Gourock-Dunoon:Gateway to the Scottish ferry

network

Professor Neil Kay, for DGFAGGourock Dunoon Market Engagement Information Day 18 October 2013

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Strategic coastal transport links

F B

• B = Forth Bridges (avoids 38 mile

detour) • F = Gourock-Dunoon ferries (avoids 84

mile detour)

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Strategic coastal transport links

F B

• B = Forth Bridges (avoids 38 mile

detour) • F = Gourock-Dunoon ferries (avoids 84

mile detour)

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Strategic coastal transport links

F B

• B = Forth Bridges (avoids 38 mile

detour) • F = Gourock-Dunoon ferries (avoids 84

mile detour)

• “A strategic link between the western coast of Scotland and the central belt” Mr Gordon Ross, MD Western Ferries August 2013)

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The Base Case • Gourock- Dunoon is one of the busiest ferry routes, not just in

Scotland but in Europe – with the potential to be even busier

• MVA consultants for the Scottish Government found that a two-vessel ro-ro vehicle and passenger town centre to town centre service would be commercially viable, capturing 56% of the (unsubsidised) car market on the route and with a defensible annual subsidy of up to nearly £3mill for foot passengers

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The Base Case • Gourock- Dunoon is one of the busiest ferry routes, not just in

Scotland but in Europe – with the potential to be even busier

• MVA consultants for the Scottish Government found that a two-vessel ro-ro vehicle and passenger town centre to town centre service would be commercially viable, capturing 56% of the (unsubsidised) car market on the route and with a defensible annual subsidy of up to nearly £3mill for foot passengers

• Suppressed demand and future growth opportunities mean that the revenue potential of the route may be greater than projected, while other considerations mean the cost basis may be lower than projected

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CMAL charges •CMAL introduced revised set of harbour access charges,

Spring 2013. CMAL’s policy is to fund loss making ports and harbours with profits from their facilities with high value traffic

•The major impact is on routes with (or with the potential for) high value traffic, including David MacBrayne routes which SG had previously identified as potentially suitable for market testing (some CalMac routes and also Gourock-Dunoon)

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CMAL charges •CMAL introduced revised set of harbour access charges,

Spring 2013. CMAL’s policy is to fund loss making ports and harbours with profits from their facilities with high value traffic

•The major impact is on routes with (or with the potential for) high value traffic, including David MacBrayne routes which SG had previously identified as potentially suitable for market testing (some CalMac routes and also Gourock-Dunoon)

• Initial analyses suggests projected CMAL charges on a vehicle-passenger Gourock-Dunoon service would be significantly above costs and so could be subject to challenge.

• Case against CMAL’s network charges currently being prepared using Gourock-Dunoon as indicative case

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The vessels would have to be built

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The six year contract

• 6-year public service contract with compensation/subsidy for the foot passenger aspect has implied risk for new-build vessels; what if the contract is not renewed after 6 years?

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The six year contract

• 6-year public service contract with compensation/subsidy for the foot passenger aspect has implied risk for new-build vessels; what if the contract is not renewed after 6 years?

• Turn the question on its head. If suitable vessels have been built for the route, what are the chances of another bidder having two other vessels that just happen to have the economic and technical specifications needed for the route?

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The six year contract

• 6-year public service contract with compensation/subsidy for the foot passenger aspect has implied risk for new-build vessels; what if the contract is not renewed after 6 years?

• Turn the question on its head. If suitable vessels have been built for the route, what are the chances of another bidder having two other vessels that just happen to have the economic and technical specifications needed for the route?

•Answer, almost zero. Incumbency wins - for suitable vessels

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Western’s Competitive Response • Competitive response by Western Ferries to entry would

have to be credible and sustainable

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Western’s Competitive Response • Competitive response by Western Ferries to entry would

have to be credible and sustainable

•The new town centres service estimated to capture 56% car-based market share with just two vessels (MVA report).

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Western’s Competitive Response • Competitive response by Western Ferries to entry would

have to be credible and sustainable

•The new town centres service estimated to capture 56% car-based market share with just two vessels (MVA report).

•Western would have a 44% market share with a cost and capacity base designed for more than double that.

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Western’s Competitive Response • Competitive response by Western Ferries to entry would

have to be credible and sustainable

•The new town centres service estimated to capture 56% car-based market share with just two vessels (MVA report).

•Western would have a 44% market share with a cost and capacity base designed for more than double that.

• It would have a four vessel fleet and four linkspans with revenues less than half of what these were built for. What would/could its competitive response be?

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Western’s Competitive Response • Competitive response by Western Ferries to entry would

have to be credible and sustainable

•The new town centres service estimated to capture 56% car-based market share with just two vessels (MVA report).

•Western would have a 44% market share with a cost and capacity base designed for more than double that.

• It would have a four vessel fleet and four linkspans with revenues less than half of what these were built for. What would/could its competitive response be?

Just have to do the maths

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Finally Further enquiries or requests to discuss further welcome, please contact

Chair of Dunoon-Gourock Ferry Action Group, Susanna McCorry Rice at:

susannamccorry@hotmail.com

or Neil Kay at:

neilkay@aol.com

All contacts will be treated in the strictest confidence