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News

FIT FOR THE FUTURE - AN UPDATE FROM MARK WOODWARD - CEO

1/2/2011

The Steam Packet Company has always been a source of much interest in the Isle of Man.  That interest has grown significantly in recent months with the increase in competition to both the freight and passenger business.

 

Until recently it has been a common misconception that we have no competition.  In fact, Mezeron has always operated an alternative, albeit until recently limited, freight service.  For passengers, the arrival of Easyjet in May 2010 highlighted once again (remember Emerald Airways?) competition between the airlines and the Steam Packet Company.  Despite this, there are still frequent calls that more competition is needed to eliminate what many, incorrectly, believe to be a monopoly status conferred upon us by the User Agreement with Government.

 

This Agreement guarantees the provision of certain minimum levels of service (which we have always exceeded) in return for near exclusive use of the Government owned linkspan in Douglas Harbour.  But it doesn’t come cheap.  We are obliged to pay the capital and maintenance costs of the Government linkspan in full and we must also pay to site our own linkspan in the harbour.  We also pay harbour dues for both passengers and freight. This ‘near exclusive’ use of Douglas Harbour therefore costs us almost £3.2m every year – money we pay to IoM Government.  On top of that, over the last 15 years, we have had to restrict our standard freight and passenger price rises to half a percent less than Manx inflation.

 

Going forward, it is worth considering recent events within the shipping industry right on our doorstep.  DFDS (ex Norfolkline) have closed their Irish Sea routes citing over-capacity and a sharp decline in demand.  Stena Line has also recently announced the closure of the Fleetwood – Larne service.  We, like other companies, must operate in a commercially sustainable manner.  Unlike some “life-line” ferry companies, we do not receive any taxpayer-funded Government subsidy.  However, we are still required to deliver on our service promises to Government and the travelling public, under the User Agreement, through good times and bad.
Recent developments have required us to take stock.  We have had to concentrate on how we can deliver our core passenger and freight services and special offer availability, whilst maintaining fares that are on a par with comparable operations - and which will not have an adverse effect on other areas of the economy such as tourism.

 

In years gone by, we have been able to sustain routes or specific sailings that a business operating in a purely commercial manner could not justify to its shareholders.  We have also been able to maintain excess capacity by way of an additional vessel, which has also fulfilled the role of back-up if required.

 

Operating in a more competitive environment means that we have had to review our operations, both to ensure compliance with the User Agreement and to meet our self imposed commitment on special offer fare availability – which, incidentally, is three times that required under the User Agreement.  Few, if any, other operators can afford to carry a “spare” vessel and we too can no longer justify the very significant cost of maintaining a third vessel in service when we can meet, and indeed still exceed, our User Agreement obligations with two vessels.

 

Instead our focus will be to ensure our vessels are as reliable as possible.  During 2010, the Ben-my-Chree had technical reliability of 100% - that is to say she did not miss a single sailing as a result of a technical issue.  Manannan, in spite of a crankshaft failure, missed only one return sailing as a result of a technical issue.  A key consideration in purchasing Manannan was that she could maintain speeds of around 27 knots on three engines if required, which would provide crossing times that are acceptable, if not ideal.
We have also had to consider the other services we provide over and above our User Agreement obligations.  These include day trip specials to Fleetwood, Belfast and Whitehaven.  While these trips may well showcase the Island to visitors, they are non-profitable and unfortunately can no longer be sustained.

 

As with many businesses that face increased competition, we now have to consider carefully how we employ our assets to maximum effect.  Unlike other businesses which operate outside of a service level agreement, we are not at liberty to cut all non-profitable services as might a purely commercial operator - neither would we necessarily wish to do so.  We therefore need to play a difficult balancing act between meeting those service commitments and operating sustainably.

 

The Steam Packet Company has been in existence for over 180 years and has an enviable record of commitment to the Island.  While our ownership and structure may have changed over the years, the Island-based management team is committed to the ongoing successful operation of the business and the provision of regular, reliable, value-for-money services now and in the future.  The User Agreement has achieved what it was created to do.  It has delivered stability and certainty of service to residents and visitors alike for the last 15 years.

 

In these uncertain economic times, the true benefit in terms of safeguarding lifeline passenger and freight services will come to the fore.  I am sure many other communities will view with envy the security of the transport links protected by the User Agreement.