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Steering for growth in a mature market

The mature ferry market in Western Europe is tackling challenges from low-cost air travel, new holiday concepts and rising fuel costs. A good number of ferry services have been forced to close, others are up for sale. Norway’s Color Line, however, is going against the trend with an investment programme of EUR 875 million in new ships by 2008.

The result of a series of mergers, privately-owned Color Line enjoys the hegemony in the Norwegian ferry market with some 70 per cent of the international traffic. This includes the longer Oslo–Kiel service and a number of shorter services linking Norwegian ports to Denmark and Sweden. In addition, a new service from Western Norway to Denmark was launched in April 2005. Together, 4.4 million passengers were carried by the company’s ten vessels last year, earning a gross revenue of EUR 586 million and a net profit of 21 million.

Compared to its European colleagues, Color Line enjoys the benefit of continued duty-free sales – and the home market’s determination to make the most of it – because of Norway’s position outside the European Union. On the other hand, under Norwegian flag the company had a cost handicap compared to its Danish and Swedish competitors with net-wage terms for the crews. However, thanks to ardent campaigning by the unions and the ferry companies, a specific net-wage status was granted for the safety manning in international ferries in 2005. Here lies an essential condition for the new strategies.

Different markets, different strategies
In 2002/03 Color Line was challenged by the characteristics of a stale market: stagnating traffic figures, growing costs, the need to replace older ferries, at the same time as the travel and holiday market changed with low-cost air fares and a more adventurous and wealthy travelling public seeking more individual experiences.

The clue to the strategy process was to understand the differences between the company’s services. By far the largest volumes of passengers and cars were carried on the short services across the Skagerrak, from Norway to Denmark and Sweden. By contrast, the longer over-night service between Oslo and Kiel had a “short-cruise” element; in addition, of course, to freight and commercial lorries.

Color Line’s response became a double set of strategies, one for the longer service and a different one for the shorter.

The magic factor
The basic idea for Oslo-Kiel was to create a genuine cruise ship with all imaginable attractions, and yet with spacious car and freight decks hidden below. All this was achieved with Color Fantasy, the 75,000 GT cruise vessel built by Aker Yards in Åbo and delivered in December 2004.

The Fantasy proved the strategies right. An attraction by herself, she was marketed in the “short break/cruise” segment as well as for other travellers and freight, and with resounding success. From a total of 605,000 passengers carried by two ships in 2004, passenger bookings were up 60 per cent after the introduction of Fantasy. The new ship carried a total of 577,000 passengers alone, with an average of 1,600 on every voyage. The ship was practically fully booked all through the year.

In short, the company managed to increase traffic by eating into virgin territory, particularly in Germany. This paved the way for a sister, ordered in May 2005 from the Åbo shipyard for delivery in September next year. The vessel, already given the name Color Magic, has a project price of EUR 325 million.

Color Fantasy welcomed her passenger number 1,000,000 in September 2006; a testimony to the success of this much-debated concept.

Efficiency gains
A large share of Color Line’s total business was found in the short Skagerrak connections from Southern Norway to the Northern part of Denmark. In 2004, the Kristiansand–Hirtshals and Larvik–Frederikshavn services together carried 1.8 million passengers, 380,000 cars and 72,500 freight units. This was a genuine freight link with considerable shopping travellers and a steep high-season with summer vacationers. Together, the Skagerrak links accounted for some 45 per cent of Color Line’s total traffic volume; presumably a somewhat lower proportion of the total revenue. But again, the transport environment was largely stagnant and the costs were rising with four elderly ferries and one high-speed vessel.

Color Line’s response had several ingredients, all aiming at cutting costs and boosting income through more efficient use of vessels and terminals.

First, the terminus of the Larvik service was moved from Fredrikshavn to Hirtshals in April 2005. This not only allowed more efficient use of a larger terminal, but also a much more flexible utilization of the ferry fleet in the future.

Enhanched terminal operation was essential. The port of Hirtshals went a long way to improve the ferry berths, secure larger areas for freight and cars, provide access from the new main road to the terminal. In Larvik, the old terminal was due to be closed any way, and a new one is being built in the proper port area by the port authorities and Color Line. Considerable improvements had already been done in Kristiansand where the terminal is situated adjacent to the railway and bus terminals.

SuperSpeed
And here comes the SuperSpeed concept: New ships tailored for efficient booking, boarding and loading, with sufficient attractions to keep passengers busy for a three hours’ crossing. Main features are:
• large capacity, 1,800 passengers and 5,000 lane meters
• high speed, up to 27 knots service speed
• rapid turnaround by two-level access ramps, one for trailers and one for small cars

Not only have the terminals been designed around the ships, but so has also the internet booking system and self-service boarding procedures. Time saving is essential to achieve high utilization of the vessels. With shorter passage time, there will be no passenger cabins, other than rest cabins for commercial vehicle drivers.

The upper three decks will be laid out for passengers, with restaurants, lounges, activity rooms for children and young people, shopping area, etc. The sheer size of the vessels is notable, with 11 decks and a length of 211 meters, compared to 168 meters for Peter Wessel, the largest of the present vessels.

From strategy followed design and planning, and the order for two SuperSpeed ferries were signed with Aker Yards on 15 December 2005, valued at EUR 252 million. To be built by the Rauma shipyard in Finland, delivery is set for December 2007 and April 2008. The first vessel will take up the Kristiansand–Hirtshals service and the second will go to Larvik. Sailing time on Hirtshals–Kristiansand will be cut from 4.5 hours to 3 hours and 15 minutes; with 30 minutes more sailing time to Larvik.

Delivery of the SuperSpeed vessels will enable the company to retire three older ferries, Peter Wessel, Christian IV and the leased Color Traveller.

From 2008 Color Line’s Skagerrak links will be operated by the two SuperSpeed vessels around the year, with varying seasonal frequencies, and with the 38 knot high speed Silvia Ana to help out with the summer season.

By these strategies, Color Line has used its financial position to invest itself out of the stagnation deadlock. The Fantasy concept has enabled the company to catch new market groups and increase passenger bookings. By SuperSpeed, the company will consolidate almost 50 per cent of its business in a high-capacity concept that also comprises terminal operation and innovative booking and boarding systems. Together, the concepts should see Color Line well into the next decade or more, hopefully with a rewarding profit on its EUR 875 million investment.

//Dag Bakka Jr

Latest update 24-11-2006 15:54

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