By Ben Shenton
A FEW years ago, I was flying into Guernsey and noticed four Aurigny aircraft parked at the airport. “This airline will never make money,” I thought to myself.
When I landed, I checked airport departures and it was obvious that most of the aircraft would sit idle all day. You only make money when your planes are in the air, generating a revenue. Not fully utilising expensive assets costs a fortune, and is why well-run airlines want a quick turnaround – more flights, more revenue.
From this snapshot, Aurigny looked like a government-owned business, and I feel sorry for the poor Guernsey taxpayer as it is likely to continue to be a money pit for years to come. In the private sector, you have to manage, look after and sweat your assets. The public sector don’t understand this concept.
The ferry tender process is being handled in a manner that appears to bring incompetence to new levels. It is easy to blame the politicians, who are clearly out of their depth, but the responsibility also lies with Andrew McLaughlin, our invisible chief executive, and his “men from the ministry”.
If I was handling the tender process, my first task would be to work out why the current incumbent is losing so much money.
This is actually very important as only a fool would seek expressions of interest for a business proposition where sufficient profit cannot be made to cover capital reinvestment and satisfactory returns. Previously, governments had stressed requirements for a fast ferry, all-weather ferries and a regular year-round service – expectations that are perhaps completely unrealistic with current passenger levels. This time they want the latest “green” ships, which won’t be cheap.
The capital and running costs of a ferry are enormous, and the idea that anyone would be willing to run such a capital-intensive business on a short contract extension is naive. Like aircraft, a ship costs money when it is not sailing, which is very frequent on a route with limited passenger winter demand and, in respect of the fast ferry, limited conditions to sail.
Because of the original tender requirements Condor have a £50 million fast ferry sitting idle in a dock, sometimes for six days out of seven, not generating any revenue. This does not cost nothing – in fact it costs a fortune as the company is paying for the asset every day, every minute and every second.
Fifteen years ago, the ferry passenger market was around 732,000 passengers, last year it was 469,000 – a fall of 36%.
I doubt that 15 years ago anyone predicted such a massive collapse in the tourist market. If you were tendering today, what do you think the passenger levels in 15 years will be? The trend is definitely downwards and the likely loss of the French identification-card concession means this trend will probably continue.
In the travel industry, your costs are largely fixed and the passenger/freight numbers determine your ability to survive. For example, you may have an aircraft with 60 seats, and to cover leasing costs, crew, fuel, overheads etc you may need to fill 40 of those seats.
Passenger 41 and above is your profit. If the average flight on the route falls by 36% from 48 passengers to just 31, then you are in big trouble. These are the fine margins of the travel industry. Frequent passenger sailings and fast ferries have to be covered by higher freight prices – hitting us all in the pocket.
Much has been made of the financial weakness of Condor, but surely the government in 2024 is not advertising tender conditions where losses are likely to continue into the future, or are they?
If you want capital reinvestment and a high-quality “green” service there needs to be a decent income margin over costs. So, the big questions are: were the expectations of those handling the tender process in line with the current environment, and why do they think Condor would tender for a licence that will result in continued losses?
Are the unrealistic expectations of the Jersey government the reason why expressions of interest appeared to fall away and Jersey, allegedly, had to approach DFDS?
Does the government now understand the ramifications of its lack of support for the hospitality/leisure industry, and the dire future consequences if it doesn’t start supporting this industry?
To make matters far worse is the fact that the tender process was so appallingly organised that it was not a joint Channel Islands tender process at all. A truly joint process does not lead to half the group operating separately. As a result, we could have a split route, fewer sailings, even fewer passengers and higher freight costs.
The conversion of hotels into flats, the lack of investment in hospitality and the singular focus on finance is why we are now in this position. The drop-off in tourists does not just affect the hoteliers and restaurant owners.
In Saturday’s JEP, under the headline “Why are so many young people leaving?”, 18-year-old Samuel Ahier bemoans the decline in Jersey’s nightlife and vibrancy. Young people want to have fun, which is not a word you associate with Jersey anymore.
A declining hospitality sector, which an unproductive government currently strangles with bureaucracy and uses as a cash cow, will hit our flight connections, and make Jersey a less attractive place to visit. It will be harder to attract the tourists, the finance workers, the government workers and keep our young here if we become stale and boring.
The outcome of the ferry debacle will be interesting. I predict that in ten years we shall look back at “the good old days of Condor” in the same way we miss when Aurigny was run like an inter-island taxi service where you could also check how your diet was doing with a free weight check.
If we don’t invest in hospitality in a meaningful way, we will lose so much. The Havre des Pas Lido sums up how big the problem is. The government officially view it as a liability. I, and thousands of other Islanders, view it as an asset.
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Ben Shenton is a senior investment director. He is a former politician, Senator, who held positions such as minister, chair of Public Accounts Committee, and chair of Scrutiny. He also assists a number of local charities on an honorary basis.
