Tuesday, August 10, 2004

Economy needs lowest possible BC Ferries' fares

VICTORIA - What's the big deal about spending a bit more for ferries, anyway?
Quite a lot, actually. Just look at how past ferry rate increases have damaged the economies of the province, and Vancouver Island.
B.C. shipyards should have been giving a chance to bid on construction of three new ships for BC Ferries, a contract that could be worth $500 million. It's just wrong that a government-owned corporation barred the leading local shipyard from even submitting a bid.
But lots of critics have argued that it's worth paying more to buy locally, while remaining vague on where that extra money will come from.
It's not likely the government will write a cheque to cover the extra costs, which leaves ferry riders on the hook.
And that would be very bad news, for Vancouver Island, coastal communities and the province.
Ferry rates matter. BC Stats concluded earlier this year that three decades of big increases are costing Vancouver Island's tourism economy more than $25 million a year in hotel and room revenues alone. Figure on other spending, and you're looking at a $50-million annual loss to the economy because ferry fares went up faster than inflation.
And it's not just a regional issue. Because Vancouver Island is a destination for visitors from outside the province, it's likely that B.C. tourism as a whole has been hurt by the rising rates, the report found.
BC Stats established average fares from the Mainland to Vancouver Island over the last 30 years, factoring in traffic types and the impact of reservation fees. It found fares have steadily increased faster than inflation over the last three decades.
Since 1975 the Vancouver cost-of-living index has gone up by an average 4.5 per cent a year. Ferry rates have gone up by an average 6.5 per cent a year.
Back in 1975 a car and driver could get across to the Island for $5. If costs had matched inflation, then today's fare would be about $17. Instead the average fare for a car in 2003 was $30, a 77-per-cent real increase.
Still a bargain by world standards, some might say.
But that misses the point. The real cost of using the ferries has been steadily rising, and that has inevitable consequences.
For some people, mostly locals who have to use the ferries, rising costs are an irritant, but it doesn't alter their travel plans.
But the basic laws of economics hold that if the cost of a discretionary purchase - like a holiday - increases, then a certain number of people will cancel their plans.
And they have.
The number of passengers on BC Ferries went up 33 per cent from 1980 to 2003.
But B.C.'s population rose 55 per cent. The overall tourism industry exploded. BC Ferries hasn't kept up.
Back in 1989, Vancouver Island had a 20.2-per-cent share of room revenues in the province, a standard measure of tourism activity. But the Island has been steadily losing ground to the rest of B.C., and in 2003 its share had fallen to 18.4 per cent, according to BC Stats.
Sounds like a small drop. But it translates into $25 million in lost revenues, and a whack more in the money those people would have spent. (The study wasn't skewed by picking one rough year; the decline was steady through the period.)
"The trend in Vancouver Island’s share of room revenues has closely followed changes in ferry prices," BC Stats reported. "This suggests that BC Ferries has been, to a degree, pricing Vancouver Island out of the tourism market."
None of this justifies shutting local shipyards out of the building.
But it should be a caution for those who are willing to pay a premium for local ships - and want ferry users to foot the bill.
Higher prices for ferry travel do matter, and their effects reverberate through the economy.
Footnote: BC Ferries own studies confirm the report. In its prospectus filed as part of its borrowing plans the corporation said that for every 10 per cent fares went up on the main routes, about three per cent of travellers cancelled trips. The corporation's last annual report blamed large 1997 rate increases for falling passenger volumes.

1 comment:

Anonymous said...

You're leaving out some very important information in this piece that is necessary for people to make an informed decision. The first blurb I read on this subject stated that building the ferries here would add $60 millon to the cost. Since the B.C. shipyards aren't being allowed to finish the bid process, I'm at a loss as to how they arrived at this figure. On the other hand, the 25% federal duty on foreign built ships will by it's self add $125 million to the cost. The feds have already stated that since the B.C. shipyards are quite capable of building these ferries, they will not forgo or even reduce this amount. So in essense, having them built overseas will amount to a $65 million increase in the final cost. Add to this the lost tax revenue, which I have seen estimated at at least $50 million, the lost spin off revenue to suppliers and secondary manufacturing industries, the business revenue lost from workers not spending their paychecks, and the corporate taxes that will not be collected. It is estimated that for every $1 spent on capital investment there is a genuine economic spinoff of $3.
So let's add this all up:
$125 million in duty plus,
$1.5 billion in lost spin off revenue minus,
$60 million added cost to build them here and we arrive at,
$1.565 billion in revenue lost forever to the people of B.C.
And you say we critics are vague about where the extra money will come from? Extra money for what?
They should not only be built here, but it should be, as our neighbors in Washington state have done, required by law.
It boggles my mind how any halfway intelligent person could possibly think we will benefit by sending $500 million of our hard earned tax dollars overseas in order to support the already heavily subsidized foreign shipbuilding industry.
And how,pray tell, will this forestall the possibility of a fare increase?