost at the time of booking as this will vary in real time - thus
allowing the customer to purchase the cheapest fare.
5.3 It is indicated that TravelWatch evidence suggests that passengers are
"confused" by the fare structure and what actually defines a discounted
fare. Having reviewed the public comments, there appear to be few, if
any, comments actually indicating that the public are confused by
brochures. The main complaint in relation to fares appears to be alleged
excessive charging; albeit this complaint is made by only 60 out of the
1 See letter 10MSPC sclect Committee
Quinn Kneale Ref: JJW/10001-142Page 6 o f26
annual 600,000 passenger journeys. IOMSPC submit the suggestion of
alleged confusion is unsupported by evidence and only equates to a tiny
proportion of travellers. This point should be made clear if the Committee
is not willing to reconsider its approach within these paragraphs.
The Committee make no reference to the fact that no other UK ferry
operator or airline serving the island produces brochures or websites
which purely lists all maximum prices for various bandings. It is the
IOMSPC's position that to revert to a strict banding display identifying
only maximum prices paid by a very small portion of travellers is likely to
cause greater confusion and would also deter many potential visitors from
travelling to the Island. To include all possible fares in the brochure would
also cause more confusion; as IOMSPC has already stated, fare prices
change in real time (potentially by the second) as the computerised
booking system will always calculate the cheapest fare available. This
service cannot ever be replicated by a brochure as clearly a brochure can
never reflect a real time pricing mechanism.
We query whether the Department of Tourism and Leisure has been
consulted as we believe they are unlikely to be supportive of these
proposals. The Department of Transport was consulted before the recent
style of brochure was produced.
With respect, the conclusions reached are not supported by factual
evidence. The comments appear to have emanated from TravelWatch
rather than the 600,000 members of the travelling public. To suggest that
the evidence indicates there is "a great deal of confusion" is unsupported
by evidence. This quote appears to come from TravelWatch submission
that "the lack of transparency in those pricing policies has led to
widespread confusion..." It is submitted that undue weight has been
placed on this comment and is unsupported by the facts. In any event if all
the possible fare permutations were printed in a brochure, the brochure
would be enormously confusing and extremely complicated to understand.
Transport operators, almost without exception, now operate sophisticated
computer systems which ensure that the customer obtains the cheapest
Quinn Kneale Ref: JJW/T0001-142Page 7 of 26
available fare for any particular crossing. It is the IOMSPC's position that
customers are most concerned about ensuring that they travel at the
appropriate time for the cheapest price possible. With respect, the correct
factual analysis is that a very small percentage of passengers are confused
and indeed these passengers are not even identified in the public
comments summary chart. We request the conclusion is reconsidered in
the interests of the majority of the travelling public and the Island Visitor
industry.
6.5 It is indicated in the final paragraph of 6.5 that the previous examples
referred to are examples of "the lack of transparency". It is further
indicated that it is not clear to the passenger "what is being quoted".
There is no factual basis upon which to suggest the customer does not
know what is being quoted. The customer will always be quoted the
cheapest fare for a particular sailing when he or she has chosen such
sailing. The customer also has the opportunity to view either earlier
sailings or later sailings to decide whether to choose a different time to
travel and to take advantage of any other available special offers. As
IOMSPC has already indicated in the response to paragraph 5.3, fare
prices change in real time and a brochure cannot replicate this. We
reiterate this is standard practice across the industry (including all airlines
serving the Island). IOMSPC consider it is unfair to suggest that they
"lack transparency" (which again appears to be a direct quote from
TravelWatch). IOMSPC are comparable with virtually all other transport
operators utilising a modern booking system - a customer will always
know that they will be quoted the cheapest fare then available for any
specific voyage.
6.6 Conclusion. It is suggested that the "2006 brochure showed a discounted
fare applying to all passengers on a particular sailing../'. This is a
misunderstanding of the 2006 brochure. The brochure simply indicated
the maximum fare applying in bands and then made reference to special
offers that were available. In 2006 to the current day there will always be
different prices available for a particular sailing and depending upon the
time the sailing is purchased. In part this ensures that customers can sail
Quinn Kneale Ref: JJW/J0001-142Page 8 o f 26
at other times at a reduced cost thus encouraging a better spread of
passengers across the very many sailings the IOMSPC operate.
Further, the IOMSPC has submitted very detailed responses identifying
prices etc. It is considered it would be fair and representative if the report
included the fact that very minimal increases have applied to web offer
prices between 2006 and 2007, In fact in most cases the prices are
exactly the same, for example a car plus two short break is exactly the
same price in 2007 as it was in 2006.
General comment. The Select Committee have conducted an analysis of the
question of whether there was a difference in fare price when booking on and off
the Island. The company has assured it that there are no differences in the
computer program and any difference in price can only be a function of time and
availability of the applicable offers in real time. The conclusion based on the facts is
therefore that there is no difference between persons booking on and off the Island.
The example given at reference 02 is clearly not comparing like with like but is
comparing different sailings and different special offers applicable. This is clearly not
a function of whether the booking is made on or off Island.
This appears to be the same point raised by a member of the Select Committee on
the 3001 January 2008 (line 865). As indicated at the time, Magic Holidays obtained
cheap special offer rates for packages which include hotels as part of an inclusive
package. They only represent a tiny percentage of the number of tickets that are
available to the general public and of course Magic Holiday packages are available to
any member of the public in any event. The difference of £40 is because of a
special offer package which is available to all.
The evidence referred to shows not only are IOMSPC rates competitive but that, on
average, the other operators referred to charge 30% more per mile than IOMSPC.
It is unclear whether the Committee are agreeing with the comment that the £75 for
2 per single journey is “daylight robbery"/ although IOMSPC assume that they accept
the comment is inaccurate. It is submitted it is misleading to leave this comment in
the text without cross referencing to the conclusion that passenger prices are
Quinn Kneale Ref: JJW/10001-142Page 9 o f 26
competitive2 as the reader may be mislead into thinking that the charge did, in the
Committee's opinion, represent daylight robbery.
8.7 When booking, the IOMSPC draws all passengers' attention to the fact that they
should have valid travel insurance and therefore in some distressed travel type
situations fares may be recoverable through travel insurance. This point is a
relevant addition to paragraph 8,7.
In addition, although we do not believe the IOMSPC has been asked this question
before, the IOMSPC do from time to time assist Islanders who have distressed travel
type situations. This is done on an individual basis but from time to time passengers
who face distressing or very difficult situations are accommodated where the
IOMSPC are able. This is not a policy which the IOMSPC wishes to advertise, as the
Committee rightly recognise, such issues are clearly open to serious abuse. IOMSPC
believes it is already more flexible and understanding than most other transport
operators. IOMSPC request that the wording in 8.7 is altered (to more accurately
reflect the factual situation) to read as follows, "but note that the Company does
what it can for Islanders having to make distressed travel arrangements and advises
that all passengers should have valid travel insurance
9.4 It Is suggested in this paragraph that the discounts available for booking
online "cfearfy disadvantages those w ithout access to a computer who can
only book by a more traditional method and additional charges or inability to benefit from discount may be construed as excessive chargingf. As a
matter of fact all customers, whether they have access to a computer at
home or not, can utilise the computer terminals provided at the Sea
Terminal without charge or can also access computer terminals in a public
library or many other sites. The discount offered is in recognition of the
fact that there is a cost associated with the provision and personal
services of reservation staff. Internet bookings are fully automated and
therefore there are significant administrative costs savings which IOMSPC
pass through to customer. It is considered by the Steam Packet that this
is a fairer method of dealing with customers and it is considered that this
or more precisely the comparisons show that passenger charges are, on average, 30% higher with other ferry operators - see paragraph 8.3
Quinn Kncale Ref: JJW/T0001-142Page 10 o f 26
point should clearly be made in the report if the Committee continue to
suggest that this approach may be " co n stru e d a s e x c e s s iv e ch a rg in g ’ .
Customers who utilise the internet might rightly complain that they are
being excessively charged because they would be subsidising those
persons who book through reservation staff.
9.5 Using the word "however" in the third sentence of this paragraph could lead the
reader to misinterpret the final sentence; the final sentence does not contradict the
earlier sentence which refers to the fact that similar charges are made by most other
ferry companies. To avoid misinterpretation, it is requested that this sentence is
phrased " It is noted that the passenger has the option to pay by other cards and
therefore avoid the credit/charge card charged.
9.7 We consider it inaccurate to suggest that "to impose a charge............. just
to ensure somewhere to sit in standard class is unjustifiable". Firstly,
IOMSPC has already given evidence that buying a ticket guarantees a
seat3. We accept that occasionally it can be difficult to locate a seat but we
do not accept that people travel without the ability to occupy a seat.
Secondly IOMSPC consider it is a requirement of the User Agreement that
reserved seats are provided in standard class4. The advantage of reserving
seats Is that some passengers like to know where they will be sitting in
advance of travel. We are unaware of people using this service
complaining of the nominal cost to reserve seats. The charge (allowed by
the UA) merely reflects the costs involved in creating the system and
administering it. This practice is also followed by airlines operating to the
Island.
9.9 The inclusion of cafeteria and bar seating is standard and typical across
probably every European ferry company. The substantive position is that
IOMSPC will always find a seat as there are always more seats than
persons on board. It is a rare occurrence where the IOMSPC operates at
full capacity and even at full capacity there are 40 spare seats on the Ben-
my-Chree and 15 spare seats on the SuperSeacat- IOMSPC considers the
3 See lines 1424 -1426 EPSPC3001084 paragraph 2.3.10 of the Agreement 21 December 2004 varying and extending the UA
Quinn KnealeRef; JJW/f0001-142Page II o f 26
conclusions in this paragraph are factually erroneous. Travel Watch
observed in its oral evidence5 that all shipping companies will face
capacity constraints from time to time. IOMSPC wish to reconfirm that
unlike many airlines for example it is not IOMSPC business practice to
overbook sailings to anticipate "no shows" - there will therefore always <
be a seat available.
10.2 For the information of the Select Committee IOMSPC confirms that the Ben-my-
Chree and Viking/Snaefell use different types of fuel. The main engines on
Viking/Snaefelt fast craft use marine Gasoil. The main engines on the Ben-my-Chree
use 380 Centistoke. In practice this has little impact as the price of the two grades
of fuel tends to fluctuate in parallel. For example, over the past twelve months
Gasoil has risen by approximately 77% and 380 Centistoke has also risen by
approximately 77%.
10.3 IOMSPC are aware that the Isle of Man Retail Price Index includes fuel
and light in the MRPI calculations. The reality however is that the highly
abnormal rises in fuel are not reflected in proportionately high increases in
the MRPI figure as the whole fuel and light sector only contributes around
1/60 of the total MRPI figure6. The Treasury released retail price index of
the 12th August 2008 confirms that oil increased by 63.8% over the
period. In broad terms, if oil and other fuels figure is extracted from the
MRPI calculation it would have an extremely minor impact in overall
MRPI. The press release in September notes that in the fuel and light
category oil increased by 63.8% whereas the actual MRPI decreased
slightly to 6.4% . Fuel costs represent the largest operational cost of the
IOMSPC. The report currently gives the impression that there is a
significant element of double charging which does not in reality exist.
10.6 We note there are two paragraphs numbered 10.6.
10.9 The reference to the comment from the Chief Executive appears to suggest that the
Chief Executive has submitted inaccurate figures; i.e. that the correct figure at the
5 Page 13 TSPC 23rt November 20076 the fuel and light weighting is 56 out of 1000 as per Table 1 of MRPI Summary August 2008
Quinn Kneale Ref: JJW/IOOOM42Page 12 of 26
10.13
Parts 11 and 12
11.2
11.6
time of submission was 660/mt. The figures submitted reflected the then prevailing
figure and therefore to avoid confusion we request that the second sentence
amended to read "that this figure.....whereas the current market price has nowreached £660.."
It will be noted from the IOMSPC's response to paragraph 10.2 that fastcraft use
marine Gasoil. It will also be noted from our response to 10.3 that the gasoil input
into MRPI is minimal and might account for .1% increase in MRPI whereas the
increase in fuel prices over the previous 13 months is 63.8% check.
As a general comment, it is noted by IOMSPC that the Draft Report does not recognise
or comment upon the fact that IOMSPC provide service levels well in excess of the
User Agreement requirement. For example: a) IOMSPC operates twice daily trips to
Liverpool whereas the User Agreement only requires one sailing; and b) winter
passenger services operate between 13 and 17 services per week whereas the User
Agreement requires a minimum of 7 per week. The detail in this regard can be seen
In the IOMSPC submissions of the 31st August 2007, appendix B, page 10.
The section in brackets should read ”3.2 of the Company's submissions dated the
31st August 2007, Appendix B".
The first sentence records the fact that the company is making a wsubstantiaI investment in accordance with its obligations..”. The factual situation is that the company is making substantial investments well ahead (in terms of time) and well in excess of (in terms of cost) its obligation. IOMSPC request that this is recognised in the report.
The penultimate sentence records the fact that Mr Woodward wadvised that the Incat 050 has not been used fo r commercial passenger
services...”. The correct position is that the Incat 050 was initially used for passenger services before converting to a military vessel. For the record it was stated in IOMSPC's letter to the Select Committee of the 21st July 2008 that the Incat has not been used for commercial passenger
Quinn Kneale Ref: JJW/I0001 -142Page 13 of 26
purposes for a number of years, and IOMSPC can confirm it was initially used for commercial services.
The Committee make reference in the first sentence that there has been comment about the reliability of service invariably concerning fastcrafts and their ability to operate in the Irish Sea during bad weather. We consider it is appropriate to note the fact that Incat 050 is permitted to operate in 3,5 metre significant wave height by the Maritime Coastguard Agency as opposed to the 3 metre limit applied to the Viking7. Indeed in other jurisdictions she has been permitted to operate to a 4 metre wave high restriction, thus demonstrating the capability of this fast craft to operate in rough sea conditions.
12.13 The penultimate sentence indicates that the Committee is pleased to note"following our representations, the company advised that improvements were to be carried o u t . The layout of the sentence implies that IOMSPC only took the decision after hearing representations from the Committee. We should reconfirm (as previously advised) that the improvements to the Liverpool Marshalling Yard facilities were already planned prior to the Committee's comments and the improvements remain on going. As the Committee is aware, IOMSPC do not own the facilities at Liverpool» Progressing developments on land owned by third parties has proved difficult but IOMSPC continue to press for improvements.
12.16 IOMSPC are disappointed that the Committee should criticise a professionally
appointed market survey firm and effectively ignore or dismiss the customer
responses. The survey questionnaires were originally produced in conjunction with a
professional market research company based in the UK. The company devised the
questions and format of the survey. The survey was eventually based on 5360
customer responses - a sample size approximately 50 times greater than those
responding to the Select Committee. Neither the IOMSPC (and with respect neither
the Select Committee) are experts in market research and therefore to simply
dismiss this survey as failing to provide adequate options is, with respect,
unsupported by the facts.
7 see IOMSPC's letter to the Select Committee dated the 21st July 2008
Quinn Kncale Ref: JJW /I0001-142Page 14 o f 2 6 -
13.3 a)e)g) IOMSPC consider It unfair and factually misleading to only quote freight rates on Northern Ireland routes. The comments in this section ought to reflect that the economies of scale of demand on the routes compared are totally different and that a false impression is given by simply comparing the two. The Port of Larne website confirms it handles approximately420,000 commercial units in 2006, whereas the Port of Douglas handles around 38,000 units. The Ben-my-Chree has on average 24 freight units per sailing with a maximum capacity of 90, whereas we understand Seatruck typically operates with 50-100 units per crossing at a very much higher load utilisation.
It should be also recognised as a relevant factual scenario that the freight operators to Ireland pay port dues which are as little as l/ 6 tl1 of those in Douglas. Other operators also utilise cheaper foreign national crews and have higher passenger volumes and revenues to contribute to overall running costs. Equally there is no requirement to provide unprofitable off- peak passenger services. Some operators also utilise aged Ro-Ro freight only vessels (which of course do not have the same high safety, manning and operational costs that the more modem Ro-Pax vessels require).
The above comments highlight the fact that the Irish Sea comparative rates are entirely misleading and inappropriate. It is factually inaccurate to use words such as "a staggering" £50/metre. As indicated in IOMSPC's submissions, a more accurate comparison (given totally different volumes involved and the effect of economies of scale identified above) is the Channel Islands. Although the Channel Island's population is significantly larger than IOM and therefore the volumes are likely to be higher, the published costs of shipping with Condor the local operator is around £75/metre, about 20% higher than IOMSPC. These details were provided to the Select Committee in te r aiia in the evidence provided on the 3rd March 2008 — see for example EPSPC030308, line 989 — 1035 in particular lines 1008 -1033.
Quitin lineale Ref: JJW/I0001-I42Page 15 o f 26
13.3b
13.3c& Conclusion
13.4
It is submitted that the comparison regarding containerised transport between China and the USA is invalid and misleading. The Ben-my-Chree has a capacity for up to 90 freight units but on average carries only 24 units per crossing. A modern container vessel has a capacity for 8,000 to15,000 units (eg Emma Maersk). A container vessel with 15,000 units at £800/unit for China to USA could earn £12mil!ion per crossing, an average of £1800/mile. The Ben-my-Chree with 24 units will earn £345/mile (plus any passenger income). In addition, the Emma Maersk container vessel has a minimum crew of 13 foreign nationals whereas the Ben-my-Chree has a crew of around 40 at Manx/UK wage rates. If this comparison is to be utilised then the complete analysis should be included, to ensure factual accuracy
As already stated in evidence, the company provides for a private exemption certificate scheme which allows small van users travelling on a non-commercial basis to benefit from normal passenger fares. This policy has not been commented upon or apparently considered by the Select Committee. As a consequence, the IOMSPC submits that the conclusion reached is incorrect as there is an existing policy in place to deal with the small van issue.
It is submitted that the conclusion is inaccurate as it is based upon an analysis of incomparable services. The most comparable service is the Condor link to Guernsey/Jersey which has been omitted from the comparison entirely. As already mentioned, the comment that "average
ship size on Northern Irish routes is broadly comparable w ith Ben-my- Chree which means economies o f scale and ship size cannot be the reason
fo r such a wide difference in fre ight ra td ‘ does not take into account the factors already identified i.e. utilisation, requirement for multiple sailings, port rates etc. In addition IOMSPC consider that the average size of Ro- Pax ships on the Irish Sea routes is generally substantially larger than the Ben-my-Chree. To increase utilisation rates (thus making IOMSPC more comparable to other operators) IOMSPC could reduce its services to one freight sailing a day, overnight. This would dramatically affect passenger
Quinn Kneale Ref: JJW /J0001-M 2Page 16 of 26
services and remove the need for 2 sets of crews (approximately 80 sailors).
14.1
14.2
IOMSPC note that the Select Committee are properly wishing to take into account
the counter arguments put forward by it in its compliance with the User Agreement.
This comment sets the comments within this response in context - it is submitted
there are certain matters within the Draft Report where the Select Committee may
not fully have appreciated the comments and submissions being made by the
IOMSPC
This paragraph is the only paragraph which even touches upon the many benefits of the User Agreement. Whilst the response from the Committee may be that it is outside their remit and therefore only of background information, it is submitted this is inconsistent with the general approach of the Select Committee as the report has commented upon User Agreement issues.
IOMSPC request that the benefits of the User Agreement are set out in the Draft Report by way of background relevant information. This gives the reader of the report an understanding of the User Agreement and a more balanced perspective on the matters raised in the report. Rather than simply quote from IOMSPC it is submitted that the following quotes by senior members of Tynwald are of paramount factual relevance to any analysis of the current workings of the User Agreement:
"In essence, therefore, the principle o f the user agreement is simple. In return fo r a secure position in Douglas harbour over the next 10 years the company has given a number o f undertakings regarding services and
future investment These undertakings provide an assurance that the Island w ill continue to have satisfactory lifeline sea services w ithout in any way inhibiting the company and preventing i t taking advantage o f what we hope w ill be growing traffic. We have opted fo r security and stability linked to quality in the belief that those elements are essential
Quinn Kneale Ref: JJW /1000M 42Page 17 o f 26
and are more relevant to our needs than choosing the risks o f providing a simple open port f a c i l i t y 8
In connection with the only substantive extension to the User Agreement, the then minister for Transport (Mr Shimmin) explained the additional benefits achieved by the extension as follows:
'Mr President, the extension to the User Agreement ensures that the Isle
o f Man continues to have a secure and stable sea service, w ith frequency
o f sea service more than double that which applied when the original agreement was negotiated. In brief, under the improved terms, the Isle o f Man Steam Packet Company Limited now has to provide a minimum o f sever return sailings per week, during the summer period, to Liverpool. I t has to provide 7,000 lane metres o f freight per week; a minimum o f 10 per cent more freight-lane meterage year on year; 764 return sailings per year to north-west ports/ "
The Minister set the debates in context by explaining the effect and implementation of the User Agreement to that date as follows:
nThe Company is looking to replace those vessels w ith a large, high
capacity fast cra ft which would provide a significant increase in both vehicle and passenger capacity.
As the existing User Agreement has less than six years to run, this does
not provide the necessary security to support the financial case fo r the major investment required. Therefore, for the User Agreement to work effectively, the operator needs security o f tenure to be able to develop services and invest in new facilities. In return, the Island receives an
improved, guaranteed minimum level o f service^ and a level o f investment to ensure that the vessels serving the Island are modern and meet the needs o f customers.
* The then chief minister now Sir Miles Walker Tynwald Court 11th July 1995 page T8029 Tynwald Court 11th December 2004 page 453
Quinn Knealc Ref: JJW/I00CU-142Page 18 of 26
The existing User Agreement has contributed substantially to the
development o f sea services to the Island since its signature in 1995. Research into other methods o f controlling and managing sea services,
introduced by both the Scottish Executive and the Channel Islands, indicated that the user agreement model works more effectively than other methods used elsewhere.
A new User Agreement to run from 2010 would provide the Steam Packet Company with the security to continue to develop and expand ferry services serving the Island, and would provide the Company with
sufficient security o f tenure to be able to obtain the necessary investment capital to invest in a new vessel to replace the existing small SeaCat and the elderly Lady o f Mann.
Additionally, Government would continue to influence the development o f ferry services, as i t has been able to since 1995, when the current Agreement was introduced,10 "
IOMSPC considers that the User Agreement continues to provide significant benefit to the Island as envisaged by Tynwald in 1995 and as effectively reaffirmed by Tynwald in 2004. In 2004 Tynwald approved the extension to the User Agreement in consideration for which IOMSPC made commitments to increase capacity service and make further investments (which it has of course already made and continues to make).
15.1 a — b. To suggest that the IOMSPC and its advisors " appeared reluctant to answer questions concerning accounts profitab ility" is an unfair deduction. As we have already indicated, at the time the question was raised there was a pending question regarding sub judice of High Court proceedings. Whilst the committee was set up in June 2007 and asked for a number of detailed pieces of information from IOMSPC, it was not until 7 months later and virtually the final question after a lengthy 2 V2 hour questioning session that Professor Baird in his "winding up question" commenced asking questions about profitability quoting figures which had
10 Tynwald Court 14th December 2004 page 453
Quinn Knealc Ref: JJW /I000M 42Page 19 o f 26
not been referred to IOMSPC in advance. To expect IOMSPC officers to attempt to answer questions of this nature without the ability to refer to accounting records or reflect on technical questions that might be raised was unrealistic and with respect unfair. IOMSPC had thought this had been recognised as the Chairman then quite properly indicated that the "best way forward" would be to put questions in writing to IOMSPC. These questions were subsequently put to IOMSPC and thereafter answered.
The other implication from the reference in paragraph b is that the IOMSPC had previously been reluctant to provide copies of accounts; whereas the factual scenario is that the company had not been asked to provide accounting information by the Select Committee and had not refused to provide any such information. The Select Committee had waited almost seven months to question on this point and only did so at the very conclusion of a 2 V2 hour session. The question also for the first time squarely raised the sub judice issue although by this stage the High Court proceedings were about to progress in a different direction. In addition Isle of Man law does not require IOMSPC to file or make their accounts publicly available and therefore questions relating to their disclosure in a public forum would need to be carefully considered. It is therefore submitted that the suggestion of reluctance is ill founded and misleading as there were valid reasons which were explained at the time11 for not embarking on this entirely new area of questions.
15.1 e& f As indicated previously, the profit analysis taken from the accounts between 1998 and 2006 cannot be compared like with like as the accounting treatment over this period of time has changed on a number of occasions. It is also noted that the time periods referred to are wholly outwith the Committee's remit. The table should therefore, at the very least, reflect the fact that accounting treatment over the period has altered and therefore it would be misleading to simply compare year on year.
11 including the sub judice issue which had already been raised with the Committee
Quinn Kncale Ref: JJW/KJ00I-M2Page 20 o f 26
15.1 h The Committee has chosen to refer back over a ten year period and hassuggested that the net result appears to be constantly rising freight traffic. The Committee can more fairly (especially given the time period actually under consideration) consider the period from 2002. During this period it can be seen that the freight traffic volume has stayed almost constant and even fallen in some years. IOMSPC anticipates this to be the likely scenario for 2007/2008 and indeed the IOMSPC projections for 2008 will show a reduction in trailer carriage.
15.1 k IOMSPC submit that the production of the table at 15 k is incorrect andmisleading as it ignores the varying accounting treatment of costs such as depreciation and interest. The table also ignores all the UK operators and other relevant Island operators. Some operators will also have charter costs which depress the EBIT results. It is submitted that a more valid comparison might be at the EBITDA level; as the Committee will be aware, IOMSPC has invested over £80million in the last decade and therefore can fairy deduce that the bottom line profitability when depreciation and interest costs are considered will not be dissimilar to when the company was a Pic in 1995.
In summary, comparisons with other operators should only be provided if comparisons are on the same basis and are not selective. I f they are included then, the fact that different treatment applies to each one and the results may be misleading should be recorded.
15.2 IOMSPC position is that the analysis in the foregoing paragraphs is flawed as, in ter alia, it takes no account of variations in demand. The variations in accounting treatment and enormous impact of economies of scale of demand as identified previously are also relevant considerations for this conclusion section.
IOMSPC has always accepted that there is an element of higher freight charges which will help to provide a package of service to the Isle of Mani.e. the regular passenger service operation. In particular, the suggestion that IOMSPC could reduce its level of freight charges by a third is without
Quinn Kneafe Ref: JJW/10001 -142Page 21 of 26
merit and potentially commercially damaging to IOMSPC and a direct threat to the existing passenger services. IOMSPC consider that it would not be able to provide many of its present services, if freight rates were reduced by one third.
15.3 Reciting potentially libellous comments from public submissions is of nofactual benefit to the Select Committee and is seen by IOMSPC as merely a means of making disparaging references within the context of this report. The Draft report notes that IOMSPC is majority owned by Australian Pension funds and therefore it is erroneous to leave the reader with the impression that an Investment Bank owns IOMSPC. The exact breakdown of ownership and management structure is attached at a revised Appendix J which has been updated since it was originally sent to the Committee.
15.3d The Shareholding held by Macquarie is now held by MacquarieInternational Holdings No2 Ltd, not Macquarie European Investments Pty The ownership by the Pension Funds is an independent ownership and not through a Macquarie managed fund. Macquarie are currently engaged as an advisor to the Pension Fund holder.
15.3e It is noted that the Select Committee quote directly from the opinion ofProfessor Baird. Professor Baird is also incorrect to suggest that the ownership of IOMSPC is by an Australian Bank - this has already been explained. Professor Baird is also incorrect suggesting that extensions to the UA have tended to be closely followed by an early subsequent sale of IOMSPC. As a matter of fact, the purchase of IOMSPC by Montagu took place after the exercise of an option which was effectively a call option for IOMSPC. There was never any question therefore that an owner did not have the option to extend the User Agreement to, at that stage/ 18th September 2010 whether he purchased before or after 2002. The reality is that the User Agreement has only ever been extended by negotiation on one occasion, namely the 21st December 2004. It is true to state that the company was sold after this extension but it provides an entirely misleading impression to state that extensions have tended to be closely
Quinn Kncalc Ref: JJW/JOOOI-142Page 22 o f 26
followed by early subsequent sale. It is noted that the statements made by Professor Baird go well beyond the remit of the Select Committee.
15.4
There is a general flavour in the Draft Report and a specific allegation in the report prepared by Professor Baird that the owners of IOMSPC have a short term view on the company. IOMSPC management's understanding is that the Australian Super Funds as majority owners have purchased their share in IOMSPC investment on a long term buy and hold strategy. They are committed to a strong capital works program for the business not
simply to fulfil the capital commitment requirements under the User Agreement but rather to sustain the long term operational ability of the company. With the benefit of the clarification provided and in the economic climate that persists in 2008, the Committee may reflect that the ownership profile of the IOMSPC is in fact a real benefit to the long term security of the vital lifeline services provided by IOMSPC.
In view of the aforementioned comments, it is submitted that the conclusion reached is erroneous. The User Agreement clearly does not guarantee the company a monopoly position and indeed the User Agreement specifically provides for the possibility of competition. IOMSPC also note that there is no commentary on the fact that IOMSPC has provided a very stable lifeline link to the Island since the User Agreement at rates which have been limited to less than MRPI increases throughout. This can be contrasted with the airline industry which has repeatedly suffered failures, cancellations and uncertain services during the same period.
It is not reflected in the Draft Report that the level of service provided would not be replicated in the event that two or more Ro-Ro operators were to attempt to operate from and to the Isle of Man.
The final sentence states that increases apply "a t a time when transport prices across ferry markets have generally been fa ilin g . . . IOMSPC do not accept that prices have generally been falling is an accurate assessment of
Quinn Kneale Ref: JJW/I000I-142Page 23 o f 26
the market. As already indicated, larger ships can carry far higher levels of freight at greater utilisation rates but this demand does not apply to the Island economy and although capacity has increased substantially in the early years of the UA, utilisation rates will inevitably remain much lower than most other routes in the UK regions.
It is indicated in the final sentence of this paragraph that agreements are neither minuted nor recorded. IOMSPC confirm that the User Agreement fare review process is undertaken in writing with fare reviews formally submitted by IOMSPC and approved and checked by the DoT. IOMSPC submit that all User Agreement substantive issues and decisions are formally documented. The impression given in this section is that there is no documentation to support any increases. The liaison meetings with the Department of Transport are primarily operational meetings additional to the formal User Agreement requirements.
It is stated that the change in publication of brochure fares has "clearly brought about confusion to the travelling p u b l ic It is submitted that there appears to be only two or three complaints concerning confusion with the brochures. This is clearly a miniscule proportion of those travelling and it is submitted that production of all possible fare combinations would create an enormously complicated brochure and likely to cause far greater confusion amongst passengers. Brochures are nowadays rarely prepared in this manner by other transportation service providers.
Further, the sentence continues, by suggesting that the change in publication of brochure fares has "perm itted fre ight charges to effect the calculation o f the annual increase in fares../'. This conclusion is not understood. The Schedule 6 basket of fares calculation mechanism has always included freight fares as an integral element and changes to the brochure have no relevance.
The comments made above already have a factual impact on many conclusions as identified above. IOMSPC's submission affect certain of the
Quinn Kneale Ref: JJW/JOOO1-142Page 24 o f 26
conclusions reached by the Select Committee and the comments are not repeated again for each conclusion/recommendation, but IOMSPC request that the conclusions are reconsidered in accordance with its previous submissions.
Appendices
ïn general it is considered inappropriate for IOMSPC to comment specifically on each individual
appendix. IOMSPC has answered the TravelWatch submission and do not intend to refer in detail
to any one of the appendices. By way of high level comment however, the following issues are
raised:
1. Appendix A
It is noted that a number of members of the Committee apparently travelled on the 21st
September 2007 and the 16th May 2008. IOMSPC records do not indicate that all members
travelled on these dates. There is no record for example of the following members having
travelled: Mr Rodan & Mr Malarkey. We would be grateful if you .could confirm the dates of
travel as it appears that some members may not have travelled on the dates indicated.
2. We note that it is intended that pictures of rubbish will be appended to the Select
Committee report, IOMSPC reiterate that this rubbish was not under the control of IOMSPC
nor was it IOMSPC's rubbish. It is understood/ as previously indicated, that the rubbish
originated from the visit of the Queen Elizabeth II Cruise Vessel visit to this facility. The full
explanation has already been given to the Select Committee at the commencement of the
hearing on the 3rd March 200812. It is extremely disappointing that these pictures remain in
the report on the visit as they give the false impression that the rubbish is IOMSPC's
responsibility. As the Committee is aware this marshalling area is not now used by IOMSPC.
3. Appendix K
12 See lines 9 7 0 - 9 8 8 .
Quinn Kneale Ref: JJ W/10001 - 142Page 25 of 26
The submission by Professor Baird is headed "Supplementary Comments/Report". It is
submitted that this report is wholly outwith the remit of the Select Committee and makes
various suggestions and supposition in relation to an existing government agreement -
namely the "User Agreement" - tantamount to suggesting that the User Agreement should
now be put up for "competitive tendering". The User Agreement is a contractually binding
agreement between government and IOMSPC and therefore the question of competitive
tendering does not fall to be addressed until 2026.
The benefits of the User Agreement appear to be ignored whilst criticism has been levelled
at thef Inaccurately described, bank owner. IOMSPC has already confirmed that the
management understands that the owners are committed to the long term and do not
consider that future investment is something merely required to comply with the User
Agreement - investment is important for the long term operational ability of IOMSPC. It is
inaccurate to suggest that the owners are forced to maximise short and medium returns.
It is submitted that this report or comment is not relevant to the matters under
consideration. IOMSPC was not invited to comment on this report. IOMSPC do not agree
with many other matters raised in the report of Professor Baird but intend to limit their
responses to matters cross referenced to the report, and do not therefore intend to
comment specifically on the detail of this report. IOMSPC request that if, despite the above
comments, the Committee intends to retain this report as an appendix, it is made clear that
the report does not form a supplement to the Select Committee's report but is a document
purely reflecting the personal opinion of Professor Baird.
14th October 2008
Quinn Kneale Advocates
my Limited
Quinn Kneale Ref: JJW/10001‘ 142Page 26 o f 26
SELECT COMMITTEE COMMENTS TO DEPARTMENT OF
TRANSPORT DRAFT REPORT RESPONSE
Comments are inserted into the response , highlighted in blue text.
Department of TransportJ
Rheynn Arraghey
Mr L CrellinClerk to the Select Committee of Tynwald On the Isle of Man Steam Packet Government Office Bucks Road Douglas
Chief Executive IT Thompson FRICSSea Terminal Building Douglas, Isle of Man IM1 2RFSwitchboard: (01624) 686600 Telephone: (01624) 686603Fax: (01624) 686617Email: [email protected]
Contact: Our Ref: Your ref: Date: 10 October 2008
Dear Mr Crellin
Response to the Draft Report from Tynwald Select Committee on the Isle of Man Steam Packet Company
I refer to your letter of the 16th September 2008 addressed to the Department's Chief Executive Mr I T Thompson in respect of the above draft Report and Professor Alfred Baird's Supplementary Report to the Committee. Please find enclosed for the Select Committee's information the Department's comments on both of these documents. The Department's comments address possible factual inaccuracies, and where such inaccuracies or omissions may have influenced the final comment.
In order to obtain independent advice and assistance the Committee retained Professor Alfred Baird as advisor to the Committee. Professor Baird is a leading member of the Transport Research Institute at Napier University, Edinburgh. It is the Department's view that the advice and assistance provided by Professor Baird is based on his experience of Scottish ferry routes and operations and also similar ferry routes and operations in Europe. He appears to have little knowledge of the Isle of Man or the User Agreement and this is reflected in the draft report.
* Committee comment-as commented by the Department, Prof Baird wasengaged to provide expert comment from an independent perspective
In order to highlight the errors and misunderstandings that the Department considers are contained in the report the comments are headed by section titles, page and paragraph numbers that correspond to the Committee's draft Report and also to the advisory paper supplied to the Committee by Professor Baird.
Monopoly: Page 3 paragraph 2.2 line 5The User Agreement only relates to the King Edward Pier No 5 Berth in Douglas, owned by the Department of Transport and not the Victoria Pier Linkspan which is owned by the Isle of Man Steam Packet Company. The Victoria Pier linkspan is the subject of a separate legal agreement with the Department entitled "The Victoria Pier Siting Licence". The User Agreement provides preferential use of the Edward Pier linkspan but it does not provide the Company with exclusive use of it. For example, the Department's linkspan was used in the
l
past by ICD Ltd to discharge a cargo from a chartered freight vessel. The User Agreement does prevent third party use of the iinkspan to provide regular scheduled services to the North West of England and as well as at times to the East coast of Ireland.
*Committee comment - report amended to clarify exclusivity in respect ofregular ferry services
Background Information: Page 6 paragraph 3.11The presentation given by the Department to the Select Committee did not refer to "the inability to exert influence over the formula for special fare discounts". Matters concerning special offer fares are covered by the Schedule to the 2002 User Agreement extension document and the 2004 extension document. In particular "special offer fares have to be fares intended to generate extra traffic and increase the overall passenger market". Whilst this is not specific, the general requirement is still quite onerous and leaves the Company free to use its commercial experience to set appropriate offer fare levels to attract additional business. It would be more appropriate if the reference in the Report referred to "the ability to exert some influence" rather than "the inability to exert influence". It should be noted that special offer fares are not part of the schedule 6 User Agreement calculations.
* Committee comment - report amended to reflect the Department's view. However, we were advised in the presentation that fare control does not apply to special offers
Whether Fares charged in 2006 and 2007 are fair and equitable and represent best value for money: Page 20 paragraph 8.3It would appear from the Report that the Steam Packet, rather than just appearing to be competitive are very competitive as it offers the best value for money on a per mile basis for the major passenger routes to and from Liverpool in both summer and winter.
* Committee comment - report does show that prices are competitive - report amended to state 'very'competitive
Page 21 paragraph 8.4During the TT period the special offer fares are widely available to encourage off-Island travel to fill empty capacity. These offer fares are particularly beneficial to residents.
*Committee comment - report amended to acknowledge that additional special offers may apply
Conclusion: page 22 paragraph 8.10The first sentence is confusing as currently drafted. The Department is not sure as to the relevance of the comment "withdrawal of defined banding" to any comparison as very few people outside of the peak TT period would pay the standard fare. The Company has advised that in excess of 80% of passengers travel on offer fares of some type.
^Committee comment - report amended
2
Incat Hull 050 Future investment: page 34In the Department's opinion the key factor in assessing the vessel's value is how it has been utilised and not strictly by its age. This vessel has had little use compared to other similar vessels of the same age that have been commercially operated throughout their life. Hull 050 may well have operated for less working hours than a newer similar vessel. The Steam Packet Company has advised that Hull 050 will undergo a major refit and overhaul before being introduced to service in 2009.
Comparing this 96 metre long Incat vessel with Viking which is a mono-hull SuperSeaCat is like comparing chalk and cheese. One vessel has had relatively little use and will shortly receive a full overhaul and significant refitting whilst the other has worked hard for over ten years. Of more relevance to the Isle of Man is that Incat Hull 050 has significantly more capacity than Viking with better sea keeping qualities, as it is a catamaran, and has a higher operating wave height.
*Committee comment - Department clearly has support for this vessel - reportamended where appropriate
Economies of scale: page 44 paragraph 13.3(g)Two issues come to mind that do not seem to have been factored into the report. The first is that in the to date in 2008 freight has only occupied 25.5% of the available lane metreage. Whilst some of the remainder has been used for passenger vehicles such use will vary significantly on a seasonal basis. Our understanding is that the load factor for other operators listed in the schedule is significantly higher and in some cases exceeds 90% on a regular basis. The types of services listed on page 45 are also varied and may not be true like for like comparisons with the Steam Packet.
*Committee comment - comments noted - Department has already stated that itdoes not keep a watching brief on industry standards
The other issue that will impact significantly on the Steam Packet's costs is its crewing arrangements. The Department is sure that the Steam Packet could reduce its operating costs significantly by employing third world crews on less beneficial agreements rather than carrying on with the current crewing arrangements. As far as the Department is aware many UK ferry operators, including those on the Irish Sea routes, have already adopted such solutions to reduce their costs. However, the Department is not sure that such a solution would be in the Island's best interest but it would undoubtedly offer the Steam Packet a cost saving.
If these two issues are factored into consideration of the Steam Packet's costs, the disparity of fares may probably not be as indicated. Although the Department would acknowledge that the Company's freight rates are relatively high, the actual load factor and crewing costs provide reasons for a significant part of the difference.
*Committee comment - comments noted - cheaper crewing costs may increase profit level, however not a requirement of the User Agreement
3
Under the terms of the User Agreement if the annual increase in fares proposed by the Company is not higher than RPI minus 0.5% the Department cannot deem the Increase to be excessive. How the increase is made up on a weighted basis is a matter for the Steam Packet. The Department has no power under the User Agreement to require the Company to vary any fares or to require the Company to vary the increase between different forms of traffic. If the Steam Packet proposed an increase that the Department could deem excessive, then comparisons with other operators or consideration of other components may well be valid. If the increase proposed does not exceed the increase in RPI minus 0.5% then comparison with other operators is worthless as the Department has no power to take action against the Company.
In making comparisons of port costs the Department has always looked at the Channel Islands as providing a good and valid comparison due to the similarity of population and consequent cost base and economies of scale. The report does not seem to have made any comparisons with the Channel Islands with regard to freight costs.
*Committee comment - comments noted
Comparison with other Ferry Operators: page 51The operators quoted in the table do not include any UK or Chanel Island based operators. The table does not look at the profits over a period rather it provides a one year snapshot which could potentially be misleading. For instance, the average Steam Packet profit over the nine year period shown in the table on page 48 was just under £7m which was a 15% profit ratio.
Current Structure: page 55In italics, reference is made to "extensions to the User Agreement have tended to be closely followed by an early sale of SPC". Whilst this statement is true, no mention is made of similar high-value sales of other ferry operators such as Wightlink, Red Funnel and Condor Ferries, none of which have the benefit of a similar user agreement. However, all of these ferry operators work in small markets where open competition has tended not to work.
The Steam Packet has been operating since 1830 whilst the User Agreement has only been in force since 1995. However, during that long period all attempts at competition have failed. The User Agreement may well have a value but the scale and type of the market also has a significant value. For example, of the 16 ferries listed on page 45, only eight could operate to the Isle of Man and of these, six are freight-only vessels. The only passenger vessel listed that could operate to Douglas is Stena Caledonia which is 26 years old and not a true modern Ro-Pax vessel, ie it cannot carry the same numbers of heavy freight vehicles as well as passengers and accompanied vehicles. All the true modern Ro- Pax vessels listed apart from the Ben My Chree are too large for Douglas harbour.
*Committee comment - comments noted, but not requirements of the UserAgreement
Fare Increases and Sailing Schedules paragraph 15.8(g)Fare increases are the subject of a Ministerial Decision Paper and are not agreed at operational liaison meetings between Department and Company officers. The example quoted was subject to ministerial approval under paper reference number 142/07. The report's previous page clearly explains this process, however the paragraph on page 59 is
4
less clear and could be misleading. The meetings that Mr Christopher and Captain Brew have with the Steam Packet's executive directors primarily deal with operational issues anything of relevance is reported to the Harbours Division monthly meeting. As far as the Department is aware there is no formal requirement for operational officer level meetings, of which there are several per month at various levels, to be minuted. Meetings that are required to be minuted are those attended by the Minister or Department Members. That said and to avoid difficulties in future, our monthly meetings are now the subject of formal notes.
* Committee comment - comments noted
Extension to the User Agreement: page 60 paragraph 15.8 m)Reference is made in paragraph m) to "competitive tendering which is a standard approach to island ferry operator selection". However, the report fails to mention that this process within the British Isles has not brought about any recent significant change in operators. In most cases the operator awarded the tender was the only applicant at the final stage and, in Scotland, was a nationalised company that receives significant subsidies. With regard to the Scottish Islands, the Scottish Executive is restricted under the EU tendering requirements to offer a maximum period of six years. Mr Christopher and Captain Brew have met officers from the Scottish Executive that visited the Island previously to carry out research into options for ferry tendering. They expressed a view that the User Agreement may have been a better model as short-term tendering of services has required large subsidies. The Department are not aware of any evidence that tendering services has reduced costs without large subsidies or brought about any benefits by increasing traffic. Details of the subsidies are referred to on page 21 of the report.
*Committee comment - this issue was raised by Prof Baird as part of his brief to provide expert and independent comment The report does not advocate any deviation from a iegaiiy binding document.
Timetables - Conclusion: page 61 paragraph 15.9With reference to section 3.37 of the User Agreement, this section requires that fare information must be available "on request". This information is available on the Steam Packet Company's website or from the Company's head office. Whilst it was also previously included in the timetable, the Company decided to remove the details of. its maximum fares from this publication as it proved to be confusing for potential passengers and also a disincentive to travel. The Department is aware of cases of passengers not booking to travel with the Steam Packet because they had calculated the fares using this information rather than going on-line or contacting the Company directly. As 80% of sea travel is on a special offer fare very few passengers, other than at the TT period or late bookings at peak times, pay full standard fares. This issue was addressed at the time that the Company decided not to include the information in the timetable and in doing so it confirmed that this information would be available "on request" in line with the User Agreement requirement.
The reference to "permitted freight charges to affect the calculation of the annual increase in fares" is confusing. Freight charges have always been part of the User Agreement Schedule 6 calculation. Whether or not the timetable shows the maximum passenger fare is irrelevant to the Schedule 6 calculation.
*Committee comment - comments noted
Profitability: page 67The report shows that the Steam Packet is making good profits. However, the profit percentage fluctuates a great deal over the nine year period shown in the table on page 48. Whilst freight may contribute significantly towards this profit it does not explain the variations in the profit level. 2003 was the best year for passenger traffic whilst freight traffic in 2006 was only 2.4% higher than 2003 yet the profit margin went from 0.6% to 36%. Turnover was also down by 4.5% between 2003 and 2006. The Department is of the view that the closure of the Liverpool/Dublin service and the disposal of Lady of Mann in this period may have had more impact. In other words, operational and efficiency savings- implemented by the Company's management resulted in increased profitability.
* Committee comment - the Department has made it clear that profitabiiity is nota requirement of the User Agreement
Recommendations: page 71Recommendation 1 - Acceptable
Recommendation 2 - The Department can try and obtain comparable freight rates. However, if the increase proposed by the Company is less than RPI minus 0.5% on a weighted basis there is nothing that the Department can do other than approve the increase.
Recommendation 3 - The Department can ensure that the Company continues to comply with clause 3.37. The Department can try and persuade the Company to show maximum charges in the timetable, however this may just cause more confusion to passengers and possibly lead to loss of business, as previously experienced. It is the Department's view that it would also put the Company at a disadvantage when compared with the airlines serving the Island as most of them do not advertise their maximum fare.
Recommendation 4 - acceptable
Recommendation 5 - acceptable
Recommendation 6 - as per recommendation 2 above. If the proposed increase is less than RPI minus 0.5% on a weighted basis there is nothing that the Department can do other than approve the increase. If the Company applies for an increase in excess of that allowed for under the User Agreement, that the Department could deem as excessive, it would be logical to involve the Office of Fair Trading.
Recommendation 7 - acceptable
Recommendation 8 - acceptable
^Committee comment - recommendation 5 in final draft expanded from consultation draft to include recommendation of para 10.13 to impose condition to cancel surcharge.
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SUPPLEMENTARY COMMENT/REPORT FROM PROFESSOR ALFRED BAIRD
Section 2 - User AgreementThe opening sentence is wrong as the User Agreement does not provide a monopoly to the Steam Packet. It provides preferential use of an item of plant ie the Edward Pier linkspan. The description of the benefits of tendering does not appear to reflect the experiences within the UK and Channel Islands regarding the cost to government or the outcome of the tendering process. The Department is aware that the above tendering processes were costly and produced no significant change in operator.
The Steam Packet is an Isle of Man registered company and ownership of the shares is secondary issue. The Company was previously a pic and share ownership at that time would have been spread around the world.
The Report contains no evidence that tendering would have brought about any improvement in services for the Island. In fact, as far as the Department is aware, when routes in Scotland or the Chanel Islands have been tendered the successful party has tended to be the established operator and often the only bidder. The tenders have not brought about the level of traffic growth achieved by the User Agreement or a comparable level of improvement in the standard of vessels serving the Island. Prior to the User Agreement coming into force and subsequently, the Department is not aware of any serious interest being expressed by other established ferry operators in serving the Isle of Man. The User Agreement is a negotiated package of services which has brought about increased traffic at a level not seen on any other UK routes and significant investment in vessels. The tendering process in the UK has been driven by EU rules on tendering and has related in general to subsidised services in which the vessels are actually owned by a nationalised body. The tender process advocated by Professor Baird relates to the operation of these vessels.
The Channel Islands are used as an example to support tendering but the Department is unsure that these services have been tendered as suggested. However, by whatever means, the Channel Islands have achieved an operator that is managing a declining market, with high fares whilst operating vessels similar to those serving the Island. The User Agreement and the Steam Packet has a record of achievement in improving standards, increasing frequency and charging lower fares. The Department is not aware that the tendering process has produced similar achievements.
Value of the Steam PacketThis section fails to refer to other recent sales of British ferry operators that do not have the benefits of a User Agreement. Similar increases in the value to those experienced by the Steam Packet have been seen in the sales of Wightlink, Red Funnel and Condor Ferries. For the Report's comments to have more value they should also compare and contrast the sales of these companies. If the market value is due to the User Agreement then how have apparently similar sales, without the benefit of a User Agreement, been for similarly high values?
Pricing(a) PassengersThis section is misleading and shows a lack of understanding of the Manx market
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The online analysis did not just find that the Steam Packet fares to be broadly comparable. It found them to be the lowest on a per mile basis. Ferry traffic between 2003 and 2006 was affected by the CCG payments to airlines which reduced prices on the Liverpool air route. Despite such financial assistance all the air carriers that came onto that route either withdrew subsequently or went out of business. The comment about reliability is not supported by fact. Fast ferry services to the Island average 97% reliability. The comment about "SPC somewhat dated fast ferries" is slightly misleading. Viking is of a similar age to the majority of fast ferries operating in UK waters. Condor ferries operate one 74 metre long Incat vessel of the same age as Snaefell and two 86 metre Incat vessels of similar age to Viking.(b) FreightThe examples quoted of freight rates on North Sea routes are interesting. One we believe is a freight-only route and the other was supported financially, at least initially, by the Scottish Executive. This latter route has very recently ceased operation, presumably due to a lack of profitability. The Department believes that the most relevant comparisons are the Chanel Islands routes which are not mentioned. No reference is made of other freight operators to the Island such as Mezeron which provides some competition, albeit with a different mode of transportation. A number of other operators in the past have tried to offer lower cost lo- lo services for heavy freight including experienced UK container operators and ail have failed.
The Department would not agree with his explanation of influencing factors. The User Agreement led directly to Ben-my-Chree being introduced. Without this agreement this investment would not have been made and the Steam Packet would have continued to replace vessels with old second-hand tonnage. Ben-my-Chree removed the previous constraints on freight in particular, but it did not, in itself, create extra demand. Such extra demand has been due to an increase in general economic activity on the Island. Current freight metreage accounts for only 25.5% of the lane metreage on the vessel.
4 RegulationThe User Agreement is a legal document approved by Tynwald and the Department's role is to administer it. The Department cannot write in provisions or requirements that are not contained within that document. Mr Christopher did not say in his evidence to the Committee that "SPC financial accounts are not considered a matter for Government". Instead, he said "my role is relating to the User Agreement, so it is not an issue whether the Company is profitable or not; it is the obligations on the Company within the User Agreement that we enforce upon them". The User Agreement is not a route licence, it is an agreement that provides preferential use of an item of plant in return for provision of essential lifeline services to the Island.
The User Agreement is in force potentially up to 2026. What the Government decides to do approaching that time will be dependent on the circumstances that then apply.
The presentation given by the Department to the Select Committee covered options other than a user agreement, including tendering. However, the evidence to date that the Department is aware of does not support the view that such a process would necessarily bring benefits to service users. If the service had been tendered prior to 1995 the Island may well have ended up with a similar level of service that was experienced in 1995 delivered by more modern versions of King Orry, Peveril and Lady of Mann. It is in this light that the Department would view the Scottish Northern Isles vessels operated by North link as they appear only to be modern versions of those operated by P&O previously.
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5. Steam Packet OwnershipThe User Agreement requires investment from the Company and it is therefore a contractual obligation. It has created a requirement for investment which did not exist prior to the agreement. Since the User Agreement came into force the average age of vessels serving the Island has reduced from 21 years to 12 years. As far as the Department is aware private equity owned ferry companies have tended to invest more than or at least as much in replacement vessels as traditional ferry companies.
It is disappointing that Professor Baird did not have the opportunity to discuss the User Agreement or his views with Mr Christopher and Captain Brew prior to submitting his advice to the Committee. Had he done so the Department is of the opinion that it would have been beneficial. The Department has reached this conclusion as it is aware that the presentation given to the Committee to explain aspects of the User Agreement was of particular use to Members.
Committee comment - we note the Department's comments and that they cover such matters as Company value, freight rates and profit, matters which hitherto were considered to be not requirements of the User Agreement
Notwithstanding the comments above which are intended to be of assistance the recommendations within the draft report of the Select Committee are generally sound. The Department however can only operate within the framework of the existing legal documents unless changes can be negotiated with the Company.
Please let me know if I or my colleagues can be of any further assistance.
Yours sincerely
IT Thompson Chief Executive
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available from:The Tynwald LibraryLegislative BuildingsFinch RoadDOUGLASIsle of Man IMI 3PWBritish IslesTel: 01624 685520Fax: 01624 685522e-mail [email protected]
Parliamentary Copyright
November 2008
Price: £10.00
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