3.1 Caledonian MacBrayne Limited
Caledonian MacBrayne Limited is wholly owned by the Secretary of State for Scotland. CalMac has been in existence in its present form since 1973, although it came into being under the Transport Act of 1968, and operates publicly subsidised ferry services all over the West Coast of Scotland.
Public Subsidy
CalMac currently benefits from an annual revenue subsidy from the Scottish Office. This amounted to £11.7 million in the 1996/97 fiscal year, an increase from £8.3 million in 1995/96. A key reason for the increase in the overall CalMac subsidy in 1996/97 was the withdrawal of the Kyle/Kyleakin service, which had been one of the most profitable in the CalMac network, following the opening of the Skye Bridge.3 In addition, CalMac has informed us that the recent maritime accidents involving ferries have led to expenditure over the past few years to conform with higher safety standards.
The Scottish Office subsidy is estimated in advance to cover the likely revenue deficit including depreciation on ships and terminals. Grants for major capital expenditure such as new ships are additional. However, the Gourock-Dunoon route has not benefitted from any significant capital investment in recent years, except for some berth modifications at £200,000 in 1994.
The revenue subsidy is not allocated to specific routes. However:
3.21 Western Ferries Limited
Western Ferries (Clyde) Limited was a management buy-out in 1985 from Western Ferries (Argyll) Ltd, which operated to Islay and still operates between Islay and Jura. The company is managed by Stirling Ship management Ltd, which also manages Stirling Shipping Company Ltd, the largest UK supply boat owner and operator. Day to day operations are managed locally in Hunter's Quay.
All day-to-day operational matters relating to Western Ferries (Clyde) Ltd., henceforward described as Western Ferries, are dealt with in Hunter's Quay. All financial and administrative matters are addressed by the Glasgow office of Stirling Ship management Ltd.
In the year ended 31 March 1997, Western Ferries (Clyde) Ltd. made an operating surplus of £811,000 and a net profit of £186,000.
3.3 Passenger Volumes by Category Carried by Each Service Provider
The operators are very different in the type of traffic they carry. Figures 3. 1. and 3.2 show the proportion of foot to car passengers carried by each. Clearly, almost half of CalMac's present market is made up of foot passengers, By contrast, only 16% of Western Ferries' market comprises foot passengers, with over three-quarters comprising car passengers. This issue is dealt with in more detail in Section 5. .
The total number of passengers carried on the two routes was 1.45 million in 1996, comprising approximately 0.44 million foot passengers and 0.91 million car passengers.
Figure 3.1 Composition of CalMac's passengers on the Gourock/Dunoon route in 1996
fig 3.1
Source: CalMac
Figure 3.2 Composition of Western Ferries' passengers on the Hunter's Quay/McInroy's Point route in 1996
fig 3.2
Source: Western Ferries
3.4 Route Regulation
3.4.1 Ministerial Service Commitments
There is a general commitment by the Secretary of State for Scotland that there will continue to be a passenger service between Gourock and Dunoon, and that any intention to withdraw this service will be subject to a reference to the CMUCC and will have to be advertised for a six month period.
3.4.2 The Regulatory Framework
There is no formal regulatory framework for the delivery of this service obligation. The Scottish Office does not seek to control fares on the route. Although it sets overall network service standards for CalMac, it does not set standards by individual route and it has not subjected delivery of services on the Gourock/Dunoon route to a competitive tender. However, in 1982, the Scottish Office limited the frequency of services which CalMac could offer to one round trip sailing every hour. This had the effect of maintaining the overall service capacity of both operators at the same level. However, Western Ferries has more than doubled its service capacity since that time. The CalMac service has also been extended so that CalMac advertises additional services at peak times and the Scottish Office is aware of this, although permission was not sought in advance. All other aspects of the operation of the Gourock/Dunoon ferry are matters for CalMac's management.
The consequence of these arrangements is that CalMac has continued to operate the route in limited competition with Western Ferries.
These arrangements are not subject to regular review, but will continue indefinitely until one of the parties terminates them. They are updated annually through a letter sent by the Scottish Office to CalMac. which covers all of its services.
The existing framework is recognised not to be wholly satisfactory because of the limitations placed on service delivery by one of the companies, compounded by the fact that the existing arrangements are only sustainable with the support of a public subsidy. A key question is whether this represents the least-cost method of honouring the Ministerial service commitment.
3.4.3 Performance Indicators
In disbursing the grant, the Scottish Office monitors three performance indicators:
At present, these standard targets are set for CalMac's service as a whole, but they could in principle be disaggregated into targets for individual routes.