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LOW COST BUSINESS MODEL FOR A HERITAGE EXCURSION SHIP

Context and preamble

Boat trips remain a perennial favourite day out, but the business of day-long coastal and estuarine excursions in relatively large vessels is virtually non-existent in the UK. Traditional analysis has it that the market disappeared once numerous alternative leisure pursuits became popular and once traditional seaside holiday in the UK lost popularity in favour of other types of holiday. This manifested itself in the disappearance of excursion ships (mainly paddle steamers) from around the UK coastline, almost completely by the end of the 1960s.

However, the role of the disappearing and obsolete ships, was in most cases one of providing ferry services, which in themselves did not disappear, with excursionists an additional market. With car ferries rightly taking the growing ferry business, excursion only traffic was insufficient to support such large numbers of ships, especially of such size and high operational cost. Of the large (over 60 metres long) and traditionally styled and appointed ships, only Paddle Steamer Waverley and Motor Vessel Balmoral, both under the same ownership, have provided what could be termed traditional day coastal cruises on a regular basis in the recent past and even then, barely on a commercial basis. Whilst Waverley survives reasonably sustainably, operated on a charitable basis and supported by donations and volunteer work, this model of operation failed for Balmoral, both when in association with Waverley and latterly under separate charitable ownership.

A third large vessel, the Steamship Shieldhall has, in more recent times, survived in charitable ownership, by offering occasional, week-end and bank holiday cruises in the Solent area. Shieldhall never operated as a passenger excursion vessel during her working life (although passengers were allowed aboard in an unusual arrangement with her owners), but has found her niche in this market sector.

Whilst Waverley and Balmoral have operated a business model attempting to replicate service patters from a time when similar ships were plentiful, Shieldhall has had to find a way or working which would see a ship which would never have been sustainable during her working lifetime as a passenger excursion cruise vessel, survive in the changed conditions of today's world. This has led to the development of two distinct business models which could be described as "high-cost" in the case of Waverley and Balmoral and "low-cost" in the case of Shieldhall. The high cost model requires the business to chase a high level of passenger revenue in what could be seen as a tough market. The low cost model sets the target much lower. The high cost model preserved the option for a traditional service programme and gives the potential for higher revenue, but comes with higher risks and potentially higher financial shortfalls. Shieldhall has chosen to operate on a low-cost basis because it is clear that she could not do so sustainably otherwise. This limits what she can do and increases the input required from her supporters.

All three ships currently survive, but the current situation is that Balmoral is now at severe risk due to severe revenue shortfalls. This has brought into focus the difficulty of making a success of a high-cost operation without there being all the necessary conditions in place. The relative success of Waverley as a ship and as a result of the suitability of the area in which she primarily sails suggests that she would be particularly successful operating a low-cost business model, but that would come at the cost of a severe contaction of the number and range of cruises which could be offered.

It is clear that different areas of the coastline offer different levels of potential demand and different levels of potential costs to any business. Waverley, on the Clyde, benefits from a good level of demand based on a long tradition and benign operating conditions. As a popular vessel with a high capacity she is a potential high revenue-earner, more so than Balmoral and considerably more so than Shieldhall, which has a severely restricted passenger capacity


Features of a Low-Cost Business Model

BUSINESS "WINS"

- Low fixed costs
  - No direct management and operational staff costs
  - No rent and rates
- Low maximum financial exposure
- Low variable costs reduce the likelihood of outright loss on any individual day
- Simplified business systems and administration
- Concentration on core "product"
- Lower revenue target for breakeven
- Low minimum passenger numbers for earning contribution
- Low marketing spend
- Low operational risk with resulting lower cost of problem rectification and less damage to company image

- Reduction in ship maintenance costs through lesser usage and use in less exposed conditions
- Reduced requirement for on-board crew accommodation and services

Disadvantages

- Potential loss of cruises if skilled labour cannot be sourced
- Potential reduction in vessel security when not in service


Features of a Sailing Programme in a Low-Cost Business Model

SINGLE BASE AND STANDARD "SIGNATURE"  ROUTES

Advantages

- Clarity in public perception as to where the ship starts and goes
- No need for potential customers to consult calendars or complicated timetables
- Simplified marketing
- Simpler for secondary marketing
- Concentration on top scenic attractions
- Standardised pre-recorded route commentaries
- More potential for intensive and consistent pier hosting / pierside marketing
- Closer relationship with base pier owners  / local authorities
- Simplified victualling, service provision
- Relationship with operators of connecting public transport
- No competition with ferry services

- Well established routes avoiding areas of potentially hazardous navigation 

Disadvantages

- Lack of variety and unusual routes for regular customers
- Longer customer journeys to sailing base



"MORNING" AND "AFTERNOON" CRUISES

Advantages

- Choice of length of time aboard to suit customer time and financial constraints
- Greater ship visibility and potential to attract "walk-up" passengers
- Business partially split over two cruises leading to less crowding aboard 

Disadvantages

- Inability to visit locations distant from base
- Risk that passengers take one cruise only, thus reducing daily revenue

NON-LANDING CRUISES

Advanatages

- A heritage operation with charitable status could (subject to strict conditions) qualify for Gift Aid on fares **
- Less requirement for crew to handle ropes etc
- No chance of missed calls at intermediate points due to sea conditions
- Virtually no requirement for emergency bus replacement services
- No issue with embarcation issues delaying vessel from timetable
- No pier dues payable
- Simplified timetable, ticketing and fare structure
- Simplified counting of passenger numbers and ticket verification procedures
- No need to withhold space for booked passengers at intermediate piers
- More potential for intensive and consistent pier hosting / pierside marketing 

Disadvantages

- No potential fares from places other than the originating pier
- No "ferry" passengers for intermediate destinations


PAY ON THE DAY ONLY

Advantages

- No ticketing administration
- No calling pre-booked customers to advise of service cancellations / changes
- No customer refunding for cancelled cruises

Disadvantages

- Additional ticket-selling work aboard the vessel
- Customers cannot be sure of space aboard before arrival at pier
       * simple reservation system might be possible
- No advance cash receipts to assist in cash flow
- Greater amount of cash handling


BASIC (UNLICENSED) REFRESHMENT SERVICE

Advantages

- Volunteer staff can dispense simple refreshments with ease
- No maintaining of kitchens (facilities and sanitary standards)
- Little likelihood of disposal of unsold fresh produce
- No Alcohol Licensing administration
- Reduced on-board security and stewarding requirement
- Possible reduction in on-board clean-ups
- Simple arrangements with refreshment suppliers
- Possible reduced security risk  for vessel when closed

Disadvantages

- Unmet customer expectations of availability of alcoholic beverages
- Limited food service for "day-long" customers


** GIFT AID ON FARES :  Conditions

- Available only to charities and subject to HMRC approval of qualification
- Can only be applied to activities directly connected with the charitable objects (ie not ancillary trading)
- Cannot apply to companies judged as "Transport Companies"
- Normally available for viewing historical properties and artefacts, gardens, artwork owned by a charity
- Unclear as to whether it can apply to heritage transport operations - HMRC need to decide but some issues :
     - transportation should be operated by the charity, not a trading subsidiary
     - one-way fares should not be offered
     - unclear whether return (landing) trips would qualift or just non-landing circular trips
     - free sampler trips from a charged-for "heritage centre" more likely to be approved
     - cannot be used for the provision of "goods" or "services"
     - If  offering a general sight-seeing trip primarily, this would probably be regarded as a commercial "service" 
unless such trips are accepted by Charities Commission as part of the charitable objects of the organisation