Life after duty-free

Passenger ferry operators in the EU are counting the cost in lost revenue following the demise of duty free sales in the middle of last year.

Across the European Union, ferry companies are reporting in some cases dramatically reduced on board spend per passenger since the abolition of the duty free concession, and are attempting to plug the hole with a mixture of new products in the shops, and/or large increases in ticket prices.

Some companies are luckier than others in that they operate routes between EU countries with large differences in the amount of tax levied on goods, making a ferry crossing still appealing for passengers wishing to take advantage of cheaper prices in another country.

Cross-channel trade

P&O Stena Line?s third quarter results (July ? September) represent the first quarter of trading on its Dover/Calais and Dover/Zeebrugge routes since the abolition of the duty free concession on June 30. During the period the company recorded a headline profit of £14.6 million for the quarter, bringing the result for the first nine months to £44.6 million.

During the third quarter 3.85 million passengers were carried, plus 647,000 tourist vehicles (including coaches), and 294 freight units.

Although the number of tourist vehicles carried dropped, primarily caused by the reduction in the availability of promotional fares, there has been a major increase in rates compared with the same quarter last year, the company says.

Following the abolition of duty free, there was a significant reduction in onboard spend. However, the company says that the spend levels rose during the quarter, and on a per passenger basis, are now comparable to pre-abolition levels.

One reason for this is that passengers can now purchase in bulk duty-paid items which were strictly limited when duty-free.

Also, the difference in tax paid on goods in France compared with the UK is still a good incentive for passengers to make the crossing in order to stock up with all kinds of items.

Stena Line

Stena Line?s operational income for the third quarter dropped to SKr259 million ($30.2 million) from last year?s figure of SKr466 ($54.35 million). This was mainly as a result of a sharp reduction in passenger numbers following the loss of duty free sales across the company?s areas of operation. However, passenger numbers have now recovered slightly, the company says.

During the third quarter, the company saw a drop in the overall retail spend per passenger in Sweden from SKr552 ($64.38) to SKr352 ($41), and in the UK from SKr148 ($17.25) to SKr48 ($5.60).

Prior to abolition, 25 per cent of onboard revenue had come from tax free sales, where the margins were much higher. Now the margins depend on what the tax differences are between countries. For instance, the higher tax charged on UK goods compared with those in France, and Holland has meant that operators of cross channel and north sea routes between these countries can take advantage of these margins.

Scandlines

Scandlines, Denmark had already taken steps to increase other aspects of its business to counteract the expected drop in revenue caused by the abolition of duty free sales. The company said that revenues had been down on the third quarter, but that it was still making good business from Scandinavians visiting Germany to take advantage of the lower taxes charged on German goods..

The German tax is so much lower that there is not much difference between the cost of tax paid items in Germany and the previous duty free prices, especially on liquour and cigarettes. Also, Scandlines has stocked its shops with additional German goods, selling at German prices, which Scandinavians like to buy, a spokesman says.

From June 1 last year the company replaced a fast ferry with a freight ferry on its Ystad ? Rostock route, which had been a popular day trip route prior to duty free abolition, in order to concentrate on developing the freight traffic on the route.

Generally, it had been a promising year in terms of transport figures, with nearly all traffic categories up on nearly all the routes, the company says.

Silja Line

Silja Line is in a different position to most other ferry operators in the European Union in that all but one of its main routes from Finland to Sweden and Germany call at a port in third country outside the Union en route, so the company has retained a considerable share of its duty free sales.

The company?s only route which has been affected by the abolition of duty free sales is its most northern one, running between Vaasa, Finland, and Umea, Sweden, where there is no opportunity to call at a third country en route.

Around the time of duty free abolition, the Finnish and Swedish governments organised a tender for public service for the route, and Silja Line is now in receipt of FMk40 million in subsidies to operate the route between September 1 last year, and August 31, 2001.

There has been a dramatic drop in both passengers and sales on this route, the company says. Pre-duty free abolition, 1 million passengers a year were carried, now this is forecast to be 330,000. Also, sales have dropped by approximately the same percentage, yielding only 30 per cent of gross sales values compared with the same period last year, the company says.