MET?2.O FERRY Ricardo "RIC" Cruz, Marketing Manager of METRO FERRY, had just received a confidential memo from Divina "DINA" Garcia, President of wsay Lines, Inc. The future of METRO FERRY was going (0 be decided in a meeting scheduled a week later, Ric found himself in a dilemma: Should he recommend that METRO FERRY cease all operations because of the losses it had incurred during the past year, or should he come up with a marketing plan to increase passenger patronage? How could he gain government support for the continued operation of their ferry boats? 1iISYORICAL BACKGROUND, In December 1989, the year when the transportation system in Metro Manila was experiencing an acute crisis, the Department of Transportation and Communications (DOTC) introduced the Metroplex Program. The program focused on the improvement of rail, road, and river transport systems as a solution to arrest the worsening traffic problem in Metro Manila, ‘The off-shoot of this was the launching of the metrotren, the metrobus, and the metro ferry modes of transport. In the case of metro ferry, the target was to revive the Pasig River for an alternative mode of transport. The objective was to decongest Metro Manila's land traffic. At the same time, they were to develop and provide an efficient, economical, and fast transport mode for areas south of Metro Manila, especially in areas along the Pasig River. ‘The Philippine Ports Authority (PPA) designed and constructed two permanent passenger terminals along the Pasig River, the Guadalupe and Lawton stations, where passengers could embark and disembark shouid they decide to ride the metro ferry. The Maritime Industry Authority (MARINA) issued a Provisional Authority to Magsaysay Lines, Inc. (MILI) to enable them to operate the METRO FERRY. In January 1990, the METRO FERRY operation officially opened to the public as a joint government and private sector effort, under the auspices of both DOTC and MLL. In time, DOTC issued a wore permanent Certificate of Public Conveyance (CPC) to Metro Ferry ‘The franchise given was for a period of 10 years. This case was edited by Prof. Segismundo M Gonzalez of a Graduate School of Business , De La Salle University, Manila,from a.paper in Marketing Management (GMARKMA) submitted by Ms. Allison See in December 1992. Cases are written, solely for academic discussions. They do not illustrate correct or incorrect handling of management problems...» |COMPANY BACKGROUND nally renowned for shipping and crewing. At the time of this eases it owned 25 ships and operated more than 200 vessels worldwide, DOTC, in a request coursed through Dina Garcia, wanted MLL to operate METRO PERRY. Wit this was not a lucrative proposition, MILI accepted, as part of ils social responsibility (o the riding publ MLI had the necessary expertise in shipping to manage the project. Besides, the government hid promised to support, if not subsidize, the operations of METRO FERRY. MLL organized a separate companys the Pasig River Transit Co., Inc. (PRTCD, to operate the ferry service. Magsaysay Lines, Ine, (MLD was internat PRICT held office in Magsaysay Building aling TM. Kalaw, Ermita, I employed more than 40 ‘0 staff members from the Marketing people. The MLI staff took care of most of its administrative work. Tw Department of MLI took care of promotions, advertising and personal selling activities. One of them was Rie, who added this to his regular responsibilities at MLL. Additional promotional people worked on a commission basis, as needed, They worked on a commission basis. They would visit schools to promote METRO FERRY's charter service. THE TRANSPORT INDUSTRY ‘The network of highways, ports, airports, and rail in the Philippines was fully extensive. The cilities, however, required substantial rehabilitation, upgrading and improvement, as well as sustained wacthtenanee, The national transport system was predominantly a dual-mode system with road and water transport complementing each other. Traffic share per transport mode was as follows: Land — 80% Sea —- 10 . Air 9 {Rail = 1 Total 100% Buses and jeepneys dominated urban transport. A 15 km, elevated Light Rail Transit (LRT), passing trough the length of the City of Manila, complemented the mass transport system. Metro Manila, with an arca of 636 sq. kms. consisted of 4 cities and 13 municipalities, with a population of over 12 million. It had a population growth rate of 3.6 per annum. Because of this high rate PeMMrowth, the central metropolitan area had become heavily congested. This forced the population to spread to the adjoining areas northeast and south of the area, where residential land and houses were still available at prices affordable by middle class families.‘Traffic congestion had become problem. Commuters required an increasing number of vehicles to transport them from their homes in the suburbs to their offices in the central metropolitan area. The improper implementation of traffic rules and regulations exacerbated the situation. As one traveled through the city, one would observe loading and unloading of buses and jeepneys in prohibited places, pedestrians jaywalking and crossing the streets at any point, pedestrians forced to walk along the curb-side of roads because of non-existent sidewalks or sidewalks being occupied by parked vehicles or street vendors, or commuters waiting for public utility vehicles (PUV) in the middle of busy streets during the rush hours. Experts also claimed that many of the road sections had already reached their maximum load eapacities. | Mass transportation was inadequate, such that commuters had no choice but o walk or wait long hours for their rides. According to former DOTC Sceretary Oscar Orbos (1990), only 15% of the more than 500,000 vehicles plying the roads were used for public transportation. These carried about 85% of the potential passenger Joad in Metro Manila. Private individuals owned the majority. Jeepneys and buses were not servicing many areas, particularly those outside EDSA, the main thoroughfare, ‘The increasing demand for transportation services had made it imperative for the government to introduce alternative and more efficient modes of transportation. While the government supported the development of the LRT, the Philippine National Railways (PNR) commuter train, and the METRO FERRY, the effort was not enough. In April 1990, The Social Weather Station (SWS), an opinion-research firm, included a transportation module in its survey to determine the riding pattern of Metro Manila commuters. The random poll (margin of error: plus or minus 3%) explored the subject comprehensively, touching on a range of topies: the incidence of commuting, access to public transportation, waiting and riding time, transportation expenses, and degree of satisfaction with government performance in the area. METRO FERRY OPERATIONS During their initial run, PRCT had deployed two ferry boats on the Guadalupe-Lawton route using stecl-hulled vessels, named Riverbus I and Riverbus II. These ferry boats had a capacity of 50 passengers cach. Free rides were offered during the first week. This promotion intended to encourage commuters to try the new mode of transport. The ferries operated continuously from 6:00 a.m. until 6:00 p.m., between the ‘two permanent stations — Lawton and Guadalupe. Within a year,|PRTCI had increased the number of its ferry boats to nine. It also added seven terminals or stations. Due to the cost and difficulty of finding space to build permanent terminals, MLI designed and installed floating pontoons (low, flat-bottomed boats), which served as temporary landing facilities for the ferry boats and their passengers. i In December 1999, following a directive from the MARINA, two ferry boats were sent to Cebu to service passengers travelling between Mactan Island and Cebu City. Typhoon Ruping had damaged the :... Mactan bridge, the only land link PRTCI was given a temporary permit to operate the Mactan-Cebu route, “which was then a heavily traveled route. This license had to be renewed every three months. MLI had to operate 7 days a week, because of the number of passengers crossing the straits. It was an economically viable route, since each vessel could undertake many crossings because of the relatively short distance traveled. MLI decided to apply for a permanent franchise for this route, At the time of this case, MARINA ‘was still evaluating the application. -Regular operations in the Lawton-Gudalupe route started at 7:00 a.m. nded at 7:00 p.m. __ ‘There were thirty-minute intervals during peak hours (7:00 - 9:00 a.m, and 4:00 - 7:00 pam. ) and hourly intervals during slack hours (9:0 .. 4:00 p.m.). Patronage was low, with only about 2,000 passengers taking all the seven ferry boats in a day’s ope Saturday and Sunday trips were subsequently canceled, after soliciting the approval of the MARINA. PRTCI had been operating at a loss since the start of its operation. Accumulated deficit amounted to PLL8 million, MLI attributed this to low passenger patronage and high operating expenses, particularly in the maintenance of the vessels, remuneration of personnel, and fuel consumption. According to Ric, the target daily passenger patronage had to reach 3,000 per day to break-even (For example, the Escolta- Guadalupe route took about 50 to 60 minutes per trip.) Second-hand vessels, which were former fishing boats, were converted into ferry boats. ‘As such, repairs and maintenance costs were substantially high. Crew members in the Lawton-Guadalupe Route Number 33 were experienced sea-farers, hence their high remuneration. A number of the crew members were former fishers from Malabon, To generate additional revenue, METRO FERRY undertook educational field trips and a tour to Lake Istand Resort in Binangonan, Rizal. Schools or organizations availed of the charter service of METRO FERRY. The thrust of the tour was both educational and historical. Guides lectured on the role of Pasig ‘River in the development of Manila and the Philippines. They also gave commented on environmental and sociological concerns. | One particular station, the one in Busing, Pateros, had stopped its operations because of the low water level, which caused damage to the vessels. PRTCI had requested assistance from the DOTC to dredge the Pasig River, particularly at ihe Buting Station. This was a critical link in going to Taguig, duc to the presence of a jeepney terminal. Unfortunately, no assistance seemed to be forthcoming. Even DOTC had failed to undertake its promise to dredge the Pasig River and remove 19 sunken barges. These had posed as a danger to navigation. (etter ' ‘The inal disappointment for PRTCI occurred during a meeting with the DOTC, when the private agency realized that government was going to renege on another unfulfilled promise. At the start of the project, DOTC had pledged to integrate the METRO FERRY service into the metropolitan transport network through the construction of additional terminals. They were also to assist MLI in coordinating, convincing, and ‘making ‘arrangements with Metro Manila municipal governments in securing access facilities. DOTC had reneged on this pledge and had even failed to include METRO FERRY in its master transportation program for Metro Manila. In November 1992, PRTCI reduced to two (from the remaining seven) the number of ferry boats plying the Escolta-Guadalupe route. Operating schedules were also limited to the rush hours from 7:00 to 9:00 a.m, and from 4:00 to 7:00 pam. In between, only the Pasig River Educational Tours continued for the benefit of various schools in Metro Manila that continued to patronize the service.METRO FERRY was an alternative mode of transportation to riding buses and jeepneys. Except during the summer ‘months when the strong fetid smell of the Pasig River was almost unbearable, commuters found traveling via the METRO FERRY as cool and relieving. There was the advantage of having no traffic, and no unnecessary stops and delays. The ferry boats operated on schedule. There were no long lines nor overcrowding on the boats. If the commuter followed the trip schedule, he could arrive at his disembarking station on time, without any need to wait. The boat captains did not wait for the river buses to fill up before departing. MLI estimated that they had already spent at least P1.O million for the re-construction of each ferry boat. However, with the passage of time, a number had started to deteriorated due to lack of funds used for their maintenance. The rusty sides of some made them look dilapidated. Several had broken seats, missing handrails and even torn floorings. All these created the impression that METRO FERRY was not safe for public transport. To ensure safety, however, PRTCI had provided enough life jackets for all passengers. In addition, all passengers boarding the boat were insured by a comprehensive plan taken by the company. Ric recalled an incident with some.Manila Boat Club (MBC) members, who complained aj : METRO FERRY, its boat captains and crew members. According to these members, there had been an incident when one of their rowing boats sunk because of waves produced by a ferry boat overtaking at great speed. The MBC members, trapped in their sinking boat, had asked for life vests from the passing, [{erry.-Instead of helping, the crew members merely laughed at their predicament. Meetings were held ' between MBC and PRTCI to thresh out the problem. It was eventually resolved that PRTCI would put up a "SLOW DOWN" sign along the river bend, some 750 meters before the MBC. Disciplinary actions against erring crew members bad since been undertaken. This. only showed that some of the erew members of METRO FERRY lacked proper discipline and training. This was one of the weakness of the company, often pointed out by critics, even if the incident never re-occurred. With the reduction in the number of its ferry boats, PRTCI has had to retrench some of its staff. The remaining crew members have been said to be friendly and courteous. | i Another unfulfilled promise of government was the evacuation of squatters living beside some of the |. METRO FERRY stations. Moreover, seven of the nine stations remained to be floating pontoons, inspite of government’s earlier promise to provide permanent platforms for these stations. As a consequence, potential passengers were discouraged from riding, since they viewed the surroundings to be unsafe. Similarly, the station bobbed up and down with the waves, creating an impression of instability. To its advantage, this mode of transport was a novel experience to the riding public, especially for the harried commuters of Metro Manila. It was a diversion from the typical jeepneys, buses, trains, and tricycles.’ It ‘offered a traffic-free mode of transportation that was, at the same time, safe, accessible, * ‘economical, and, indeed, one of a kind. PROMOTION During its initial year of operation (1990), PTC advertised heavily, using "Okey ka FERRY Ko," as its catch-on campaign. This was adopted from the highly rated sitcom of ABS-CBN (Channel 2), "Okay Ka Fairy Ko", which starred the popular Vie Sotto and Issa Seguerra. Despite this campaign, many people still considered the Pasig River to be dirty and unsafe. This coutinued to be the biggest handicap in persuading people to ride METRO FERRY.In 1990, PRICI distributed letters to companies with industrial plants located along the banks of the Pasig River. These letters served to introduce METRO FERRY, at the same time that this solicited support from the companies to encourage their employees to take the ferry boats in commuting. Leaflets were also distributed to the employees, showing the schedule of the ferry boats aud the fare rates. Besides these companies, leaflets and flyers were also distributed to students from Polytechnic University of the Philippines (PUP) and other schools located along the banks of the river. PRICI eventually undertook the supervision of its marketing efforts. The company felt very disappointed with METRO FERRY's low passenger patronage. Ric felt that the low passenger patronage was a result of poor information dissemination, Had the government extended its promised support, Ric believed that Metro Ferry could have been successful in its mission of easing traffic congestion. He considered tacking the poor information dissemination problem by engaging in some form of advertisement and publicity, with the primary intention of ereating a favorable image for the Pasig River. However, he realized that he could not do this alone, without the government's support, COMPETITION METRO FERRY had no competitor operating along the Pasig River. PRTCI was the only company licensed to ply the Escolta-Guadalupe route. larly, METRO FERRY's charter service, the Pasig River Educational Tour project, was the only.charter service offering a tour on board a ferry boat along the Pasig River having an annotator or 2 lecturer. LAND TRANSPORTATION AND INFRASTRUCTURE, ‘The government, through the DOTC, Board of Investments and Bureau of Customs, had begun to _ increase: the numbers of buses of METROBUS plying the main arterial roads of the metropolis. Recently, it also introduced Metro Shuttle, which consisted of fully air-conditioned mini-buses. Such moves helped case the lack of transportation, but these had also resulted in monstrous traffic jams caused by undisciplined drivers, and increased pollution levels due to smoke-belching of poorly maintained vehicles, Unfortunately, the overall effect was the relegation of Metro Ferry to the background. ‘The completion of fly-overs in the metropolis had substantially reduced travelirig time. Commuters preferred to travel the traditional way — via land transportation — as they viewed this to be a much safer mode than taking the ferry. The opening of the circumferential road through Fort Bonifacio (C-5) crossing the Pasig River, would also definitely ease traffic along EDSA. ALTERNATIVES BEING CONSIDERED METRO aa OPERATIONS METRO FERRY had reduced the number of ferry boats plying the Escolta-Guadalupe area from seven to two, operating only during the'rush hours (7:00 to 9:00 a.m. and 4:00 to 7:00 p.m. ). ‘Along with this reduction, several crew members had_also been retrenched. According to Ric, METRO FERRY had decided this course of action during the last quarter of 1992 to minimize its losses from operations, PRTCI rotated the use of its boats, such that only two boats at a time were in service, while the other 5 were docked.‘The two ferry boats had to continue their operations, even on a limited basis, so PRTCI could retain its franchise on the Escolta-Guadalupe route. The new schedule and the rotation of vessels had resulted in the following advantages: (a) reduction in fuel consumption and remuneration expenses, and (b) lower maintenance costs. On the other hand, aecording to Ric, he had been receiving letters from the public appealing for the resumption of the old schedule. It seemed that the retrenchment had inconvenienced a number of commuters who had started to patronize the METRO FERRY regularly. ‘This was indeed unfortunate. CEBU OPERATIONS The passenger load of the two ferry boats in Cebu had been steadily increasing (Exhibit 12). One possible reason for this is cultural. Unlike Metro Manilans, Cebuanos were historically seafaring people. Even before the construction of the Mactan bridge, which connected Cebu Island to Mactan Island, people in the area had been used to riding bancas and barges to travel between the two islands. The cities of Cebu, Mandaue and Lapulapu, and the town of Mactan had been experiencing an active economic growth. This had made the population in these places more mobile in moving from one island to another. The number of companies that operated at the Mactarr Export Processing Zone (MEPZ), in particular, had been increasing. Most of them had employees that commuted daily to Cebu City and Mandaue City. Since the rate of infrastructure development was not fast enough to catch up with the |: growth, the channel ferry remained a primary. mode of transportation. The license of METRO FERRY to " operatein Cebu, however, did not include a permit fo operate at the MEPZ. Ric had also been considering the possibility of increasing to four the number of their ferry boats plying the Cebu area. There were two stations in this route, Pier 3 in Cebu City and Muclle Osmena in |! Mactan, Their ferries operated on a fifteen-minute interval along this route. With government permit and support, three new routes could be opened in Cebu: a) Pier 3-MEPZ, (b) Muclle Osmena-MEPZ, and (©) MEPZ - Punta Engano (other side of Mactan). With the opening of these routes, they would be able to generate additional revenue, as well as make use of two of the five boats that were docked in Man PRTCT estimated a 70 to 80 percent increase in passenger patronage with the opening of the new routes. As for fare rates, METRO FERRY charged only a flat fee of P 5.00 per trip, for the fifteen-minute duration of the trip. (The margin of profit along this route was higher, compared with their margins along the Escolta-Guadalupe route, which had a travel duration of about 50 to 60 minutes. Related costs in the | operation of the Cebu route were the same as in the Escolta-Gudalupe route. PRTCI actually earned more + in the Cebu route, because of the relatively higher fare for the shorter distance. Their passenger load factor ! was also higher in Cebu, because there were more people riding the METRO FERRY in Cebu than in Manila, iPASIG RIVER EDUCATIONAL TOURS ‘The response to the Pasig River Educational Tour packages was very promising, considering that very few of their personnel were soliciting riders from schools. This was partly because of the novelty of the project and its affordability. The package sold itself because of its objectives and features. Since the Pasig River Educational Tour was getting favorable feedbacks from its satisfied clients, Rie wanted to continue the project. He felt that it was PRTCI’s social responsibility to serve the studentry by educating them on such subjects as the role of the Pasig River in the development of the nation and euvironmental concerns affecting rivers. Unfortunately, METRO FERRY could only accommodate at most 200 students at any given time, as a result of their retrenchment program during the first quarter of 1992.. PRTCI had retained only eight crew members. The eight were just sufficient to operate two boats, since each boat reguired acrew of four. ‘The Pasig River Educational Tour attracted more riders during the school season, than during the summer months, when they hardly had any. Ric believed that the seasonality of riders patronizing the Pasig River Educational Tours could be offset by the expected higher demand during the summer months for {sland-hopping tours among the islets of Mactan. Tourists would be their main target for this alternative. In addition to the regular costs of operating the ferry boats, other related costs were also being incurred: + Fixed Cost ‘Tour Guide/ Annotator P 300.00 per boat Variable Costs Snacks P 25.00 per person : Entrance Fees Fort Santingo 5.00 Intramuros ' 4 2.00 Casa Manila 5.00 San'Agustin Museum 10.00 : Commission to freelancer 10% of package cost | JSLAND-HOPPING TOURS i ‘The jisland-hopping tour along Mactan Island presented itself as an attractive alternative to generate additional revenues for the company. Ric had been approached by a representative of the Tambult Beach Resort in Cebu encouraging him to undertake this project. According to the representative, many tourists love to go on island-hopping tours among the many islets of Mactan. These tourists were only using small boats, called outriggers, to travel. These boats had a capacity of only three to four passengers, and each one had to pay, US $40 per trip. Should the project push through, Ric was planning to send as many as three ferry boats to service the area. PRTCI could quote a higher rate per passenger, and easily recover the costs and expenses of the trip. p‘The Tambuli Beach Resort was fairly well-known antong the different travel agencies, and was being frequented by tourists. The management of the resort estimated that close to two thousand tourists visited the place every year, a majority of who were interested in going on istnd-hopping tours. The relatively long summer season in Cebu, which had a duration of almost six,months, made the place ideal for tourists. An associate of Ric had also proposed the idea of using the ferry boats to service the Manila Bay area, including Corregidor Island. Ric explained that their ferry boats could not be used for these trips, since the waves in the Manila Bay area were too strong for the boats. ‘Che farthest points that their ferry boats could safely travel were only between the mouth of Manila Bay and the mouth of Laguna Bay. CRITICAL YI 3 1993 was going to be critical, since this was going to be the year when METRO FERRY could cither “make it or break it." Decisions had to be made soon on whether to completely phase-out their operations, or work for a turnaround in their profitability. Ric was seriously meditating on what his next action should be to Feconcile the apparently conflicting interests of MLI, PRTCI, and the riding public. Meanwhile, the rest of the world was celebrating the festive Christmas season, REVISED: 12-18-98 FILENAME: METROFER manent 7