Companies say market has room for alternatives

Two private companies are looking to grab more market share from BC Ferries on the provincially owned corporation's most profitable Vancouver-Nanaimo and Vancouver-Victoria routes.

HarbourLynx will decide this spring whether to add Vancouver-Victoria and Vancouver-Squamish routes and expand its existing Vancouver-Nanaimo foot-passenger service.

Meanwhile, North Vancouver-based Sea Span International Ltd., part of the U.S.-based Washington Marine Group of companies (WMG), will consider bringing the politically tainted fast ferries out of drydock and operating them at conventional speed between Vancouver and Nanaimo.

WMG built the PacifiCats at a cost of $454 million for the former NDP provincial government, but wound up buying them back from the Liberal regime in 2003 for only $19.4 million.

Photo courtesy of HarbourLynx
HarbourLynx expects to make a profit for the first time this year, despite increased competition.

Bill McKay, operations manager for Nanaimo-based HarbourLynx, welcomes Washington Marine Group's entry into the passenger-ferry market.

"We certainly don't want to be cavalier about it," says McKay. "That's not what we're saying. What we're saying is there's room for both in the market."

Both companies hope to woo customers by reducing travel and waiting times. They would both operate in Vancouver's inner harbour, whereas BC Ferries vessels set sail from suburban Tsawwassen to Swartz Bay near Victoria and Horseshoe Bay to Duke Point near Nanaimo.

HarbourLynx already operates out of a terminal near the Sea Bus and SkyTrain terminus in downtown Vancouver, while WMG will operate either from a North Vancouver location, which it already owns, or a yet to be purchased site on the Vancouver side of Burrard Inlet near the south end of the Ironworkers Memorial (also known as Second Narrows) Bridge.

"We're going after 15 to 20 per cent (of BC Ferries customers) that are not afraid to travel as foot-passengers," says McKay.

HarbourLynx is looking to boost ridership to between 275,000 and 300,000 this year from 200,000 in 2005. McKay says potential tourist traffic will ultimately determine whether the firm launches a Vancouver-Victoria run.

If demand proves to be sufficient, the company could purchase three more ferries at a cost of $6 million per ferry. Each ship's capacity would decline to 200 passengers from 300, but the number of sailings between Vancouver and Nanaimo would increase.

McKay says HarbourLynx and WMG's services are distinct from each other, although WMG plans to include foot-passenger service as part of its car-ferry offering.

HarbourLynx requires reservations but, unlike BC Ferries, does not charge reservation fees. The firm has an advantage over its rivals, McKay contends, because WMG does not have the same access to public transit services, and BC Ferries requires passengers to travel greater distances to terminals. BC Ferries also also introduced two fare increases in the past year while HarbourLynx has only one hike slated this year.

High gasoline prices will also help HarbourLynx increase passengers, he adds, because there is a direct correlation between increases in ridership and increases in motor vehicle costs.

If HarbourLynx sets up the Squamish run, it will partner with bus and tour companies to transport passengers to Whistler, which does not have port access. HarbourLynx, which began sailing in 2003, expects to make a profit for the first time this year, despite the possibility of more competition from WMG.

"We think this is going to be a big year for us," says McKay.

He believes WMG will capitalize mostly on the car-ferry portion of its business, because it will be able to quickly connect its passengers to the highway on Vancouver Island and the Lower Mainland while matching BC Ferries' travel times.

Steve Frasher, Washington Marine Group's CEO, says his firm plans to provide the same services as BC Ferries without charging extra fees for reservations and wireless Internet access. Fuel consumption rates will ultimately dictate the decision to operate or sell the fast ferries to an overseas firm.

"It's not our intention to take BC Ferries head on," says Frasher. "At the end of the day, that's not good for either one of us. We want a segment of the market that we think will end up growing the market."

The fast ferries were mothballed after complaints about cost overruns, excess fuel consumption, cramped seating, and damage to waterfront properties and shorelines caused by the vessels' large wakes.

Frasher says WMG polling shows there is "latent demand" for more Vancouver-Nanaimo sailings. While B.C.'s population has increased 4.3 per cent in the last five years, BC Ferries figures show the former Crown corporation's ridership declined or stayed flat in those years, he adds.

WMG aims to accommodate 750 passengers and 200 automobiles per sailing. Approximately 500 passengers would be in the vehicles, while 250 would be on foot. Reservations would be required for all passengers and no buses, campers or heavy-duty trucks would be allowed on board.

The proposed capacity of 750 passengers would be down from the originally planned 1,000. If all goes according to plan, WMG will renovate the ferries to allow for more airplane-style seating, conference and eating areas, and wireless Internet access, at a cost of $5 million per ship.

"These are not bad things BC Ferries came up with," says Frasher. "They are good things, actually. But we wanted to see if we could keep these things in our business without charging extra for them."

The ferries will slow down to 21 knots - the same speed as BC Ferries vessels. At higher speeds, a fast ferry burns more fuel and its wake poses greater environmental damage.

"We won't even refer to them as PacifiCats," says Frasher. "We'll change all the names."

WMG's acquisition of the ferries has caused considerable public criticism, especially among labour groups, because of the cost to taxpayers. But Frasher says it's better to keep the ships sailing in B.C. than sell them to another country.

He also notes taxpayers are no longer on the hook for any costs.

But he admits: "The reality is that you couldn't make money if you had to pay $350 million for them - there's no question about that."

When asked if he thinks it's more politically acceptable to operate the fast ferries now, Frasher says the provincial government created a better environment for private operators when it introduced the Coastal Ferry Act in 2003. The new law converted BC Ferries from a Crown corporation to a private company solely owned by the province.

Previously, private companies were prohibiting from operating ferries.

WMG, which currently consumes 36 million litres of fuel per year, will try to curb fuel costs through a contract with an existing supplier rather than speculate on futures.

But Frasher says acquiring a dock in the Vancouver harbour is "the hardest aspect of the whole business model."

WMG already owns property on the North Van waterfront, but a ground-level railway crossing and potential traffic jams raise concerns about the location's viability.

Frasher says there is enough room in the market for WMG and HarbourLynx to serve foot-passengers. The two companies have also discussed collaborating on truck and train service, but no decisions will be made until WMG confirms its plans for the fast ferries.

Warren Gill, a Simon Fraser University transportation geographer and industry analyst, says it remains to be seen whether there is sufficient demand for more ferry sailings between the Lower Mainland and Vancouver Island.

"If the demand is there, maybe it will work," says Gill. "It's hard to tell. (Demand) is growing."

By not charging fees for reservations, WMG would have "a significant difference in costs."

If the two companies attract enough customers, BC Ferries may not have to spend as much to replace ferries.

The worst-case scenario would be that WMG takes business away from BC Ferries, preventing the provincial firm from subsidizing its smaller routes, but he notes BC Ferries could privatize some of its less lucrative routes.

BC Ferries CEO David Hahn has already said the company will look at selling off some inter-island runs, and the Coastal Ferry Act requires BC Ferries to unload routes that can be operated more cheaply by other firms.

"Competition could benefit BC Ferries and the Washington Marine (Group)," says Gill.

The challenges from private companies come while BC Ferries has begun a 15-year program to replace 22 of its 37 vessels at an estimated cost of $1.2 billion.

Theoretically, says Gill, the Coastal Ferry Act now requires BC Ferries to cover its own capital costs.

He has no complaints with WMG operating the boats after taxpayers paid to build them.

"There was a real effort to sell those (fast ferries) off on a worldwide basis and Washington Marine Group came up with the best price, so on that point Washington Marine Group is free and clear," says Gill, adding there was a global glut of fast ferries at the time.

He says ferries between downtown Vancouver and Nanaimo and Victoria have been tried many times in the past.

"The Squamish one, I'm not sure about," says Gill. "It depends how fast the service is - because speed is important. That's why I would be suspicious of a (HarbourLynx) route to Victoria.

"It may take too long."

(Monte Stewart can be reached at monte@businessedge.ca)