3 Phases Phase 1 – Desk based exercise Phase 2 – Monitoring the pilot study Phase 3 – Evaluation of the pilot

Phase 1 – stage 1 Review approaches to fare setting for public service ferries in other countries, including the RET approach

Phase 1 – stage 2 Offer definitions of RET that could be applied to all categories of passenger and vehicular traffic in the context of ferry fares for the Clyde and Hebrides and Northern Isles routes which are subsidised by the Scottish Government

Phase 1 - stage 3 Provide an initial analysis of the potential impacts (especially in economic and social terms) of the introduction of the RET approach

Phase 1 – stage 4 Make recommendations on the design and implementation of a pilot study applying RET probably on one or more of the routes connecting the Scottish mainland and the Western Isles, including the choice of route(s), anticipated costs, start date, length of the pilot, operational constraints and any capacity constraints that may emerge

Phase 1 – stage 5 Carry out any baseline information gathering in advance of the pilot that is considered necessary for subsequent monitoring and evaluation purposes

Scottish Ferry Network Clyde and Hebrides Ferry services – serves 22 islands and 4 peninsulas on Scotland’s west coast Caledonian MacBrayne has recently undergone a restructuring For the first time CHFS was put out to tender Fare levels are a consequence of historical reasons and tend to increase in line with inflation Return fares for cars range from £13.25 for the Colintraive – Rhubodach route to £137.0 on the Oban – Castlebay/Lochboisdale route Return fares per mile for cars range from £10.70 on the Colintraive to Rhubodach route to £0.77 per mile on the Oban to Castlebay/Lochboisdale route

Scottish Ferry Network Northlink Ferries Limited operate ferry services between the Scottish mainland to and from Orkney and Shetland Similarly to CHFS the services are tendered to comply with European legislation Fare levels are set in the tender specification and have been arrived at through historical reasons – from commercial fares set by P & O, through to today’s Public Service Contract Return fares for cars range from £86.40 on the Scrabster – Stromness route to £221.0 on the Aberdeen – Lerwick route Return fares per mile for cars range from £0.50 on Aberdeen - Lerwick to £1.45 on the Scrabster – Stromness route.

Ferry fares - international comparison A review was carried out into fare setting for public service ferries in other countries, including the RET approach. The countries reviewed in stage 2 include; Denmark, Sweden, Norway, Canada, Ireland, Spain, Germany and New Zealand.

Ferry Fares Comparison Highest Fare per mile (car)

Ferry Fares Comparison Lowest Fare per mile (car)

Phase 1 – Stage 2 Offer definitions of RET that could be applied to all categories of passenger and vehicular traffic in the context of ferry fares for the Clyde and Hebrides and Northern Isles which are subsidised by the Scottish Government

Factors Influencing Vehicle Running Costs Size of the engine Depreciation The age of the vehicle Fuel efficiency The weight or size of the vehicle The cost of fuel Petrol or diesel Mileage

Her Majesty’s Revenue and Customs Flat RateFirst 10,000 milesMiles over 10,000 Car40p25p Motorcycle24p Bicycle20p Approved Mileage Allowance Payments

Her Majesty’s Revenue and Customs Aimed to represent a fair reimbursement for car use But may not represent the average cost of running a car Designed to encourage the use of environmentally friendly cars Set in but hasn’t risen since then despite increases in fuel costs

RAC – Factors included in running costs Engine size Fuel consumption Depreciation Financing charges Fuel cost Servicing and maintenance Tyres and replacement parts Insurance premium

RAC Engine Size (cc) Cost per mile RAC Estimated Vehicle Running Costs – Petrol Engines

AA Cost new (£s) Up to 10,000 10,000 to 13,000 13,001 to 20,000 20,001 to 30,000 Over 30,000 5,000 miles ,000 miles ,000 miles ,000 miles ,000 miles ,000 miles AA Estimated Vehicle Running Costs (in pence) – Petrol Engine per mile

Road Haulage Association (RHA) Vehicle Type 3.5 Tonne 7.5 Tonne 13 Tonne 18 Tonne 26 Tonne 32 Tonne 32/33 Tonne 38 Tonne 40 Tonne 41 Tonne 44 Tonne Total distance related costs per mile Total distance related costs per km including depreciation Total time and distance related cost per mile RHA – Estimated commercial vehicle running costs (in pence) per mile

Freight Transport Association (FTA) Vehicle Type 3.5 tonnes - petrol 3.5 tonnes - diesel 7.5 tonne tonnes tonnes 17 tonnes 3 axle rigid tonnes 4 axle rigid tipper 32 tonnes 2 axle tractor / 2 axel trailer 33 tonne artic 2 axle drawin g vehicle / 2 axle trailer 32.5 tonne 3 axle tractor / 3 axel trailer - 44 tonne artic Total distance related costs per mile (pence) Total time and distance related cost per mile (pence) FTA - Estimated commercial vehicle running costs (in pence) per mile * Costs per mile are for a selection of commercial vehicle types

First Scotrail Departure PointArrival Point Equivalent Road Distance (Miles) Standard Return Fare - £ Fare per mile (return) - £ AlnessInvergordon FearnTain PlocktonKyle of Lochalsh Spean BridgeFort William TaynuiltOban Georgemas JunctionWick GlasgowArdrossan Bridge of OrchyFort William InvernessKyle of Lochalsh GlasgowStranraer GlasgowOban InvernessWick GlasgowFort William EdinburghAberdeen GlasgowMallaig First Scotrail – Estimated passenger cost per mile (£)

Citylink Departure Point Arrival Point Road Distance (Miles) Standard Single Fare - £ Fare per mile (single) - £ Standard Return Fare - £ Fare per mile (return) - £ InvernessKyle of Lochalsh GlasgowStranraer GlasgowOban InvernessWick GlasgowFort William EdinburghAberdeen GlasgowMallaig Citylink Buses – Estimated passenger cost per mile (£)

CalMac Departure PointArrival Point Crossing Distance (miles) Standard Return Fare - £ Fare per mile (return) - £ ColintraiveRhubodach (Bute) LargsCumbrae Slip TobermoryKilchoan Wemyss BayRothesay (Bute) ObanLismore ObanCraignure (Mull) ArdrossanBrodick (Arran) MallaigEigg MallaigCanna Uig (Skye)Tarbert / Lochmaddy KennacraigIslay ObanColonsay UllapoolStornoway (Lewis) ObanColl/Tiree ObanCastlebay / Lochboisdale CalMac - Estimated passenger cost per mile (£)

Inclusion of core fare element Core fare added to pure RET fare element; Affordability; Budget for RET scheme announced in the Comprehensive Spending Review Cost Recovery; Large fixed cost element of ferry travel (e.g. harbours and other infrastructure) Practicality (on short routes the fare would be too low and may not be worth collecting)

RET rate analysis PassengerCarCVs Core fareRate per mile Core fareRate per mile Core fareRate per metre per mile £0£0.10£3£0.40£10.00£0.15 £1£0.20£4£0.50£20.00£0.16 £2£0.30£5£0.60£30.00£0.17 £3 £6£0.65 £0.18 £0.70 £0.19 Matrix of RET fares considered Note; a combination of core fares and RET rates were tested as part of the RET rate analysis for all user types including Passenger, Car and CV’s.

Recommended RET rates PassengerCarCVs Core fareRate per mileCore fareRate per mileCore fareRate per metre per mile £2.00£0.10£5.00£0.60£20.00£0.18

Impact of RET on current fares The Scottish Government has insisted that no subsidised ferry fares should increase under RET. Where the new RET fare formula results in an increase above the current cheapest fare level the RET fare will be pegged at the lowest available fare. The following tables show that the new RET fare formula results in substantial discounts compared to commonly purchased tickets types on the vast majority of routes considered. However, there are a few exceptions reflecting the significant range of distances involved across the CHFS and Northlink networks and the numerous fares that currently exist.

RET fares comparison 1 CurrentRET ChangeCurrentRETChangeCurrentRETChange Passenger % Car %CVs % Gourock - Dunoon£2.85£ %£7.03£ %£81.78£ % Wemyss Bay - Rothesay£3.33£ %£13.50£ %£71.44£ % Colintraive - Rhubodach£1.05£ %£6.63£ %£24.68£ % Tarbert - Portavadie£2.78£ %£12.75£ %N/A£30.80N/A Ardrossan - Brodick£4.48£ %£27.00£ %£116.56£ % Lochranza - Tarbet/Claonaig£4.03£ %£18.00£ %£83.66£ % Largs - Cumbrae£1.90£ %£8.00£ %£57.22£ % Kennacraig - Islay£7.20£ %£38.50£ %£173.90£ % Oban - Craignure£3.63£ %£25.50£ %£122.91£ % Fishnish - Lochaline£2.23£ %£9.65£ %£71.21£ % Fionnphort - Iona£1.98£ %N/A Oban - Coll/Tiree£11.40£ %£67.00£ %£241.82£ % Oban - Castlebay/Lochboisdale£18.75£ %£68.50£ %£323.83£ % Mallaig - Armadale£2.98£ %£16.25£ %£55.70£ % Uig - Tarbert - Lochmaddy£8.55£ %£41.00£ %£181.42£ % Ullapool - Stornoway£13.25£ %£63.50£ %£257.56£ % Tayinloan - Gigha£2.85£ %£10.55£ %£81.55£ % Raasay - Sconser£2.50£ %£9.75£ %£88.36£ % Comparison of RET fares and ½ 2008 summer 5 day saver return ticket

RET fares comparison 2 Comparison of RET fares and 2008 winter single fare CurrentRETChangeCurrentRETchangeCurrentRETchange Passenger % Car %CVs % Gourock - Dunoon£2.85£ %£8.00£ %£81.78£ % Wemyss Bay - Rothesay£3.00£ %£12.20£ %£71.44£ % Colintraive - Rhubodach£1.05£ %£5.80£ %£24.68£24.810% Tarbert - Portavadie£3.20£ %£14.65£ %N/A£30.80N/A Ardrossan - Brodick£3.95£ %£25.50£ %£116.56£ % Lochranza - Tarbet/Claonaig£3.85£ %£19.80£ %£83.66£ % Largs - CumbraeNA£2.12N/A £5.71N/A£57.22£ % Kennacraig - Islay£6.60£ %£37.50£ %£173.90£ % Oban - Craignure£3.35£ %£24.85£ %£122.91£ % Fishnish - Lochaline£2.55£ %£11.15£ %£71.21£ % Fionnphort - Ionana£2.10N/A Oban - Coll/Tiree£10.60£ %£63.00£ %£241.82£ % Oban - Castlebay/Lochboisdale£16.70£ %£68.00£ %£323.83£ % Mallaig - Armadale£2.70£ %£15.70£ %£55.70£ % Uig - Tarbert - Lochmaddy£8.75£ %£40.00£ %£181.42£ % Ullapool - Stornoway£12.45£ %£59.00£ %£257.56£ % Tayinloan - Gigha£2.55£ %£8.90£ %£81.55£ % Raasay - Sconser£2.10£ %£8.70£ %£88.36£ %

RET fares comparison 3 CurrentRETChangeCurrentRETchangeCurrentRETchange Passenger %Car %CVs % Gourock - Dunoon£2.32£2.430%£5.10£7.570%£81.78£ % Wemyss Bay - Rothesay£2.75£ %£9.50£ %£71.44£ % Colintraive - Rhubodach£0.83£2.060%£4.60£5.370%£24.68£24.810% Tarbert - Portavadie£2.23£2.350%£8.83£ %N/A£30.80N/A Ardrossan - Brodick£3.61£ %£19.83£ %£116.56£ % Lochranza - Tarbet/Claonaig£3.23£ %£12.50£ %£83.66£ % Largs - Cumbrae£2.59£ %£9.40£ %£57.22£ % Kennacraig - Islay£5.83£ %£26.33£ %£173.90£ % Oban - Craignure£2.95£ %£17.67£ %£122.91£ % Fishnish - Lochaline£1.78£2.190%£6.75£ %£71.21£ % Fionnphort - Iona£2.56£ %N/A Oban - Coll/Tiree£9.33£ %£45.83£ %£241.82£ % Oban - Castlebay/Lochboisdale£15.17£ %£47.17£58.690%£323.83£ % Mallaig - Armadale£2.41£2.500%£11.33£ %£55.70£ % Uig - Tarbert - Lochmaddy£7.00£ %£28.83£ %£181.42£ % Ullapool - Stornoway£10.83£ %£44.33£ %£257.56£ % Tayinloan - Gigha£1.97£2.250%£6.40£6.490%£81.55£ % Raasay - Sconser£1.44£2.190%£4.55£6.160%£88.36£ % Comparison of RET and 2008 multi-journey ticket Note: multi-journey tickets shown in cost per single journey

RET fares comparison 4 CurrentRETChangeCurrentRETchangeCurrentRETchange Passenger %Car %CVs % Scrabster - Stromness£14.50£ %£43.20£ %£230.18£ % Aberdeen - Kirkwall£20.50£ %£84.00£ %£278.24£ % Aberdeen - Lerwick£27.10£ %£110.50£ %£370.48£ % Kirkwall - Lerwick£16.30£ %£72.20£ %£231.36£ % Comparison of RET and NorthLink fares (1): (mid season pax and car fares) CurrentRETChangeCurrentRETchangeCurrentRETchange Passenger %Car %CVs % Scrabster - Stromness£9.57£ %£28.80£ %£230.18£ % Aberdeen - Kirkwall£13.67£ %£56.00£ %£278.24£ % Aberdeen - Lerwick£18.07£ %£73.67£ %£370.48£ % Kirkwall - Lerwick£10.87£ %£48.13£ %£231.36£ % Comparison of RET and NorthLink fares (2): (30% discount pax and car fares*) *Note: 30% discount applies only to Northern Isles residents

Phase 1 – Stage 3 Provide an initial analysis of the potential impacts (especially in economic and social terms) of the introduction of the RET approach

Demand for ferry services To estimate the anticipated change in demand and the impact on revenue from the introduction of RET it is necessary to know the price elasticity of demand for ferry services. The price elasticity of demand is used to measure consumers’ behavioural response to changes in the price of a particular good or service. Important to note that some users may be relatively more (or less) price sensitive e.g. Visitors, Residents, Freight users

Demand for Ferry Services Scottish Office Study (1980’s) – Most comprehensive study available; but dated, silent on timescale of impacts, silent on visitor and resident elasticities, based on marginal not step changes in fares. In response to these challenges it was agreed that this exercise would simply consider the impact on revenue if fares were amended to reflect the RET system and demand did not increase. While demand is unlikely to remain constant, this would represent a “worst case” scenario in terms of estimating the revenue impact as well as the need for additional subsidy.

Potential Revenue Impacts RouteChange in Revenue (000,000) Western Isles -£ 7.65 Orkney-£2.60 Shetland-£0.18 Firth of Clyde-£7.23 Inner Hebrides -£4.19 Skye-£0.65 Southern Hebrides -£2.16 Total-£24.64 Potential change in fares revenue under RET (No change in demand)

Economic Impacts Analysis based on consultations with local groups including councillors, council officials, business representatives, hauliers, Visit Scotland, HITRANS and CalMac as well as findings from of other research studies. Overall the introduction of RET was welcomed by consultees and it is believed it will make a very important contribution to improved economic performance of the islands.

Economic Impacts Impact on business transport costs; a number of consultees suggested that reduced fares would lead to an increase in their competitiveness, compared to other companies on the mainland, through reduced costs. Others noted fares are small % of total transport costs. This could lead to an increase in demand and output, resulting in higher levels of employment and improved economic performance in general. Winners and Losers; It was suggested that RET would increase local business exposure to mainland based competition (e.g. local retailers). Also suggested that current ferry fares may be protecting some local businesses from mainland competition and RET would remove this barrier.

Economic Impacts Hauliers rebates; 2% - 15% discount off standard CV fares. Hauliers emphasised that these rebates enable them to compete and operate on a par with mainland hauliers. Large retailers (e.g. Boots, Superdrug and Woolworths); It was explained by the hauliers however that reduced fares may mean the logistics of delivering goods direct to the Western Isles using company-own lorry fleets may become cost effective.

Economic Impacts Overall the introduction of RET was welcomed by consultees and it is believed it will make a very important contribution to improved economic performance of the islands. Business travel; A reduction in fares would allow business to travel more with a limited travel budget or make savings on a fixed number of trips, savings that could be invested on other aspects of company business. Business start-ups; The consultees also claimed that reduced fares could make business opportunities that are currently not viable a more attractive proposition in the future.

Social Impacts A number of consultees felt that the main benefits of reduced fares via RET would be social rather than economic. The case was made that RET would provide islanders with greater opportunity and choice and allow them to engage in activities that those on the mainland engage in.

Social Impacts Declining population; An independent Study for Comhairle nan Eilean Siar entitled the Outer Hebrides Migration Report identified the cost and availability of transport as a key driver of population change. It was suggested by the vast majority of people consulted that lower ferry fares would eliminate one of the factors that was prohibiting people from staying on the island. It would also help to attract others. Making it more affordable for people to visit friends and family on the mainland would allow people to feel more socially included.

Social Impacts Proposed Ferry Discount Scheme: Research for HITRANS identified numerous potential social impacts; Allow increased social interaction with family and friends on the mainland; Provide cheaper access to specialist services and facilities on the mainland which are not available on the islands. Increased travel opportunities for those on lower incomes and/or with families for whom the ferry will remain more affordable than air services, even with the Air Discount Scheme; Meet the increasing expectations of mobility/transport services which are prevalent not only in the Outer Hebrides but throughout Scotland; Allow increased interaction between groups, societies and sports teams based in the islands and those on the mainland; In sum, allow greater participation of island residents in Scottish society by reducing travel costs to a level closer to those mainland communities.

Tourism Impacts One of the main benefits of lower ferry fares identified by a number of consultees was the positive impact it would have on tourism. It is anticipated that the reduction in fares would make holidaying in the Western Isles a more attractive proposition and lead to a greater number of visitors to the islands.

Tourism Impacts A reduction in ferry fares is more likely to benefit the long-stay holiday market rather than the short-break visitor as the latter is more sensitive to air fares given the length of the visit. There was some concern raised that at present there is not enough accommodation to satisfy any increase in tourism demand, particularly in the peak periods. Consultees explained however that capacity would increase to satisfy any positive shift in demand.

Tourism Impacts While there is no strong evidence to suggest that the current ferry fares are a major prohibitive factor for people holidaying in the Western Isles, the proposed RET rates would generate a significant reduction in the cost of travelling between the mainland and the Western Isles. However, it is clear that the cost of the ferry is only one part of the total cost of a holiday. Other factors such as the availability and quality of accommodation also important. Evidence suggests there is limited spare capacity in the summer months.

Infrastructure Issues In addition to economic and social impacts, the introduction of RET is also likely to lead to an increase in the number of vehicles on the main ferry routes. As part of the impact analysis for the Western Isles an assessment was undertaken to determine the possible impact on the supporting infrastructure, in particular the roads serving the main ferry terminals. Overall there were no significant issues identified in relation to the supporting infrastructure which would inhibit the introduction of RET on routes serving the Western Isles.

Phase 1 – Stage 4 Make recommendations on the design and implementation of a pilot study applying RET probably on one or more of the routes connecting the Scottish mainland and the Western Isles, including the choice of route(s), anticipated costs, start date, length of the pilot, operational constraints and any capacity constraints that may emerge

Recommendation 1 Due to the anticipated displacement that may occur if RET is introduced on one or two routes and not others then, if the aim of the pilot study is to give a reliable indication of the impact of introducing RET across the network, it is recommended that the pilot study include all routes sailing between the mainland and the Western Isles.

Recommendation 2 To gain a better understanding of the impact of rolling RET out across the network, it is recommended that, while there are clear affordability issues, the Scottish Government give consideration to also including a shorter route with different demand characteristics within the pilot.

Recommendation 3 The introduction of the pilot study may distort demand on the Oban – Coll/Tiree route and provide users with an incentive to buy the cheaper ticket for the longer Oban – Castlebay/Lochboisdale route. In response to this it is recommended that the Oban – Coll/Tiree route be included in the pilot.

Recommendation 4 There are a large number of discounts and rebates offered to CalMac users. Once RET is introduced, it is recommended that all discounts and rebates, other than concessions, be removed.

Recommendation 5 To ensure that mechanisms are in place to maximise opportunities from RET, it is recommended that RET be introduced to coincide with the introduction of the winter timetable in October 2008.

Recommendation 6 it is recommended that RET be introduced as a pilot in October 2008 and operate until the spring of The impacts will be monitored and evaluated with a decision made towards the end of this period on rolling out the fare system across the network in summer 2011.

Phase 1 – Stage 5 Carry out any baseline information gathering in advance of the pilot that is considered necessary for subsequent monitoring and evaluation purposes

Short term indicators Annual Ferry Traffic Numbers; Passengers, Cars & CVs Capacity Utilisation Split of user type by season; Passengers/Cars – Residents Passengers/Cars – Visitors

Short term indicators Key Labour Market Statistics; Employment Unemployment Participation rates

Short term indicators Indicators of local business activity; Accommodation occupancy rates Business confidence, turnover, profitability and costs Business start-ups

Short term indicators Other important indicators; Prices of goods and services House prices Quality of life Environment

Medium – long term indicators Overall economic indicators (including GVA, Population, Demographics etc) Sectoral activity and performance Investment levels House and land prices Quality of life

Phase 2 Will involve the monitoring of the pilot study Gathering of traffic statistics and information Consultation with ferry users and local employers, including freight and tourist sectors Designed to allow the impact of the pilot to be assessed – especially in economic and social terms

Phase 3 Involve an evaluation of the pilot Making use of the information gathered through the baseline and monitoring exercise Quantify the costs and benefits which could arise should RET be applied on a permanent basis and rolled out across the CHFS and Northern Isles networks Identify any capacity constraints that may emerge from a permanent roll out Quantify the costs of increasing the capacity to meet demand through additional or larger vessels, and new shore infrastructure

Success of RET For RET to be a success it will need the support of a number of parties: tourism, local government, operators and businesses

RET Presentation Open Discussion