Study Background and Objectives
The towns of Gourock in Inverclyde and Dunoon on the Cowal peninsula are currently served by two ferry operators, Caledonian MacBrayne (CalMac) and Western Ferries. The two services operate between different coastal points. CalMac's service runs between the two town centres of Gourock and Dunoon, while the Western Ferries' service runs between McInroy's Point (Gourock) and Hunter's Quay (Dunoon). Nevertheless, the two services are effectively in direct competition with one another.
Western Ferries is a private company run on a fully commercial basis. CalMac is state-owned and receives a subsidy for running socially necessary passenger services. This subsidy is not route specific. However, since 1981/82, CalMac's service frequency on the Gourock/Dunoon route has, in principle, been restricted to one per hour to ensure that the public subsidy is not used to force a private operator off the route. In practice, CalMac has actually run more services than implied by hourly restriction to meet peak demand. These additional services are advertised and the Scottish Office is aware of them.
CalMac's existing fleet capacity on the route is obsolete and nearing the end of its useful life. Its replacement may require significant investment of public funds, and may also require substantial investment in the piers at Gourock and Dunoon. Before committing these funds, the Scottish Office, in conjunction with CalMac and Western Ferries, commissioned this study to advise on the future options for the structure and regulation of the Gourock/Dunoon ferry services.
Route Demand
The total traffic carried on the route each year, including foot and vehicle passengers, has risen from approximately 1.2 million in 1992 to 1.45 million in 1997. CalMac's share of the total has been stable at just over 0.6 million passengers per annum, while Western Ferries' has risen from 0.6 million to 0.8 million per annum. Further analysis suggests that the reason for this is that half of CalMac's market comprises foot passengers, while Western Ferries' is the market leader for car passengers, and car traffic has increased more rapidly than foot traffic on the route.
The most likely forecast is for a continuation of the historic trend of steady modest growth of between 1% and 3% per annum in both passenger and vehicular demand on the route.
Route Capacity
In the operational year examined, CalMac operated four vessels in the Inverclyde area. These vessels served the Wemyss Bay-Rothesay and Gourock-Dunoon routes, as well as the Clyde cruising programme. Three of these vessels can carry up to 5 10 passengers and 40 cars each, with the fourth having a carrying capacity of 356 passengers and 32 cars. Western Ferries' fleet comprises five vessels of varying capacity. The smallest has a capacity of 200 passengers and 22 cars, two can carry 220 passengers and 37 cars, and one carries 296 passengers and 32 cars. Our calculations indicate that the combined capacity of the two services is well in excess of current demand, with only 12-14% of foot passenger capacity utilised. Spare car capacity is less, but still significant: CalMac's car capacity is on average only 29% utilised, while Western Ferries' is 60% utilised.
Our conclusion is that either operator could meet full route demand on a normal day.
We also examined the question of whether they could each meet demand peaks. Our analysis indicates that, with some adjustments in service structure and frequency, either operator separately could meet peak demand, with the single exception of the Cowal Games weekend in August. Demand during this weekend is abnormally high, and could be met by charters contracted for its specific requirements.
Future Options for Service Delivery
We examined a range of options for future service delivery. The key generic alternatives are summarised below.
1. The status quo. Under this option, route operations would continue as at present. CalMac's route capacity is near the end of its useful life and is technically obsolete. Ideally, a "do minimum" option would necessitate medium-term investment in new capacity on the Gourock/Dunoon route, both in vessels and pier infrastructure. CalMac's own 1996 corporate plan envisaged a vessel investment programme costing £16.5 million over the period 2001-2005 to replace three vessels at a cost of £5.5 million each. It also envisaged a further £2 million to finance improved linkspans at Dunoon and Rothesay, and £0.5 million at Gourock. Western Ferries is planning to replace one of its five ships within the next two years, adding 9% capacity to its fleet, to accommodate continuing modest growth in its market. It is also planning to upgrade its pier at Hunter's Quay and to continue maintaining McInroy's Point. Overall, a capital investment in excess of £20 million would be required under this scenario.
Even if the programme was cut back to, say, £14 million, it would still equate to approximately £10 for each of the 1.4 million passengers who currently use the route annually - more than twice the currently quoted standard adult return fare. This indicates that the investment programme would not be affordable using commercial finance, and could only be funded with substantial public sector support. However, it is doubtful whether this could be justified on economic grounds, because the reason for the non-viability of this option is that there is excess capacity on the route relative to current and likely future traffic levels.
We looked at a range of variants of this option. Under one, CalMac was assumed to continue running its existing (technologically obsolete) fleet as long as possible, to avoid the heavy investment costs associated with replacing it. The problem with this variant is the heavy recurrent costs associated with running the ships, combined with their relatively low utilisation, results is a continuation of the service's current operating deficit of approximately £0.8 million per annum. Under another, we examined the implications if the CalMac service was designed for foot passengers only. Costs are cut under this variant, but the service continues to sustain an operating deficit, although this is reduced to approximately £0.6 million per annum. It should be noted that this proposal is not considered to have long-term prospects by either operator.
2. Closure of one of the existing services. While the "status quo" option and its variants are only sustainable with the continuing injection of substantial public subsidies into the Gourock/Dunoon service, closure of one of the existing services would imply that the route could be run on a fully self-financing basis by the surviving operator. Capacity would be in line with route demand, and future investment costs could be fully funded from tariff revenues at no cost to the public purse.
In reality, we do not believe that it is likely that the McInroy's Point/Hunter's Quay route would close. The existing service operator is trading profitably and able to fund its investment requirements on a fully commercial basis. In a free market, there is no reason why closure should occur under these circumstances.
The closure of the existing Gourock/Dunoon service would involve one-off redundancy costs. It could also imply that certain unavoidable overheads had to be absorbed by other services within the CalMac network, increasing their costs and reducing their viability. Nevertheless, this option would result in a net saving in public expenditure compared to the status quo. However, it would also result in the loss of a direct link between Gourock railway station and Dunoon town centre, although Western Ferries has expressed its willingness in principle to run a dedicated express bus service between these two points via the McInroy's Point/Hunter's Quay ferry at no extra cost.
As a variant of this option, we examined the hypothetical feasibility of a service between McInroy's Point and Dunoon Pier, if it was regarded as desirable to continue a ferry service directly into Dunoon. Unlike the McInroy's Point/Hunter's Quay ferry service, this would not be commercially viable; a public subsidy of approximately £65,000 per annum, would be required to meet the investment costs directly associated with it. However, additional expenditure might be required in premium payments to buy out existing route rights, and the implementation of this theoretical option would be complex and difficult. In any event, it would only be justifiable if the economic benefits of continuing a direct ferry link to Dunoon were clearly demonstrated; an issue which lies beyond the scope of this study.
3. An enhanced Gourock/Dunoon service. Under this option, which has been proposed by CalMac, the operation of the existing Gourock/Dunoon service would be radically changed. The feasibility of these proposals cannot be validated by either Western Ferries or Deloitte & Touche, as it requires a great deal of further analysis of the technical feasibility of the option and the effect on the town of Dunoon. The Gourock/Dunoon service operator would invest in two new roll-on roll-off vessels, enabling more rapid turnaround times than at present for vehicles on either end of the crossing. Their cost structure would be similar to that currently operated by Western Ferries which would be a significant operational change for CalMac to implement. Dunoon Pier would not be refurbished; instead, a low-cost concrete slipway would be installed at a suitable location to be determined near to the existing pier. The investment costs of this option might amount to approximately £8.5 million, of which £7.6 million might be spent on the vessels. Following this investment, the service might generate an operating surplus rising from £0.5 million in the early years of operation to £0.7 million by Year 12, so the net present cost of this option may be only approximately £2 million. The McInroy's Point/Hunter's Quay service would continue as at present.
Conclusions
We were not asked to recommend a single option. However, from the above analysis it is clear that the "status quo" is not a cheap option for the public purse. A single service between McInroy's Point and Hunter's Quay appears commercially viable and implies much lower costs for the taxpayer. However, it loses the benefits of consumer choice and competition, and would mark an end to ferry travel to Dunoon pier. For these reasons, there may be merit in further examining the technical feasibility and commercial viability of the radical changes to the Gourock/Dunoon ferry service proposed by CalMac. However, it should be emphasised that we cannot give any assurance that the outcome of such a study will be positive.