Here are the presentations in English and in Spanish:
This post looks at three bus companies which have very similar characteristics, albeit different sizes:
What we see instead are three very different sets of costs, with the highest (Tenerife) being over 50% higher per bus-kilometre than the lowest (Lanzarote). We would expect a priori that Tenerife and Gran Canaria would have lower costs due to economies of scale considerations, but this is clearly not the case. By far the largest difference between the three companies arises from personnel costs; although in Gran Canaria, average staff costs appear excessive, each member of staff is highly productive in terms of number of bus-kms per person when compared to Tenerife.
Note also that Lanzarote has the only company whose revenue exceeds its operating costs. In 2016, Intercity Lanzarote managed an average of €1.70 per bus kilometre so will probably be subsidy-free for the year.
Although Lanzarote’s company appears to be the most financially robust, it also serves the needs of its residents less, with the number of trips per person lower than on the other two islands. To make matters worse, a regression analysis based on the number of residents and tourists over a 15 year period suggests that, whilst tourists take the bus a (hypothetical) 25 times per annum on average, residents use the service only 10 times per annum. To put this figure into context, the municipal company operating services in Las Palmas de Gran Canaria achieves some 88 trips per person per annum and, at the other end of the scale, municipal busses in Arrecife (Lanzarote) manage a pitiful annual trip rate of 6.
In 2016, almost 75% of all journeys in Lanzarote were achieved on just three lines which cater principally for tourists, a significantly higher concentration than in 2012 (69%). So, to what extent is the Lanzarote company making money at the expense of the social welfare of its residents?
With Recep Tayyip Erdoğan, Turkey’s president, currently doing his best to discourage any positive sentiment towards his country, it’s worth looking at how demand for Turkey’s tourism markets have changed over the years.
In this figure, we can see that tourism demand, having grown strongly throughout the recession, had been in gentle decline since 2011 but fell precipitously during 2016. By contrast, flows between the UK and Istanbul only (a major source for business and transit passengers as well as city breaks) more than doubled between 200 and 2016 and have only tailed off slightly.
If we compare Turkish resort flows (e.g. Dalaman and Bodrum) with resorts elsewhere with direct flights from the UK, we can see the results below.
Turkey saw tremendous growth in the UK tourism market compared to other resorts and was not affected by the recession of 2009 and 2010. This second chart shows, however, that not only does Turkey have less tourism demand from the UK than 10 years ago , but the overall holiday resort market from the UK has grown by some 10% in the same period.
Wrong! It depends entirely what you are selling, with whom you are competing and how you compete.
One business I work with makes a virtue of being the most expensive supplier in a highly competitive market. Safety is an important part of this client’s business and, of course, safety comes at a cost. So, this particular business has managed to turn the expense of safety into a profit centre by emphasizing that her clients’ safety is paramount to the success of her business. The obvious way that she can deliver the message of ‘safety’ first is through a higher staff to client ratio, which will clearly increase her prices compared to competitors. The table below shows the four broad pricing and quality strategies.
|Low Price||High Price|
|Low Quality||This can be a successful strategy if the core product fulfils its basic functions (e.g. safe and timely air travel)||A strategy sometimes practised by monopolies. In a competitive environment this strategy is unsustainable.|
|High Quality||Poor communication to consumers who may not perceive that the product is of sufficient quality.||Signals to consumers that the product is high quality and is more valuable than lower priced competing products.|
A low-priced product can be acceptable (see above) but many businesses miss a trick and could generate higher income by improving the quality of their product and charging a higher price. Bus fares in Lanzarote are the lowest in the Canary Islands but the services are poorly used (especially in the capital, Arrecife). These monopoly suppliers seem unable to comprehend that price is not the be all and end all of the purchase decision.
The car rental company InterRent has clearly decided that foreign-based business people with flexible plans are a danger to be avoided and any non-UK resident who tries to book a rental car with this company without proof of an onward ticket will have the reservation cancelled.
The right to cancel a rental contract, clearly without warning, is provided on page 3 of their contract on a page of dense text, as shown below.
I have used InterRent previously, as recently as June 2016, when hiring a car at Edinburgh airport, and also September 2016 at Manchester airport. On neither occasion was I asked to provide evidence of a return flight nor was I subject to an Equifax check. So, the fact that I am a UK citizen living in another EU Member State, a holder of a UK-based credit card and have used this company’s services twice this year, with no adverse consequences for the company, accounted for nought when I tried to rent one of their cars in November 2016 in Luton.
As a result of the enforced cancellation, I had to seek quotes from other companies, all of whom were bemused –to say the least- at the requirement for a non-resident to provide proof of a ticket leaving the UK. How my paying, say, £20 or £30 for a ‘fake’ onward journey would provide succour to InterRent beggars belief; I would have thought that the fact that I have been a customer twice in the last five months would carry rather more weight, but clearly not.
I have rented a car about six times so far this year and, it goes without saying, that InterRent has lost access to all future revenues from me. However, as I am clearly a foreigner who is not to be trusted, I am sure that they feel comfortable with this decision.
Air routes within the Canaries can be classified into three types:
The distinction is important because, in this section, we will benchmark inter-island air fares against routes with a similar distance flown by Ryanair between the Peninsula and the Balearic islands.
In Figure 1 below, we present two inter-island air fares and benchmark these against flights over similar distances operated by Ryanair to Ibiza and Mallorca.
The fares shown in the first half of Figure 1 are low season fares to the Balearic Islands and bookable three months in advance, whilst the second table shows prices at the height of the peak just four weeks in advance.
Lanzarote – Tenerife North (TFN) is a monopoly operated by Binter whereas the route to Las Palmas has competition from a smaller operator, Canary Fly; this explains in part the lower cost per kilometre of the shorter inter-island route.
What is not immediately explainable is the very wide discrepancy in fares at other times of the year, with the Ryanair fares at less than half the level of the cheapest Canarian ones. Even if a bag is paid for with the Ryanair flight, the cost per kilometre is significantly below that of Canarian flights (which include a luggage allowance in the price).
To enable a fair comparison of the flights listed in Figure 1, we also need to consider airport charges. The two charges which are of interest here are the landing fees (based upon an aircraft’s maximum takeoff weight) and fees per departing passenger.
In 2015, these charges were significantly lower for inter-island flights than for domestic routes to and from the Peninsula. For a Boeing 737-800, as operated by Ryanair, and assuming 170 seats occupied, the approximate difference airport charges per passenger was €4 under the 2015 tariff, or 2 cents per kilometre for a 200km trip. Therefore, the anomaly in ticket prices per kilometre is actually higher than Figure 1 suggests.
Below, we can see the fares on the two most popular shorter routes, between Tenerife and La Palma and Gran Canaria (LPA).
Figure 2: Fares on Shorter Routes
This figure provides some support for the monopoly pricing argument in the previous section; please note how the fare per km, in cents, between La Palma and Tenerife is lower for Canary Fly and only slightly higher for Binter, even though the route is twice as long as Lanzarote-Tenerife.
Although Binter has an air monopoly on the Tenerife-Gran Canaria route, air travel between the two largest islands accounts for only one third of total demand. In Figure 3, we compare the ferry fares which, in certain cases, are only slightly below the equivalent air fare.
Figure 3: Ferry Fares Tenerife-Gran Canaria
Inter-island ferry fares are discussed in further detail in the next section.
The chart below provides mid-season return (October 2015) fares for a foot passenger. Any discounts attributable to residents have been excluded from the comparison.
Figure 4: Ferry Fares in Canaries
Note: fares research was undertaken in July 2015
In the chart above, inter-island Canarian fares are shown in red, the yellow points represent other ferry routes in Spain and the blue points are elsewhere in the world (UK, France, Italy, Malta and Australia). The chart provides evidence that, in general, the prices charged by Canarian ferry operators are somewhat higher for similar distances than in other countries.
Many political parties are obsessed by the issue of privatisation (either pro or anti), but surely this argument misses the whole point? The arguments involve the extent to which the public retains a stake in decision-making, but, as we shall see, ownership is often an irrelevance.
Let us look at two entities, one of which is totally private and the other totally public.
The British Airports Authority was privatised in 1987 and has since been broken up. Heathrow Airport Holdings is owned by Ferrovial (25%) and a string of foreign government (Qatar, Singapore, Québec and China (65%). The remaining 10% is owned by a US pension fund.
So, how much control does this private entity have over its own affairs?
Guaguas de Arrecife
The municipal bus company in Arrecife, Lanzarote, is an operation run directly by the public sector, namely the town hall of Arrecife. The service is presumably meant to be run for the citizens of the city.
However, with demand having fallen by a quarter in five years, any information on prices or routes being at a premium and an average age of the fleet of nearly ten years (vintage, in bus terms), it is clear that this public sector entity is not influenced by the people whom it is meant to serve, whose only option is to vote with their feet – which is what they have done.
There are apparently no performance incentives and no way of removing a company which consistently provides a poor quality of service to the public.
Monitoring, Control and Transparency
So, I would suggest that the real issue is not whether a company is publicly- or privately-owned but how much monopolies and quasi-monopolies are regulated and, in particular, monitored. For this to occur, Spain (to name but one example), needs to provide detailed operational information, available online, so that the public can see just how well the monopolies providing service are actually performing.
The performance regime also needs to include sanctions, including the ultimate sanction of ejecting the operator. At the very least, an service provider such as Guaguas de Arrecife, needs to be set up as a standalone company, with its own profit and loss account and balance sheet so that anybody can see in real time just how well these providers are serving the public.
This note examines how the Canary Islands (CI) has fared, particularly compared to the rest of Spain, during the 21st century. First we will examine GDP/capita, which provides an overall view of the economic health of the region wealth per person and is a widely accepted measure of whether of how wealthy, on average, a population is.
We next look at average incomes and the cost of living and finally the public debt of each region (Comunidad) of Spain. The public debt is shown per person and also as a percentage of GDP, which is an indicator of the ability to shoulder the debt person.
The note finishes with view on whether the development of a major transit hub in the Canary Islands, as promoted by Coalición Canaria in their election manifesto, is likely to succeed in developing wealth for the islands.
CI has certainly slipped down the rankings significantly, from 8th to 18th place. In 2000, CI was just a few hundred Euros below the average for Spain but now is over €3,000 adrift from the average. If this trend were to continue – and it is a very big if – CI would be the poorest community in Spain by around 2030.
Average incomes and prices
CI has consistently had lower average salaries than the rest of Spain. In 2000, the Comunidad of Murcia had lower salaries than CI but by 2014, CI was the cheapest of all regions, with Extremadura only slightly higher. Monthly salary in CI is now around 80% of the national average.
One of the causes of low salaries is the islands’ dependence on tourism. Of the 18 sectors of the economy for which INE measures salaries, hospitality was easily the lowest of the 18 in 2014.
An offsetting factor is how much consumer prices have increased over a similar period. CI does stand out from the rest of Spain as having significantly lower inflation, of 22%, compared to a nation-wide average of 29%.
CI has traditionally carried low levels of debt and, by 2014, the debt per person was the lowest in Spain; at €2,800 per capita, the figure is less than a third of that shown for Cataluña.
The last column shows how the debt has increased over time. In 2014, Canarian debt per person was a little over five times as high as in 2000, which is identical to the national average.
The amount of debt is of less concern if a region generates sufficient wealth to service this debt, however. So, our final bit of evidence shows, for each region, its debt as a proportion of GDP.
From this last table, we can see that the regional debt of the CI is relatively manageable, especially when compared to the eastern regions of Spain (Balearics, Cataluña, Balearic Islands). Please note, however, that these figure take now account of the regional share of national debt, which is much higher in 2014 than was the case in 2000.
Although the CI is not overly burdened with debt and inflation has been relatively benign, the fact remains that CI has become poorer relative to Spain’s other regions, based on the evidence provided in this note and this should raise question marks about the how the Canary Islands have been managed.
The ruling party throughout this period, Coalición Canaria, has included in its 2015 manifesto aspirations to develop the Archipelago as a regional trade hub, given its position off the coast of Africa and part way across the Atlantic. But this aspiration itself, even if achievable, poses an inconvenient political question. There could only be one hub port which could be promoted to fulfil this aspiration, which means that either Tenerife or Gran Canaria will lose out and the benefits of such a strategy are unlikely to trickle down to the remaining islands.
As far as British tourists are concerned, the Canary Islands in general and Lanzarote in particular may be considered a success story!
Here, we look at passenger volumes between the UK and resort airports. Therefore, places such as Madrid, Barcelona, Lisbon, Athens and Istanbul are excluded from these numbers; we only include “resort” airports, which will have minimal business traffic and also much less city break tourists than cities.
We can see from the first chart that the Canary Islands are the second largest destination for British holiday makers. Others, such as Malta, Cyprus and the Caribbean have around 100,000 passengers per month, whilst Tunisia has collapsed since 2007 to less than 20% of its old volume. Not only is the Archipelago a large market but it has shown the second highest growth since 2007, just below Turkey.
If we look at the specific islands, Lanzarote has had the highest growth in the seven year period for British tourists. Since November 2014, though, growth in the British market has stalled but has continued growing on the other islands. By contrast, Gran Canaria had a rather deeper recession as far as UK tourists were concerned and has yet to recover.
Source: AENA/ISTAC Aviation Data
“I would like a taxi to take me from Puerto del Carmen at 6pm and then bring me back at 9pm, please”.
This, as are many other similar requests, is impossible under the current regime, which jealously guards municipal boundaries within Lanzarote, and elsewhere in Spain. What are the results of this parochial approach to the taxi system here?
A higher quality and more efficient taxi system could be developed very quickly if these artificial boundaries were removed. There would be one system, one telephone number (or even two or three, to cater for foreign tourists) and one website. Other benefits include: