The Steamship Authority is looking to a healthier bottom line without any fare increases in its draft 2009 budget, to be presented at today’s monthly meeting on Nantucket.
It was a close run thing. Just two weeks ago, boat line general manager Wayne Lamson faced the prospect of a large budget hole, thanks to high fuel prices.
“The way things were a couple of weeks ago, I was looking for $2 million and trying to figure what else we could cut to avoid a rate increase,” Mr. Lamson said.
However, the recent sharp decline in the price of oil — which is now below $100 a barrel, down from a high of $147 — has saved the SSA from some hard decisions.
And it has allowed the boat line to project net income for 2009 of some $4.3 million, compared with a bare $2 million projected for this year.
And it could be even healthier than that; as Mr. Lamson noted, fuel prices have fallen even further since the draft numbers were put together last week.
The budget preparation process has thus been the reverse of last year, when the numbers were twice recalculated to factor in a rapid rise in the costs of operating the vessels. Now the difficulty is predicting how much more fuel costs might fall.
“The consensus is it is probably going to go down further. But who knows, people were saying the same thing last year,” he said.
While the volatility of fuel prices has this time helped the SSA with its bottom line, Mr. Lamson said boat line senior managers also are looking for new tactics to avoid that volatility.
Thus they have changed the way they forecast prices — using the index for heating oil — and are looking to fixed-cost supply contracts in future.
“We are exploring different strategies such as (1) the use of a financial hedge based on NYMEX heating oil futures pricing; (2) the option to lock in a fixed price with the Authority’s fuel contract for 2009, or (3) a combination of both in order to protect ourselves from significant volatility in the price we pay for nearly three million gallons of fuel oil each year,” the budget summary says.
Mr. Lamson said the boat line’s current contract for oil expires at the end of the year.
“We have the option to renew that for another two years,” he said, “or we can try to go out and get some kind of option for a fixed price.
“But the question then is what we do if the price goes down. Are we willing to pay a fixed price now, knowing it could go either way? Does everyone have the stomach to stand for that?
“There are other mechanisms that we could use — you can buy futures, you can buy ‘puts’ in case the price goes down. If the price goes below a certain level you get something back.
“So you can lock in a fixed price and then leverage the downside.”
Mr. Lamson said he expects the proposal will provoke questions among board members, but that it was something the boat line had to look into given the effects of the recent wild fluctuations in costs.
The budget foresees a modest 2.9 per cent increase in operating revenues in the coming year, to about $85.2 million. And the number of people using the ferry service are expected to be flat at best.
About 2.7 million passengers will be carried, the SSA projects, in 2008, and the figure should be almost the same in 2009. Likewise the numbers of cars and trucks will remain pretty constant.
But the number of miles traveled by the ferries is projected to be down about 9,700 — because of cuts to some services, which began during the high fuel times of the past year, and which will continue.
“We’re going to keep looking at schedules to see where we have excess capacity,” Mr. Lamson said.