Neil
Voyager
Posts: 7,175
|
Post by Neil on Jun 24, 2009 12:22:54 GMT -8
When I look at Baltic ferry Annual Reports such as Viking Lines, Color Lines and Scand Lines (see web sites for annual reports) I see operations roughly the size of BCF in terms of revenue and number of employees but having modest profitability. I don't know what if any subsidies they receive, although I suspect none. The route lengths are from overnight to 1-2 hours. All of these lines operate in a far higher cost environment than BCF. Their labour and fuel costs would make us wince, but their fares are about the same as ours and in some cases lower for both foot passengers and vehicles. These companies replace their vessels more often than BCF. Since the EU eliminated duty free shopping on all but some of the Viking and Silja Line runs the operators have lost a big revenue stream. How do these companies run such first class modern operations year after year? It's not really illustrative to compare BC Ferries to any of these companies. Except for Scandlines, they carry a fraction of the passengers BC Ferries carries, and none of them operate any of the local, non-commercial routes that BC Ferries must maintain. Many of their routes are international, and on-board revenue is far higher than what can be gained here. Like the European lines, BC Ferries makes money on their major, high volume routes. A more apt comparison for the system as a whole would be to Caledonian MacBrayne of Scotland, which, like BC Ferries, operates many local 'lifeline' services. And not without a hefty subsidy. As a 'ps', I'm beginning to see that the non-subsidized nature of European ferry operations is not as clear cut as we might think, as witnessed by this excerpt from an article in European Industrial Relations Observatory: After deliberations lasting throughout the spring, the government decided in May 2001 that it will grant new subsidies for Finnish merchant shipping (FI0105187F). The decision means that owners of passenger ships will be subsidised to the tune of FIM 240 million by decreasing their taxes and social security contributions from the beginning of 2002. The precise details of how the decision will be implemented are still unclear. Apparently Viking Lines isn't alone in being subsidized, and perhaps that partly explains how these lines do as well as they do.
|
|
|
Post by cobblehillian on Jun 24, 2009 14:01:46 GMT -8
Flugel and Neil: I'm both impressed and humbled by your thoughtful and fast answers to my questions. Neil: I generally agree with the tenor of your remarks concerning the lack of comparability between some of the Baltic and BCF operations. However, there are some which are similar enough to discuss, probably more than you might realize. The Viking line Kapellskar-Mariehamn operation is pretty close to our routes 1,2, and 30. A new ship for this route is almost complete and is interesting to compare with BCF vessels for similar runs. Granted their frequencies are less, six round trips per day, but important vessel stats are similar. www.vikingline.fi/onboard/viking_adcc/Essentially this run is between the Aland Island capital and a far out suburb of Stockholm where many passengers take a bus downtown. It's not much further away from Stockholm than Tsawwassen is from downtown Vancouver. The fares are similar to BCF. The route is well used by day trippers/truckers/vacationers. The most distinguishing element in these operations is the separation of non profitable operations which are generally run by local or regional governments. I guess only long routes and profitable shortruns are operated by private companies. For a look at an interesting 'minor' routes operation take the link below. www.alandstrafiken.ax/eng/index.htmScandlines 140,000 departures/4 million cars/1 million trucks/18.5 million passengers/voyage times 20 minutes to 28 hours The Rostock-Gedser route is 1hr45minutes with nine round trips/day Color Line & Silja are, I think, what most imagine the Baltic/North Sea operations to be like. Voyages are, with few exceptions. three hours and up and are marketed as mini cruises on fairly luxurious ships. One element common to all of these operations is the generation of significant revenue through on board shopping. And, most of it is not duty free. The only exception are the runs with a stop in the Aland Islands. All of these companies have found that combining quality amenities (food, lounges, etc) with a mix of shopping, some based on cheap prices, some on quality high-end goods is a winning combination. This is very evident on the one to two hour BCF type routes. Scandlines has large shopping complexes at their terminals. I'm not sure the international aspect is particularly important. The European borders are far softer than the USA/Canada border. It would be interesting to compare the types of passengers on BCF and Baltic. Is the proportion of business/tourist/family visiting travel the same. Even though everything cannot be objectively compared these operations have some similarities to BCF. They are worth watching if only to have another window on the industry. Our friends in Flensburg operate in the heart of the Baltic ferry world. Thanks for reading the rant.
|
|
|
Post by gordon on Jun 24, 2009 14:24:49 GMT -8
Interesting Info.
Is there much of a comparison between BCF & WSF?
|
|
Mill Bay
Voyager
Long Suffering Bosun
Posts: 2,886
|
Post by Mill Bay on Jun 24, 2009 15:48:51 GMT -8
Viking lines routes and operations are not quite comparable with BCFS. Their multi-hour, often overnight crossings and longer routes with full cabin offerings dwarf route 1 and a couple of Spooks by comparison.
Also: prices are in Euros, so keep in mind the exchange rate, there. AN interesting operation philosophy might be apparent for BCFerries to consider in that, if they want to be more like other ferry companies, why not lower the fares to make sure people are not dissuaded by the high cost of boarding the ship, then trap them on board for a long overnight crossing where the majority will quickly lose their will to resist and naturally gravitate to the numerous 'fun' areas of the ship, shopping areas, casinos, slot machines, boutiques and the like.
Once all the passengers are trapped on board with their money, the ship doesn't dock until the on board amenities have recouped all the operating expenses of the ship and made a healthy profit. O.k., I doubt that that is really the situation on most European lines, although I bet they make healthy money from all those on board services, but isn't that what they seem to want from the mentality they're trying to operate with in our system?
Besides, the Viking ships are ugly... we're talking Norad style ugly, here, too, and who gets the cabins below the waterline, hmmmmmm?
If I wanted a more genuine travel experience, I think I'd go with your other example: ÅLANDS LANDSKAPSTYRELSE. Their ships have really nice, clean lines, they look attractive, small and friendly... just the kind of small, inter-island run with familiar people and crews that we all like, best. Although, again, you might be surprised once you translate from Euros. But, I like how most of their ships seem to have a QPR meets Quadra Queen II or Queen of the Islands look. Small ships, but really seaworthy, completely enclosed and ready to handle the rough stuff, too, or their one open decked vessel which looks like the Mill Bay and Kwuna spliced together.
Yeah, wouldn't that be the ultimate ferry adventure, exploring Åland archipelago for a couple weeks.
|
|
|
Post by cobblehillian on Jun 24, 2009 17:10:33 GMT -8
Mr. Spirit, I did include one BCF type route for you look at, the Mariehamn-Kapellskar which is almost identical to our route 1 or 2. Check out my link to the newbuilding that will be on this route in the fall. It looks a little more deluxe than our vessels for a similar length run. Prices are similar to BCF . I won't comment on your opinion concerning Viking vessel aesthetics.
Your comment re: trapping the passengers to spend is on the money, to pardon the pun. Viking and Scandlines have proven this can work on very short routes, even those shorter than 1,2,30. They do this by offering good value for money.
You were intrigued by the minor route vessels around land. They used to be free but I think there are modest fees now. How can a small island group of 26,000 do this? The Aland government through its gaming commission own the slots on ferries all over Europe. With this money they finance their schools and internal ferry system which is a first class operation.
Aland is the home to some international ferry consultants that will be competing with BCF's new consulting venture.
SiiTech has good coverage of the North German Sea and Scandanavian area. It is amazing to see the density of the ferry traffic.
|
|
Neil
Voyager
Posts: 7,175
|
Post by Neil on Jun 24, 2009 18:20:32 GMT -8
Mr. Spirit, I did include one BCF type route for you look at, the Mariehamn-Kapellskar which is almost identical to our route 1 or 2. Check out my link to the newbuilding that will be on this route in the fall. It looks a little more deluxe than our vessels for a similar length run. Prices are similar to BCF . I won't comment on your opinion concerning Viking vessel aesthetics. Your comment re: trapping the passengers to spend is on the money, to pardon the pun. Viking and Scandlines have proven this can work on very short routes, even those shorter than 1,2,30. They do this by offering good value for money. But routes 1 and 2 aren't the issue. They make money, and routes 3 and 30 come close. They aren't a part of the question, 'why do the Europeans make money when we can't'. Remove those routes from the discussion and there is virtually no similarity between BC Ferries and the European operators mentioned. Viking doesn't service any Texadas, Corteses, or Kupers. Comparing long haul routes doesn't work, either, as ours are financial sinkholes, serving very small communities with rather large boats. We have no opportunities for something like a Helsinki to Stockholm route. Back to the annual reports.... Thanks muchly, Mr Horn, for your analysis and explanation. Some of you number cruncher types actually do speak fairly understandable English. Looking back over the last couple of years, there is quite a difference in the earnings from operations and interest servicing. This year there was only $7.5 million left after interest. The previous year it was $46.6 million, and $49.9 million the year before that. Retained earnings also plateaued this year, after increasing significantly previous years. Re that bond debt of $140 million that is due by 2013: would they actually have to pay that, or would it be rolled, somehow, into new debt?
|
|
|
Post by gordon on Jun 24, 2009 18:53:38 GMT -8
I thought tat all 3 Lower Mainland - Vancouver Island routes were profitable.
Has anything been said lately by BCF about the acquisition of a 3rd northern vessel to replace the Queen of Chilliwack?
|
|
|
Post by cobblehillian on Jun 24, 2009 19:20:03 GMT -8
Neil, I don't disagree with you. You are right, we don't have very many profitable high volume routes, and we have a lot of 'minor' routes the European operators have left to government to run. Our long routes are financial losers.
I think it worthwhile to ask a few questions, kick the tires, etc. Mr. Flugel Horn's comments were very helpful. The Europeans have come up with some good ideas and run sound operations. Is our rather austere BCF still in WAC Bennett's shadow?
After today's exercise I have to ask the question about separation of the main revenue routes and the minor routes. I assume that over the years various schemes have been tried. The latest scheme being the arm's length BCF where no cross subsidies are allowed.
Was the operation of the smaller vessels by BC Highways designed to make a profitable BCF? If BCF is headed for trouble at some point what are some other possibilities for ferry service?
|
|
|
Post by Low Light Mike on Jun 24, 2009 21:04:43 GMT -8
Re that bond debt of $140 million that is due by 2013: would they actually have to pay that, or would it be rolled, somehow, into new debt? The debt in question was issued in December 2008 as 5-year bonds. Here's an excerpt from page-5 of the MD&A report: So this $140 million bond debt was created to repay their existing credit facility (ie. short-term bank loans) and to pay for some minor capital items (ie. asset renewal that wasn't the big ships they bought). The $140 Million due in 2013 is "senior bonds" so presumably these are a separate item that is repaid. Now, how they get the cash for this is another matter: they could raise cash through a separate new bond issue earlier in 2013, and use that cash to repay the existing bonds. But the existing bonds have a definite due date when they must be repaid. Default is a very dirty word. The old bonds are repaid, or else the house-of-cards will collapse. Whether the debt is repaid with cash from new debt is a matter of their financial management decisions. But you'd think that their bond-rating would suffer, because repeated new debt used to repay old debt indicates an overall long-term inability to repay. Here's an excerpt from page-38 of their recently released MD&A report: (underlines are mine, to emphasize the point) ----------- PS: Here's the BCFS web-page about their debt: www.bcferries.com/about/investors/debt_info.html
|
|
Neil
Voyager
Posts: 7,175
|
Post by Neil on Jun 24, 2009 21:49:09 GMT -8
Was the operation of the smaller vessels by BC Highways designed to make a profitable BCF? If BCF is headed for trouble at some point what are some other possibilities for ferry service? Ministry of Highways ferry operations on the coast pre-dated BC Ferries by about six years. I don't believe that when Bennett created the BC Ferry Authority he ever had any notion of running a profit. I think the ferries were seen as a public utility, which, fifty years later, is still probably the only model that makes sense. The Swedes would probably think we're nuts to believe that links to small islands should pay their own way, and even in Norway, which has a different model, profitable routes which are contracted out are bundled with unprofitable ones, which retain their subsidy. Mr Horn, you're not very reassuring. BC Ferries could try to take new debt to pay for the old, but that would affect the market's view of their actual ability to pay. They have -what- over a billion right now in debt? With no prospect of increased government subsidies, and no expectation of improved revenues? How long can the sleight of hand continue?
|
|
Mill Bay
Voyager
Long Suffering Bosun
Posts: 2,886
|
Post by Mill Bay on Jun 25, 2009 16:40:33 GMT -8
You were intrigued by the minor route vessels around land. They used to be free but I think there are modest fees now. How can a small island group of 26,000 do this? The Aland government through its gaming commission own the slots on ferries all over Europe. With this money they finance their schools and internal ferry system which is a first class operation. So, it's a question of what takes a larger chunk out of your wallet: the ferry fares, or the gambling addiction conveniently fueled and nurtured by the government which pays for the ferry's operation. And what a way to raise financing for schools .
|
|
|
Post by gordon on Jun 25, 2009 19:31:31 GMT -8
Would gambling work as a way for BCF to increase revenue at least on the major routes where there may be enough room on the ships to have some slots?
|
|
|
Post by Low Light Mike on Jul 1, 2009 10:47:48 GMT -8
Here is an article from the July 2 2009 issue of Island Tides. It covers much of what we've been discussing in this here thread. PS: the article cites analysis done by Ms. Nellie Maxey. I've seen her analysis cited in articles in The-Tyee and now here. Does anyone know anything on her background, agenda and reason for interest in the ferries? ie. is she part of a Ferry advisory council, or is she a watch-dog citizen? I'm curious. www.islandtides.com/assets/IslandTides.pdf
|
|
Neil
Voyager
Posts: 7,175
|
Post by Neil on Jul 31, 2009 21:19:29 GMT -8
Here's a rather ominous excerpt from the BC Ferry Commission '08-'09 annual report, released today:
In light of the recent slide in traffic and demographic shifts, which may dampen growth in the longer term, productivity gains and innovation will be essential in the future, in order to moderate increases in payments from ferry customers and taxpayers. In this regard, the Commission draws attention to the terms of the Coastal Ferry Services Contract with the Province, which require a certain minimum service frequency on each route. The Commission notes that on the group of 18 minor routes during January to March 2009, the current requirement meant that the vehicle deck space on the average sailing was only one-third full. This degree of over-capacity, i.e. low productivity, warrants examination by the two parties to the contract.
Another intriguing note from the report, that I've never seen before, was that BC Ferries either was, or is, considering a cable ferry option for Denman Island.
|
|
|
Post by Low Light Mike on Jul 31, 2009 21:47:14 GMT -8
Here's a rather ominous excerpt from the BC Ferry Commission '08-'09 annual report, released today: In light of the recent slide in traffic and demographic shifts, which may dampen growth in the longer term, productivity gains and innovation will be essential in the future, in order to moderate increases in payments from ferry customers and taxpayers. In this regard, the Commission draws attention to the terms of the Coastal Ferry Services Contract with the Province, which require a certain minimum service frequency on each route. The Commission notes that on the group of 18 minor routes during January to March 2009, the current requirement meant that the vehicle deck space on the average sailing was only one-third full. This degree of over-capacity, i.e. low productivity, warrants examination by the two parties to the contract. So over-capacity and possible "service cuts" is now a possibility for the minor routes, and it was the Commissioner's idea. When this was proposed for the major routes in 2008, the arms-length government overruled the cuts and provided specified funding to restore the service levels. I wonder if things will be different this time? self-answer: Of course they'll be different, as the 2nd-try at major-route service cuts has been unopposed by govt, there's the economy thing, and there's no election looming. Minor route service cuts: just look at it as being similar to more frequent dangerous-cargo sailings, with empty-space on the schedule to plan your trip around. Another intriguing note from the report, that I've never seen before, was that BC Ferries either was, or is, considering a cable ferry option for Denman Island. That sounds pretty bizarre. I'm thinking that the local boaters in Baynes Sound and near Chrome Island wouldn't want cables in their way. It would be the effect of closing-off access through the sound.
|
|
|
Post by Low Light Mike on Aug 1, 2009 11:55:54 GMT -8
The BC Ferry Commission website has a section on "probes" which really is just a clinically-uncomfortable term for "pointed question". Here is the page of all the probes, with links to detailed Q&A: www.bcferrycommission.com/probes.html============ The most recent probe was from June 09, originating from the Commissioner about on-time performance on route-1. Here is the question: And the answer from the ferry company:
|
|
|
Post by Low Light Mike on Aug 4, 2009 14:20:00 GMT -8
discussion on the proposed Denman cable ferry is now in its own new thread, on this same page.
|
|
Neil
Voyager
Posts: 7,175
|
Post by Neil on Aug 7, 2009 13:15:34 GMT -8
Here's a rather ominous excerpt from the BC Ferry Commission '08-'09 annual report, released today: In light of the recent slide in traffic and demographic shifts, which may dampen growth in the longer term, productivity gains and innovation will be essential in the future, in order to moderate increases in payments from ferry customers and taxpayers. In this regard, the Commission draws attention to the terms of the Coastal Ferry Services Contract with the Province, which require a certain minimum service frequency on each route. The Commission notes that on the group of 18 minor routes during January to March 2009, the current requirement meant that the vehicle deck space on the average sailing was only one-third full. This degree of over-capacity, i.e. low productivity, warrants examination by the two parties to the contract. So over-capacity and possible "service cuts" is now a possibility for the minor routes, and it was the Commissioner's idea. When this was proposed for the major routes in 2008, the arms-length government overruled the cuts and provided specified funding to restore the service levels. There might be some people in ferry dependent communities who took some comfort in the assumption that, if nothing else, the Coastal Ferry Services Contract at least provided minimum service levels, for the duration of the contract. Not so. Article 4.08C of the Contract* shows that all that has to happen for service levels to be permanently cut is for both parties- the province and BC Ferries- to agree to it. Some contract. Some protection. The more one delves into the whole ferry structure the Liberals set up, the more farcical and phony it becomes. *4.08B in the '07 contract amendment.
|
|
|
Post by Low Light Mike on Aug 21, 2009 11:05:07 GMT -8
It's that time again, for the quarterly reports released by BCFS. This time it's the 2009/10 year's 1st Quarter, otherwise known as April-June 2009. MD&A: Management's discussion and analysis is an official filing done on www.sedar.com. There are regulations regarding the accuracy of these disclosures, so I look at these reports as probably the most official communication that we ever get from BCFS. Here are my highlights of the MD&A report: ================ Sorry, can't do excerpt quotes. BCFS uploaded a photocopy (badly aligned too) to SEDAR, as opposed to a text-pdf. Therefore, I can't cut/paste any sections. Too bad. Hopefully, they'll put up a text-version soon, so I can do some cut/paste. In the meantime, here's 1 piece of news: - BCFS is considering doing an application to the Ferry Commissioner to allow a fare-increase to help offset the extra operating costs resulting from the BC HST tax.
|
|
Neil
Voyager
Posts: 7,175
|
Post by Neil on Aug 21, 2009 13:11:21 GMT -8
One of the problems with these reports is that the figures aren't broken down enough.
For instance, out of total expenditures of $166 million, administration costs are given as $7.4 million, and operations as $100.5 million.
What exactly is included in administration costs? Are all the salaries of management people in there?
I'm even more curious about the operations figure, since there have been allegations on this forum that a percentage- perhaps a very high one- of head office and management costs are folded into the operation cost of the various routes. Although in certain quarterly and annual reports there has occasionally been notes about specific savings or expenditures, BC Ferries does not make a habit of giving a breakdown of the posted figures, particularly in regard to the operation costs of specific routes.
I know this topic has come up before, and I'm sure there must be established accounting protocols for what figures are included in given categories of expenses.
|
|
|
Post by Low Light Mike on Aug 21, 2009 16:57:02 GMT -8
I know this topic has come up before, and I'm sure there must be established accounting protocols for what figures are included in given categories of expenses. Sounds like a research opportunity that's perfect for a Friday evening. Categorization of expenses for Income Statement presentation, and allocation of admin & overhead is ripe with "Professional judgment", which is open to all types of interpretations. Here are some excerpts from the accounting rules (from CICA Handbook): CICA 1400:07 Some overall guidance: That's it for the core part of Canadian Generally Accepted Accounting Principles. There are secondary sources of standards, more textbook-like sources such as the Canadian Financial Reporting guide (sorry, I don't have access to that one, right now). But really, the key thing is that something is an expense or not: - If it's not an expense reported during the period, that means that it either is an expense for another period, or that it's an asset (something owned with enduring benefit to future periods) or it isn't a transaction of the entity at all). - So, the key thing is total expenses. The categorization of total expenses is largely unregulated and so the categorization is more for the purpose of internal management decisions.......which means that it's more malleable as to what is include in which categories.
|
|
|
Post by Scott on Aug 21, 2009 17:44:49 GMT -8
In the meantime, here's 1 piece of news: - BCFS is considering doing an application to the Ferry Commissioner to allow a fare-increase to help offset the extra operating costs resulting from the BC HST tax. Oh, wonderful. If you believe that BC Ferries is still a puppet of the provincial government, this whole idea becomes laughable.
|
|
|
Post by Northern Exploration on Aug 22, 2009 10:44:01 GMT -8
One of the problems with these reports is that the figures aren't broken down enough. For instance, out of total expenditures of $166 million, administration costs are given as $7.4 million, and operations as $100.5 million. What exactly is included in administration costs? Are all the salaries of management people in there? I'm even more curious about the operations figure, since there have been allegations on this forum that a percentage- perhaps a very high one- of head office and management costs are folded into the operation cost of the various routes. Although in certain quarterly and annual reports there has occasionally been notes about specific savings or expenditures, BC Ferries does not make a habit of giving a breakdown of the posted figures, particularly in regard to the operation costs of specific routes. I know this topic has come up before, and I'm sure there must be established accounting protocols for what figures are included in given categories of expenses. This exact problem has plagued the charitable sector for years. It often isn't cleared up though until the Canada Revenue folks make an individual ruling. So you end up comparing apples and oranges between charities. More specifically in that case what is considered educational activities that is part of the mission, and what is considered fundraising costs and then considered overhead. So it isn't surprizing that things such as newsletters can be considered education by one group and fundraising by another. It comes down to slicing and dicing how much content is education and how much is fundraising by Revenue as to which it should be. Having bureaucrats deciding such things isn't exactly the best. Accountants can often argue these sorts of things amongst themselves. My dad was an auditor so my eyes have often glazed over as I have heard discussions regarding a disagreement on how to interpret some standard or another. To me it was as interesting as a discussion on paint drying, but to them it was something that caused passions to rise .
|
|
|
Post by cobblehillian on Aug 22, 2009 12:48:39 GMT -8
Neil has raised an issue that seems to cover all modes of the transport industry. When the railways wanted a wholesale abandonment of the Prairie branch lines in the 80's they were able to saddle the lines with all sorts of costs some of which were later dismissed as spurious. Much of the Hall (1977) and McDonough (1985) Commission reports are an attempt to get a picture of branch line costs without superfluous administrative costs and other corporate costs the railways used to build their case and make the branch lines look like albatrosses.
The Government of the day first developed a policy on branch line cost disclosure. The railways still balked. Eventually the Government legislated a protocol for cost disclosure that the companies were obligated to follow.
|
|
|
Post by Taxman on Aug 23, 2009 15:36:56 GMT -8
In the meantime, here's 1 piece of news: - BCFS is considering doing an application to the Ferry Commissioner to allow a fare-increase to help offset the extra operating costs resulting from the BC HST tax. Oh, wonderful. If you believe that BC Ferries is still a puppet of the provincial government, this whole idea becomes laughable. This actually has some legitimacy, however marginal. HST is preferable to PST as it has a concept called "input tax credits" (ITCs), basically, GST/HST registrants in completing thier GST/HST Tax Remitances subtract the input tax credits from the amounts the owe. However as BC Ferries transportation is an "exempt supply" (the section is posted elsewhere) they neither collect tax nor receive input tax credits on the amounts they pay for thier transporation operations. (Food and Retail are both 12% taxed supplies, and they would receive ITCs on any payments on supplies for those operations). The counter arguements is that this is a normal commercial risk, and/or the marginal increase in costs to BC Ferries is minimal(depending on whether thier current purchases are Exempt, 0% rated or 5%/12% rated supplies). I believe this is correct, but I don't deal with Sales Tax so often.
|
|