In 2003, Gozo Channel was on the verge of bankruptcy. Its losses had increased from Lm853,000 a year earlier to nearly Lm1 million, and the future of the company looked very much in doubt.
The company provides an essential link between the two islands, and tough decisions had to be taken to get Gozo Channel back in the black. The company could not sustain such big losses. Neither could the service be abolished. A major overhaul was necessary for the company to turn the corner.
The reforms have brought about the desired results. The losses in 2004 were brought down to a mere Lm10,000 and, in 2005, the company registered a profit of Lm273,000. It appears that the storm has subsided and the company is moving in much calmer waters.
All this has been achieved in just two years, and is a direct result of the decisions, some of them unpopular, that were taken by the Investment, Industry and IT Ministry in 2003.
The most controversial decision was the gradual increase in tariffs, starting in June 2004, as this obviously hit consumers. There were fears that the number of passengers and vehicles crossing over to Gozo would have sharply decreased, seriously affecting the Gozitan tourism industry, which is largely based on Maltese visitors.
But there were no big fluctuations. People complained about the rise but still continued to cross over to Gozo.
Detractors will argue that Gozo Channel made a profit because of the public service obligation agreement it reached with the government, which meant that Lm1.5 million entered the company’s coffers in government refunds to make up for the difference between the fare paid by a standard passenger and that paid by a Gozitan.
But, on the other hand, the PSO also meant that a number of obligations were imposed on the company, such as the number and frequency of trips, safety measures and night trips. In all, Gozo Channel “lost” Lm1.4 million because Gozitans pay much less in fares than other passengers. This was made up for by the PSO agreement.
One must also remember that Gozo Channel has started to pay for the use of the quays, functioning as if it were a private commercial company. This meant that the costs for the company have increased over the past years.
Yet, at the other end of the scale, Gozo Channel has embarked on an extensive cost-cutting exercise. The crew complement on board the vessels was rationalised. Today, the number of crew members depends on the number of expected passengers, and this meant the company saved some Lm100,000 per year. Personnel on the vessels whose employment had been terminated during the last two financial years were not replaced.
The running of the cafeterias on board the vessels is no longer subcontracted, but they have been taken over by the company and are now contributing to the company’s profits. The company has also reduced fuel consumption by installing special equipment and this helped to mitigate the effect of the increase in the price of oil products.
The company has also reduced its administrative costs, particularly in discretionary items such as advertising and sponsorships, bringing the total company costs down to some Lm200,000 a year.
Where does Gozo Channel go from here?
The results are encouraging, but this does not mean that all its problems have been resolved. In spite of the difficulties it is facing because of the delay in the completion of the Cirkewwa and Mgarr passenger terminals, the company is offering an excellent service, which it must maintain.
Secondly, it must continue to keep costs as low as possible. The market here is limited and it cannot grow much, and therefore revenue will not increase as much as the company would like it to – unless of course the tariffs are increased again, which is unlikely.
Thirdly, the introduction of special fares for those who cross over for a meal was a positive initiative and there should be others incentives to help increase traffic between the two islands.
Gozo Channel Company is in a healthier situation than it was two years ago. But it needs to work hard to keep the momentum going.