SCOTTISH EXECUTIVE

Final Report: Options for the Ferry Services Between Gourock and Dunoon

8.7 Option C: Gourock/Dunoon service - foot passengers only

In CalMac's view, this option is not feasible in the long-term: it feels that local communities will not support it and will turn to the vehicle ferry instead.

Under this option, the Gourock/Dunoon service is limited to foot passengers only, in order to reduce service costs, while maintaining the commitment to a passenger service between Gourock and Dunoon, as follows:

the service operator invests in two passenger vessels at a cost of approximately Ł1.3 million each. Large hulls are required to suit Upper Clyde water, but the vessels would be fitted out to accommodate only 150 people, which would meet the requirements of passenger traffic on most days of the year. The service would continue to be half-hourly and, consequently, no new ship effect is assumed;
the service operator sells one of its existing car ferries for an estimated price of Ł70,000. The other 0.2 of a vessel which currently serves Gourock/Dunoon is successfully redeployed to other routes;
investment of Ł0. 1 million would be required in a new linkspan at Dunoon, as under the status quo, but otherwise this option has no investment implications;
the most significant implication of this option is that the revenue stream of the Gourock/Dunoon service operator would be limited to foot passengers only - which represents approximately one third of its current revenue stream, as 50% of passengers are vehicle passengers, rather than foot passengers. It has been assumed that the new vessels cause a one-off growth in the market of 7.5% of foot passenger revenue, which accrues to the passenger-only service. The revenue stream is assumed to grow by 1% p.a.;
we also assume that the operating costs of the new Gourock/Dunoon vessels would be one third of the existing fleet;
we assume that Head Office overhead allocation to the Gourock/Dunoon operator is reduced from Ł400,000 to Ł 100,000;
berthing dues are also half of existing levels.

The following changes are assumed to occur in the McInroy's Point/Hunter's Quay service under Option C:

the service picks up most but not all of the vehicular traffic carried on the Gourock/Dunoon service. Traffic levels are assumed to fall by 5% compared to the status quo, because at the margin some tourists and residents who would have undertaken the journey across the Upper Clyde would decide not to travel following the loss of the Gourock/Dunoon car ferry, i.e. there is assumed to be a category of traveller who would use a car ferry between Gourock and Dunoon but not any alternative service;
the McInroy's Point/Hunter's Quay service operator accelerates and enhances its vessel investment programme committing Ł 1. 5 million in Year 0 and Year 3;
the operating costs of the service operator are assumed to increase in proportion to its tariff revenues;
the service operator also has to invest Ł1.5 million in improved traffic management and car parking at Hunter's Quay and McInroy's Point, and on improving the linkspan and pier at Hunter's Quay, as under the status quo.

The effect of these changes on the two service operators is shown in the tables which follow. In broad terms, the operating deficit of the Gourock/Dunoon service is greatly increased, generating a Net Present Cost of minus Ł8.8 million over the 15-year operating period. The operating surplus of the McInroy's Point/Hunter's Quay service increases to Ł1.2 million by Year 3 and exceeds Ł1.5 million by Year 11. The NPV of the service is just over Ł9 million at 6% over the 15 year evaluation period. This represents an increase compared to the status quo of Ł1.4 million, because the gain in market share is relatively small.

Finally, it should be noted that this proposal is not considered to have long-term prospects by either operator.

Gourock Foot Passenger Service

	Year
	0	1	2	31	4	5	6	7	8	9	10	11	12	13	14	15 et seq
Gourock/Dunoon Service Operator	Ł000	Ł000	Ł000	Ł000	Ł000	Ł000	Ł000	Ł000	Ł000	Ł000	Ł000	Ł000	Ł000	Ł000	Ł000	Ł000
Revenues
Tariff revenues	402	406	410	414	418	423	427	431	435	440	444	448	453	458	462	467
Growth in passenger market 7.5%		30	30	30	30	30	30	30	30	30	30	30	30	30	30	30
Non-tariff revenues	100	100	100	100	100	100	100	100	100	100	100	100	100	100	100	100
Sub-total, operating revenues:	502	536	541	545	549	553	557	561	566	570	575	579	583	588	593	597
Costs
Direct ship costs	744	744	744	744	744	744	744	744	744	744	744	744	744	744	744	744
Indirect ship costs	78	78	78	78	78	78	78	78	78	78	78	78	78	78	78	78
Direct shore costs	105	105	105	105	105	105	105	105	105	105	105	105	105	105	105	105
Indirect shore costs	250,	250,	250,	250,	250,	250	2501	2501	250.	2501	2501	2501	250	250.	250.	250
Sub-total, operating costs:	1,177	1,177	1,177	1,177	1,177	1,177	1,177	1,177	1,177	1,177	1,177	1,177	1,177	1,177	1,177	1,177
Operating surplus (deficit)	-675	-641	-637	-633	~628	-624	~620	-616	-611	-607	-603	-598	-594	-589	-585	-580
Investment Profile
Ships
Overhaul of existing vessels
Purchase of new vessels	2,600
Decommissioning of vessels
Sale proceeds from surplus vessels	-70
Sub-total, ships:	2,530	0	0	0	0	0	0	0	0	0	0	0	0	0	0	0
Piers
Gourock - Linkspans
Gourock - Terminals
Gourock - Breakwaters
Sub-total, Gourock Pier:	0	0	0	0	0	0	0	0	0	0	0	0	0	0	0	0
Dunoon - Linkspans	100	gangway
Dunoon - Terminals
Dunoon - Breakwaters
Sub-total, Dunoon Pier:	100	0	0	0	0	0	0	0	0	0	0	0	0	0	0	0
Total investment requirements	2,630	0	0	0	0	0	0	0	0	0	0	0	0	0	0	0
Total cashflow	-3,305	-641	-637	-633	-628	-624	-620	-616	-611	-607	-603	-598	-594	-589	-585	-580
Discount rate	6%
Net Present Value	(Ł8,760)

Gourock Foot Passenger Service

	Year
	0	1	2	3	4	5	6	7	8	9	10	11	12	13	14	15 et seq
McInroy's Point 1 Hunter's Quay Service Operator
Revenues	Ł000	Ł000	Ł000	Ł000	Ł000	Ł000	Ł000	Ł000	Ł000	Ł000	Ł000	Ł000	Ł000	Ł000	Ł000	Ł000
Tariff revenues	3,627	3,715	3,806	3,899	3,938	3,977	4,017	4,057	4,098	4,139	4,180	4,222	4,264	4,307	4,350	4,393
Non-tariff revenues	60	60	60	60	60	60	60	60	60	60	60	60	60	60	60	60
Sub-total, operating revenues:	3,687	3,775	3,866	3,959	3,998	4,037	4,077	4,117	4,158	4,199	4,240	4,282	4,324	4,367	4,410	4,453
costs
Direct ship costs	1,581	1,581	1,581	1,581	1,581	1,581	1,581	1,581	1,581	1,581	1,581	1,581	1,581	1,581	1,581	1,581
Indirect ship costs	385	385	385	385	385	385	385	385	385	385	385	385	385	385	385	385
Direct shore costs	425	425	425	425	425	42,	425	425	425	425	425	425	425	425	425	425
Indirect shore costs	405	405	405	405	405	405	405	405	405	405	405	405,	40,	405	405	405
Sub-total, operating costs:	2,797	2,797	2,797	2,797	2,797	2,797	2,797	2,797	2,797	2,797	2,797	2,797	2,797	2,797	2,797	2,797
Operating surplus (deficit)	890	979	1,069	1,162	1,201	1,241	1,280	1,320	1,361	1,402	1,443	1,485	1,527	1,570	1,613	1,657
Investment Profile
Ships
Overhaul of existing vessels
Purchase of new vessels			1500	1,500
Decommissioning of vessels
Sale proceeds from surplus vessels
Sub-total, ships:	0	0	1,500	1,500	0	0	0	0	0	0	0	0	0	0	0	0
Piers
Hunter's Quay - Linkspans
Hunter's Quay - Terminals		1500
Hunter's Quay - Breakwaters
Sub-total, Hunter's Quay Pier:	0	1500	0	0	0	0	0	0	0	0	0	0	0	0	0	0
McInroy's Point - Linkspans
McInroy's Point - Terminals
McInroy's Point - Breakwaters
Sub-total, McInroy's Point:	0	0	.0	0	0	0	0	0	0	0	0	0	0	0	0	0
Total investment requirements	0	1,500	1,500	1,500	0	-0	0	0	0	0	0	0	0	0	0	0
Total cashflow	890	-521	-431	-338	1,201	1,241	1,280	1,320	1,361	1,402	1,443	1,485	1,527	1,570	1,613	1,657
Discount rate	6%
Net Present Value	Ł9,021
Net Present Value @ 9%	Ł6,824

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