METRO FERRY Ricardo "RIC" Cruz, Marketing Manager of MEKRO FERRY, had just received a confidential memo from Divina "DINA" Garcia, President of Magsaysay Lines, Inc. The future of METRO FERRY yas going to be decided in a meeting scheduled a week later. Rie 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 goverment support for the continaed operation of their ferry boats 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 of-shoot of this was the launching of the metrotren, the metrobus, and the metro ferry modes of transport. In the ease of metro ferry, the target was to revive the Pasig River for an alternative mote of tiansport, 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 Ma especially in areas along the Pasig River. ‘The Philippine Ports Authority (PPA) designed and constructed two permanent passenger (erminals along the Pasig River, the Guadalupe and Lawton stations, where passengers could embark and disembark should they decide to ride the metro ferry. The Maritime Industry Authority (4RINA) issued 2 Provisional Authority to Magsaysay Lines, Inc. (MILI) to enable them to operate the METRO FERRY. ! An 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 more 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, Segisnuendo M Gomalez 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...»i | i | { + COMPANY BACKGROUND, Magsaysay Lines, Inc, (MILD) was internationally renowned for shipping and crewing. At the time of this case, it owned 25 ships and operated more than 200 vessels ‘worldwide. DOTC, in a request coursed through Dina Garcia, wanted MLK to operale METRO FERRY. While this was not a lucrative proposition, MT accepled, as part of is social resporsibility to the riding public. MLI had the necessary expertise in shipping to manage the project. Besides, the government had promised (o support, if not subsidize, the operations of METRO FERRY. MLI organized 2 separate companys the Pasig River Transit Cony Inc. (PRICD, to operate the ferry service. PRICT held office in Magsaysay 3 people. The MILI staff ook care of most of its administrative work. Two s Department of MLI took care of promotions, Ivertising and personal selling act Rie, who added this to his regular responsibilities at MLI- ‘Allditional promotional people worked on a commission basis, as needed. They worked on a commission phasis. They would visit schools fo promote METRO FERRY's charter sc! 1H TRANSPORT INDUSTRY ‘The network of highways, ports, airports, and rail in the Philippines was fairly extensive. ‘The facilities, however, required substantial rehab tation, upgrading and improvement, as well 2s sustainied miainfenance. The national transport system was predominantly a dual-mode system, with road and waler transport complementing each other. Trafic shure per transport mode Was aS follows: : Land — 80% Sa - 10 . Air - 9 | Rail = 1 ‘Total 100% Buses and jecpueys dominated urban transport. A 15 kn. elevated Light Rail Transit (LRD, passing through the length of the City of Manila, complemented the mass transport system. Metro Manila, with an area of 636 sq- kms., consisted of 4 cities and 13 mu ipalities, with a population of over 12 milion. I iad a population growth rate of 3.6 per suns Because of this bigh rate Drerowth, the central metropolitan area had become easily congested. This forced the population to spread to the adjoining areas northeast and south of the areay ‘where residential Iand and houses were still Gvailable at prices affordable by middle class families.‘Traffic congestion had become a problem. Commuters required an increasing number of vehicles to transport them from their homes in the suburbs (o 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 jecpneys 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 (PUY) 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 capacities. Mass transportation was inadequate, such that commuters had no choice but to walk or wait long hours for their rides. According (0 former DOTC Secretary 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 {o 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), au opinivn-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, INS RO FERRY OPERA’ During their initial run, PRTCT had deployed two ferry boats on the Guadalupe-Lawton route using steel-hulled vessels, named Riverbus I and Riverbus I. These ferry boats had a capacity of S0 passengers cach. Free rides were offered during the first week. This promotion intended (o encourage commuters to fry 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 bad 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 (erminals, MLI designed and installed floating pontoons (low, flat-bottomed boats), which served as temporary landing facilities for the ferry boats and their passengers. | In December 1990, following a directive from the MARINA, two ferry boats were sent (o Cebu to service passengers travelling between Mactan Island and Cebu City. Typhoon Raping had damaged the Mactan bridge, the only land link. PRT'CI was given a temporary permit (o operate the Mactan-Cebu route, which was then a heavily traveled route. This license had (o be renewed every three months. MLL 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. i |Regular operations in the Lawion-Gudalupe route started at 7:00 a.m. and ended at 7:00 pm. ‘There were thirty-minute intervals during peak hours (7:00 - 9:00 a.m. and 4:00 - 7300 p.m, ) and hourly intervals during slack hours (9:00 a.m. 4:00 p.m.). Patronage was low, with only about 2,000 passengers (aking all the seven ferry boats in a day's operation. Saturday and Sunday trips were subsequently canceled, after soliciting the approval of the MARINA. PRICI had been operating at a loss since the start of its operation. Accumulated deficit amounted (o P11.8 million. MLI atisibuted this to low passenger patronage and high operating expenses, particularly in the maintenance of the vessels, remuneration of personnel, and fuel consumption. According to Rie, the target daily passenger patronage had {o reach 3,000 per day to break-even (For example, the Escolta- Guaitalupe route took about 50 to 60 minutes per trip.) Seconl-hand vessels, which were former fishing boats, were converted into ferry boas. ‘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 renuuneration. 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 ake Island Resort in Binangonan, Rizal. Schools or organizations availed of the charter service of METRO ERRY., The thrust of the tour was both educ: 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 Buting, Pateros, had stopped its operatious because of the low water level, which caused damage to the vessels. PRTCI had requested assistance from the DOTC to Ureilge the Pasig River, particularly at the Buting Station, ‘This was a critical link in going to Taguig, due to. the preseace of a jeepney terminal. Unfortunately, no assistance seemed to be forthcoming. Even DOTC hhad failed to undertake its promise to dredge the Pasig River and remove 19 sunken barges. These lind posed as a danger to navigation. a * © phe final disappointment for PRICI occurred during a meeting with the DOTC, when the private agency realized that government was going (o 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 MLL in coordinating, convincing, and’ making ‘arrangements with Metro Manila municipal governments in securing access fucilities. DOTC had reneged on this pledge and had even failed to include METRO FERRY in its master + transportation progrim for Metro Manila. In November 1992, PRICE 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 ours from 7:00 to 9:00 am, and from 4:00 to 7:00 p.m. In between, only the Pasig River Educational Tours continued for the benefit of various schools in Metro Manila that continued to patronize the service. nistTHESERVICE 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 yia 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, ke could arrive at his discmbarking station on time, without any need to wait. The boat eaptains did not wait for the river buses to fill up before departing. ‘MLL estimated that they had already spent at least P1.0 million for the reconstruction 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 hadi 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 ageinst «METRO FERRY, its boat captains and crew members. According to these members, there had been an incident when one of their rowing boals 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 jferry.-Iustead of helping, the crew members merely laughed at thelr predicament, Meetings were held between MBC and PRICI 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 liad since been undertaken. ‘Chis 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 hy critics, even if the incident never re-occurred. With the reduction in the number of its ferry boats, PRT'CI' has had to retrench some of its staff. The remaining erew members have been said to be friendly and courteous. Another unfulfilled promise of government was the evacuation of squatiers living beside some of the METRO FERRY siations. Moreover, seven of the nine stations remained (o be floating pontoons, inspite of government's earlier promise to provide permanent platforms for these stations. As a consequence, potential passengers were wraged from riding, since they viewed the surroundings to be unsafe. Similarly, the station bobbed up and dowa 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 (ypical jeepneys, buses, trains, and " trleycles.' It offered a traffic-free mode of transportation that was, at the same time, safe, accessible, economical, and, indeed, one of a kind. PROMOTION | j During its initial year of operation (1990), PRTCI advertised heavily, using "Okey ka FERRY Ko," as its eatch-on eampaign. This was adopted from the highly rated siteom 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, PRICK distributed letters fo companies with industrial plants located along the banks of the Pasig River. These letters served to introduce METRO FERRY, at the same lime that this solicited support from the companies {o encourage their employees to take the ferry boats in commuting. Leaflets were also distributed to the employees, showing the schedule of the ferry boats and the fare rates. Besides these companies, leaflets and flyers were also distributed {o students from Polytechnic University of the Philippines (PUP) and other schools located along the banks of the river. PRICL eventually undertook the supervision of its marketing efforts, The company felt very disappointed with METRO KERRY’S low passenger patronage. Ric felt that the low passenger patronage was a result of poor information dissemination, Had he government extended its promised support, Ric believed that Metro Ferry could have been successful in its mission of easing traffic congestion. He considered tackling the poor information dissemination problem: by engaging in some form of advertisement and publicity, with the primary intention of creating a favorable image for the Pasig River. However, he realized that hie could not do this alone, without the government's support, COMPETITION METRO FERRY had no competitor opernting along the Pasig River. PRTCI was the only company licensed to ply the Escolta-Guadalupe route. Similarly, METRO FERRY's charter service, the Pasig River Educational Tour project, was the only.charler service offering a tour on board a ferry boat along the Pasig River having an annotator or a lecturer. LAND TRANSPORTATION AND INFRASTRUCTURE ‘The government, through the DOL, Board of Investments and Bureau of Customs, iad 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 Jevels 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 travelitig time, Couunuters preferred to travel the traditional way — via land transportation — as they viewed this to be a much safer mode than taking the ferry. The opeuing of the circumferential road through Fort Bonifacio (C-5) crossing the Pasig River, would also definitely ease traffic along EDSA. ALTERNATIVES BEING CONSIDERED [ETRO MANILA 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 desided this’ course of action during the last quarter of 1992 to minimize its losses from operations, PRICI 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 PRICI could retain ils 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, according to Ric, he lad 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. i CEBU OPERATIONS ‘The passenger load of the two ferry boats in Cebu had been steadily inereasing (Exhibit 12). One possible reason for tis is cultural. Unlike Metro Manilans, Cebuanos. were historically seafaring people. Eveu before the construction of the Mactan bridge, which connected Cebu Island to Mactan Island, ‘people in the area had been used to riding baneas and barges to travel between the two istands. 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 Mactan Export Processing Zone (MEPZ), in particular, had been increasing. Most of them had employees that commuted daily to Cebu City and ‘Mandaue City. Siuce the rate of iufrastructure development was not fast enough to entch up with the ! growth, the channel ferry remained a primary. mode of transportation. ‘Ihe license of METRO FERRY to operatein Cebu, however, did not include a permit to operate at the MEP'Z. Ric had also been considering the possibility of increasing to four the aumber 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 routcs could be opened in Cebu: a) Pier 3-MEPZ, (b) Muelle Osmena-MEPZ, and (c) MERZ - Punta Eugano (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 Manila. PRICK estimated a 70 (0 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 Escoita-Guadalupe route, which kad a travel duration of about 50 to G0 minutes. Related costs in the | operation of the Cebu route were the same as in the Escolta-Gudalupe route. PRTCL 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 aud 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 clieuts, tic wanted to continue the project, He felt that it was PRTCI’s social responsibility to serve the studentry “ py educating them on such subjects as the role of the Pasig River int the development of the nation amt environmental concerns affecting rivers. Unfortunately, METRO FERRY could only accommodate at | tmost 200 students at any given time, as a result of their retrenchment program during the first quarter of 1992,, PRT'CI had retained only eight crew members. The eight were just sufficient to operate two boats, since each boat required a crew 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 island-hopping tours among the islets of Mactan. Tourists would be their main target for this alfernative, In addition to the regular costs of operating the ferry buats, other related costs were also being incurred: + Fixed Cost Tour Guide/ Aunotator P 300.00 per boat . Variable Costs Snacks P 25.00 per person Entrance Tees ; Fort Santiago 5.00 Antramuros) + ; 2.00 Casa Manila 5.00 : San'Agustin Museum 10.00 ' ‘Commission (o freelancer 10% of package cost ISLAND-HOPPING TOURS i ‘The istand-hopping tour along Mactan Island preseated itself as an attractive alternative to generate additional revenues for the company, Ric had been approached by a representative of the Tambull ‘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 ouly using small boats, called outriggers, to travel. These boats had a capacity of only three fo 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. .‘The Tambuli Beach Resort was fairly well-known among the different travel agencies, and was being frequented by tourists, The management of the resort estimated that close to two thousand tourists ied the place every year, a majority of who were interested in going on island-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 tbe Manila Tay area, including Corregidor Iskand, Ric explained that their ferry boats could not be used for these trips, ‘since the waves in the Manila Bay arca were too strong for the boats. The farthest points that their ferry oats could safely travel were only between the mouth of Manila Bay and the mouth of Laguna Bay. ICAL YEAR, 1993 1993 was going to be erifical, 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 is next action should be to reconcile 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,