Summary

Summary

Until July 2011, Cowal Ferries operated a passenger and vehicle ferry service across the Firth of Clyde between Gourock and Dunoon town centres. Since then, the Argyll Ferries town centre service has carried foot-passengers only, the service being provided by two passenger ferries. The Gourock-Dunoon route is the busiest ferry crossing in Scotland and the two existing ferry services (Argyll Ferries and Western Ferries' passenger and vehicle service) provide a key link between Cowal / Dunoon and the central belt.

In November 2012 MVA Consultancy, together with The Maritime Group (International) Limited, were commissioned by Transport Scotland to carry out a feasibility study on future ferry services between Dunoon and Gourock town centres. The overarching aim of the study was to determine the feasibility of a service with the vehicle-carrying portion of the service operating without subsidy and the passenger-carrying portion being subsidised in a manner compatible with EU law.

The stated Scottish Government policy objective is 'that there shall be a safe, reliable, frequent, commuter ferry service between Dunoon town centre and the rail terminal at Gourock. The service must be able to operate reliably throughout the year in the weather and sea conditions experienced on the Firth of Clyde and provide an acceptable level of comfort to meet the reasonable expectations of users including commuters, the elderly and disabled and tourists. It is the wish of Scottish Ministers that the ferry service shall carry both vehicles and passengers.'

The study adopted an incremental approach. Firstly, the defensible subsidy associated with running a foot-passenger only service is determined. Secondly, the balance of costs and revenues associated with moving from a fit-for-purpose foot-passenger service (in terms of weather related reliability) to an equivalent timetable delivered with passenger and vehicle carrying ferries between the town centres is then determined. If the incremental costs of this move are greater than the incremental revenue generated, then this proposition is not feasible. If however the incremental revenue outweighs the incremental costs, then the proposition is deemed to be feasible. This is the definition of 'feasibility' adopted for this study.

Detailed analysis was carried out to arrive at the conclusions on the feasibility of a future passenger and vehicle service. This included outputs from a consultation exercise with local residents / stakeholders and users of the local ferry services, research on the appropriate vessel specification and existing harbour infrastructure, an assessment of historical carryings data on the route, fares analysis and projections of potential demand for the services.

The findings from the analysis were brought together under different vessel (ie timetable) and economic growth scenarios to forecast the incremental cost and revenue for different levels of service, and the key results are shown in the table below.

15-year Incremental Costs and Revenues, by Vessel and Growth Scenario (£'000)

It can be seen that a large majority of the incremental costs associated with moving from a foot-passenger service to a passenger and vehicle service are attributed to increased Harbour Dues: both Pier Dues (higher traffic levels), and Berthing Dues (larger vessel). These two elements account for around 70% of the total incremental cost in a two-vessel scenario, based on current published rates at both harbours.

The table shows, for example, that under a two vessel service, vehicle based carryings are forecast after an initial ramp-up to reach around 56% of the total market (ie the total of the Gourock-Dunoon and Hunter's Quay-McInroy's Point crossings). This is estimated to generate incremental revenue, ie compared to a passenger only service, over a 15-year period of £64.1m in a Gradual Recovery Scenario. This is sufficient to cover the incremental costs of £55.0m over the same period by £9.0m. The table also shows that under this scenario, the service would have a 'tipping point' (where revenue is less than the costs) equating to a market share of 39%, ie the service would be feasible with anything over 39% of the total market.

The table also shows that under a two vessel service, if there was a faster recovery to Trend Growth (as seen pre-recession) on the route leading to an increase in total demand on the crossing, the incremental revenue would outweigh the incremental cost over the 15-year period by £13.6m and the service would have a tipping point at 35%. Under the Static demand scenario, the incremental revenue would outweigh the incremental cost over the 15-year period by £7.8m and the service would have a tipping point at 41%.

It is forecast that if an operator were to provide the same timetable service as Western Ferries currently provides, the market share would increase to 64%. However, the additional incremental revenue generated by the additional carryings would not outweigh the additional incremental costs and the service would have a financial deficit under all the economic scenarios considered, except the highest growth scenario.

Overall the table shows that, given the assumptions made here, a passenger and vehicle ferry service would be most feasible under a two vessel scenario. It could attract the level of market share, and therefore generate sufficient incremental revenue, to cover the various incremental costs of delivering the service. Note though that the purpose of this study was to explore the feasibility rather than the commercial attractiveness of a vehicle ferry.

It has been assumed that the current shoreside infrastructure and facilities could be used for a new ferry service in the short term, although investment would be required in the medium term to maintain and improve the service offering.

The absolute subsidy implied by the foot-passenger service is also clearly important (ie the 'defensible subsidy'). The foot-passenger vessel specified here has focussed on matching the weather related reliability performance of the previous 'Streaker' vessels, and thus the vessels specified would be anticipated to have higher costs than the existing passenger vessels on the route.

It has been estimated that a two vessel foot-passenger service would require an annual subsidy of around £2.9m, based on the vessels specified here. The current Argyll Ferries contract grants an annual operating subsidy of £1.7m per annum. In contrast, the previous Cowal Ferries service received an annual subsidy of more than £3m based on the larger Streaker vessels with their higher crewing levels. Any vessel scenario involving more than two vessels would require a substantially greater subsidy.

These 'core findings' were then subjected to a range of sensitivity tests focussing on some of the key variables influencing feasibility - crewing levels, gross tonnage of the passenger and vehicle vessel (this affects berthing dues), and the level of harbour dues. These tests underline the importance of the level of pier dues in particular to the overall feasibility of the service. The 'core findings' were based on current published rates at both harbours. In principle, harbour dues may be subject to a commercial negotiation at Dunoon to high volume users, although harbour dues at Gourock are not currently subject to negotiation. Argyll and Bute Council has noted that harbour dues are a significant part of the cost of the vehicle ferry service and consequently they would seek to minimise such charges and would be willing to review the basis upon which harbour dues at Dunoon are set in the context of the introduction of a new service. Such a review would be informed by: the facility's operating and staff costs; inspection, maintenance and whole life asset management costs; and any prudential borrowing costs required to fund future shoreside infrastructure associated with the new ferry service. There is scope for both harbour authorities / owners to explore the basis upon which harbour dues are set in the future, provided they receive an adequate income to cover the costs of operation, maintenance and future investment.

The core findings also assumed no competitive response from Western Ferries due again to the level of uncertainty associated with this. However, in discussions with representatives of Western Ferries it was made clear that it is their stated intention to react to new competition in a way which seeks to protect their market share and commercial operation. There is however an alternative view that Western Ferries may not be able to mount or sustain a competitive response and therefore the company may have to retrench if it lost significant market share. It was not the purpose of this study to consider competitive response in detail. Nevertheless, a number of 'what if?' tests were undertaken to assess the sensitivity of the core findings to a competitive response from Western Ferries.

In summary there are a range of key potential 'upside' aspects (eg lower vessel gross tonnage, pier & berthing dues reduced through negotiation, Western Ferries retrenchment) and 'downside' aspects (eg higher gross tonnage, higher crewing levels and the nature of the response from Western Ferries) which could affect the viability of the service, and the balance of these would be crucial in determining the ultimate feasibility of the town centre passenger and vehicle service. Some of the inherent uncertainties associated with these aspects of the prospective service could be resolved as part of a market testing exercise whilst other aspects (in particular the response of Western Ferries) would only become apparent on commencement of the service.

This study has therefore demonstrated that, given the assumptions made and analysis undertaken here, a passenger and vehicle ferry service is feasible. This core finding is subject to the uncertainties explored through the sensitivity testing, but the study does provide an evidence base which could be used to inform discussions with potential operators. Ultimately, it is their judgement and level of interest in this proposition that will determine the future feasibility of a passenger and vehicle service between Gourock and Dunoon town centres.