1 Introduction

1 Introduction

1.1 Background

1.1.1 MVA Consultancy in association with The Maritime Group (International) Limited was appointed by Transport Scotland in November 2012 to undertake a Feasibility Study into the operation of a passenger and vehicle carrying ferry service between Gourock and Dunoon town centres, where the vehicle carrying element of the service is required to operate demonstrably without subsidy. The study was led by a Steering Group which comprised Argyll and Bute Council, Dunoon Gourock Ferry Action Group (DGFAG), Inverclyde Council and Transport Scotland.

1.1.2 This study has its origins in the switch (following a European Commission ruling¹) from a passenger and vehicle ferry between the town centres (operated by Cowal Ferries) to a foot-passenger only service (currently operated by Argyll Ferries). The EC ruling notes that a vehicle carrying service could legally be operated so long as it does so without subsidy (ie subsidy is permitted for the foot-passenger element of the service only).

1.1.3 The Terms of Reference (ToR) for this study stated that 'The 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.'

1.1.4 The weather related reliability record delivered by the current foot-passenger service provided by Argyll Ferries is inferior to the level of weather related reliability achieved by the previous Cowal Ferries 'Streaker' vessels and this has been a matter of concern locally. As such a key consideration here is that the vessels assessed as part of this feasibility study should provide weather related reliability performance at least as good as the previous Streaker vessels.

1.2 Route History

Background

1.2.1 A ferry service between Dunoon town centre and Gourock town centre / railway station, a distance of about six kilometres, has operated since at least the nineteenth century. Since the 1940s this service was operated by a Government owned company (CalMac Ferries Ltd) with increasing dependence on subsidy. Western Ferries, a privately-owned company, began operating a competing commercial service in 1973. This operates between two different piers (Hunter's Quay on the outskirts of Dunoon and McInroy's Point, about two kilometres from Gourock town centre / railway station). This involves a shorter crossing than the Gourock Pier - Dunoon Pier service but one that is less convenient for passengers wishing to travel onwards by rail from Gourock or by bus from Dunoon. This service commenced using two vessels and was gradually developed through investment in shoreside infrastructure and vessels over the years. Four vessels currently operate the route providing a service every 15 minutes at certain times of the week, with a 20 minute service being more typical. Western are due to take delivery of two new vessels in August 2013.

1.2.2 In the early 1980s, Government recognised that the prime benefit of the town centre subsidised service was to foot-passengers and that there were difficulties in subsidising a vehicle service when an unsubsidised operator was providing a vehicle service on a broadly equivalent route. A range of solutions was considered and the approach that was adopted involved the continuation of the Caledonian MacBrayne service but with the subsidy to be targeted only on the passenger element of the service. The vehicle element of the service was expected to pay for itself on a commercial basis. In addition, timetable restrictions were put in place (in terms of frequency and length of operating day) to reduce the potential for the subsidised service to harm the commercial interests of the unsubsidised operator.

1.2.3 In 1999, the Scottish Executive began to consider the implications of the Maritime Cabotage Regulation for the Clyde and Hebrides Ferry Services run by the then Caledonian MacBrayne Ltd, including the Gourock Pier to Dunoon Pier service. Following public consultation in 2000, the Executive, in early 2001, sought the Commission's views on the proposed approach to tendering. This involved tendering the Clyde and Hebrides Ferry Services as a single network, with the proposal that the Gourock Pier to Dunoon Pier service should be designated as a passenger only service. In November 2001, the Commission indicated that it would not stand in the way of the Executive tendering the services in this way. In 2002, the Executive consulted on the detailed plans for tendering the network, including the passenger-only proposal for the Gourock Pier - Dunoon Pier route. The passenger-only service proposal was criticised by local stakeholders who wished a vehicle service to be retained between Gourock Pier and Dunoon Pier.

1.2.4 At that stage, the Scottish Executive sought further discussions with the Commission to establish what other approaches might be pursued in respect of Gourock - Dunoon. In 2003, the Scottish Executive consulted on a draft service specification for the Gourock - Dunoon service based on the approach outlined above. In mid-2004 the UK Permanent Representation to the EU presented a paper to the Commission on behalf of the Executive in respect of a possible state aid notification in relation to offering subsidy for a vehicle service where the existing restrictions would be removed. Following the response received from the Commission, but prior to reaching any conclusions about the Commission's response, the Scottish Executive decided to pursue an alternative option for the route which did not involve subsidy.

Recent Developments

1.2.5 The Gourock - Dunoon town centre route was put out to tender as a free-standing route in 2005. Although three companies were invited to tender for the route, no bids were received in the end. In the aftermath of this tendering process, Cowal Ferries (a subsidiary of the David MacBrayne Group Ltd) took over running of the route, and the service continued as before.

1.2.6 The Cowal Ferries service was latterly provided using a single Streaker, a side-loading vessel in line with the ferry terminal infrastructure at Gourock and the historic pier at Dunoon. This provided an hourly service each way and was supplemented by a passenger only vessel in the peak hours. This subsidised service was subject to a range of restrictions relating to service frequency and the length of the operating day which were introduced in the 1980s as noted above, the rationale being the presence of a nearby commercial operator (Western Ferries).

1.2.7 In the spring of 2005, to upgrade the deteriorating infrastructure, Dunoon seafront received a new breakwater located just to the south of the main pier. As well as protecting the Victorian pier, a new linkspan was installed alongside the breakwater to allow the berthing and loading of ro-ro (roll-on roll-off) ferries. This new linkspan was never used for a passenger and vehicle service though as the Streaker vessels which continued to serve the route required a side-loading facility at Dunoon. However, this new facility is clearly available for any future vehicle service, and is currently used by Argyll Ferries.

1.2.8 Following several complaints about Scottish ferry subsidies, including those paid to Cowal Ferries Ltd, the European Commission decided to undertake a formal and in-depth State aid investigation in April 2008. In November 2009, the European Commission published its Decision which accepted the justification for the continuation of subsidy to the Gourock-Dunoon town centre route (noting the sound economic and social justification for public support for a town centre passenger service) but required that this was (a) tendered by June 2011 and (b) subsidy was provided for passengers only. The winning bidder would be allowed to provide an unrestricted and commercial vehicle transport service, subject to appropriate accountancy measures and audit monitoring to prevent cross-subsidisation from the passenger service to the vehicle service.

1.2.9 Following a further open tendering process in 2011 (which allowed for a vehicle service to be provided at nil subsidy, in addition to the passenger service), Argyll Ferries (a David MacBrayne Ltd subsidiary) commenced a town centre foot-passengers only service on 1 July 2011, and this is being provided using two passenger ferries. These ferries, the twin-hulled MV Ali Cat and the mono-hulled MV Argyll Flyer, were built for side access. Here, they have to operate with stern access to the linkspans, making for awkward manoeuvring of the ships during berthing. Nevertheless, these two vessels are currently timetabled to provide a half-hourly service, tied broadly to Gourock train services to and from Glasgow, across a much longer operating day than was the case before July 2011. Cowal Ferries previously operated around 36 sailings per day, whilst Argyll Ferries now are scheduled to operate 58 sailings per day.

1.3 An Incremental Approach

1.3.1 As noted above, subsidy is permitted for the operation of a foot-passenger service. The approach taken here is therefore incremental in nature. The key issue is 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 a passenger and vehicle ferry between the town centres.

1.3.2 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 feasible. This is the definition of 'feasibility' adopted for this study. The relative magnitude of these incremental revenues and costs is therefore the key issue for this study.

1.4 Argyll Ferries

1.4.1 It should be noted at the outset that this report is not explicitly concerned with the current foot-passenger only service. Rather it is focussed on the financial viability of a future town centre passenger and vehicle carrying service.

1.5 The Gourock-Dunoon Market

1.5.1 The key patronage figures for the route in 2010 (the last full year in which both Cowal and Western Ferries were operating) were:

• Passengers: CalMac 499k (28% share), Western 1,314k (72% share);
• Cars: CalMac 61k (10% share), Western 564k (90% share); and
• CVs (Commercial Vehicles) and Buses: CalMac 3k (9%), Western 33k (91%).

1.5.2 The charts below show how the market share of Western Ferries has grown sharply over time. The first chart shows car carryings indexed with 1995=100, with the second showing passenger carryings in the same way. Key messages from the graphs are:

• CalMac / Cowal car traffic declined by nearly 50% since 1995 (note that 2003 figures are affected by service disruption);
• overall total car route volumes have closely mirrored national road traffic levels - growing at an average of 1.2% per annum over this period;
• total and Western volumes peaked in 2007, with total route volumes down by 8% since then, declining at a faster rate than national road traffic (which is down by 3%);
• it is reasonable to assume that post June 2011, the majority of the 60k or so cars formerly on Cowal will have switched to Western - the other options being to travel by road via the Rest and be Thankful, to switch to travelling as a foot-passenger, or not travelling at all;
• at a total of 625k cars in 2010, this makes Gourock-Dunoon the busiest ferry crossing in Scotland by some margin, and significant in volumes by European standards;
• the decline in CalMac / Cowal passenger numbers has been less severe than car - however it has still experienced a greater than 20% drop since 1995;
• growth in total passenger volumes is less than car at 0.7% per annum over this period;
• Western Ferries passenger numbers have grown by 30% since 1995;
• as per the car trend, passenger numbers peaked in 2007; and
• by 2010, 75% of passengers on Cowal Ferries were foot-passengers.

1.5.3 By 2010, CalMac / Cowal's market share on the Clyde has dropped from 26% to 10% for cars and from 46% to 28% for passengers as shown below. The picture has been one of a steady transfer of volumes from CalMac / Cowal to Western Ferries over this time.

Figure 1.1 Transfer of volumes from CalMac / Cowal to Western Ferries

1.5.4 An important factor underlying these market share trends was the restricted nature of the Cowal Ferries operation. In addition to the timetable restrictions referred to previously, there were a range of ticketing practices (specifically the time expiry of tickets and the lack of transferability on multi-ticket purchases, and shore-based ticket purchasing only) which may have been contributory factors to this loss of market share over time. During this period Western Ferries also invested in new tonnage and therefore increased capacity and service frequency.

1.5.5 The market for foot-passengers on the Gourock-Dunoon town centre route (Cowal Ferries / Argyll Ferries) has also declined in recent years as follows:

• 2009: 390,711;
• 2010: 373,690 (-4% year on year);
• 2011: 355,893 (-5%), including the first six months of the new passenger-only operation; and
• 2012: 341,300 (-4% year on year).

1.5.6 Within this current context of declining carryings, the purpose of this study is therefore to determine whether a new passenger and vehicle carrying service can generate sufficient carryings, and therefore revenue, to cover the cost and make the service feasible.

1.6 Structure of Report

1.6.1 The report is structured into the following chapters:

• Chapter 2: Consultation;
• Chapter 3: Socio-economic context;
• Chapter 4: Vessel specification;
• Chapter 5: Route data;
• Chapter 6: Route demand projections;
• Chapter 7: Incremental cost and revenue scenarios;
• Chapter 8: Sensitivity tests; and
• Chapter 9: Summary and conclusions.