Do the Math
So much about Hawai'i Superferry just doesn't add up
August 30, 2007
The strange saga of Hawai'i Superferry (HSF) took even more bizarre turns over the past week with startling court rulings, a jump-start of the launch date with $5 fares, a huge protest and surfer-blockade on Kauai, and the awarding of a temporary restraining order to halt the ferry service on Maui while the court-ordered environmental impact study is prepared.
But analysis of facts, figures, and economics raises a key question: Will Hawai'i Superferry ever be economically viable?
Some quick calculations reveal the following:
• Eleven days of $5 inter-island fares could move 20,000 people and vehicles (approximately 500 passengers per trip and four daily trips), resulting in revenues of around $100,000.
• Four daily trips requires 24,000 gallons of diesel fuel ($3/gallon), equaling $72,000 daily in fuel costs, or nearly $800,000 over the $5 fare promotion period.
In other words, Hawai'i Superferry stood to lose nearly three quarters of a million dollars before they ever set sale with normal rates and fares. The outlook gets worse when you factor in other business expenses like staff and executive salaries, insurance, advertising, hiring off-duty police, legal expenses, harbor fees to repay the $40 million in statewide harbor modifications and a debt-service of at least $17,000 a day on the loan for their first of two vessels.
Then there's the issue of whether riding the Superferry at a discount rate would have been likely to win regular travelers at the rates registered with the Public Utilities Commission, which now include a 31 percent fuel surcharge. Come to think of it, since the PUC regulates the fares, shouldn't Superferry have been required to check with them before offering discounts?
It seems that the rush to launch the fast-ferry two days early had everything to do with two court rulings a few days earlier. First, Circuit Court Judge Joel August ordered the state Department of Transportation to implement traffic mitigation before ferry service began. These measures included the re-striping of lanes on Pu'unene Avenue, supplying traffic cops and upgrading the signal light—all of which will be paid by state taxpayers, not HSF.
But on Sunday morning when the first ferry arrived, road crews were still reconfiguring traffic lanes on the Burger King side of the Pu'unene intersection, and had not even begun to address re-striping on the harbor side, next to First Hawaiian Bank.
The Sunday arrival also coincided with light traffic on Ka'ahumanu Avenue—the bank being closed, no operations by Young Brothers (which shares Pier II) and the only day of the week when there's no cruise ship docked at Pier I. So it's easy to imagine HSF telling the courts, "See, everything went smoothly, so just let us continue service while we work on preparing an environment assessment."
But the jump-start of the launch date was not only an arrogant "in your face" move against Judge August's ruling that the state work out traffic mitigation before service began, but also flew against the Hawai'i Supreme Court's ruling that the ferry service did require environmental review. On Monday morning, the three environmental groups, Maui Tomorrow, Sierra Club and Kahului Harbor Coalition filed requests with Circuit Court Judge Joseph Cardoza seeking a TRO and preliminary injunction against the ferry initiating service until the required study of impacts is completed.
By Monday afternoon, the court had issued a TRO, halting Hawai'i Superferry's service to Maui until Sept. 6. There'll be a hearing later in September on the injunction request.
The Supreme Court ruling that DOT should have required environmental review vindicates the three groups, who have already spent more than $50,000 in legal fees to uphold the state law. The ruling also supports resolutions filed by three island County Councils and efforts by state legislators that were thwarted when Maui representative Joe Souki decided not to schedule a hearing for a bill requiring an environmental review.
Superferry's initial sales pitch was a cheaper alternative to inter-island air fares, though the addition of go! Airlines has brought about price wars that reduced one-way tickets to as low as $19. With a fleet of nearly 200 aircraft, go!'s parent company Mesa Air Group is far more capable of absorbing reduced fares on the Hawai'i market than its competitors, Aloha and Hawaiian Airlines. So air travel is likely to remain cheaper and more convenient than Superferry well into the foreseeable future.
The cost of one person and a Ford truck traveling round trip on the Superferry to Oahu, Maui or Kauai is more than $400, not counting the necessity of overnight accommodations. If two people from Oahu wished to do some weekend camping on Maui, they would pay $81 each, or $324 total round trip. If they brought their van, they'd pay and additional $135 ($270 roundtrip). Thus, their weekend camping excursion would total nearly $600. So much for the cheaper alternative for inter-island travel.
For this reason, Superferry's sales pitch has been something of a moving target. At various times their advertising has targeted high school sports teams, canoe paddlers, farmers, motorcycle clubs and those just interested in sight-seeing from the water. But last Sunday, with trade winds virtually becalmed and the Pacific Ocean living up to its name, there were reports of seasickness on the three-hour voyage. Two Honolulu TV reporters even ended their newscasts with recommendations to take Dramamine or a ginger pill to reduce queasiness.
Will the average daily numbers of passengers and vehicles allow Hawai'i Superferry to be a financially viable operation? No—their large overhead, staff, fuel costs, and 20-year payback of state and federal loans will keep them in the red forevermore.
Surprised? You shouldn't be, because the Superferry top executives are very experienced at running large ventures into bankruptcy, then walking away unscathed.
Executive Vice President Terry White did it with American Hawai'i Cruises, which went belly-up after 9/11 but was bailed out by the same federal maritime loans that floated the majority of the $190 million purchase of HSF's two 350-foot fast ferries. President and CEO John Garabaldi did likewise as Chief Financial Officer of Hawaiian Airlines, leading them into bankruptcy, then seeking repayment on a $286,465 note when the airlines entered a reorganization buyout in 2004.
John Lehman, a former Secretary of the Navy and 9/11 Commission member, is Superferry's Chairman of the Board of Directors. He's the big investor, with over $71 million in the project. His firm J.F. Lehman & Company also purchased Atlantic Marine, Inc. shipyards on the Mobile, Alabama waterfront, next to where the second Superferry is under construction by Austal USA.
There has been considerable speculation that U.S. military interests in the fast-ferry prototype from U.S. shipyards will result in awarding of a multi-ship contract in the near future. Indeed, the same U. S. Maritime Administration (MARAD) that authorized the $140 million loan for the ferries' construction costs conducts a program known as the Voluntary Intermodal Sealift Agreement (VISA). The VISA program "provides the defense community with 'assured access' to commercial intermodal capacity to move sustainment cargo during time of war or national emergency," according to the MARAD website.
This is key: even if Hawai'i Superferry sinks financially, the MARAD loans will be repaid and assets could be sold or acquired, perhaps leaving Hawai'i taxpayers holding the bag for barges, ramps and other statewide harbor modifications totaling $40 million.
Should the Stryker brigade be deployed in the Hawaiian Islands, the Superferry would certainly meet the specifications for troop and equipment transport, though company officials have backpedaled from earlier statements made by Lehman that the Strykers would be a major Superferry user. Others believe that its ultimate use may be to serve missile launch platforms near the equator, but that's a conspiracy theory for another day.
It's a testimony to the resilience of Neighbor Island communities that they've been able to muster considerable resistance to the huge money and political clout behind Hawai'i Superferry. And it's a shame that big business and government officials have treated Hawai'i residents and taxpayers with such cavalier disregard. MTW
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