The final report of the Alaska Marine Highway Reshaping Work Group was released Thursday, with key recommendations including increases in ferry fares and further reductions in the frequency of service.
The nine-member group was tasked by Gov. Mike Dunleavy to provide recommendations to reshape the AMHS. The ferry system not only suffers from an aging fleet but also has seen a significant reduction in its budget, leading to reduced service — much to the frustration of Alaska’s coastal communities.
The reshaping group’s list of recommendations included reducing ferry service frequency, eliminating service to many communities and increasing overall fares.
“A more optimal pricing strategy would increase system revenue by increasing fares on most routes. On a few routes increasing fares would have no revenue impacts, and on a few routes, lowering fares could increase demand and increase revenue,” the report said.
Fares already changed last year when AMHS implemented a dynamic pricing model that increases fares as availability decreases.
The reshaping group said the AMHS has reached its current state because it lacks a long-term plan, and decision processes over many years have seemed reactive, “resulting in some poor outcomes.”
To help implement the suggestions made in the report, the reshaping group recommended that the governor establish a nine-member AMHS “operations“ board and a dedicated transition team to focus resources on the new AMHS.
To help reduce AMHS operating costs, the group recommended using fewer and smaller vessels, depending on the route; reducing the number of operating days; lowering personnel costs by adjusting the crew and reducing overtime; and outsourcing service to commercial providers when possible.
The group also said the AMHS should “aggressively reduce vessel capacity” and change service frequency, depending on the season.
The report said that the M/V Columbia, M/V Matanuska and M/V Kennicott — the latter of which serves Kodiak — should only operate with full crews and passenger capacity in the summer or peak-season months, or if increased demand develops. During all other months, service should be reduced to 50% capacity and the vessels should have reduced crews.
To help lower operating costs, the group recommended the use of commercial providers, or others such as local tribes or communities, to provide service to Ouzinkie, Port Lions, Old Harbor and other smaller communities.
“It is understood that serving very small communities with the ferry system model will never be cost efficient,” said the report. “Ideally if the overall Alaska Marine Highway System could be made revenue/cost positive it could absorb losses on these runs.”
Rep. Louise Stutes (R-Kodiak), who serves on the reshaping group, disagreed with this particular recommendation and said small communities should have ferry service regardless.
Status said she also opposed a recommendation for only two runs per year in Southwest Alaska.
“Two runs per year would not be enough to sustain the communities in (Southwest) Alaska,” she commented in the report. “Further, looking at population only does not account for fisheries and fish processing activities, which occur heavily along the chain.”
The report said that the majority of the operating costs were labor costs. In 2018, labor accounted for 66% of vessel operating cost, and “exceeded overall system revenue by more than $12.5 million.”
The group said that running day boats or operating with a reduced passenger capacity to match demand, reducing dockside crew and privatizing security services would also reduce costs.
“The Kennicott, Columbia, Matanuska, Tustumena, Aurora, Hubbard and LeConte are all candidate vessels for more crewing flexibility depending on the specific operations model AMHS pursues,” said the report.
The group made recommendations to more efficiently fund the ferry, suggesting that the governor and the state Legislature forward-fund two or more years of AMHS operation “so that the AMHS can better plan operations, maintenance and vessel schedules, publicize and conduct a more predictable future operating schedule.”
The report did not mention any recommendations to replace the Tustumena, but said that if the vessel is not Safety of Life at Sea compliant, it may not be able to carry passengers to or from Canada.
“Critical decisions about any new vessel should be made with a long term system fleet strategy in mind,” said the report.
Stutes also criticized this comment and said there was a “dire” need to replace the vessel.
“There is no reason why the replacement M/V Tustumena would not be SOLAS compliant,” Stutes said, adding that the new Tustumena “should be built without further delay; no ands, ifs, or buts.”
According to the Department of Transportation website, because of its size and design, the Tustumena is the only AMHS vessel capable of serving all 13 ports of call between Homer and Unalaska.
The Tustumena is more than 50 years old and lacks capacity, as there has been an increase in demand for car deck capacity between Homer and Kodiak. Over the years, there has also been an increase in the discovery of wasted steel and cracking during annual maintenance, which makes the replacement more urgent.
According to the report, the system’s current business model requires passenger and vehicle tariff revenue to pay part of its operating expenses.
However, because of budget cycle timing, AMHS cannot plan ferry sailings more than a few months in advance, which hinders marketing opportunities and sale of bookings, resulting in increased costs and missed revenue opportunities, said the report.
The report was submitted to the governor earlier this month. The DOT will use these recommendations to develop a plan that incorporates the governor's proposed budget, which is slated to be released in mid-December.