Provisional Legislative Council

Panel on Transport
Franchise of Ferry Services

INTRODUCTION

Ferries provide an essential link to the outlying islands, and an useful alternative to land transport between Central and the New Towns. In the inner harbour, ferries play a supplementary role.

2.Ferry services in Hong Kong are mainly provided by two franchisees, Hongkong & Yaumati Ferry Company Limited (HYF) and Star Ferry Company Limited (SF). HYF operates a network of 15 routes and SF a total of three routes. Franchises are granted by the Executive Council.

3.A ferry operator may also be granted a right to operate a ferry route in the form of a licence. Licences are granted by the Commissioner for Transport. Licensed ferry services normally cater for demand that does not justify enfranchising the routes, e.g. non-essential services, excursion services and special services such as vehicular services for dangerous goods vehicles.

FRANCHISED FERRY SERVICES IN HONG KONG

4.Due to improved road links, harbour reclamation, declining patronage and rising operating costs, franchised ferry services in Hong Kong are no longer viable.

Declining Patronage

5.With the opening of more cross-harbour tunnels, new road networks and rail links, there has been a persistent decline in ferry patronage. The inner harbour services are the worst hit. The average daily patronage of HYF's inner harbour routes dwindled from 437 200 in 1970 to a mere 21 100 in the first eight months of 1997. SF's average daily patronage has also fallen from 155 200 in 1970 to 91 000 during the same period.

6.Ferry patronage has also declined due to the relocation of piers away from the main catchment areas to make way for reclamation. Patronage on HYF's Central - Jordan Road ferry service dropped 64%, when compared to 1994, after piers at both ends were relocated in 1995 and 1996. SF forecasts that patronage on its Edinburgh Place - Kowloon Point service would be further affected by the reprovisioning of the Edinburgh Place piers, now planned for late 2003.

Rising Operating Costs

7.Ferry services are increasingly costly to run. Other than staff costs, which account for 50% of the operating costs, the cost of pier maintenance has also shot up.

8.In response to a suggestion from some Members, Government conducted a review of the division of responsibility over the maintenance of ferry piers. Government, as landlord and developer of the ferry piers, has agreed to take over the financial responsibility for maintaining pier structure from 1997/98 onwards. Franchisees, as tenants of the piers, would continue to take care of the day to day maintenance. This new arrangement should give franchisees some relief.

9.Whilst Government will strive to provide convenient transport interchange facilities near ferry piers to facilitate passenger movements, one would have to recognize that with the completion of more infrastructural projects and continuous improvements of land transport, ferry services are becoming increasingly less competitive in terms of convenience and travelling time. This is particularly so for the inner harbour services.

FRANCHISEEs' FINANCIAL POSITION

10.HYF's current franchised network comprises six inner harbour routes, two new town routes, six outlying island services and one vehicular route. Please see Annex A for details.

11.The Company has incurred heavy losses since 1994. Only two of its routes are profit-making. The remaining 13 routes are all loss-making. The greatest drain of HYF's resources is due to the operation of the inner harbour route group and the new town route group. Income from other sources such as excursion services, chartered services, and shop rentals and advertising at piers is not sufficient to cover such losses.

12.SF operates the cheapest cross-harbour public transport services in the territory. But none of its three cross-harbour routes are able to recover even the operating costs. Only with income from shop rentals and advertising is SF able to sustain its operations.

13.The financial position of HYF and SF illustrates the fact that, with a persistent decline in patronage and increase in operating costs, ferry operators are finding it increasingly difficult to maintain the overall viability of their existing networks. This also calls into question the rationale for keeping non-essential inner harbour and new town routes which are heavily loss-making.

14.Against this background, a more pragmatic approach would be to institute a complete revamp of the current network, to excise from it those heavily loss-making routes with land transport alternatives. The objective is to ensure that, following the rationalization, the franchisees are able to deploy their resources to improve essential ferry services, whilst being able to achieve a positive return to sustain operations.

15.As to the future of services excised from existing network, it is probable that some of these routes may become viable if they are operated with different service levels, fare levels, vessel types and cost structures. We would examine carefully whether it is commercially viable to tender out some of the routes as licensed services and let market forces determine the future of such routes.

HYF's FRANCHISE RENEWAL

16.In view of HYF's financial predicament, ExCo approved in 1995 the grant of development rights above four piers on the Central Reclamation to HYF by way of a private treaty grant. Profits generated from the development will be used for service improvements, to keep fare increases in line with inflation and to meet HYF's accumulated loss.

17.As part and parcel of the pier development package, HYF was required to apply for a new franchise to the year 2010. This would enable ferry passengers to benefit from the development profit generated beyond the term of the current franchise (to expire in March 1999). Franchise negotiations are ongoing.

18.Under this package, HYF will rationalize its inner harbour routes prior to the expiry of its current franchise. This route group has continually been incurring serious losses since the introduction of cross-harbour road and rail links. Concurrently, Government is reviewing the patronage of HYF's new town route group and its vehicular service which also suffer heavy losses to see whether there is room for further rationalization. So far, statistics have revealed that -

  1. Following the opening of the Tuen Mun Road Bus-only Lane in March 1995 and the addition of four climbing lanes on Tuen Mun Road in 1996, the average daily patronage for HYF's Tuen Mun - Central service has declined by 20% from 11 600 in 1994 to 9 300 in 1996. Coupled with the introduction of direct cross-harbour bus services via Route 3 and the commissioning of the Western Harbour Crossing, the average daily patronage for the service has further declined to 7 700 in August 1997. Currently the spare capacity of the service stands at 40% and 57% during the morning and evening peak hours.

  2. Following the opening of the Western Harbour Crossing, the daily patronage of the Tsuen Wan - Central via Tsing Yi service in August 1997 has dropped by 27%, when compared with the average patronage figure in 1996. Government is considering HYF's proposal to cancel this franchised route next year. If there is sufficient demand, the service will be tendered out.

  3. Also since the opening of the Western Harbour Crossing, the average daily number of vehicles using the North Point - Kowloon City vehicular service has dropped by 44%. In view of this decline, Government is considering HYF's proposal to cancel this franchised vehicular route early next year. Vehicles so displaced can make use of the three cross-harbour tunnels.

SF ' S FRANCHISE RENEWAL

19.SF's franchise expires in March 1998. We are satisfied that SF is able to maintain a proper and efficient ferry service. We are taking a critical look at the relationship between SF's projected financial position and its network and are considering options to help improve the commercial viability of SF's operations in the long term. A likely approach will be to grant SF a new franchise with a smaller network with routes so excised put out to tender. We will start franchise negotiations shortly with SF and aim to complete the exercise in early 1998.


Transport Bureau
Government Secretariat
October 1997

Annex A

List of Existing HYF Services

Franchised Ferry Services

Vehicular

1. North Point - Kowloon City

Passenger

(a) Inner harbour

  1. Central - Jordan Road
  2. North Point - Kwun Tong
  3. North Point - Kowloon City
  4. North Point - Hung Hom
  5. Wan Chai - Hung Hom
  6. Central (Edinburgh Place) - Tsim Sha Tsui (East)

(b) New Town

  1. Tsuen Wan - Central / Wan Chai via Tsing Yi
  2. Central - Tuen Mun

(c) Outlying Islands

  1. Central - Mui Wo
  2. Central - Peng Chau
  3. Central - Cheung Chau
  4. Central - Sok Kwu Wan
  5. Central - Yung Shue Wan
  6. Peng Chau - Mui Wo - Chi Ma Wan - Cheung Chau