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The Honolulu Advertiser
Posted on: Sunday, February 3, 2008

Superferry toughing out winter weather

 •  Superferry cancels today's cruises
StoryChat: Comment on this story

By Christie Wilson
Advertiser Neighbor Island Editor

Hawaii news photo - The Honolulu Advertiser

With service canceled again today, the ferry has missed 14 days of operation since mid-December because of rough seas and repairs.

Advertiser library photo

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How long can the Hawaii Superferry hang on?

That's a question many are asking after eight straight days of canceled voyages due to bad weather, vessel repairs and other setbacks the company has suffered since its Dec. 13 relaunch.

In November, the Superferry overcame legal challenges that had idled its new high-speed interisland ferry for more than three months. When it seemed the 350-foot Alakai was finally clear to begin regular service, the company had to twice delay its restart because of problems with state facilities at Kahului Harbor.

Since then, it has been operating with only a third of its anticipated passenger load, and rough seas and other problems have led it to cancel its daily roundtrip between Honolulu and Maui a total of 14 days.

Company filings with the Public Utilities Commission indicated the ferry anticipated being out of service only 10 days a year because of foul weather, maintenance and other issues.

Hawaii Superferry president and CEO John Garibaldi said the ferry is averaging about 150 bookings a trip, while the planned passenger load was 410. The Alakai can carry 866 people and 282 cars.

The company recently extended its $39 introductory fares until June 5 and waived a fuel surcharge.

MEETING EXPENSES

The Superferry is in "an emergency situation," according to Garibaldi's request to the PUC to extend the promotional fares. In a Dec. 21 letter to the agency, Garibaldi said the move was necessary to respond to "weak bookings," "negative public perception" and cut-rate pricing by interisland air carriers, which are struggling for survival.

Garibaldi said in an e-mail to The Advertiser that the company wanted to extend the promotional fares beyond the winter months to a time of year "when sea conditions and weather are more predictable."

"We had originally planned to launch last summer, so we are disappointed that we were not able to launch then, when weather and sea conditions are much better," he said.

The company still would have encountered problems with winter weather, but would have had several months of smooth sailing to establish its reputation beforehand.

Superferry executives and investors supporting the $250 million enterprise insist the company possesses the financial wherewithal to weather the current slow business.

"Hawaii Superferry has strong backing from its investors and the company is committed to serve the residents of Hawai'i for the long term," Garibaldi said.

There are no plans to use the Alakai outside of Hawai'i, he said. Garibaldi also said the company does not hold any contracts with the military and is not in negotiations to provide service to the military or other state or federal agencies, leaving passenger and commercial freight service as its sole revenue sources.

"However, if the military or government are interested in using Hawaii Superferry on one of our regularly scheduled voyages, as the National Guard did earlier this month to transport storm cleanup equipment to Maui, we are happy to work with them," Garibaldi said.

He earlier estimated the company spends $650,000 weekly in operating costs, payroll for about 300 employees, and debt expenses related to the purchase of two $85 million catamarans, the second of which is due for delivery in early 2009 from the Austal shipyard in Mobile, Ala.

Hawaii Superferry is current on its loan payments for those ships, according to Shannon Russell of the federal Maritime Administration, which issued a $140 million loan guarantee for the ship-building. The company's obligations include semi-annual payments of about $2.9 million in principal and interest for the Alakai due May 30 and Nov. 30.

For the second vessel under construction, semi-annual interest-only payments of approximately $2.06 million are due Feb. 28 and Aug. 28, Russell said.

MarAd reported the Superferry has $6.5 million in an escrow account to cover payments during startup operations and is required to maintain a net worth of $58 million until the delivery of the second ferry next year.

Hawaii Superferry also will be making payments to the state Department of Transportation under an operating agreement that requires the company to pony up a minimum of $2.3 million or 1 percent of its gross revenues, whichever is greater, in each of the first three years of the 22-year deal. The money will go toward port improvements.

Transportation management expert David Bess said there's no reason a ferry service shouldn't succeed in Hawai'i, and that a lot of the Superferry's troubles have been a case of bad timing.

"An interisland ferry is a viable business, especially when you're looking at the freight side of things. There's a lot of potential," said Bess, a professor at the University of Hawai'i's college of business administration.

"A lot of these things are just timing. Part of it is if they had gotten into business and had six months under their belt to get better accepted. I would doubt they'll see this kind of thing in the summertime."

Bess was an officer on Hawaiian Tug & Barge Co. boats that ply the same waters as the ferry. Although seasonal rough seas are to be expected, he doesn't think the routes are too rough for passenger travel. "Portions of the trip might be rough, but with some of the features they have on ships now it's not that bad."

Bess feels that a roll-on, roll-off ferry system is good for Hawai'i. "All the specifics aside, it's good for competition, and having an alternative to air travel opens up the flow of commodities for freight travel that are not currently available."

AIRLINE COMPETITION

Turbulent winter seas are nothing compared to the competition from interisland airlines, which have been waging a fierce fare war since Mesa Airlines' go! entered the Hawai'i market in 2006.

At the time Superferry fares were set in 2004, they looked like a bargain. The Advertiser that year reported that round-trip interisland airline fares ranged between $173 and $226. By comparison, a roundtrip on the Superferry would be about $100, plus a fuel surcharge.

With discounts, the company estimated that a family of five could travel on the ferry with their car for $530, compared with $1,076 for airfare, a rental car and parking.

Now one-way airfares of $39 are readily available, with round-trips around $90 including taxes. Regular peak roundtrip fares on the ferry would be $154, including fuel surcharges, or about 70 percent higher than the airlines, Garibaldi said in his Dec. 21 letter to the PUC.

"As long as the airline industry is offering low fares, even if they are losing millions of dollars like go! is, the Superferry is not going to be able to capitalize on the market as it could under the old airfares," Bess said.

"I think you have to be able to suffer the losses go! is suffering. The question is, how long are the deep pockets going to last and how long is the competition going to take place in the airline industry?"

Garibaldi, a former Hawaiian Airlines executive, said he believes the airline fare wars "are not sustainable and that these fares will eventually increase."

Limited service of one round-trip a day, as well as cost, are keeping some potential customers — even a major supporter — from booking travel on the Superferry.

Maui Land & Pineapple Co. invested $1 million in the new business but has not been using the ferry to ship fruit to Honolulu because "currently the rates are not cost-effective," said Teri Freitas Gorman, vice president of corporate communications.

ML&P invested in the ferry because "early on, we saw an opportunity to pull the state together and provide an alternative method of transportation for farmers and small businesses," she said.

The company would like to transport refrigerated trucks on the ferry, but under current rules that require vehicles be accompanied by a driver, that would mean putting up the driver overnight in Honolulu until the next ferry leaves for Maui.

Hawaii Superferry plans a second daily roundtrip to Maui sometime in the spring, and when the second vessel arrives, also will be able to offer trips to the Big Island and Kaua'i.

Gorman said it would be premature to speculate about the potential demise of the ferry.

"Like any business, they're going to have a breaking-in period," she said.

Passengers worried about seasickness and reliability in the wake of the recent cancellations may not be as understanding.

Dennis and Michelle Gruidl of Ala Moana found themselves stranded on Maui with their car when the ferry canceled its Jan. 17 trip because of storm-related damage to the ferry barge at Kahului Harbor.

CUSTOMERS STUCK

Dennis Gruidl, 41, said he was surprised when he contacted the company that morning that they didn't have a contingency in place for customers like them who were staying in a hotel.

"Here it is Thursday morning and we were ready to check out. That's when panic set in," he said. "Now what do we do? Are we going to be sleeping in our car tonight?

"That was my biggest problem. This happened before, so they must've had some sort of alternate plans."

Later in the day, the Gruidls were advised to park their car at the Kahului ferry pier, take a taxi to the airport, fly back to O'ahu and take a taxi home, then fly back to Maui on another day to bring their car back on the ferry.

The couple decided instead to stay another night in Wailea and gamble that the ferry would run the following day. The company offered to pay for a room at a cheaper hotel and a food allowance.

Gruidl, a surgery technician, said he would not recommend a similar vacation getaway on the ferry to others, although it might work better for passengers with families or friends to stay with if the return voyage is canceled.

"But as far as just going over to a different island for a couple days, I would just fly and rent a car."

Gruidl also complained of "extremely rough" seas and said the ferry trip didn't save as much travel time as he expected.

Still, Gruidl is open to trying again when the seas are calmer.

"I wouldn't put it out of the question. I'm thinking a lot of these kinks will get worked out eventually."

University of Hawai'i communications professor Tom Kelleher said Hawaii Superferry already has overcome considerable obstacles and that persistence is key to its continued survival.

Kelleher has been using the Superferry saga as a case study in his public relations classes.

He said the new ferry created such a stir because it is a historic development in Hawai'i transportation and because of environmental issues, "and it did tap into all these emotions."

"When was the last time you've had a case like this? This really is a new concept," he said.

"They just need to be persistent ... eventually they'll be offering regular service and the public will either go with it or they won't."

Reach Christie Wilson at cwilson@honoluluadvertiser.com.

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