Fuel rebate will match ferry fares 1.9% increase

Derek Kilbourn

Sounder News

Tuesday, March 1 2016

April 1 is typically not a day of fooling for ferry customers as, for over a decade, that day has marked when fares would increase.

According to BC Ferries, this coming April 1, 2016, will mark the first time in 13 years that fares will remain effectively unchanged.

The background to the announcement shows that fares will still be increasing by 1.9 per cent - but the company will be increasing the fuel rebate at the ticket booth from one per cent to 2.9 per cent, effectively negating the fare increase.

For now.

As critics of the ferries were quick to point out when the announcement was made, the 1.9 per cent fare increase is permanent. The 2.9 per cent fuel rebate is temporary.

Dennis Dodo, BCF Chief Financial Officer, said the company has a mechanism in place to allow for increases in global fuel prices.

“What we’ve done is we’ve locked in the price for 70 per cent of our consumption.

“The other 30 per cent floats in the market. There would have to be a dramatic shift in the fuel price for there to be an impact at the booth.”

Dodo was asked if, rather than handing out fuel rebates, BC Ferries would consider using any savings on fuel costs for increasing the services offered (such as restoring the mid-afternoon sailings on weekends).

Dodo said that was not possible. “Any impact on fuel goes back in the form of a rebate, or a surcharge if fuel prices are going in another direction. It would be inappropriate to adjust any other discussions based on what we’re talking about in terms of fuel.”

Asked to clarify if that meant BCF could put a fuel surcharge on tickets, Dodo said the price cap has been determined at 1.9 per cent and the Ferries Commissioner has assumed what the cost of fuel is going to be for the next four years.

BC’s Transportation and Infrastructure Minister Todd Stone called the net zero announcement good news for BC Ferries customers and “for the communities that rely on our coastal ferry service. 

“Over the last number of years, we have worked closely with BC Ferries to control costs and find efficiencies. The work we’ve done and important decisions we’ve made together have paid off...now because of the collective work that’s been done to limit the pressure on fares, BC Ferries can fully offset this year’s 1.9 per cent fare increase by passing along the fuel savings. 

“The rebound in BC Ferries’ traffic numbers also continues. Since April 2015, both vehicle traffic and passenger traffic are up by about four per cent compared to the same period the year before. With lower fuel prices and the low Canadian dollar continuing to attract American tourists, we are encouraged that this trend will continue. 

Trustee Heather O’Sullivan, Gabriola’s representative on the Islands Trust, responded to the BCF announcement saying, “While I’m pleased that we won’t actually be paying higher ferry fares come April, I’m very aware of the fact that there is a big difference between “no increase” and “no net increase.” 

“Ferry fares are actually going up nearly two per cent. BC Ferries is simply taking advantage of the fare rebate triggered by the plummeting price of oil to mask the increase, and then rolling the resulting fare structure out to media as an example of their “sound fiscal management.” 

“Basically, it’s a shell game. By contrast, the Islands Trust and the Gabriola Ferry Advisory Commission [FAC] have asked Minister Stone to reintroduce our afternoon weekend sailings, and to consider a pilot project offering significant across-the-board discounts on off-peak sailings. These are concrete measures that BC Ferries could implement if they really wanted to demonstrate a commitment to creating and maintaining a truly sustainable ferry system.”

John Hodgkins, FAC Chair, added his thoughts saying, “There is no guarantee that the fuel rebate will continue at 2.9 per cent (or any particular level for that matter) indefinitely. 

Hodgkins continued, “However, for as long as fuel prices remain significantly below the threshold level written into the Coastal Ferry Services Contract, BC Ferries is required to account for any excess earnings resulting from the lower fuel prices and, once they reach a pre-determined level, to repay those excess earnings to passengers by means of a fuel rebate. 

“Thus, the lower [that] fuel prices remain, the higher the rebate must be in order to return the balance in the Fuel Deferral Account to zero. Inevitably, the process reacts more slowly than the fuel price volatility, but in the end, BC Ferries cannot profit from lower fuel prices, and neither do they suffer a loss if fuel prices rise above the threshold level - they implement a fuel surcharge in that instance until the account zeroes out.

“So, although the benefit may not last the whole year, it will be a welcome relief after so many years of above-inflation increases.”

In making the announcement, BC Ferries also advised that the cost of reservations, assured loading tickets and the buy-in level for Experience Cards will not increase on April 1, 2016.

BC Ferries will increase the current 1.0 per cent fuel rebate to 2.9 per cent on April 1, 2016, on the major and minor routes. A fuel rebate of 1.9 per cent will be implemented on the northern routes. 

The fuel surcharge/rebate mechanism is separate from the tariff calculation and any fuel rebate or surcharge is strictly a pass-through to the fuel deferral accounts. 

On September 16, 2015, the BC Ferries Commissioner released the Final Decision on Price Caps for the fourth performance term, in which he confirmed the annual increase in price caps (or average fare increases) at 1.9 per cent from April 1, 2016, through March 31, 2020.

BC Ferries staff said in the announcement that the company needs to replace one ship per year for the next 12 years in order to maintain safe, efficient and reliable service.

Dodo said, “If you look at what the company has done by way of promotions over the past couple months - this additional 30 per cent promotion coming in March - it is an exciting time for both our customers and ourselves at the moment.”

Asked how time-of-day pricing will be of benefit to those who commute and have no flexibility on the sailings they use, Dodo said, “Fare flexibility will be net positive no matter what time of day you travel.”

“For people to use the service to commute - they can go to pre-book and by doing that they buy into a discount. 

“So that is a positive thing - if you use the service a lot and use it to commute - I wouldn’t worry about it - obviously we’re working on what the rates are going to be.”

He reiterated what other BCF staff have said, that fare flexibility will be implemented first on the major routes. “If you are on a minor route, you won’t be impacted for quite some time until we try it on the reservable routes, which are the major ones.

“You won’t see the rates beyond the price cap because of fare flexibility on the minor routes at all.”

As for the future of the Experience Card, Dodo said, “Anyone that holds the Experience Card right now, BC Ferries thinks of them as our most loyal customers and we would not do anything to put them at a disadvantage.”