The news this week is that the Steamship Authority’s managers have been busy assembling data to help them figure out which of their customers is subsidizing the others and to what extent. The result is evidence of calculated pricing distortions, which will serve as a basis for deciding how boatline members will calculate future pricing distortions that are inevitable.
We learn that management’s analysis shows that the cost of service on the Martha’s Vineyard routes increased by 3.8-percent from 2009 to 2010, significant inflation in a deflated economy. Further, we learn that excursion fares for Vineyarders are subsidized by other fare categories to the tune of more than 60 percent of the allocated costs. By the way, Nantucket service costs rose by 1.3 percent. The subsidy for Nantucket excursion fares was nearly as great.
The future of the Steamship Authority’s severely hobbled future planning efforts reveals itself in this comment by the SSA general manager, reflecting upon the data gathered by the ferry company’s treasurer.
“In the event the need arises for a rate increase,” the GM wrote, “one of the purposes of this analysis is to see which categories of customers are effectively being subsidized by other categories of customers and therefore, in the interest of fairness, might be called upon to pick up a little more of the cost of service.”
First of all, “in the event” is misleading. “In the absolutely certain event, which will occur very soon” would have been the way to qualify his sentence in the interests of clarity. These things are not unexpected thunder storms.
Next, it’s not a matter of one group being “effectively” subsidized by another. There is in fact subsidization going on, much of it to the benefit of Island residents, an experience they enjoy.
And, it’s hardly a matter of fairness, because while one class of beneficiaries is getting a handout, another is — unfairly and perhaps resignedly — getting skewered. After all, everyone gets the same 45-minute ride, one way or another. No perks go with the skewering.
What the subsidies effectively (pardon us) accomplish is to mask for the boatline’s Island constituents the true cost — and its steady growth — of the service they get. Doing so keeps the constituents from grabbing their pitchforks and framing hammers and storming the transfer bridges, and it relieves pressure on the boatline to consider how it can deliver its services more efficiently and inexpensively.
This is not to suggest that the members and their professional managers have done nothing to change the way they conduct our business. At the member level, SSA leadership has forged a smoothly functioning, goal-setting, non-micromanaging, practical, decision-making leadership team. Management has implemented member priorities, which have included spending discipline and hardheaded approaches to labor negotiations, which have yielded important restraints on the growth of labor expense in the years ahead and more operating freedom as well. Leadership and management have also worked together to improve customer service and communication between the line and its travelers, and they’ve stepped up technologically to streamline many customer-SSA interactions. Hooray.
But, lots more — and lots more important work — needs to be done, and the members and their experienced and capable management team cannot do it by themselves. Indeed, some boatline members and managers have understood and accepted this notion. Remember the McKinsey Company study, now a relic of the misty past. Remember the Tiberio-Parker plan for a revamped fleet. Never got a single amen. And, know that even the current member has visited The Times to say that he too sees the need for a broad, everything on the table, strategic look at the Steamship Authority’s future.
Seventy-million-dollar businesses like the Steamship Authority need to look ahead more than a year. They need to examine and reexamine the configuration of their fleet, their schedules, their ports, their governance structure, even their ownership structure, their finances, their competition, their markets, and their obligations. This is intense, multi-discipline work. It will challenge current assumptions and ultimately demand changes in familiar operating patterns. It will also require new, quicker adaptation response times by the boatline to financial, operational, and market changes.
But, two decades later, none of it has been done.
There are top-flight outfits, with bright, imaginative investigators that can help approach these complicated issues and suggest strategies to prepare the boatline to deal with them. Such consultants do not genuflect to the ways things are. They bring a refreshing willingness to see the world anew, and all its possibilities.
The Steamship Authority needs, and, more importantly, we need such help. The boatline’s strategic plan cannot be merely to try to hold the line on rate hikes, if it can, or failing that, reallocate the pain.