Next, the study team recommends adopting a formulaic tariff structure that accounts for both fixed and distance-based variable costs. The formulas in the following sections do not apply multi-component discounting, but instead are specific to each of the service categories provided. The study team does not recommend using any form of multi-component discounting since each of the recommended tariff equations will only address the resources and costs of the specific service provided. For example, the components in the passenger tariff calculation do not overlap with any of the components used in the cabin tariff calculation. Eliminating multi-component discounts will also allow for more a transparent and more easily understood tariff structure. The following sections detail the components that we recommend including in each of the tariff categories listed below.
The study recommends a formula for setting passenger tariffs that addresses the fixed fees associated with passenger traffic, variable distance-based costs, premium service adjustments and a seasonal component. Figure 13 illustrates the recommended formula to calculate passenger tariffs.
Embark/ Disembark Fixed Fee
DistanceBased Fee
Seasonal Multiplier
Route Type Multiplier
Passenger Tariff
Source: Northern Economics, Inc., 2014
The embark/disembark fixed fee would be based on costs associated with the use of the ports of call, including facility maintenance fees. This fee should not be specific to each port, but rather an average or distributed total cost associated with using each port. Administrative (e.g. reservations, ticketing, scheduling) and marketing fees could also be added into this fixed fee that will be applied to all fares. (If, in the future, AMHS has routes that do not require reservations or other specific administrative costs, a different embark/disembark fixed fee could be developed that is consistent with the cost recovery goal.) The distance-based fee would be a variable cost that will be determined by the distance category of the route and the region in which the route operates. This variable cost would be multiplied by the distance of route and would account for variable costs, such as fuel, associated with each route. The route type multiplier accommodates for the different types of services offered by AMHS (traditional, express, daily service, etc.). The route type multiplier would be 1 for traditional routes, but would be greater (i.e. 1.12 or 1.3) for premium services such as express routes. The final component listed in the equation in Figure 13 is the seasonal multiplier, which would be used to accommodate a two-tiered seasonal structure that would increase the tariff in response to the increased demand during the peak summer season.